August 16th, 2011

Economics & Finance

Analysts: Pending price-control law could backfire, boosting inflation in Venezuela

Pending legislation aimed at curbing Venezuela’s soaring inflation could backfire by boosting consumer prices, spurring corruption, stemming investment and causing more severe shortages of basic goods, analysts warned on Saturday. Government officials and lawmakers loyal to President Hugo Chavez claim the Law for Fair Costs and Prices would help reduce Latin America’s highest rate of inflation by forcing businesses to set retail prices at rates established by government officials. Among the factors that officials would consider are production costs such as raw materials and labor. (The Washington Post, 08-13-2011; http://www.washingtonpost.com/politics/analysts-pending-price-control-law-could-backfire-boosting-inflation-in-venezuela/2011/08/13/gIQA3BCaDJ_story.html)

Chávez promotes the SUCRE as a tool to shield the region from financial crisis

Though a phone call to a partisan event by his supporters, President Chávez said that the Unified Regional Compensation System (SUCRE) has potential as a tool to shield the region from the financial crisis caused by global economic meltdown in the U.S. and Europe. He added that launching a single currency would allow them to ignore the dictates of US currency. More in Spanish: (AVN, 08-15-2011; http://www.avn.info.ve/node/72483)

PDVSA relies on nine special funds for parallel expenditures

Live the Venezuelan Government, the state-run oil holding Petróleos de Venezuela (PDVSA) also runs on a parallel budget through nine funds that support social welfare programs known as missions, as well as projects in agriculture, housing, infrastructure, industry and electric power. According to data supplied by the oil company, these special funds contributed over U$D 10 billion to social plans and production projects. (El Universal, 08-13-2011; http://www.eluniversal.com/2011/08/13/pdvsa-structures-parallel-expenditure-through-nine-special-funds.shtml)

National Assembly has authorized added expenditures jointly funded by China

The National Assembly has authorized an additional credit for projects jointly financed with China, which also draw upon the existing Long Range High Volume U$D 20 billion fund. It approved a special U$D 2 billion operation to be used for acquiring products for the “My Well Equipped Home” program, installing a household appliance factory, purchasing transport aircraft, expanding the port at Puerto Cabello and seven agricultural plans. More in Spanish: (El Universal; 08-16-2011; http://www.eluniversal.com/2011/08/16/autorizan-credito-a-planes-del-convenio-con-china.shtml)

Polling firm DATANÁLISIS says 62.7% perceive food supply negatively

According to a perception study conducted by DATANÁLISIS, 62.7% of Venezuelans have a negative view about the availability of foodstuffs in their usual shopping areas. 37% have a positive view 0.3% did not know or had no answer. During June, the reports shows consumers consider it more difficult to find products vegetable oils, corn and soy, milk powder, and wheat flour. More in Spanish: (El Universal, 08-15-2011; http://www.eluniversal.com/2011/08/15/627-de-la-poblacion-cree-que-el-nivel-de-abastecimiento-es-negativo.shtml)

CADIVI cut foreign exchange allocations to commerce in half

According to CADIVI, the agency responsible for distributing dollars at the official exchange rate of 4.30 bolivars allocations to the commercial sector have dropped off  50% as compared to the first semester 2010, falling from U$D 1,51 billion to 772 million. Foreign currency authorizations to import machinery and equipment fell by 44%. More in Spanish: (El Universal, 08-15-2011; http://www.eluniversal.com/2011/08/15/cadivi-recorta-a-la-mitad-la-asignacion-de-divisas-al-comercio.shtml)

Commodities

Venezuela Oil Falls to U$D 103.45

Venezuela's Ministry of Energy and Petroleum reports that the average price of Venezuelan crude sold by Petróleos de Venezuela S.A. (PDVSA) during the week ending August 5 fell to U$D 103.45 from the previous week's U$D 107.84, but still raising the average for the year to U$D 99.43. (Latin American Herald Tribune, 08-15-2011; http://www.laht.com/article.asp?ArticleId=413558&CategoryId=10717)

Venezuelan oil production and exports decreased in June to 2.77 million bpd from 2.79 million bpd a month earlier, according to the Ministry of Energy. This is the second lowest monthly average so far this year. Of the total amount, Venezuela exported 2.41 million bpd, down from 2.48 million bpd in May due to fewer sales of byproducts. (Veneconomy, 08-11-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27161&idc=4)

PETROPIAR increases daily oil output to 160,000 Barrels

Petróleos de Venezuela SA, the state oil company, says it has increased daily production of heavy crude oil at its Petropiar unit to 160,000 barrels. PETROPIAR, a joint venture with CHEVRON Corp., had daily production of 155,000 barrels during the second quarter and the unit expects to end the year producing 169,000 barrels a day. PDVSA, as the company is known, said it plans to increase daily output to 175,000 barrels in 2012. (Bloomberg, 08-14-2011; http://www.bloomberg.com/news/2011-08-14/pdvsa-s-petropiar-boosts-daily-heavy-crude-oil-output-to-160-000-barrels.html)

