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.

Tuesday, May 1, 2018

May 01, 2018


Logistics & Transport

COPA Airlines reactivates flights to Venezuela

COPA Airlines announced the reactivation of these flights from Tuesday, May Day. According to a statement from the Panamanian airline, the resumption of operations will be step by step and will begin in the cities of Caracas and Valencia, from where it will connect Venezuela daily with the rest of the continent, as well as from Maracaibo. The note specified that passengers with tickets not used or in process of refunds, issued until April 5 and with a date of travel between that date and July 5, will be allowed to use the ticket for a new reservation on their original itinerary from or to Venezuela without charging a penalty. (Prensa Latina: http://plenglish.com/index.php?o=rn&id=27679&SEO=copa-airlines-will-reactivate-flights-to-venezuela)

 

Oil & Energy

PDVSA reportedly begins interest payments on 2020 bond

Venezuela’s state oil company PDVSA reportedly has begun making payments towards US$ 100 million it owes in interest on a bond maturing in 2020 to some holders. The government began quietly halting interest payments on some US$ 50 billion in publicly traded debt last year. At least one Venezuelan bondholder committee has hired a financial adviser, ahead of potential litigation in the face of continued breaches. The latest payments would have reached some holders through U.S. custody firm DTC, the sources said on Monday. PDVSA used Citgo Petroleum, its refining unit in the United States, as 51% collateral on the 2020 bond. Venezuela may be complying with the payment to avoid putting the valuable asset at risk in a potential legal battle. (Reuters, https://www.reuters.com/article/venezuela-debt/update-1-venezuela-pdvsa-begins-interest-payments-on-2020-bond-sources-idUSL1N1S713E)

 

Venezuela oil price up in final week of April

The price Venezuela receives for its mix of medium and heavy oil fell rose during the final week of April.
According to figures released by the Ministry of Petroleum and Mining, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending April 27 rose to US$ 64.28, up 93 cents from the previous week's US$ 63.35. According to Venezuelan government figures, the average price in 2018 for Venezuela's mix of heavy and medium crude for 2018 is US$ 60.28 so far. (Latin American Herald Tribune,
http://www.laht.com/article.asp?ArticleId=2455614&CategoryId=10717)

 

Venezuela's offer to India: Buy crude oil at 30% discount but through cryptocurrency

Venezuela has offered India a deal – 30% discount on crude oil only if India decides to buy it through digital currency. The 30% discount on crude oil, which recently touched a whole new high of US$ 75 a barrel, seems attractive, but India's disinterest in promoting as well as trading in cryptocurrency could pose a hurdle. Venezuela's blockchain-based digital Petro is the world's first state-backed virtual currency that recently tied up with a Delhi-based digital currency exchange COINSECURE. The bitcoin trading company will now sell oil-backed cryptocurrency Petro in India. Launched last year by the Venezuelan government, Petro is set to be formally recognized after the presidential elections in the country on May 20. Venezuela's blockchain department had sent a team of experts to India in March, after which the deal was struck with COINSECURE, reported Business Standard. The report suggests Venezuela is keen on promoting this in different countries due to the several economic crises in the country. The Venezuelan government is intending to make Petro an official currency by 2020, but sanctions by countries led by the US could hurt its ambitions. The currency, tied to oil, has been called as the safest digital currency to invest by many, for Venezuela has the world's largest oil reserves of over 300 billion barrels. However, many have raised objection over its authenticity, fearing that though it would be a blockchain-based digital currency, the government would have full control over it and thus it would not be decentralized like Bitcoin. Indian imports of oil from Venezuela have fallen to their lowest levels in over half a decade. India's oil imports from Venezuela averaged around 300,000 barrels per day (bpd) between November 2017 and February 2018, a drop of about 20% from the same period a year earlier and the lowest such level since 2012, according to data from shipping sources and industry. (Business Today: https://www.businesstoday.in/current/economy-politics/venezuela-offer-to-india-buy-crude-oil-at-30-pc-discount-but-through-cryptocurrency/story/275948.html)

 

