January 13th, 2012

Economics & Finance

BCV Vice President: Economic growth will continue in coming years

According to preliminary estimates by the Central Bank of Venezuela (BCV) Gross Domestic Product (GDP) ended in 2011 with growth of 4%, double the budgeted goal, thanks to improved economic performance, both in the activities oil, as in non-oil exports. "That means we enter a growth path where all the activities that make up the economic sector, both industrial and services, we are indicating that growth will be for several years and the benefit for the population", says Eudomar Tovar, first Vice President of the BCV. More in Spanish: (AVN, 01-12-2012; http://www.avn.info.ve/contenido/vicepresidente-del-bcv-crecimiento-economía-continuará-próximos-años)

Government may issue bonds for VBF 62.9 million

The Ministry of Planning and Finance and has received a green light from the National Assembly for a bond up to VBF 62.9 billion bolivars (US$15 billion), as provided in the Debt Act of 2012. The National Assembly approved financial terms for debt service operations for VBF 25.8 billion, VBF 20 billion for fiscal management and VBF 17.1 billion for restructuring of public debt. More in Spanish: (El Universal, 01-11-2012; http://www.eluniversal.com/economia/120111/dan-luz-verde-al-gobierno-para-que-emita-bonos-por-bs-629-millones)

Pull out of ICSID can scare away foreign investment away

Venezuela's potential departure from the International Center for Settlement of Investment Disputes (ICSID) could scare away investments from foreign companies, according to arbitration expert Luis Alfredo Araque.  "Nobody in his right mind is to invest in a country which is not at ICSID". Araque pointed out the organization is set up not to damage States, but to prevent governments from committing abuses of authority. "ICSID is meant to prevent States from stealing; it is not intended to punish States, but to protect investments." (El Universal, 01-10-2012; http://www.eluniversal.com/economia/120110/pull-out-of-icsid-could-shoo-foreign-investment-away)

DATANALISIS expects consumption to grow 5-6% this year

Luis Vicente Leon, director of DATANÁLISIS estimates that this year consumption will grow between 5% and 6%, last year’s growth was 3%: "This growth could be the most important compared to those recorded in the last four years." Growth would be due to an increasing amount of money put out by the Government during an election year.  More in Spanish: (Últimas Noticias, 01-11-2012; http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/consumo-crecera-este-ano-entre-5--y-6-.aspx)

Government seeks to create 421.000 jobs per year through 2018, according to the Minister for Basic Industry, Ricardo Menendez, who also heads the announced job creating program: “a person will sign up one day and has a job the next”. More in Spanish: (El Mundo, http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Gobierno-preve-crear-421-000-empleos-anuales-hasta.aspx)

Commodities

Humala signals Venezuela's support in Peru's petrochemical projects

Peruvian president Ollanta Humala underlined the role played by the Venezuelan State oil company PDVSA in the development of petrochemical projects in his country. He explained that Peru is promoting investment "from other brother countries in domestic projects, like the petrochemical center at the south of the country and other projects that will allow the entrance of capital of Brazilian and Venezuelan companies, for example." (AVN, 01-11-2012; http://www.avn.info.ve/contenido/humala-highlights-venezuela039s-support-peru039s-petrochemical-projects)

Russian oil company says PETROMONAGAS will increase production by 20%

TNK-BP, Russia's third largest oil producer, which is half owned by BP, has said it plans to increase production of heavy oil at its Venezuelan joint venture PETROMONAGAS by 20% in 2013. The company added that it intends to raise its heavy crude oil production at the joint venture, where it acquired a stake from BP in 2010, to 145,000 barrels per day (bpd) next year, Reuters reported (El Universal, 01-10-2012;

http://www.eluniversal.com/economia/120111/russian-oil-company-says-petromonagas-is-to-increase-production-by-20)

Refineries hit by eight failures in the past 30 days

Venezuela's refining circuit has reported several incidents in the past month that have affected the production capacity of oil byproducts. According to oil workers and statements issued by state-run oil company Petróleos de Venezuela (PDVSA), there have been at least eight failures at the refineries of El Palito (with a refining capacity of 140,000 barrels per day); Amuay (645,000 bpd) and Cardón (310,000 bpd) since December 2011. (El Universal, 01-11-2012; http://www.eluniversal.com/economia/120111/refineries-hit-by-eight-failures-in-the-past-30-days)

Ramirez says OPEC will not get involved in Iran dispute

OPEC will not get involved in the standoff between Iran and Western powers over its nuclear program, says Venezuelan Oil Minister Rafael Ramírez. "OPEC will not get involved in the issue with Iran," Ramirez told reporters following a meeting between Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugo Chavez. He said sanctions are "causing instability in the market." (Reuters, 01-09-2012;

http://www.reuters.com/article/2012/01/10/us-venezuela-iran-opec-idUSTRE80908E20120110)

Clash at gold mine leaves 6 dead, 4 injured

At least six people were killed and four injured in fighting between gangs for control of a gold mine in southeastern Venezuela that has since been placed under military control, regional authorities said. The clash occurred Monday at an illegal mine in the Manaima sector on the Paragua River, according to the Bolivar state government’s citizen safety secretary, Julio Cesar Fuentes, who told Efe that around 1,500 illegal miners were in the area. (Latin American Herald Tribune, 01-11-2012; http://www.laht.com/article.asp?ArticleId=461540&CategoryId=10717)

Dependence increased due to food imports during 2011

The decline in production of basic agricultural products has forced the government to increase purchases abroad in order to meet demand. The increasing dependence on imported food is one of the negative economic results in 2011.