PDVSA shows mixed environmental record

Venezuela's state oil company PDVSA is reporting over 2,000 oil leaks in its 2010 management report, down from more than 8,100 the prior year. At the same time, Petróleos de Venezuela recorded 2,393 leaks of hydrocarbons and chemical products during 2010. From January to October 2009, the company recorded 8,124 such incidents. The company called the spills "undesirable events with an environmental impact" in its management report. The volume leaked was down from 182,000 barrels in 2009 to 121,000 barrels in 2010, a decline of more than 30%. (UPI, 08-12-2011; http://www.upi.com/Business_News/Energy-Resources/2011/08/12/PDVSA-shows-mixed-environmental-record/UPI-39691313142298/)

Blackout in northwestern Venezuela due to failure in power plant

After disruptions in the Isiro-Planta Centro power lines, a major blackout took place in the state of Falcón (northwestern Venezuela) after a power generation failure. The outage also hit the Paraguaná peninsula, despite the fact that this region is supplied by the Josefa Camejo power plant. The blackout, due to a failure in Planta Centro power plant, hit the 25 municipalities of the Venezuelan state. (El Universal, 08-15-2011; http://www.eluniversal.com/2011/08/15/blackout-in-northwestern-venezuela-due-to-failure-in-power-plant.shtml)

Logistics & Transport

Shipping freight costs to local ports

The shipping lines increased the cost of sea freight to Venezuela by 5%, according to a source close to the port activity, which reports carriers made the adjustment as a result of increased taxes and port charges that Bolivariana de Puertos (BOLIPUERTOS) began implementing in June. "It was to be expected with increased rates Bolipuertos," said the source consulted, adding that even before the adjustment freight shipping costs were more expensive than in other countries in the region. "Before the implementation of new port tariffs we had the most expensive costs in the region." More in Spanish: (El Universal, 08-15-2011; http://www.eluniversal.com/2011/08/15/navieras-elevaron-costos-de-fletes-hacia-puertos-locales.shtml)

Politics

Chavez returns from chemo recharged but cautious, seeks reelection with more votes than in 2004

President Hugo Chavez returned to Venezuela in the early hours of Sunday after undergoing a second round of chemotherapy in Cuba, sounding recharged and combative in a telephone conversation with state television. Chavez said he felt fewer side effects this time from the treatment and that his doctors will decide soon whether he needs a third session and also possibly radiation therapy. Seeking reelection, on Twitter he says; “Hey comrades, if we beat the opposition by 60% 7 years ago, in 2012 we must surpass this” (Reuters, 08-14-2011; http://www.reuters.com/article/2011/08/14/venezuela-chavez-idUSN1E77D05G20110814; More in Spanish: El Universal; 08-16-2011; http://www.eluniversal.com/2011/08/16/chavez-aspira-a-ser-reelecto-con-el-doble-de-votos-de-2004.shtml)

Reuters: Chavez seeks to contain voter angst over economy

Venezuela's economy is plagued by shortages, high inflation and crippling currency controls, but a massive spending spree by President Hugo Chavez will likely keep an incipient recovery alive, at least until a 2012 vote. Polls show support for the charismatic leftist leader has edged up since he announced in June he had cancer. But unless he can generate as much sympathy for his economic stewardship, his re-election bid could be at risk. In the short term, Chavez can paper over underlying problems with subsidies, price controls and ramped-up spending on his flagship health and housing programs for the poor. (Reuters, 08-15-2011; http://uk.reuters.com/article/2011/08/15/uk-venezuela-economy-idUKTRE77E3BU20110815)

National Assembly will investigate opposition funding

The National Assembly will investigate alleged foreign financing of the opposition Democratic Unity Board (MUD). The move was proposed by the head of the pro-Government United Socialist Party, Cilia Flores; and supported by opposition Assembly members. The Executive Secretary of MUD, Ramón Guillermo Aveledo, says they can investigate the organization “as many times as they want” and that all their actions are public. He added: “They will not distract MUD from its true objective which is to continue building a solid unity and a proposal for all Venezuelans in 2012”. Chavez, upon returning from Cuba, requested the investigation “politically and legally”, and accused the opposition of “creating an atmosphere aimed at questioning” their possible defeat in 2012. More in Spanish: (El Universal; 08-16-2011; http://www.eluniversal.com/2011/08/16/an-aprobo-por-unanimidad-investigar-a-la-mesa-unitaria.shtml  and  El Universal, 08-16-2011; http://www.eluniversal.com/2011/08/16/mesa-investigacion-no-desviara-la-unidad-ni-propuesta-para-2012.shtml)

Over 500,000 people migrated from Venezuela in 2010

A total of 521,000 Venezuelans sold their belongings, rented their houses, left the country with their scarce properties or migrated without any money in 2010. At the same time, over one million people migrated to the South American country, according to a report called "Migration and Remittances Factbook 2011" by the World Bank. The number of people emigrating accounts for 1.8% in a nation of h 29,322,327 inhabitants, according to demographic by the National Statistics Institute (INE). (El Universal, 08-15-2011; http://www.eluniversal.com/2011/08/15/more-than-500000-people-emigrated-from-venezuela-in-2010.shtml)

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.

