Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Thursday, October 12, 2017

October 12, 2017


International Trade

3,411 tons of food and medical supplies have arrived at Guanta port in 142 containers aboard the SAN ANTONIO from Panama. The shipment includes wheat flour, sunflower oil, surgical masks, syringes. More in Spanish: (Bolipuertos, http://www.bolipuertos.gob.ve/noticia.aspx?id=37703; El Universal, http://www.eluniversal.com/noticias/economia/llegan-puerto-guanta-mil-toneladas-mercancia_673416)

 

Logistics & Transport

Venezuela reels under ongoing transport crisis

Catching a bus in the Venezuelan capital today and making it to the desired destination on time can be quite an ordeal for commuters, as the country’s transport infrastructure is in shambles due to high maintenance costs, decreased tax revenue, rampant inflation and a system that is chronically understaffed. Venezuela’s spiraling transport crisis, trade union representatives say, is owing to government apathy and withdrawal of subsidies and a lack of investment in the sector. The president of a local union of transporters of Caracas, Hugo Ocando, told EFE that while salaries of drivers are fixed, maintenance costs are unpredictable as the country’s economy, in many areas, runs on the black market price of foreign exchange. According to Ocando, 70% of the country’s transport system has been paralyzed and in the Greater Caracas area alone, on-road vehicles have reduced from 18,000 to 6,000. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2444551&CategoryId=10717; EFE: https://www.efe.com/efe/english/life/venezuela-reels-under-ongoing-transport-crisis/50000263-3405419)

 

Oil & Energy

Big buyer of Venezuelan crude oil halts purchases from national oil company
The fifth largest U.S. buyer of Venezuelan crude, PBF Energy, has halted direct purchases from state-run oil company PDVSA, according to four sources, deepening a rift amid sanctions on this country. PBF is the second buyer in as many months to go elsewhere for its oil and further disagreements could spell new hardships for PDVSA, which owes bondholders US$ 1.2 billion in debt payments due this month. Venezuela relies on oil for over 90% percent of export revenue and U.S. refiners are among its largest cash-paying customers. PBF notified PDVSA last month it "is not going to take any more Venezuelan crude cargoes" from the state-run firm, said a PDVSA source who could not be identified because the information was not public. That notification came after a more than 40-day standoff over a previous shipment. In July, a Venezuelan heavy oil cargo intended for PBF sat off Louisiana awaiting a letter of credit to complete the sale. The tanker discharged in August. PBF has not directly purchased oil from PDVSA since early September, according to Thomson Reuters trade flows data. PDVSA's insistence that PBF prepay for cargoes hamstrung negotiations, the PDVSA source and one of the traders said, while the refiner suggested an open credit mechanism that would allow it to pay at least 30 days after delivery. In September, PDVSA also lost a supply contract for naphtha and natural gasoline to Brazilian petrochemical firm BRASKEM SA. Falling output and oil-quality issues have contributed to PDVSA's struggles to retain customers, and the situation worsened once its name appeared in a U.S. sanctions list. Venezuela in September sent less than 500,000 bpd of crude to the United States, its main destination for oil exports. The volume marked a 38% decline compared with the same month in 2016. Disruptions in imports from Venezuela also have affected Phillips 66, the firm said in August. PDVSA's supply to the U.S. refiner's Sweeny facility in Texas has dropped by more than two thirds this year in part due to oil quality issues forcing the firm to cancel cargoes and request price discounts. (CNBC: https://www.cnbc.com/2017/10/11/big-buyer-of-venezuelan-crude-oil-halts-purchases-from-national-oil-company.html; Reuters, http://www.reuters.com/article/us-pdvsa-pbf-energy-contract-exclusive/exclusive-pbfs-split-with-pdvsa-grows-as-u-s-refiner-halts-direct-deals-idUSKBN1CG24N)

 
Florida businessman admits to bribery scheme at Venezuela's PDVSA
The part owner of several Florida-based energy companies on Wednesday became the latest person to plead guilty as part of an ongoing U.S. investigation into bribery at Venezuela’s state oil company PDVSA. Fernando Ardila Rueda, 49, pleaded guilty in federal court in Houston to two counts, including that he violated the U.S. Foreign Corrupt Practices Act in connection with a scheme to pay bribes to PDVSA employees, the U.S. Justice Department said. He became the 10th person to plead guilty as part of a larger investigation by the Justice Department into bribery at Petroleos de Venezuela SA (PDVSA) that became public with the arrest of two Venezuelan businessmen in December 2015. The two men were Roberto Rincon, who was president of Tradequip Services & Marine, and Abraham Jose Shiera Bastidas, the manager of Vertix Instrumentos. Both pleaded guilty last year to conspiring to pay bribes to secure energy contracts. (Reuters: https://www.reuters.com/article/us-venezuela-usa-corruption/florida-businessman-admits-to-bribery-scheme-at-venezuelas-pdvsa-idUSKBN1CG2Z8)