According to Francisco Ibarra, ECONOMETRIC’s director, domestic production " was the best in the last three years, but … conditions that prevent Venezuela reach its growth potential are still present and that the economy continues to float on what happens with oil prices". More in Spanish: (El Nacional, 01-12-2012; http://www.el-nacional.com/; El Universal; http://www.eluniversal.com/economia/120112/importaciones-de-alimentos-se-incrementan-12-en-2011)

CADIVI authorized over U$D 6.305 billion for food imports in 2011, according to a press release from the Currency Exchange Board, this is an 11% increase over 2010. Key imports were wheat, soy oil, corn, powdered milk, malt, animal and vegetable oils. More in Spanish: (El Mundo; http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Cadivi-autorizo-mas-de-$6-000-millones-para-el-sec.aspx ; El Universal; http://www.eluniversal.com/economia/120113/cadivi-elevo-12-los-dolares-para-compras-externas)

International Trade

Iran asks Venezuela to repay debts exceeding U$D 290 million

Iranian President Mahmoud Ahmadinejad may have visited Latin America to lead people to believe that he has allies in the region, but he also seized the opportunity of his visit to Venezuela to demand the payment of a U$D 298 million debt that the Venezuelan government has contracted with state-run Iranian companies. Venezuela has debts with Iranian firms in the areas of automotive industry, construction, and housing, which are three of the main pillars of the relationship between Caracas and Tehran. (El Universal, 01-11-2012; http://www.eluniversal.com/economia/120111/iran-asks-venezuela-to-repay-debts-exceeding-usd-290-million)

Importing is more expensive in Venezuela than in neighboring countries

According to the Venezuelan National Council of Industries (CONINDUSTRIA) importing from Venezuela is more expensive than in other nations in the region. Council Chairman Carlos Larrazabal says the average cost of bringing a container into the country is U$D 2868, which is 69% more expensive than doing so in Colombia; 66% more expensive than doing so in Brazil; and 52% more expensive than doing so in Mexico. More in Spanish:  (El Universal; http://www.eluniversal.com/economia/120113/importaciones-son-mas-caras-en-venezuela-que-en-paises-vecinos)

Colombia and Venezuela regulate economic agreement

Delegates from the Trade Ministries of Colombia and Venezuela are meeting in the Colombian capital to move forard on a legal framework to regulate trade between both countries, according to Colombian Minister of Trade, Industry and Tourism, Sergio Diaz-Granados, who says the agreement will maintain free trade on some 4,200 traditional items. More in Spanish: (Ultimas Noticias;

http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/colombia-y-venezuela-regularan-acuerdo-economico.aspx)

Politics

US continues open to dialogue with Venezuela; Venezuela to shut down Miami consulate

State Department spokesperson Victoria Nuland says there “has been no deep change in policy toward Venezuela”, after expelling the Venezuelan Consul General in Miami on espionage charges.”It has been a difficult and complex relationship, but it does not change the fact that if there are ways to improve, we are open to it”. President Chavez has called the decision to expel Consul General Livia Noguera arbitrary and unjustified, and announced he may shut down the Consulate in Miami. More in Spanish: (El Nacional; http://www.el-nacional.com/)

A person was killed every 30 minutes in Venezuela during 2011

There were 18,850 homicides in Venezuela in 2011, according to sources of the Scientific, Criminal and Forensic Investigation Agency (CICPC). This means that a person was killed every thirty minutes. If one murderer were involved in each case, 18.850 gunmen have put 29 million Venezuelans against the wall. If they had used a single bullet for every murder, the criminals would have spent a little more than 18 and a half boxes of bullets, with each box containing 1,000 bullets. And therefore, they would have spent some VEB 226,080 (U$D 52,576, at the official exchange rate of VEB 4.30 per US dollar), as each box costs approximately VEB 12,000 (U$D 2,790.7). Consequently, each bullet taking one person's life cost U$D 2.70. (El Universal, 01-11-2012; http://www.eluniversal.com/nacional-y-politica/120111/a-person-was-killed-every-30-minutes-in-venezuela-in-2011)

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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January 10th, 2012

Economics & Finance

Chavez vows to reject arbitration in EXXON case

President Hugo Chavez says that Venezuela would not recognize a ruling by a World Bank panel in a multibillion-dollar arbitration case with the EXXON MOBIL Corporation. “I tell you now, we will not recognize any decision” by the center, Mr. Chavez said during a televised speech. “They are trying the impossible: to get us to pay them,” he said. “We are not going to pay them anything.” It was not immediately clear whether Mr. Chavez was also referring to about 20 other cases that Venezuela faces before the World Bank’s arbitration panel that were prompted by a wave of state takeovers in recent years. They include separate multibillion-dollar proceedings brought by ConocoPhillips, another major American oil company. (The New York Times, 01-09-2012; http://www.nytimes.com/2012/01/09/business/venezuela-will-not-recognize-world-bank-ruling-in-exxon-case.html?_r=2)