August 12th, 2011

Economics & Finance

Venezuela gets an additional U$D 4 billion loan from China, seeks another U$D 4 billion from Russia

President, Hugo Chavez announced that Venezuela is signing a new agreement with China for U$D4 billion. The vice-president of the state-owned oil company Petróleos de Venezuela (PDVSA), Asdrúbal Chávez, and the Minister for Commerce, Edmee Betancourt, are in China to negotiate the loan. He also said he spoke with Russian Prime Minister Vladimir Putin to “push forward” a U$D 4 billion loan. His remarks came during a telephone conversation broadcast by state television. (Bloomberg, 08-11-2011; http://www.bloomberg.com/news/2011-08-11/venezuela-s-chavez-spoke-with-putin-about-4-billion-loan.html and AVN, 09-11-2011; http://www.avn.info.ve/node/72121)

Venezuelan debt trades down

Venezuelan bonds experienced a negative trend for a third consecutive day as global stock markets continued to fall on fears of a possible downgrade of France, and the problems with Greece and the Euro area. The 2022 Global rose slightly by 0.30 percentage points to your quote and closed at 86.8%, still down from Monday’s 89.25%. The recently issued Global 2031, issued by the Republic last month, was not so lucky and fell short 0.35 points to 78.9%, down from 82.5% at the beginning of this week. More in Spanish. (El Nacional; 08-11-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Exports to the US at U$D 22.62 billion, up 49% from last year

The Venezuelan-American Chamber of Commerce and Industry (VENAMCHAM) reports that the Venezuela-US balance of trade in June 2011 amounted to USD 3.28 billion; 49% over the same term last year. It termed the improvement is "a clear expression of the effect of higher Venezuelan oil prices on the nation's revenues." (El Universal, 08-11-2011; http://www.eluniversal.com/2011/08/11/venezuela-has-exported-usd-2262-billion-to-the-us.shtml)

Trade with Colombia up 16%

Despite uncertainties caused by the absence of a bilateral trade agreement, Venezuela-Colombia trade rose, according to Luis Alberto Russián, CEO of the Colombian-Venezuelan Chamber of Commerce (CAVECOL).  He reported that trade over the first semester this year rose to U$D 1.04 billion, a 16% hike over the same term in 2010; and added that should this pace continue in the second half of the year, operations could end up over U$D 2 billion. (El Universal, 08-11-2011; http://www.eluniversal.com/2011/08/11/upturn-in-venezuela-colombia-trade-at-16.shtml)

Agriculture downturn confirmed by the Central Bank

Despite efforts to conceal the entire picture, the Central Bank 2010 economic report includes a graph which shows agricultural production trending down since 2008; last year, it barely surpassed 0%. (El Universal, 08-10-2011; http://www.eluniversal.com/2011/08/10/crop-loss-at-the-central-bank-of-venezuela.shtml)

Central Bank report shows 5,4% drop in household income by the close of 2010

According to information from the Central Bank (BCV) household income dropped 5,4%, at the close of 2010; at a pace “more accelerated than the previous year” More in Spanish. (El Universal; 08-12-2011; http://www.eluniversal.com/2011/08/12/bcv-reporto-caida-de-54-en-remuneraciones-al-cierre-de-2010.shtml)

Report shows confiscated companies have become a ghost industrial complex

A lengthy report by Madrid’s El País daily shows companies taken over by the Chavez Government have become a “great ghost industrial complex”. Between 2007 and 2009 Venezuela has put more money into paying for expropriations and nationalizations than into oil production. According to official data investment in exploration and production at PDVSA was U$D 21.931 billion; while the amount allocated to buy huge companies such as Siderúrgica del Orinoco (Sidor) or the national telephone company (CANTV), was U$D 23.377 billion. The amount does not include 17 cases (oil, mining, cement) currently subject to international arbitration. Studies show most companies taken over “do not generate income enough to cover their own operating costs”. More in Spanish. (El País, 08-07-2011; http://www.elpais.com/articulo/economia/global/Expropiaciones/fruto/elpepueconeg/20110807elpnegeco_1/Tes)

Venezuela to resolve Koch plant nationalization, Mundo reports

Venezuela is in talks with Koch Industries Inc. over the nationalization of the FERTINITRO plant and plans to resolve the issue by year end, El Mundo reported, citing Saul Ameliach, president of state petrochemical firm PEQUIVEN.