 

Economy & Finance

Maduro came back empty handed from his recent trip to Moscow, with no announcement of any new money. Discussions were instead focused on solving existing issues. It is possible that Russia might prefer to see proof of Maduro’s strength before adding exposure, but in any case, Russia does not have the capacity to satisfy Venezuela’s financing needs. China’s potential support remains a more critical factor. While uncertainty is likely to remain elevated, overcoming the Q4 17 obstacles that both the opposition and the government face could be supportive of a possible negotiated solution to the crisis in 2018, which would be critical to avoiding default next year and/or in determining the conditions for a potential debt restructuring. (SEE ATTACHED BARCLAY’S REPORT)

 

IMF says Venezuela inflation may rise beyond 2,300%
Venezuela’s triple-digit annual inflation rate is set to jump to more than 2,300% in 2018, the highest estimate for any country tracked by the International Monetary Fund. An intensifying political crisis that’s spiraled since 2014 has weighed heavily on economic activity. Gross domestic product is expected to contract 6% next year, after shrinking an estimated 12% in 2017, the IMF said in its latest World Economic Outlook report published Tuesday. While Venezuela’s central bank stopped publishing inflation data in December 2015, the IMF argues the country’s consumer prices are estimated to leap 2,349.3% in 2018, the highest in their estimates, followed by the Democratic Republic of the Congo’s 44%. As oil production declines and uncertainty increases, unemployment is forecast to increase to about 30% in 2018, also the highest and followed by South Africa’s 28% and Greece’s 21%. The Bolivarian Republic is not current with most of its key economic statistics, leaving economists scant data to crunch. Venezuela’s debt is growing, and it is increasingly unable to make interest payments. Printing money is no longer an option which it has already done. (Financial Tribune: https://financialtribune.com/articles/world-economy/74038/venezuela-inflation-may-rise-beyond-2300; https://www.bloomberg.com/news/articles/2017-10-10/imf-sees-venezuelan-inflation-rate-rising-beyond-2-300-in-2018)

 
Cash shortages here are expected to worsen
Cash shortages are expected to worsen here, despite efforts by Venezuela’s Banking Association and the Bank Superintendent’s office. Currency exports, obsolete ATM’s and the absence of decisions by monetary authorities are causing the crisis. The Central Bank issued 289.3 million new VEB 500 and VEB 1000 bills, and data shows the amount distributed was VEB 393.322 billion, which is only 60% of cash required in July. There seems to be no end in sight for the shortages, which are expected to worsen. More in Spanish: (El Universal, http://www.eluniversal.com/noticias/economia/proyectan-agudizacion-falta-efectivo-pais_673446)

 
Fears of a big Venezuela default subside
Investors are gaining confidence that Venezuela will make its next big bond payments. Notes from the state oil company that mature in November climbed to 94.5 cents on the dollar Wednesday, a three-year high, while amortizing bonds due in 2020 rose to their highest price since they were issued last year. There’s a US$ 985 million payment due Oct. 27 for the 2020 bonds, and US$ 1.2 billion due Nov. 2 on the securities maturing next month. While investors assign a 99% probability to Petroleos de Venezuela SA defaulting sometime in the next five years, according to credit-default swaps trading, optimism on the near term has been growing as the government assures investors it will pay. (Bloomberg: https://www.bloomberg.com/news/articles/2017-10-11/venezuela-default-fears-subside-as-shortest-pdvsa-bonds-climb)

 

Buchheit calls for post-Maduro Venezuelan debt standstill

Any incoming regime in Venezuela replacing President Nicolas Maduro will have to consider how to gain temporary relief from paying its creditors without giving them legal grounds to accelerate their outstanding debts, according to legal experts. One solution will be to create “some form of temporary standstill on creditor actions”, according to Lee Buchheit, partner at law firm Cleary Gottlieb, and Mitu Gulati, law professor at Duke University. Venezuela is struggling to service debts with a combined face value of US$ 63 billion after a collapse in oil prices left it with dwindling revenues and a huge fiscal shortfall. Talks are already being carried out bilaterally between Venezuela and its sovereign creditors, China and Russia, which are owed US $37.2 billion between them, but policy-makers in the country still face complex challenges to find a long-term solution. (Reuters, http://www.reuters.com/article/buchheit-calls-for-post-maduro-venezuela/buchheit-calls-for-post-maduro-venezuelan-debt-standstill-idUSL8N1ML2ZL)