Leaving ICSID to hit foreign investment

Arbitration specialist Luis Alfredo Araque predicts Venezuela’s withdrawal from the World Bank’s International Center for Settlement of Investment Disputes (ICSID) will scare away foreign investment. “No one in their right mind will invest in a country that is not in ICSID”, says Araque, who considers the President’s threat a “very serious” matter which – if made effective – could be highly damaging to the nation. More in Spanish: (El Universal, 01-10-2012; http://www.eluniversal.com/economia/120110/salida-del-ciadi-alejara-inversion-extranjera)

2012 inflation projected around 30%

Although the Government expects economic growth above 5% this year, analysts – such as IESA economis Hugo Faría – predict the country will suffer high inflation and indebtedness this year as a result of increased spending in support of President Chavez’s campaign for reelection. More in Spanish: (Tal Cual, 01-10-2012; http://www.talcualdigital.com/index.html)

Public Stock Exchange readies for new Petro-Bond

According to the President of the Bicentennial Public Stock Exchange, Felix Franco, they are getting ready for a new issue of Petro-Bonds to take place during the first five months of this year. He said during an interview “We expect the issue of Petro Bonds announced by President Chavez will be placed through the Public Stock Exchange in the secondary market”. More in Spanish: (AVN, 01-10-2012; http://www.avn.info.ve/contenido/bolsa-pública-valores-se-prepara-para-emisión-petrobono; El Universal, http://www.eluniversal.com/economia/120110/bolsa-publica-bicentenaria-prepara-plataforma-de-petrobonos)

Commodities

Venezuela's oil opens the year at U$D 108.27

The price of the Venezuelan oil basket started 2012 with a U$D 1.57 per barrel increase, to an average U$D 108.27, according to the Ministry of Petroleum and Mining. Last week, Venezuelan oil basket closed at U$D 106.70 for an average skyrocketing price of U$D 101.04 per barrel in 2011. (El Universal, 01-06-2012; http://www.eluniversal.com/economia/120106/venezuelas-oil-begins-the-year-at-usd-10827)

Petropiar drilled 157.200 bpd in 2011

PETROPIAR, the joint venture led by state-run oil holding Petróleos de Venezuela (PDVSA) which operates at the Orinoco Oil Belt, had an average output of 157,200 barrels per day (bpd) during, which surpassed the initial goal set by the National Budget Office (Onapre) of 155,300 bpd on a yearly average. (El Universal, 01-06-2012; http://www.eluniversal.com/economia/120106/petropiar-drills-157200-bpd-in-2011)

Chavez says the Orinoco Oil Belt project will bolster economic development

President Chavez says that the Orinoco Socialist Plan, to be developed along the Orinoco Oil Belt, will be the main tool for the economic development of the country and for the a newly launched program aimed at promoting productive employment in the country. According to governmental estimations bout 300,000 job posts will be created in the entire area in the next years. The Orinoco Oil Belt is the world's largest liquid hydrocarbon reserves and it covers 4 states in Venezuela (Delta Amacuro, Guárico, Anzoátegui and Monagas). (AVN, 01-08-2012; http://www.avn.info.ve/contenido/project-orinoco-oil-belt-bolster-economic-development)

Government predicts it will raise iron production to 20 million tons in 2012…

President Chavez claimed on national television that the Government expects to increase iron production to about 20 million tons during 2012. (AVN, 01-09-2012; http://www.avn.info.ve/node/94376)

and says it will increase cement production capacity by 27% in 2013

Industry Vice Minister Raul Pacheco announced that through official investments in the cement production, capacity is expected to increase by 27% by 2013; that is about 11.54 million tons a year. Pacheco made the statement from the Cerro Azul cement plant that is under construction in cooperation with Iran. (AVN, 01-09-2012; http://www.avn.info.ve/contenido/venezuela-increase-cement-production-capacity-27-2013)

Indepabis has published an updated list of price controlled items

The Institute for the Defense of People’s Access to Goods and Services (INDEPABIS) has updated a list of over 100 items in the basic foods category on its web page: http://www.indepabis.gob.ve/. Key items are vegetable oil, sugar, coffee, poultry, beef, milk, cheese, rice, sorghum, corn, precooked corn flour, pasta, and canned foods. More in Spanish: (AVN, 01-10-2012; http://www.avn.info.ve/contenido/indepabis-publica-listado-actualizado-rubros-alimenticios-regulados)

International Trade

Venezuela, Peru in pacts on oil investments, trade

The presidents of Venezuela and Peru have reached an agreement for the Peruvian state oil company to invest in development of Venezuela's eastern Orinoco oil belt. PDVSA will study a possible role in developing a petrochemical complex in Peru as well as helping Peru increase its production of heavy and extra heavy crude oil. The formal agreement came during a Saturday meeting between President Hugo Chavez and Peruvian leader Ollanta Humala, while representatives of the two governments signed agreements establishing mechanisms for transportation, storage, refining and marketing of hydrocarbons. Other pacts cover the sale in Peru of tractors and other farm implements made in Venezuela. The main Peruvian private sector organization, CONFIEP, has criticized the agreements, saying they are of no advantage to Peru. Venezuela’s imports from Peru rose 422,6% over the past 13 years, from U$D 88.4 million to U$D 462.1 million last year; but exports dropped 73,78%, from U$D 143.4 million in 1999 to U$D 37.5 million in 2011.  (AJC, 01-07-2012; http://www.ajc.com/business/venezuela-peru-in-pacts-1294147.html and more in Spanish: El Nacional, 01-09-2012; http://www.el-nacional.com/)