FERTINITRO, 35% owned by Koch when President Hugo Chavez took it over last year, produces ammonia and other chemicals in Anzoátegui state, central east Venezuela. Ameliach didn’t give further details, according to the newspaper. (Bloomberg, 08-11-2011; http://www.bloomberg.com/news/2011-08-11/venezuela-to-resolve-koch-plant-nationalization-mundo-reports.html)

Commodities

PDVSA says electricity supply to upgraders is now restored

State-run oil company Petróleos de Venezuela, S.A. (PDVSA) says on its website that operations were restored at the four heavy oil upgraders in José Antonio Anzoátegui Industrial Complex in northeast Venezuela, after a power failure on Monday. The blackout started in the Yaracuy-El Tablazo 400 KV line of the National Interconnected System, which feeds the transmission substation at the heavy crude oil processing compound. (El Universal, 08-10-2011; http://www.eluniversal.com/2011/08/10/pdvsa-announces-restoration-of-electrical-supply-to-upgraders.shtml)

OPEC reports slight increase in Venezuela’s oil production in July

OPEC member Venezuela produced 2.77 million barrels of oil per day (bpd) in June, down from 2.79 million bpd in May, the oil ministry said on Thursday. The South American nation exported 2.41 million bpd of crude and products in June, compared with 2.48 million bpd in May. During July, Venezuela produced 2.42 million bpd, an increase of 5.2% over July 2010, when production averaged 2.3 million barrels a day. Venezuela's July extraction increased by 17,000 bpd, 0.7% up from June. (El Universal, 08-10-2011; http://www.eluniversal.com/2011/08/10/opec-reports-increase-in-production-in-venezuela-in-july.shtml and Reuters, 08-11-2011; http://www.reuters.com/article/2011/08/11/venezuela-oil-production-idUSN1E77A0RQ20110811)

Politics

Chavez says he feels well after chemotherapy

President Hugo Chavez told Venezuelans on Thursday he was reacting well to a second round of chemotherapy in Cuba and believed he was winning his battle against cancer. In a telephone call to state television from his hospital bed in Havana, the 57-year-old said he would finish this session of treatment on Friday but gave no date for his return home. "I'm taking well to the treatment, which began Monday and should finish on Friday," he said. (Reuters, 08-11-2011; http://www.reuters.com/article/2011/08/11/venezuela-chavez-idUSN1E77A16M20110811)

According to analyst Michael Rowan there may be 5 million phantom voters on official voting rolls

Rowan writes that serious academic statistical analysis estimates that there may be five million phantom voters on the Venezuelan official voters roll, which has not been independently audited for seven years.

In a July 29 TV address, President Chávez claimed that the US government is conspiring with the united opposition to defraud the actual winner of the 2012 presidential election, which Chávez knows is going to be him, Chávez. "They will claim electoral fraud," Chávez mused, "and then say they won and that the tyrant does not deliver. They will then threaten violence. That is the scenario that they are preparing." (El Universal, 08-10-2011; http://www.eluniversal.com/2011/08/10/election-fraud.shtml)

National Assembly to investigate purchase of Colombian news channel by former director of Globovisión

Venezuela's National Assembly (AN) today agreed to investigate the former director of the news channel Globovisión Alberto Ravell to determine the origin of the "large amount" in dollars paid for the purchase of a Colombian television news channel. "We would like to know how this man has ten million dollars when we have had seven years of foreign exchange controls in Venezuela”, says the chairman of the Standing Committee on Finance, Ricardo Sanguino. Ravell replied that he is "a promoter" and not a businessman or entrepreneur. "I managed to get a group of businessmen who deal with American media to agree, I sold the project, they liked my idea and embarked on this project with me". (Google News, 08-10-2011; http://www.google.com/hostednews/epa/article/ALeqM5jyRhh0-SF6Ipp0M89xd6Hj5-psVw?docId=1585064)

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.

August 09th, 2011

Economics & Finance

Venezuelan bonds fell amid the crisis in global markets, despite some predictions

Venezuelan bonds fell an average of four points as investors dispose of any titles linked to raw materials and oil, and take refuge in Treasury of the United States. Reality contradicts views advanced by some analysts who predicted a revalued role for emerging markets. Venezuelan debt depreciated over one point, which is the limit for considering again or loss relevant. The Sovereign Bond 2031, issued recently, fell 5.25 points to close at 78.25%. Fitch Ratings Director Pedro El Khaouli had said this could be an "opportunity" for the secondary market for Venezuelan bonds denominated in dollars. More information in Spanish. (El Nacional, 08-09-2011; http://www.el-nacional.com/www/site/p_contenido.php, and El Mundo, 08-09-2011; http://www.elmundo.com.ve/noticias/mercados/inversion/rebaja-crediticia-en-eeuu--una-oportunidad-para-in.aspx)

Chavez: Venezuela not immune from U.S. economic woes

President Hugo Chavez said Saturday that Venezuela is not immune to the economic woes afflicting the U.S. and Europe despite efforts to distance itself from world powers and establish a socialist system. Chavez warned that economic problems around the globe would probably hurt Venezuela as international oil prices fall, but added that the South American nation has partially protected itself by diversifying its economy and forging trade ties with countries like China and Russia. (Fox News, 08-06-2011; http://www.foxnews.com/world/2011/08/06/chavez-venezuela-not-immune-from-us-economic-woes/ and The Washington Post, 08-06-2011; http://www.washingtonpost.com/world/europe/hugo-chavez-warns-venezuelans-of-potential-hurt-from-economic-woes-of-united-states-europe/2011/08/06/gIQAnvG8yI_story.html)