 

Politics and International Affairs

US hopes Maduro regime will allow Venezuela to “speak up and decide” in regional elections
US Under Secretary of State for Political Affairs Thomas Shannon says the Maduro regime must allow the people to “speak up and decide” in Venezuela’s upcoming regional elections next Sunday. He also said the United States and Spain have joined in a “special association” in favor of the people of Venezuela, and that both governments have clearly “condemned repression that feeds the Venezuelan political crisis”. He said both the U.S. and Spain are promoting dialogue as a way out of the ongoing crisis here, within the European Union and the Organization of American States, “pressing on behalf of the Venezuelan people’s right to self-determination and not for the government’s own perpetuation”. He called on the European Union “to do more” in sanctioning the Maduro regime for “violating democratic rules”, More in Spanish: (El Nacional: http://www.el-nacional.com/noticias/mundo/confia-que-venezuela-hable-decida-las-regionales_207184)

 
Is Venezuela a dictatorship? A key election will offer clues.
Venezuelans go to the polls this Sunday in state elections seen as a test of President Nicolás Maduro’s willingness to share power. But with polls showing the ruling socialists at risk of landslide losses, the authoritarian government appears to be falling back on a trifecta of tactics.  Two and half months after the creation of a super congress that gave the government nearly absolute power, Maduro has called the vote for state governors clear evidence that democracy remains alive here. Nevertheless, opposition leaders are decrying a dirty campaign by the Venezuelan government, which President Trump has denounced as a “socialist dictatorship.” State media is airing almost round-the-clock supportive coverage of pro-government candidates, while portraying their challengers as hypocritical and inept. All candidates, meanwhile, are being limited to four minutes of political ads per day on independent networks that now survive by self-censoring. Food baskets are being doled out to hungry voters at pro-government rallies. In a move seen as purposely misleading, the ballots for Sunday’s election will include a host of candidates who lost in the primaries and are not supposed to be running. This week, the government abruptly announced it would relocate a number of voting centers for “security reasons.” Opposition leaders said the move involved 205 locations in heavily anti-government districts in 16 states. That, critics say, amounts to manipulation and confusion. In Vargas, a coastal state just north of Caracas, for instance, the brother of opposition candidate Jose Manuel Olivares was detained last week by intelligence police for allegedly stealing a car — a charge his family denies. While stumping for votes, the candidate is often shadowed, he said, by state agents. Winning candidates from the opposition will likely find their powers restrained. Maduro has said that all governors will come under the authority of the Constituent Assembly, a government-controlled super congress created in a July vote marred by allegations of massive fraud. That body is likely to make life tough for any governor who is not in line with Maduro. Yet the vote is still seen as a key test. If turnout is high, polls suggest the opposition could capture governorships in up to 19 of Venezuela’s 23 states. Analysts are watching to see whether the government faces allegations of vote rigging, similar to those that emerged during the July election. Despite the polls, Maduro last weekend said his party is “expecting a historic success.” Given their strategy of subordinating governors to the government-controlled assembly, authorities might risk little by allowing a clean vote — while gaining much from the optics. The government may be calculating that such an event could defuse international pressure and appease its domestic opponents. Maduro is deeply unpopular, in part due to a severe economic crisis brought on by declining oil prices and what many view as government mismanagement. Recent polls show the president's approval rating at 23%. But opposition leaders have also lost support due to infighting and alleged disorganization. Some critics have pilloried them for even participating in the state elections, arguing the move is validating the government and playing into Maduro’s hands. Still, the election is an important bellwether for the opposition, which has largely failed to sustain the large-scale street protests that rocked the nation earlier this year. The activists’ concern now is that government tactics — and a general sense of helplessness among voters — may depress turnout on Sunday. (The Washington Post: https://www.washingtonpost.com/world/the_americas/is-venezuela-a-dictatorship-a-key-election-will-offer-clues/2017/10/11/d4301382-ad01-11e7-9b93-b97043e57a22_story.html)

 