Venezuela’s oil decline reaches new depths
When Major General Manuel Quevedo became head of Venezuela’s oil industry last November, the former housing minister and national guard chief promised to boost oil output by a million barrels a day via “a complete restructuring” that would root out corruption. Six months later, though, managers at state oil company PDVSA are quitting en masse, theft has increased, and workers shout in company cafeterias that Quevedo should go. Allies such as Russia and China agree. Meanwhile, western partners such as TOTAL and CHEVRON are worried, and oil output has fallen an astonishing 23%, or 450,000 bpd.
The decline in the prospects of the world’s largest oil reserves looks set to continue. Venezuelan oil production could fall by another 500,000 bpd this year, analysts believe, boosting global oil prices further. That is especially so if the US imposes sanctions on Caracas after the May 20 presidential election, and foreign joint venture partners continue to struggle or even pull out. Medley Global Advisors, a consultancy owned by the FT, estimates that Venezuelan oil output will drop to 1.1m bpd by the end of the year, from 1.5m currently. JPMorgan estimates that production will fall to 1.2m bpd by December from 1.5m now, although the risk of its falling below 1m bpd “is very high”. Chinese and Russian representatives are meanwhile pressing Maduro to replace Quevedo, and to deploy measures to quell widespread violence and looting affecting their local workers in Venezuelan oilfields and cities, according to Argus, the specialist energy service. (Financial Times: https://www.ft.com/content/f9cbaec8-4c96-11e8-8a8e-22951a2d8493)

 

Commodities

Venezuela stops paying US$ 1 billion debt to Canadian gold miner

Venezuela has stopped making payments on more than US$ 1 billion it owes to a Canadian mining company, highlighting the country’s extreme difficulties in paying off its overseas debt. Gold Reserve sued Venezuela under the World Bank’s dispute settlement system more than eight years ago over the expropriation of its gold mining operations. The company finally agreed to a US$1.03 billion settlement in September 2016, mostly to be paid in monthly instalments that began last July. In June 2017 Gold Reserve was paid a US$ 40 million start and basically was to receive US $29.5 million on the 10th of every month until the US$ 1 billion was paid off. Venezuela also offered Gold Reserve the opportunity to partner with them in reopening a mining operation in Bolivar state. But fourth-quarter financial statements published by Gold Reserve at the end of last week show that the payments ended in November. It follows an apparent cessation of payments to holders of Venezuela’s sovereign bonds in September last year. Venezuela’s dispute with Gold Reserve is one of several involving foreign mining companies that invested in the country as the government sought to exploit what are thought to be some of the world’s largest deposits of gold and other metals. But gold mining has become chaotic as foreign companies have been forced out and illegal miners have taken over, often overseen by the army. “It’s completely haphazard, no companies are doing it, only wildcatters,” said Russ Dallen of Caracas Capital, an investment bank, who revealed the cessation of payments to Gold Reserve in a note to his clients. Mr. Dallen said gold from unregulated mining channeled to the central bank by the army had contributed about US$ 100 million to Venezuela’s foreign reserves in February. But gold production, too, has fallen, from an average of nearly 11 tons a year in the five years to 2009, to just over 500kg a year since 2015, according to Bloomberg data from the World Bureau of Metal Statistics. (Financial Times: https://www.ft.com/content/3c6180da-4c76-11e8-97e4-13afc22d86d4; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2455452&CategoryId=10717)

 

Artisanal miners in Venezuela operate under illegal unions

Following an operation against illegal mining in the north-central Carabobo state, General Juan Carlos Du Boulay Perozo, Commander of the Carabobo Defense Operating Zone No. 45, said that illegal miners in Venezuela have created “unions” in charge of controlling gold trading activities. In the region under Du Boulay’s oversight, such illicit organizations operate in an area called Negra Matea, where food items are also sold illegally, and people can only pay by cash. In the past few years, illegal extraction of gold and other metals and their subsequent smuggling to foreign markets has started to be seen by many as a way to navigate the crisis. According to Du Boulay, in the areas where such activities take place, sex work, drug trafficking, extortion and targeted murders have become the new normal. The General also said that illegal operations are becoming more and more “industrialized,” as his team of 200 officials was able to corroborate during today’s operation. They found hoses and pumps that suggest that placer mining is happening in the area, as does the extensive damage they noticed on the topsoil. Authorities also noticed that the nearby El Torito river and its tributaries, which provide drinking water to different towns in the region, are getting polluted by such activities. (Mining: http://www.mining.com/artisanal-miners-venezuela-operate-illegal-unions/)