Government has issued an additional U$D 16-billion debt

Despite skyrocketing oil prices where this year so far the Venezuelan oil barrel has smashed a record averaging U$D 99.27, the Chavez administration is getting into debt at a frantic pace. Between September 2010 and July 2011, the Venezuelan Ministry of Finance and state-run oil holding Petróleos de Venezuela (PDVSA) have borrowed about U$D 16.5 billion, an amount equivalent to U$D 50 million daily over the past 11 months, through the sale of bonds denominated in foreign currency and borrowing from Japanese firms.  This estimation includes issue and reissue of bonds maturing in 2013, 2015, 2016, 2017, 2022 and 2031, launched to the market the last week of July, as well as a credit for U$D 500 million sought by PDVSA from Japan. (El Universal, 08-06-2011; http://www.eluniversal.com/2011/08/06/venezuelan-government-has-issued-a-usd-16-billion-debt.shtml)

SITME operation steadily raises Venezuela’s foreign debt

The Venezuelan government created the Transaction System for Foreign-Currency Denominated Securities (SITME) in order to bolster distribution of U$ dollars. Under this system, companies buy bonds in foreign currency at the Central Bank and can sell them abroad to obtain dollars at an average exchange rate of VEB 5.30. Yet the results have not been as expected: Since the system needs sufficient bonds to sell on a daily basis both the government and state-run oil holding Petróleos de Venezuela (PDVSA) to steadily raise their indebtedness and compromise public finances. (El Universal, 08-06-2011; http://www.eluniversal.com/2011/08/06/sitme-steadily-moves-venezuelan-foreign-debt-up.shtml)

CADIVI has authorized U$D 11.835 billion for imports this year

The Currency Administration Commission (CADIVI) has authorized U$D 11.835 billion for normal imports and through payment agreements within the Latin American Integration Association (ALADI), in the first semester this year.

Of the total, U$D 9.494 billion went to ordinary imports, which is 65.1% of total foreign exchange approved by CADIVI. U$D 2.341 billion were granted under the ALADI agreement, for 16.1% of approved foreign exchange transactions. More information in Spanish. (AVN, 08-09-2011; http://www.avn.info.ve/node/71591)

Dialogue breaks down as Government and business discuss Price-Cost Law

Despite a “cordial” call by the Government for private sector companies to sit down and discuss the cost structures made by Executive Vice President Elias Jaua, new allegations by the Food Minister Carlos Osorio have attempted to discredit data provided by the Venezuelan Dairy Industry Association (CAVILAC) and the Venezuelan Food Industry Association (CAVIDEA) calling them "unrealistic" and seeking only to profit. The Minister said: "All associations: CAVILAC, FEDECÁMARAS and CAVIDEA represent savage capitalism". More information in Spanish. (Tal Cual, 08-09-2011; http://www.talcualdigital.com/index.html)

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Venezuelan acquires Colombian cable news channel

Venezuelan journalist Alberto Federico Ravell, formerly a shareholder of GLOBOVISIÓN shareholder, has acquired 100% of Colombia's cable channel news CABLENOTICIAS. Juan Gonzalo Angel, owner of Cablenoticias said in an interview that he sold Ravell the channel for U$D 17 million: U$D 10 million in cash and the remainder paid in installments. More information in Spanish. (Noticias Terra, 08-05-2011; http://noticias.terra.com.co/internacional/latinoamerica/venezolano-adquiere-100-de-noticiero-por-cable-colombiano,476a9a4368b91310VgnVCM10000098f154d0RCRD.html)

Commodities

Government doubts international commodity prices

As the Venezuelan government struggles with corporate cost structures of companies in order to keep a lid on prices, they are expressing distrust even about international value ​​of agricultural commodities. "In this world there is market speculation to increase the prices of commodities overnight," say Food Minister, Carlos Osorio. The Minister claims international commodity prices are handled by “great mafias”; and adds “one sees CARGILL, one of the largest pasta processers in Venezuela, which is in 162 countries worldwide and is also one of the key wheat producers abroad. How can they justify that prices on a ton of wheat go from 300 to 600 U$D overnight; and then go back down again the next week after we grant them dollars? More information in Spanish. (Entorno Inteligente, 08-08-2011; http://www.entornointeligente.com/articulo/1149956/VENEZUELA-Gobierno-desconfia-de-precios-de-commodities)

Over five years PDVSA's payroll leapt by 89% while output dove 8%

The payroll of state-run oil holding Petróleos de Venezuela is increasing. The corporation not only manages and controls the entire production of hydrocarbons in the country and takes part in many service-related activities, but is also owner and operates companies involved in agriculture and industry, beyond its core business. While most of the payroll is staff of ongoing projects for future drilling at the Orinoco Oil Belt, the exponential leap of Pdvsa's workers is not reflected in increasing production numbers. PDVSA reports show that over five years the payroll grew 89%, whereas drilling sank 8%. (El Universal, 08-08-2011; http://www.eluniversal.com/2011/08/08/in-five-year-term-pdvsas-payroll-leaps-by-89-output-dives-8.shtml)