Mexico confirms it will join talks between Maduro regime and pro-democracy coalition
Mexican Foreign Minister Luis Videgaray has showed the Mexican Senate a letter from Venezuela’s Foreign Minister Jorge Arreaza inviting Mexico to be a part of the group of countries that will accompany possible talks between the Maduro regime and the pro-democracy MUD coalition. Jorge Rodríguez, who heads the regime’s team in proposed talks, claims that a cohabitation agreement will emerge after Sunday’s regional elections. More in Spanish: (Noticiero Venevisión, http://www.noticierovenevision.net/noticias/politica/rodriguez-asegura-que-luego-de-elecciones-el-gobierno-y-oposicion-concretaran-acuerdo; http://www.noticierovenevision.net/noticias/internacional/mexico-confirma-acompanara-negociacion-entre-gobierno-y-oposicion-venezolana)

 

Opposition denies Maduro’s claim of progress in dialogue

The negotiator for the Venezuelan opposition in the process of developing a dialogue with the government of President Nicolas Maduro said on Tuesday that the president’s claim that negotiations have progressed 95% is totally false – the fact is they are losing ground. “Once again we must contradict the government. Political negotiations have not moved forward – they are losing ground every day,” opposition lawmaker and negotiator Luis Florido told the press in a statement. Florido said that Maduro’s remarks and those of the Venezuelan ambassador to the Dominican Republic, Jesus Uzcategui, are untrue, and since the government has not complied with the conditions required by the opposition, the dialogue is going nowhere. “From the MUD (opposition coalition) we repeat that... rather than the exploratory process being completed, it has gone backwards, because they took away our electoral guarantees by not allowing us to substitute candidates and they’re trying to get away with electoral fraud,” he said. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2444509&CategoryId=10717)

 

DATANALISIS director says democratic movement could gain 13-16 gubernatorial seats

José Antonio Gil Yepes, director of the DATANALISIS polling firm says that the pro-democracy movement could gain 13-16 governorships in Sunday’s upcoming elections, in addition to the 3 it currently controls out of a total of 23 states. He said some United Socialist Party candidates “will emerge ahead of the regime”, because he said: “The regime could lose with a margin of 84-16 which is President Nicolas Maduro’s approval rating over the past 4 months”.  He said abstention by disappointed opponents would not significantly lower the traditional rate of 40-50%. Gil added that 78% of the population distrusts the National Elections Council, and called the current voting system “obsolete”. (2001: http://www.2001.com.ve/en-la-agenda/172122/oposicion-podria-ganar-13-o-16-gobernaciones--segun-director-de-datanalisis.html)

 

BARCLAY’S: Venezuela: Obstacle course
Doubts over the competitiveness of elections in Venezuela are keeping the country’s outlook uncertain. The October 15 regional elections are therefore an important test in this regard. The most recent DATANALISIS poll shows the opposition has a strong lead, with more than twice the number of voting intentions than the government. There are 14 states in which polls suggest the opposition has an unassailable lead, which could make manipulating the outcome hard. Conditions favor the government in just three states. The remaining six states have a bias towards the opposition, but the outcome will depend on turnout and the ability of the opposition to overcome the obstacles imposed by the government. In any case, the opposition could obtain sizeable gains. More important than the number of states will be which states each side wins and the distribution of the national vote, which would be an indicator for a potential presidential election in 2018. (SEE ATTACHED BARCLAY’S REPORT)

 

Maduro again says elected governors must pledge allegiance to his ANC

President Nicolas Maduro has again said all governors elected next Sunday must be subordinate and pledge allegiance to his sham “National Constitutional Assembly” (ANC). He said those who do not will not be able to exercise their authority. He claimed all those who vote will be validating the ANC, “because it called up these elections”. The MUD pro-democracy coalition immediately called a press conference to reply to Maduro’s claim, saying: “People do not vote to endorse the ANC, they vote because it is their Constitutional right to do so”.(2001: http://www.2001.com.ve/en-la-agenda/172128/maduro-ratifico-que-gobernador-electo-debera-subordinarse-y-juramentarse-ante-la-anc---video-.html; http://www.2001.com.ve/en-la-agenda/172151/mud--la-gente-no-vota-para-avalar-la-anc--vota-porque-es-su-derecho-constitucional.html)

 

Exiled Attorney General says rule of law no longer exists in Venezuela

Venezuela’s Attorney General Luisa Ortega – deposed by the sham National Assembly - said on Tuesday in Bogota that the rule of law and democracy no longer exist in her country. “I want you to know that in Venezuela there exists neither rule of law nor democracy nor any freedom … In Venezuela there is a breakdown in the constitutional order,” Ortega added during a conference on human rights in Colombia, organized by the Political Science, Government and International Relations Faculty of Rosario University. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2444521&CategoryId=10717)