 

Economy & Finance

Venezuela faces heavy bill as grace period lapses on China loans

A grace period on Chinese loans to Venezuela has lapsed, potentially depriving the cash-strapped nation of billions of dollars in desperately needed oil revenue this year. China eased the payment terms two years ago on some US$ 19 billion in oil-for-loan deals, under which Venezuela sends shipments of crude oil and fuel to pay off debt, allowing Venezuela to make interest-only payments. But the grace period has lapsed without a renewal in recent weeks. That could deprive Venezuela of some US$ 7 billion in annual revenue, according to a Reuters’ estimate based on current oil prices, a crippling blow to a country already struggling to import basic goods like food and medicine. Venezuela continues to press for an extension but is responsible for making the full payments while the talks continue. The sharply increased payments would absorb roughly an additional 305,000 barrels per day (bpd) of Venezuela’s oil production, which has fallen to a 33-year low this year. “China maintains its position of not increasing its exposure to Venezuela and is adjusting conditions, given that the price of oil is now US$ 20 per barrel above its level when the (grace period) was created,” says an informed source. China’s Foreign Ministry, asked about the negotiations, said that cooperation was proceeding smoothly, and the loan contracts were in accord with international standards. Caracas could seek to preserve cash flow by sending those barrels to other clients who pay cash, defaulting on its obligations to China in the process and straining ties with a crucial political ally and its largest financier. Beijing would have little incentive to pursue an embarrassing commercial dispute with a government it supported for years and may simply turn a blind eye to a default. (Reuters, https://www.reuters.com/article/us-venezuela-china/exclusive-venezuela-faces-heavy-bill-as-grace-period-lapses-on-china-loans-sources-idUSKBN1HY2K0)

 

Venezuela minimum wage up 155%, down 13% in dollar terms

Venezuela raised its minimum wage to 1 million bolivars per month on Monday, the third increase this year that puts the figure at just US$ 1.61 at the black-market exchange rate. President Nicolas Maduro’s announcement of the 155% rise - or 13% fall, in dollar terms - came three weeks before a presidential election. It accompanies a monthly food ticket now worth just over 1.5 million bolivars. Speaking to AFP, Marcela Maspero of the UNETE, one of Venezuela's biggest unions, described the measure as a "delusion" because it undermines the basis for calculation of employee benefits. (Reuters, https://www.reuters.com/article/us-venezuela-economy/venezuela-minimum-wage-up-155-percent-down-13-percent-in-dollar-terms-idUSKBN1I11V9)

 

In Venezuela, 5 years of severance pay now buys a coffee

When Yolanda Abreu got her check for severance pay after five years working as a cardiologist, she let out a laugh of sheer disbelief: it was barely enough for a cup of coffee. Like her, millions of Venezuelans have seen their salaries decimated by rampant hyperinflation that is expected to drive prices up by 13,000% this year, IMF figures show. Her story hit the headlines after she tweeted a photo of the check for 156,584.29 bolivars, which equates to about US$ 0.20 on the black market. If she had received the check when she resigned in January 2017, it would have been worth $45. But her severance pay was decimated by the country's chronic hyperinflation and the accelerated collapse of the bolivar. Within a week, her indignant outburst had been retweeted 11,000 times, and commented on more than 1,400 times, with many relating similar stories. On the eve of International Workers Day, Venezuela's embattled President Nicolas Maduro moved to double the monthly minimum wage, raising it by 95.4% to 2,555,500 bolivars — or US$ 37 (30 euros), according to the central bank's official DICOM rate. But access to such a favorable rate is very limited for Venezuelan citizens and companies, meaning they have to use the black market where the same sum is worth just US$ 3.20 — just about enough for two kilos (4.4 pounds) of chicken. (Daily Nation: https://www.nation.co.ke/news/world/In-Venezuela--five-years-of-severance-pay-now-buys-a-coffee/1068-4538706-2y0x9gz/index.html)