Venezuela Oil Falls to U$D103.45

Venezuela's Ministry of Energy and Petroleum reports that the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) fell to U$D 103.45 during the week ending August 5, down from the previous week's U$D107.84, but still raising the average for the year to U$D 99.43. (Latin American Herald Tribune, 08-05-2011; http://www.laht.com/article.asp?ArticleId=413558&CategoryId=10717)

Foreign oil partners focus on the Orinoco belt, gas

Development of the Orinoco Oil Belt and natural gas deposits are some of the most ambitious projects for foreign partners of state-run oil holding Petróleos de Venezuela (PDVSA). Despite a difficult business environment, including tax and legal changes every two or three years, they do not want to not miss out on the chance of taking part in development and drilling of huge reserves of Venezuelan hydrocarbons. (El Universal, 08-08-2011; http://www.eluniversal.com/2011/08/08/foreign-oil-partners-focus-on-the-orinoco-belt-gas.shtml)

Energy Minister claims Venezuelan is on track to dramatically increase oil output in coming years

Venezuela’s top energy official said the government is making progress on long-term plans to dramatically boost oil output and is also aiming to diversify an economy that remains heavily reliant on oil wealth. Energy Minister Rafael Ramirez says that the country intends to increase production of heavy crude in the eastern Orinoco River basin by about 15% this year, and by 15% to 25% next year. Venezuela’s goal is to lift its oil output from about 3 million barrels a day now to about 4 million barrels a day in 2015. (The Washington Post, 08-06-2011; http://www.washingtonpost.com/business/energy-minister-says-venezuela-aiming-to-dramatically-increase-oil-output-in-coming-years/2011/08/06/gIQAFa5myI_story.html)

Venezuela exported in July over 12.7 million liters of fuel to Colombia

Venezuela sent Colombia more than 12.7 million liters of fuel to Colombia in July, as part of the bilateral cooperation agreements. That is 5.89% more than in the previous month and will help the neighboring country to cover part of the demand in the 95 gas stations in the Colombian department Norte de Santander. (AVN, 08-08-2011; http://www.avn.info.ve/node/71511)

Politics

Chavez back in Cuba for additional chemotherapy

Venezuelan President Hugo Chavez is now in Cuba again for the next phase of his cancer treatment. His second round of chemotherapy was scheduled to begin last Sunday. Venezuelan lawmakers met Saturday in a special session to authorize his trip, which "could last for several days," according to a statement on the National Assembly's website. (CNN, 08-07-2011;

http://edition.cnn.com/2011/WORLD/americas/08/07/cuba.venezuela.chavez/index.html?iref=allsearch)

Chavez officially recognizes inefficiency

In a recent interview President Hugo Chávez ruled out the possibility of an election defeat in 2012, but admitted that the "inefficiency" has been one of the main mistakes of his government. "The lack of efficiency in the routine, day in, adds up to a big mistake that has often jeopardized the government policies, social and economic policies" Chavez said, and added that "inventing a new model inevitably leads to mistakes". (More information in Spanish. (Tal Cual; 08-08-2011; http://www.talcualdigital.com/index.html)

Andean Community awaits the return of Venezuela

The Andean Community (CAN) still hopes for Venezuela’s return after more than five years since the government of President Hugo Chavez decided to withdraw because of differences with Colombia and Peru negotiated a free trade agreement with the United States. The group’s Secretary General Adalid Contreras says they “do not lose hope that Venezuela would return to the Andean Community, it is part of the CAN," He added that after Chile's return to CAN (with headquarters in Lima) as an associated country after 30 years of absence, "ideally, now we could have the union of the six original members (Colombia, Ecuador, Bolivia, Peru, Venezuela and Chile". (El Universal; 08-08-2011; http://www.eluniversal.com/2011/08/08/la-can-aun-aguarda-por-el-regreso-de-venezuela-al-grupo.shtml)

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.

August 05th, 2011

Economics & Finance

Debt service is smothering the economy

According to Caracas daily TAL CUAL, the Chavez-Giordani model will end in total failure. Although proponents of new indebtedness claim Venezuela has one of the lowest debt/GDP ratios in Latin America, the publication says nationalizations have generated unprecedented fiscal deficits, which have overwhelmed and distorted state finances. According to economist Alejandro Grisanti, of Barclays Capital, Venezuela has 17 outstanding bond issues, of which 15 were placed during the past 12 years, for a total of U$D 31.3 billion. They generate yearly interest payments of U$D 3 billion. In addition, since 2007 PDVSA has issued 8 bonds for U$D 18.5 billion, and yearly interest payments of U$D 1.5 billion. More information in Spanish. (Tal Cual, 08-03-2011; http://www.talcualdigital.com/Avances/Viewer.aspx?id=56484&secid=3 and El Nacional; http://www.el-nacional.com/www/site/p_contenido.php)

The public sector absorbed 60% of the 2031 bond; JP Morgan terms it “unattractive”