 

Opposition magistrates holed up in Chile residence flee Venezuela: source

Five magistrates named by the opposition-run congress who had been holed up in the Chilean ambassador’s residence to avoid arrest fled in the early hours of Monday and escaped over the border to Colombia, a source said on Tuesday. The Chilean Foreign Ministry said in a statement that Elenis Rodriguez, Luis Marcano, Jose Nunez, Beatriz Ruiz, and Zuleima Del Valle had left the premises on Monday, but did not offer further details. “Relatives came to get them at 5 a.m. yesterday. They escaped via (the Colombian border city of) Cucuta,” said the source close to the five, who have been granted asylum by the Chilean government. (Reuters, http://www.reuters.com/article/us-venezuela-politics/opposition-magistrates-holed-up-in-chile-residence-flee-venezuela-source-idUSKBN1CF2XB)

 

Venezuelans are told their expired passports will be valid for another two years
Venezuelans have been told expired passports are valid for another two years because they have run out of paper and ink to print new ones. President Maduro has signed an emergency decree to extend their validity because of chronic shortages at the national passport agency. At least a million Venezuelans have been waiting months for new documents and cannot travel in the interim. Demand for travel documents is at a record high as Venezuelans seek to escape from political crisis and deep recession. (The Daily Mail: http://www.dailymail.co.uk/news/article-4972088/Venezuela-runs-paper-ink-print-new-passports.html#ixzz4vIrZvYCP)

 
Thousands are fleeing Venezuela by two-lane border bridge
For weeks, Venezuelans have been flocking by the busload to San Antonio del Táchira, a border town of some 62,000 residents, fleeing as President Nicolas Maduro consolidates autocratic power. The Simon Bolivar International Bridge is the avenue for an outpouring unprecedented in the history of this oil-rich nation. Crowds stream toward the bridge, attended by street hawkers selling juice, fried pastries and bus tickets and men who ferry their meager possessions to a new life. According to Colombia’s migration authority, the number of foreigners entering Cucuta, the first major city across the bridge, more than doubled this summer. Over 50,000 came in August, up from 22,700 in June. The numbers don’t reflect dual nationals returning to their homeland, or thousands simply crossing into Colombia without passing official checkpoints. Named after the South American hero who freed both nations from Spanish rule, the Simon Bolivar International Bridge was a once major commercial artery. Now, lanes once filled with trucks bearing potatoes, onions and lettuce are reserved for pedestrians trundling handcarts, laden with shopping bags and even walking their dogs along with them. As almost a dozen airlines have pulled out of the country, the bridge has become a concrete bottleneck for the masses fleeing this crisis-torn land. Most Venezuelans stay in Cucuta only long enough to have their passport stamped and catch a ride. Those who arrive late have taken to sleeping in parks or bus stations. Church groups have been doling out food to weary travelers or those who simply cross for the promise of a free meal. Border security has been reinforced, temporary visas are being issued, but the growing exodus has the Colombian government contemplating “refugee camps” if Venezuela’s crisis spirals completely out of control. Few predict an end to Venezuela’s exodus soon. The United Nations has urged governments across Latin America to issue temporary protections to Venezuelans, yet many who are leaving seem unconcerned about permission. (Bloomberg: https://www.bloomberg.com/news/features/2017-10-12/thousands-are-fleeing-venezuela-by-two-lane-border-bridge)

 

No visas, bad jobs: Venezuelan emigrants reluctantly return home

Early last year, Leandro Colmenares sold his car and his apartment and fled Venezuela’s profound economic crisis, joining a wave of emigration to other Latin American countries. Colmenares, a medical equipment repairman, first set up in Panama with US$ 7,000 in hand. When he could not get a visa and struggled to find work, he ended up with odd jobs like painting houses and doing electrical wiring for US$ 25 a day. He then tried his luck in Colombia, where he again took odd jobs, mostly cooking. He opened a small cafe with other Venezuelans but it failed.And once again, he could not get a visa. Crushed and having run out of money, Colmenares decided in February he had no choice but return to Venezuela empty-handed and by bus - one of an apparently growing number of Venezuelan emigrants forced to go home after failing to start a new life elsewhere in Latin America. (Reuters, http://www.reuters.com/article/us-venezuela-migration/no-visas-bad-jobs-venezuelan-emigrants-reluctantly-return-home-idUSKBN1CH1XA)

 

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

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