 

16 cryptocurrency exchanges approved to launch in Venezuela, list Petro – none has

President Nicolas Maduro has reportedly approved the ‎registration of 16 cryptocurrency exchanges in the country, months after ‎introducing regulations for ‎the emerging space. According to local publication Correo del Orinoco, the authorities granted ‎approval to for the exchanges to list Venezuela’s newly released ‎cryptocurrency, the Petro.‎ Although he hopes that these exchanges will start listing Petro soon, none of them did confirm the inclusion of the Venezuelan government backed cryptocurrency. Maduro is also claiming that the pre-sale of Petro has raked in US$ 3 ‎billion and a record number of verified purchases. However, some analysts argue the vast majority ‎of the frenzy ‎surrounding Petro is either a scam or far too ambitious for ‎‎its own good.‎ Instead, ‎Venezuelans’ Bitcoin trading volume has ‎jumped to the equivalent of US$ 1.009 ‎million in bolivars on April 17.‎ Just this weekend, Venezuelan authorities shut down two cryptocurrency exchanges, ordering them to suspend operations as part of a crackdown against the growing bolivar-to-bitcoin market. On the same day, the Prosecutor General seized 1,382 bank accounts with balances exceeding US$ 10.6 million. (Finance Magnates: https://www.financemagnates.com/cryptocurrency/news/16-cryptocurrency-exchanges-get-approval-launch-venezuela-list-petro/)

 

Politics and International Affairs

United States puts conditions on lifting Venezuela sanctions

US President Donald J. Trump’s administration will consider lifting sanctions on Venezuelan officials provided they take steps to ease the political, humanitarian, and economic crisis that is gripping their country, a US State Department official said at the Atlantic Council in Washington on April 30. Noting that most of the US sanctions are on individual members of the regime, Michael Fitzpatrick, deputy assistant secretary in the State Department’s Bureau of Western Hemisphere Affairs, said: “What we are trying to do is to ensure that… we are not complicit in the wholesale looting of the financial coffers of Venezuela.”  Describing the sanctions as a means to an end, Fitzpatrick said that the Trump administration would lift them provided the targeted individuals show a willingness to respect the constitution and the National Assembly and open a humanitarian corridor.  Things have changed dramatically” in Venezuela, Fitzpatrick said. He referred to moves by Venezuelan President Nicolás Maduro’s government to constrict the democratic space in the country, hyperinflation, and a sharpening humanitarian crisis that is causing people to flee. He said that the Trump administration is ramping up both its support for countries that are taking in Venezuelan refugees as well as a diplomatic effort to end the crisis that has caused the outflow in the first place. The Trump administration, meanwhile, is looking at ways to support independent actors in Venezuela—whether members of the National Assembly freely elected in 2015 or journalists—to “ensure that what’s left of the social fabric is maintained intact,” said Fitzpatrick. (The Atlantic Council: http://www.atlanticcouncil.org/blogs/new-atlanticist/united-states-puts-conditions-on-lifting-venezuela-sanctions)

 

Venezuela, Panama restore envoys and resume airline service

Venezuela and Panama will restore ambassadors and allow for the resumption of airline service, turning the page on a diplomatic dispute between the two countries. Venezuela this month cut commercial ties with a group of Panamanian officials and companies, including regional airline COPA, for alleged involvement in money laundering, prompting both countries to recall ambassadors. The two governments said in a joint statement that they would send back their respective ambassadors, “reestablish air connectivity” and “maintain an open and respectful diplomatic dialogue.” (Reuters: https://www.reuters.com/article/us-venezuela-diplomacy/venezuela-panama-to-restore-envoys-and-resume-airline-service-idUSKBN1HX3IM)