Venezuela to strengthen cooperation with Nicaragua

Venezuela’s ambassador to Nicaragua, María Alejandra Ávila, announced that cooperation agreements with that country will increase after the reelection of Daniel Ortega for a second term in office. The two countries are already undertaking several projects, all of which are covered by the PETROCARIBE energy agreement. PDVSA América maintains ALBANILISA operations in Nicaragua in order to purchase such items as beef, beans, rice and coffee for distribution in Venezuela through official outlets. More in Spanish: (El Nacional, 01-09-2012; http://www.el-nacional.com/ and AVN; http://www.avn.info.ve/contenido/venezuela-strengthen-cooperation-agreements-nicaragua)

Logistics & Transport

Patrol vessels to be built in Puerto Cabello by Cuban technicians

It is projected that during the first quarter of this year manufacturing of patrol vessels by Cuban technicians will begin at the Puerto Cabello Naval Base, based on a January 5^th agreement signed by the Defense Ministry and Cuba's Ministry for Transportation. More in Spanish: (El Nacional, 01-09-2012; http://www.el-nacional.com/)

Politics

Chavez defends Ahmadinejad against 'US warmongering'…

President Hugo Chavez defended his close ally Iranian leader Mahmoud Ahmadinejad and said:  "They accuse us of being warmongers," Chavez said. "They're the threat." He also accused the U.S. and its European allies of demonizing Iran and using false claims about the nuclear issue "like they used the excuse of weapons of mass destruction to do what they did in Iraq." Both leaders planned to travel to Nicaragua on Tuesday for the inauguration of newly re-elected President Daniel Ortega, and then Ahmadinejad will also visit Cuba and Ecuador. Laughing, Chavez said Ahmadinejad is traveling through "the axis of evil of Latin America." (AP, 01-09-2012; http://www.google.com/hostednews/ap/article/ALeqM5g_8vPleqBjcvHFI5K3wlevor-SPA?docId=386da2827cbe43c38cbe5b31004d0a18)

…But makes no oil deals with Iran

On the other hand, Oil Minister Rafael Ramirez told reporters the government had not made any oil-related agreements with Iran. On the issue of sanctions against Iran and its threats to block the Strait of Hormuz, Ramirez said OPEC, to which both countries belong, could not get involved in the issue. "Any action that Iran takes in defense of its sovereignty is a matter of Iran," Ramirez said. (AP, 01-09-2012; http://www.google.com/hostednews/ap/article/ALeqM5g_8vPleqBjcvHFI5K3wlevor-SPA?docId=386da2827cbe43c38cbe5b31004d0a18)

Venezuelan consul in Miami ordered to leave U.S. for discussing cyber-attacks

In a move likely to further strain relations between the United States and Venezuela, the State Department on Sunday said that it had ordered Livia Acosta Noguera, Venezuela’s consul general in Miami, to leave the country. The decision to expel Acosta was made one month after Spanish-language Univision Network broadcast a documentary about Iran’s alleged terrorist activities in Latin America, including a taped segment in which the consul reportedly asks an alleged Mexican hacker to give her access codes to nuclear facilities in the United States. President Hugo Chavez called the decision a show of “arrogance by the ridiculous empire”; and Foreign Minister Nicolás Maduro said they would give the US a “clear and firm” response. (Miami Herald, 01-08-2012; http://www.miamiherald.com/2012/01/08/2579965/venezuelan-consul-in-miami-ordered.html and more in Spanish: Noticiero Venevisión, http://www.noticierovenevision.net/politica/2012/enero/9/12582=chavez-asevera-que-expulsion-de-consul-venezolana-es-%E2%80%9Cuna-demostracion-mas-de-la-prepotencia-del-imperio-ridiculo%E2%80%9D and Tal Cual; http://www.talcualdigital.com/index.html)

President Chavez to attend Nicaragua's Ortega inauguration

President Chavez announced Sunday that he will travel next Tuesday Jan. 10 to Managua, Nicaragua, to attend the inauguration of his counterpart Daniel Ortega. (AVN, 01-09-2012; http://www.avn.info.ve/contenido/president-chavez-attend-nicaragua039s-ortega-inauguration)

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.

January 06th, 2012

Economics & Finance

Annual inflation at 27.6%; could go higher in 2012 amid heavy election year spending

The Central Bank says the country finished the year with 27.6% inflation, the highest in Latin America. The nation has had the highest inflation in the Americas for six years running. Inflation in 2010 was similar at 27.2%. Venezuela had the second-highest official inflation rate in the world as of November, surpassed only by Ethiopia's 31.5%.