As some analysts expected, most of the 2031 Sovereign Bonds went to the public sector. Minister of Planning and Finance, Jorge Giordani, reports that 60% of the issue was taken by government entities. Of the U$D 4.2 billion issued, U$D 2,520 million are in the hands of official entities. Further, although specifications indicated 40% (U$D 1.68 billion) were earmarked for priorities in health, food and capital goods, only 33% went to these areas, according to a detailed note of the ministerial portfolio. JP Morgan has reported that the newly issued 2031 Sovereign Bond is not "too attractive" to the market despite its high yield since it seems designed to meet the import demands. More information in Spanish. (Tal Cual; 08-04-2011; http://www.talcualdigital.com/index.html and El Nacional; 08-04-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Venezuela's annual inflation tops 25%

Venezuelan officials say the country's annual inflation rate has risen to 25.1%. The Central Bank and the National Statistics Institute record a 2.7% rise in prices during July. That's up from the annualized rate of 23.6% in June. Food prices rose especially quickly, increasing 4.8% last month alone. The oil-exporting country has consistently had Latin America's highest inflation in recent years. Prices rose 27.2% during 2010. (Forbes, 08-04-2011; http://www.forbes.com/feeds/ap/2011/08/04/business-lt-venezuela-inflation_8601126.html)

BCV president considers inflation troublesome

Nelson Merentes, the president of the Central Bank of Venezuela (BCV), acknowledged on Thursday that inflation continues being the country's problem. Accumulated inflation in seven months totals 16% and it is expected to end 2011 at 23%-25%. "It is a problem to turn three decades around. All of us should focus our creative capabilities, our work and our knowledge and try to find a way to reach one digit in the short term, in two or three years at the very latest". (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/for-the-bcv-president-inflation-is-still-troublesome.shtml)

Jaua admits that the U.S. recession will affect Venezuela, but not as much as before

Venezuela's government admits that recession in the U.S. economy affects this country, but not as much as before, due to a policy that has become independent of the "bankrupt" U.S. Venezuelan Vice President Elias Jaua says "Venezuela has spent twelve years separating itself from that ship" and the crisis has "an effect on us ... but we are not dependent on funding and on the failed banks in the United States". He adds that this "allows you to navigate through a crisis with some comfort, without resorting to layoffs, or regressive policies in social rights." More information in Spanish. (El Mundo, 08-03-2011; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/jaua-admite-que-la-recesion-de-eeuu-afecta-a-venez.aspx)

Economist expects only partial enforcement of the new Cost-Price Law

Economist José Guerra says enforcement of the new Law on Fair Costs and Prices could bring the Venezuelan economy to a standstill. He adds “my impression is that the law will be implemented only partially. If the law is implemented as it is, the economy will be paralyzed" (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/cost-law-expected-to-be-partially-enforced.shtml)

World Bank tribunal dismisses BRANDES case against Venezuela

An international arbitration panel dismissed a claim by BRANDES Investment Partners against Venezuela seeking damages for the forced sale of its stock in the nationalization of the country’s phone company. CANTV. The panel sided with Venezuela, saying it lacked jurisdiction to resolve the dispute, and put an end to a case filed in 2008.  (Bloomberg, 08-03-2011; http://www.bloomberg.com/news/2011-08-03/world-bank-tribunal-dismisses-brandes-case-against-venezuela.html and Noticiero Digital, 08-03-2011; http://www.noticierodigital.com/2011/08/tribunal-internacional-rechaza-reclamo-de-empresa-estadounidense-por-nacionalizacion-de-cantv/)

Commodities

PDVSA commits almost 350,000 bpd of oil yearly to China

Eulogio del Pino, Exploration and Production Vice-President for the state-owned oil holding Petróleos de Venezuela (PDVSA) says Venezuela is supplying around 350,000 barrels per day (bpd) of crude oil and byproducts to China under agreements for the repayment of the Chinese Fund. (El Universal, 08-04-2011; http://www.eluniversal.com/2011/08/04/pdvsa-sends-near-350000-bpd-of-oil-to-china.shtml)

Oil shipments to Iran, Belarus and Portugal increased drastically in 2010

The latest yearly management report by state-run Petróleos de Venezuela (PDVSA) shows it provided Portugal, Iran and Belarus around 88,000 barrels per day (bpd) of crude oil and byproducts during 2010. No further details as to individual destination were provided. This was an exponential increase in volume for last year, as compared to 5,000 bpd annually in 2008 and 2009. (El Universal, 08-03-2011; http://www.eluniversal.com/2011/08/03/pdvsa-has-given-iran-belarus-and-portugal-88000-bpd-of-oil.shtml)

Venezuela increased oil dispatches to the United States during the last week of July PDVSA was shipping 882,000 barrels a day, up 65.1% from the previous month, according to a report from the US Department of Energy. Venezuelan imports average around one million barrels a day so far this year, 900,000 of which correspond exclusively to oil and the remaining 100,000 barrels to by-products. (Veneconomy, 08-04-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27043&idc=4)