 

Without water & electricity, Venezuelans protest on Maduro's doorstep

A nationwide crisis in water and electricity services brought demonstrators to the gate of the Miraflores Presidential palace last Thursday night, with the crisis intensifying Friday afternoon, when a water main broke and destroyed several houses in Caracas. Although he is in the first week of a controversial re-election campaign, embattled head of state Nicolas Maduro did not emerge to address the protest, even if it took place only meters away from "The People's Balcony", from which he -- as his mentor and predecessor, Hugo Chavez used to do -- regularly addresses the crowds. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2455613&CategoryId=10717)

 

Venezuelan opposition nominees study having a single presidential candidate

Two of the five candidates for Venezuela’s presidential elections next May 20, studied the possibility of having a single candidate, the first of the nominees announced Saturday, an option which another of the candidates, Henri Falcon, has not rejected. Confirmation of the meeting between Luis Alejandro Ratti and Javier Bertucci supports the intentions shown in recent days by these three candidates to join forces against their powerful opponent, President Nicolas Maduro. Ratti said he hoped to have more such talks with Falcon and officials of the National Electoral Council (CNE). Bertucci said nothing about their meeting during a party rally in San Felix in the southeastern state of Bolivar, nor in his tweets. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2455560&CategoryId=10717)

 

OP-ED: Maduro set to abolish voting rights and other freedoms, Colombian president says

It’s hard to know what will happen next in Venezuela, but what Colombian President Juan Manuel Santos told me in an interview last week should raise alarm bells throughout the hemisphere. Santos said during a visit to Miami that Venezuelan President Nicolas Maduro’s hand-picked Constituent Assembly is drafting a new constitution that would be made public after Venezuela’s May 20 presidential elections. The new charter would officially turn Venezuela into a Cuban-style dictatorship, he said. Santos told me that Maduro’s Constituent Assembly is secretly drafting a new constitution of about 350 articles and 18 “transitory clauses” that would create a voting system like in Cuba, where government-controlled “mass organizations” elect local officials who in turn elect legislators, who ultimately pick the country’s top leaders. “The information I have is that among the proposed constitution’s articles is one that would abolish the universal right to vote and establish a system of corporative elections similar to that of Cuba,” Santos told me. “That amounts to the formalization of a Soviet-styled dictatorship.” Santos added, “I also understand that they will establish a series of changes in things such as the definition of treason to the fatherland.” The expanded definition of treason would allow the Maduro regime “to repress any criticism and to have more supposedly legal instruments to be able to further repress the population.” Asked where he got that information, Santos said it comes from “intelligence reports,” without elaborating. Maduro may radicalize his leftist revolution to prevent a popular rebellion as the country descends into near total chaos, Santos said. Venezuela is also creating neighborhood paramilitary cells to try to control any kind of dissent, Santos said. “At this very moment, they are creating about 13,000 cells throughout the country, with 40 militants per cell,” Santos told me. “Those are the people who, at the very moment there is an anti-government protest, go and repress it. Just like with Cuba’s neighborhood watch committees.” If Santos is right and Maduro goes ahead with these plans, we could soon see a Syrian-type refugee crisis in the Americas. By Andrés Oppenheimer.

 

Malaria outbreak in Venezuela spreading North into the Americas

The WHO’s 2017 annual malaria report shows some countries are beginning to see unfortunate reversals in the gains achieved over the past years. Venezuela is currently the leader in the Americas with 406,000 cases reported in 2017, which is the largest increase worldwide said the WHO. This data represents a 69% increase from 240,000 cases in 2016. "In the 1960s, when the WHO launched its first campaigns, Venezuela was the first country to have entire regions declared free of the (malaria) disease," Pedro L. Alonso, MD, Ph.D. said. "Today, however, it has the largest increase in the world," he said. Additionally, the WHO reports Venezuelan migrants are carrying the mosquito-borne disease into Brazil and other parts of Latin America. (Precision Vaccinations: https://www.precisionvaccinations.com/venezuela-reports-406000-malaria-cases-during-2017)

 

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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