The government and the Central Bank both predict inflation of between 20- 22% this year. But analysts say inflation could rise above 30%, influenced by an expanding money supply and heavy government spending. (AP, 01-05-2012; http://www.google.com/hostednews/ap/article/ALeqM5ie4BjbB8Yml2c_qZ1TI38GUXx7Eg?docId=59c3af121f144e3b8373a51fd0f589e0; The Washington Post, 01-03-2012; http://www.washingtonpost.com/world/americas/heavy-spending-by-chavez-in-election-year-could-boost-27-percent-inflation-in-venezuela/2012/01/03/gIQACylbYP_story.html; AP, http://www.seattlepi.com/news/article/Chavez-s-spending-could-boost-Venezuela-inflation-2438669.phpç)

BCV may transfer U$D 3 billion to government

Under current legislation the Central Bank of Venezuela (BCV) is obligated to transfer to the government all foreign currency held as international reserves at the end of each six-month period, whenever reserves achieve the so-called optimal level. President Chavez remarked on December 21 that the appropriate level of international reserves is U$D 26.8 billion, and by the end of 2011n foreign currency reserves amounted to U$D 29.89 billion. As a result, the BCV will transfer U$D 3.09 billion to the National Treasury in the coming days. (El Universal, 01-04-2012; http://www.eluniversal.com/economia/120104/bcv-transfers-usd-3-billion-to-government)

AMERICA ECONOMÍA magazine ranks Caracas among the worst cities for business

Caracas fell by 10 slots in the 2011 ranking of the best cities for business in Latin America prepared by AMERICA ECONOMÍA magazine. According to this publication, Caracas came in 44 out of 45 cities analyzed. The study is based on 43 international reports from organizations such as ECAC, IMF and the World Bank which evaluate conditions that influence the social and political environment, economic dynamism, serve to companies and businessmen, infrastructure, connectivity among others. More in Spanish: (El Mundo; http://www.elmundo.com.ve/Noticias/Negocios/Capital-Humano/Caracas-entre-las-peores-ciudades-para-hacer-negoc.aspx)

Commodities

EXXON’s says it is ‘not over yet’ after arbitration ruling, Chavez calls demand “crazy”

EXXON MOBIL Corp.’s four-year hunt for billions of dollars in nationalized Venezuelan oil profits isn’t finished after an international panel slashed the U.S. oil company’s claim by 89%. Exxon and the Venezuelan government are scheduled to resume arguments before the World Bank panel in February. The separate proceeding before the World Bank’s International Centre for the Settlement of Investment Disputes is “larger” than the ICC case, said Patrick McGinn. “This ICC arbitration award represents recovery on a limited, contractual liability of PDVSA that was provided for in the Cerro Negro project agreement.” Russ Dallen, a lawyer and head bond trader at Caracas Capital Markets says “I would expect the ICSID judgment to easily come in for almost U$D1 billion minimum, rising to U$D 3 billion if they use a more modest discount and higher real world oil price than the $27 to $35 provided for in the 1997 contract”. President Hugo Chavez termed EXXON MOBIL Corp.’s demand for as much as U$D 12 billion in international arbitration for assets, as “crazy”. (Bloomberg, 01-03-2012; http://www.bloomberg.com/news/2012-01-03/exxon-s-pursuit-of-venezuelan-cash-not-over-yet-after-arbitration-ruling.html; Bloomberg, 01-04-2012, http://www.bloomberg.com/news/2012-01-04/chavez-calls-exxon-s-venezuela-arbitration-demands-crazy-.html; UPI, http://www.upi.com/Business_News/Energy-Resources/2012/01/05/Chavez-laughs-off-Exxons-claims/UPI-77381325769017/; AVN, 01-05-2012; http://www.avn.info.ve/contenido/chavez-exxon-mobil-venezuela-sovereign-country)

PETROLEUM WORLD: Arbitration award MOBIL versus PDVSA (II)

The recent award of $908 million in the Mobil case has given rise to much comment. But there are two parallel cases under arbitration: 1) MOBIL versus PDVSA for breach of contract, and 2) MOBIL versus the Republic under the Bilateral Investment Treaty (BIT) with The Netherlands. The first case was heard at the International Chamber of Commerce and some experts assert the award is only for breach of contract and does not represent compensation for the assets expropriated. PDVSA'S lawyers question this opinion and believe it covers compensation so the matter is far from clear. The second case is still in progress at the International Centre for Settlement of Investment Disputes. The BIT with The Netherlands states "Such compensation shall represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier." Should it be construed as the replacement cost of the assets the replacement cost of the wells drilled and the upgrader could be U$D 2 billion or more. Venezuela considers it to be the expropriation of assets, while ExxonMobil considers it to be the expropriation of a business and so has included an element to compensate for the loss of future earnings. The important factor is if the arbitration panel will allow for any loss of earnings or whether they will equate market value with asset replacement cost. (Petroleum World, 01-05-2012; http://www.petroleumworld.com/editorial12010501.htm)

CONOCO expects to receive a U$D 2.7 billion compensation

The British investment firm Barclays Capital said that the ICC decision, which ordered Venezuela to pay U$D 907 million to EXXON MOBIL, an amount close to the so-called book value of the project, sets "an important precedent" with regard to a similar claim filed by CONOCO-PHILLIPS "which seeks a compensation of U$D 2.7 billion from PDVSA." (El Universal, 01-05-2012; http://www.eluniversal.com/economia/120105/conoco-expects-to-receive-a-usd-27-billion-compensation)

Standard & Poor’s Ratings Services says it won’t change its B+ rating on PDVSA as a result of the ICC judgment. Given that PDVSA held about U$D 9 billion in cash as of June 30, “the compensation amount will not effect the company’s liquidity,” Fabiola Ortiz, an S&P analyst based in Mexico City, said in a note to clients. (Bloomberg, 01-03-2012; http://www.bloomberg.com/news/2012-01-03/exxon-s-pursuit-of-venezuelan-cash-not-over-yet-after-arbitration-ruling.html)