Fire affects operations at Venezuela oil dock

A fire affected operations on Thursday at one of Venezuela's main docks used for shipping petroleum byproducts like coke and sulfur from the state oil company PDVSA, a union representative told Reuters. Many of the oil terminals in the South American OPEC nation suffer frequent disruptions because of poor maintenance, hurting oil industry exports. (Reuters, 08-04-2011; http://af.reuters.com/article/energyOilNews/idAFN1E7731UA20110804)

CVG BAUXILUM production in the hands of GLENCORE through 2018

According to Correo del Caroni newspaper, GLENCORE will advance U$D 120 million in installments in exchange for 1 million 380 thousand tons of alumina, to be delivered from 2014 to 2018. This is 69% of the plant’s annual installed capacity. In 2009, the company signed a similar contract with GLENCORE, engaging part of its production until 2013. According to José Luis Morocoima, Secretary General of SUTRALIMINA, the Aluminium Workers Union, the multinational company will make a first installment of U$D 40 million in order to solve production problems. More information in Spanish. (Correo del Caroni, 08-04-2011; http://www.correodelcaroni.com/index.php?option=com_content&view=article&id=184212:cvg-bauxilum-en-manos-de-glencore-hasta-2018&catid=75:laboral&Itemid=114; La Patilla, 08-04-2011; http://www.lapatilla.com/site/2011/08/04/cvg-bauxilum-en-manos-de-transnacional-glencore-hasta-2018/)

ALCASA in danger of collapsing

ALCASA President, Elio Sayago, says that due to "ineffective financial bureaucracy" the nation’s largest aluminum company – which belongs to State-owned Corporacion Venezolana de Guayana - is in a fragile state "despite funds for raw materials and requirements provided by the Government." As a consequence of delays in allocating emergency funds operating costs rose due to the absence of fluoride and other chemicals needed to maintain the operational cells. "This puts us in danger of an operational collapse." More information in Spanish. (Tal Cual; 08-04-2011;  http://www.talcualdigital.com/index.html)

Politics

Chávez to call Santos over FARC issues

President Hugo Chávez said he will cal Colombian President Juan Manuel Santos over statements by the commander of Colombia’s Armed Forces, Edgar Cely, about the presence in Venezuela of members of the rebel Revolutionary Armed Forces of Colombia. "I asked my staff to call President Santos because I want to talk to him." He noted that the Colombian government has clarified Cely's statements on the alleged presence of FARC and ELN guerrillas in Venezuelan territory. (El Universal, 08-03-2011; http://www.eluniversal.com/2011/08/03/chavez-is-to-call-santos-to-address-farc-issue.shtml)

Santos says some are interested in damaging ties with Venezuela

Colombian President Juan Manuel Santos says that "many enemies" want to damage relations between Colombia and Venezuela, but added that "mutual trust" prevails. The Colombian leader would not name the sectors trying to torpedo bilateral relationships, but says that "we began a sort of process of restoring mutual confidence with President Chavez" AP reported. (El Universal, 08-02-2011; http://www.eluniversal.com/2011/08/02/santos-there-are-sectors-interested-in-harming-ties-with-venezuela.shtml)

Analyst believes we could be on the brink of a serious diplomatic impasse

Economist and Carabobo University Professor José Ignacio Díaz Retali believes the situation could arise if Chávez government accepts Libya’s request to take over its oil production in order to have access to funds sanctioned since February 2011. He added the consequences for Venezuela could even affect its internal economy. (Veneconomy, 08-03-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=27020&idc=4)

Morales say Chavez's illness delays debate on new OAS without the U.S.

Bolivian President Evo Morales says “there is a continental issue: A new OAS without the United States, without the North. Regrettably, this debate has been postponed due to the health problems of comrade Chavez". Morales say meetings are pending in the region to discuss this issue and expressed concern over possible effects on developing countries' “unpayable debts". More information in Spanish. (El Mundo, 08-05-011;  http://www.elmundo.com.ve/noticias/economia/internacional/enfermedad-de-chavez-posterga-debate-sobre-nueva-o.aspx)

Venezuela: After Hugo, an analysis by Walter Molano of BCP Securities

In 1989, a Category 5 hurricane ripped through parts of the Caribbean and the south of the United States, killing 56 people and causing $10 billion in damages. The storm, called Hugo, left an indelible mark on the Gulf Coast. In the same way, Venezuelan President Hugo Chavez is leaving a permanent scar on Latin America. Venezuela was once the star of Latin America. In the early 1990s, the government privatized state-owned companies, allowing them to issue IPOs and Eurobonds. Eschewed by the investment community, thanks to the radical policies of the Bolivarian tyrant, Venezuela became one of the favorite destinations for the high beta investor—willing to take a punt regardless of the underlying risk in order to boost their returns. On paper, Venezuela has some of the best credit metrics in Latin America. Therefore, it is no surprise that some investors are lured by Venezuela’s siren song. However, there is more than meets the eye. (Latin Business Chronicle, 08-04-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=5049)

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.