Development problems force Venezuela to extend natural gas imports

Venezuela's inability to develop its natural gas industry as planned has forced it to revise and extend a deal with Colombia's state-controlled ECOPETROL and CHEVRON involving gas imports from the partners' Guajira gas field in northeastern Colombia, a Caracas-based consultant said Wednesday. The renewal deal announced by the two countries last week included unspecified adjustments to the portion of the original deal that called for Venezuela's PDVSA to begin exporting gas to Colombia in 2012, a clause that has been delayed in light of Venezuelan problems in developing its enormous natural gas reserves. According to PDVSA's Seed Plan 2006-2012, the country hoped to be producing 11.5 billion cf/d by this year, but according to official figures, is producing 6.961 billion cf/d. Venezuela's PDVSA financed the construction of the pipeline on both sides of the two countries' shared border, although gas-compression facilities in Colombia were built by ECOPETROL and CHEVRON. The Guajira field is operated by CHEVRON. The 2 1/2-year extension of the agreement runs through mid-2014. (Platts, 01-05-2012: http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/8761867)

Peru cherishes energy agreements with Venezuela

Peruvian state-run oil holding PETROPERÚ will try to strike a deal with Venezuela ahead of the visit of Peruvian President Ollanta Humala to Caracas to meet with his Venezuelan counterpart Hugo Chavez, according to PETROPERÚ President Humberto Campodónico, who promised to travel to Venezuela for a meeting on Wednesday with Venezuelan oil authorities. The steps will be later discussed by both presidents during their meeting next Saturday. "We will talk about several issues: oil drilling, the Ilo petrochemical plant, chances of buy and sale of oil, oil trade agreements, the possibility of fertilizers plants, agreements on capacity building," Campodónico told reporters. (El Universal, 01-03-2012; http://www.eluniversal.com/economia/120103/peru-cherishes-energy-agreements-with-venezuela)

Nicaragua pursues loan with Venezuela to prevent higher electricity rates

The government of Nicaragua is seeking funding from Venezuela of U$D 70 million – U$D 108 million to elude a 20.2% hike of the electricity rate, according to David Castillo, the head of state-run Nicaraguan Energy Institute (INE), who declared the borrowing, which would be executed through the Bolivarian Alliance for the Peoples of Our America (ALBA). (El Universal, 01-04-2012; http://www.eluniversal.com/economia/120104/nicaragua-pursues-loan-with-venezuela-to-prevent-higher-electricity-ra)

Government and BBVA Provincial to provide steel plant financing

BBVA Provincial and the Ministry for Finance and Planning have agreed on financing a first phase for production of German machinery by SMS SIEMAG AG for the Siderúrgica Nacional, C.A. plant, a “social production” company. The total investment in a project for steel production and lamination could reach U$D 4 billion. More in Spanish: (El Nacional, 01-05-2012; http://www.el-nacional.com/)

International Trade

Humala and Chavez to negotiate substitutes for Andean Community rules

Peruvian President Ollanta Humala will meet Saturday with President Hugo Chavez to review progress son bilateral agreements established after Venezuelan withdrew from the Andean Community. Peruvian Foreign Minister Rafael Roncagliolo has said the meeting is to set rules “for a future partial agreement on trade and economic complementation”. More in Spanish: (AVN, 01-06-2012; http://www.avn.info.ve/contenido/humala-y-chávez-negociarán-caracas-pacto-sustitutivo-can)

Imports soar to their highest level in three years

Imports have skyrocketed. Official data show that at the end of 2011, Venezuelan imports amounted to U$D 45.62 billion, an 18% jump compared to the previous year and the highest level since 2008. Another outstanding fact is that the State has become a major importer of goods; in fact, public sector's imports account for 35% of total purchases abroad, the highest level since 1997. (El Universal, 01-04-2012; http://www.eluniversal.com/economia/120104/imports-soar-to-their-highest-level-in-three-years)

Exports grow 42.8% in 2011, according to Central Bank

Exports grew 42.8% compared to 2010, reaching U$D 93.90 billion, as shown in the annual report published by Central Bank President Nelson Merentes: U$D 89.39 billion were from oil exports, which increased considerably due to higher prices in the international oil markets and growth in the volume exported. (AVN, 01-04-2012; http://www.avn.info.ve/contenido/exports-grow-428-2011)

Politics

Chavez shuffles the pack

The convalescent president moves to shore up his ties to the army and oligarchs at the expense of civilian radicals,

Nothing seems to irk Hugo Chavez more than the rise of a possible rival within the ranks of his Bolivarian revolution. Talk in Caracas had begun to focus on Nicolás Maduro, the foreign minister, as the most likely dauphin. But in announcements over Christmas, Chavez shuffled the pack of his leading aides. The “bourgeoisie”, he said, saw Maduro, as a potential successor. Similarly sidelined were the vice-president, Elías Jaua and the interior minister, Tareck el Aissami. All, along with the defense minister, General Carlos Mata Figueroa, will seek to wrest key states from the opposition in gubernatorial elections in December. The big winner in all this is Diosdado Cabello, a former vice-president who has been named first vice-president of the ruling United Socialist Party (PSUV) and president of the National Assembly. An ally of Cabello’s, Francisco Ameliach, another former army officer, has been put in charge of party organization and electoral strategy.Cabello represents a pragmatic alliance between elements of the army and business interests, Jaua and other leading civilians are radical socialists. By putting the party machine in the hands of Cabello, Chavez has signaled his reliance on the military wing of his movement. Nobody, not even the president, understands politics, the armed forces and the business world, and the way they interact, better than Cabello. That makes him both a crucial ally and also a potential threat to Chavez. (The Economist, http://www.economist.com/node/21542408)

Ahmadinejad sets Latin American tour for talks, trade

Iranian President Mahmoud Ahmadinejad is back in Latin America building bridges with fellow oil producers Ecuador and Venezuela and populist governments in Cuba, Guatemala and Nicaragua. Ahmadinejad added Guatemala to his itinerary to take part in the inauguration of President-elect Otto Perez, a ceremony that will be attended by at least 11 other heads of Latin American and Caribbean states. Prince Felipe de Borbon, heir to the Spanish crown, is also to attend. During his visit to Venezuela Iranian President Mahmoud Ahmadinejad is to ratify agreements reached in September by a bilateral commission, mainly in reference to construction. (UPI, 01-04-2012; http://www.upi.com/Top_News/Special/2012/01/04/Ahmadinejad-sets-Latin-American-tour-for-talks-trade/UPI-18481325715121/ and more in Spanish: El Universal; http://www.eluniversal.com/nacional-y-politica/120105/iran-y-venezuela-ratificaran-convenios-en-construccion)

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.

January 03erd, 2012

Economics & Finance

Venezuela to pay Exxon Mobil only U$D 255 million

Venezuela said Monday it has successfully defended itself in an international arbitration case brought by Exxon Mobil Corp. and will need to pay only U$D 255 million of the more than U$D 900 million awarded to the company. State oil company Petroleos de Venezuela SA, or PDVSA, said in a statement that debts and court action reduce what it owes under decision by the International Chamber of Commerce, which awarded Exxon Mobil more than U$D 907 million in compensation. It noted that Exxon Mobil had previously used international courts to freeze about U$D 300 million in Venezuela's U.S. accounts and that the company also has a debt of U$D 191 million relating to financing of an oil project in the country, as well as U$D 160 million that the arbitration tribunal said was due to PDVSA. PDVSA called it a "successful defense" and said Exxon Mobil had initially demanded about $12 billion in compensation while pursuing two international arbitration claims, adding it would make the payment within 60 days. (Reuters, 01-02-2012; http://www.reuters.com/article/2012/01/02/us-venezuela-exxonmobil-idUSTRE8010MC20120102; El Universal; http://www.eluniversal.com/economia/120102/pdvsa-plans-to-pay-exxon-only-usd-255-million; Bloomberg, http://www.bloomberg.com/news/2012-01-02/pdvsa-says-it-must-pay-only-255-million-to-settle-exxon-claims.html; http://www.google.com/hostednews/ap/article/ALeqM5j0ghRQIv-RD_ciWKJwHjoyxQruBg?docId=8f3fdddceba543a798f1fed95e021b25)

GDP growth not sustainable

Efraín Velásquez, Chairman of the National Economic Board believes the 4% growth Venezuela experienced during 2011, according to preliminary BCV figures, is not sustainable over time as it depends on public spending and not investment. “There continue to be serious difficulties in investment. Gross fixed capital formation increased by only 1% in 2011, which shows growth driven by consumption, not investment.” More in Spanish:  (El Universal, 01-03-2012; http://www.eluniversal.com/economia/120103/crecimiento-del-pib-no-es-sostenible-por-fundamentarse-en-el-consumo)

Venezuela in debt despite higher oil prices as Central Bank receives smaller portion of FOREX

In his end-of-year message, Central Bank President nelson Merentes admitted that the Central Bank received U$D 36.73 billion from state-run oil holding Petróleos de Venezuela (Pdvsa), that is, 41% of total foreign exchange received from oil exports, a 43% increase compared to 2010, according to official data. As a consequence the Venezuelan government borrowed at high interest rates and international reserves remained virtually unchanged. (El Universal, 01-02-2012; http://www.eluniversal.com/economia/120102/venezuela-in-debt-no-matter-higher-oil-prices)

Inflation hits the highest level since 2008

In his New Year message, Central Bank (BCV) President Nelson Merentes reported that, based on preliminary figures, inflation at the end of 2011 was 27.6%. The communiqué says a "more dynamic domestic aggregate demand" pushed prices up, in a "context of continuing restraints preventing the expansion of the supply of goods and services." Consequently, inflation in 2011 hit its highest level in the last three years. In early 2011, the government's inflation target was 25%. (El Universal, 12-31-2011; http://www.eluniversal.com/economia/111231/venezuelas-inflation-hits-the-highest-level-since-2008)

Minimum wage does not cover the food basket, labor organizations seek general salary increase

By November 2012, the local minimum wage (VEB 1,548 or USD 360) only covered 90.5% of the cost of the basic food basket, as estimated by the National Statistics Institute (INE), according Central Bank President Nelson Merentes, in his end-of-the year message. Labor organizations are calling for a general salary increase for this year. (El Universal, 01-02-2012;  http://www.eluniversal.com/economia/120102/venezuelan-wage-is-not-enough-for-the-food-basket and more in Spanish: http://www.eluniversal.com/economia/120103/plantean-aumento-general-de-sueldos-para-enfrentar-el-2012)

New controls, higher taxes and 497 expropriations

In 2011 the state tightened its stranglehold on the private sector

Over the past twelve months, some of the obstacles hindering the performance of companies in the country have resurfaced. Expropriations, currency restrictions, limited supplies and the electricity crisis are some of the most noted issues. (El Universal, 12-31-2011; http://www.eluniversal.com/economia/111231/in-2011-the-state-tightened-its-stranglehold-on-the-private-sector)

Venezuela among the worst in productivity according to industrial indicators

Economist Santiago Guevara points out that “according to international industrial productivity indicators, such as 'Doing Business', Venezuela is in the worst positions with regard to negotiations, and over the years it will come in last.” Carabobo Chamber of Industry President Gerardo Barreto, underlined that “industrial production remains the same over the past 20 years". More in Spanish: (Notitarde, 01-03-2012; http://www.notitarde.com/notitarde/plantillas/notitarde/inota.aspx?idart=1523663&idcat=9849&tipo=2)

Commodities

BCV plans to set up a gold refinery in Venezuela

BCV president, Nelson Merentes announced that the Bank's Board approved the Draft Regional Headquarters BCV Guiana, which involves certification projects national gold reserves in mines, feasibility studies for the installation of a national refinery, establishes sales mechanisms for the gold processing industry and the creation of the certification center of jewelry and gold. More in Spanish: (El Universal, 01-02-2012; http://www.eluniversal.com/economia/120102/bcv-preve-constituir-una-refinadora-de-oro-en-venezuela)

Chavez plans to Invest U$D 5 Billion in Orinoco Oil Belt

Venezuela will invest U$D 5 billion in the Orinoco heavy crude belt in 2012 to increase production, President Hugo Chavez said today on state television, without providing additional information. The country expects to increase production to 3.5 million barrels a day in 2012 and 4 million barrels a day in 2014, from about 3 million barrels a day now, Chavez said. Venezuela wants to produce 6 million barrels of oil a day in 2019 and 10 million barrels daily by 2030, he said. (Bloomberg, 12-31-2011; http://www.bloomberg.com/news/2011-12-31/venezuela-to-invest-5-billion-in-orinoco-oil-belt-chavez-says.html)

Venezuelan oil basket closes at U$D 106.70

The Ministry of Petroleum and Mining reported that the Venezuelan oil basket ended the week at U$D 106.70 per barrel, up from U$D 103.89 per barrel the previous week. Through December 30, the Venezuelan oil basket price averaged U$D 101.04 this year. (El Universal, 12-30-2011; http://www.eluniversal.com/economia/111230/venezuelan-oil-basket-ends-at-usd-10670)

Colombia agrees to extend natural gas exports to Venezuela

Colombia’s state-run oil company ECOPETROL, in partnership with Chevron Petroleum Company, has agreed to extend a contract with PDVSA Gas SA to export natural gas from Colombia to Venezuela. The extension agreement for two and a half years becomes effective from January 2012. It provides for exports of gas from La Guajira (Colombia) to Maracaibo (Venezuela) and other areas of western Venezuela, according to EFE. (El Universal, 12-30-2011; http://www.eluniversal.com/economia/111230/colombia-agrees-to-extend-natural-gas-exports-to-venezuela)

International Trade

Government takes 35% of all imports

Preliminary figures released by the Central Bank of Venezuela show the State again increased its share of foreign purchases in 2011. "Imports estimated at U$D 45.615 billion also exceeded the amount recorded in 2010. It is noteworthy that the public sector continued to increase its share in total imports rising from 34.2% in 2010 to 35.1% in 2011," said Central Bank president, Nelson Merentes. He added that Venezuela's total purchases abroad this year increased 18%, with the private sector remaining with the highest proportion of transactions. More in Spanish. (El Mundo, 01-02-2012; http://www.elmundo.com.ve/Noticias/Economia/Politicas-Publicas/Gobierno-abarca-35--de-las-importaciones-del-pais.aspx)

Politics

Venezuela sees 'record murder rate' in 2011

The Venezuela Violence Observatory says at least 19,336 people have been killed this year, an average of 53 a day.

The figures suggest Venezuela's murder rate is the highest in South America and four times that of Mexico.

Criminal violence is set to be a major issue in next year's elections, when President Hugo Chavez is seeking another term in office. (BBC News, 12-28-2011; http://www.bbc.co.uk/news/world-latin-america-16349118)

Analyst says Venezuelan foreign policy became less radical in 2011

Felix Arellano, head of the Central University’s School of International Studies, says Venezuelan foreign policy has evolved away from the time when it called for recognition of Colombia’s guerrillas and labelled Latin American presidents who do not support its ideology as “lackeys”. Arellano says the turning point came with the discovery of information on FARC leader Raul Reyes’ computers and the downfall of José Manuel Zelaya in Honduras. More in Spanish: (El Universal; http://www.eluniversal.com/nacional-y-politica/120103/la-politica-exterior-venezolana-se-hizo-menos-radical-en-2011)

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.