The region’s ties to the venezuelan oil company

PDVSA, petrodollars for everybody

So Venezuela became Mercosur’s 5th partner on the last day of last month, right? Wrong, the 5th partner is PDVSA, Venezuela’s state oil company. Ranging from suspended Paraguay to the regional giant Brazil and passing through Argentina and Uruguay, all these countries are joined at the rib (via varying numbers) to the spine of the Venezuelan state oil company. Its petrodollars, the flow of crude and the prodigiously Bolivarian generosity account for 96 percent of Venezuelan revenues.

PDVSA is the main supplier of Petropar (Paraguay’s oil company) and Ancap (Uruguay’s). Needless to say, Venezuela is the main creditor in both cases. In the case of Ancap, for only a few more days — according to last week’s announcements by Rafael Ramírez, Venezuela’s Petroleum Minister who doubles as PDVSA chief, and Raúl Sendic, in charge of Ancap and José Mujica’s possible preference to be his heir as the Broad Front presidential candidate, the advance payment of Uruguay’s 860-million-dollar debt with PDVSA should be defined before the month is out.

Ancap freed

With a major haircut, they point out in both Caracas and Montevideo. This operation, which would practically cancel Uruguay’s liabilities (relieving it of the obligation to pay almost 50 million dollars annually to service this debt) would extend this “major haircut” to Ancap’s purchase of debt bonds issued by PDVSA at market prices. As for the future, Ancap will continue “using the agreement to purchase crude whereby 25 percent of the cargo is to be financed over 15 years at an annual interest rate of two percent,” revealed Sendic. There will also be a further sweetener for the Venezuelan oil company — from controlling 7.5 percent of the shares held by PDVSA in Alcoholes del Uruguay S.A. (ALUR, under Ancap’s wing), it will now advance to 25 percent.

Meanwhile the Uruguayan government announced on Monday that it would be sending a bill to Congress to authorize Ancap to loan 517 million dollars from the Economy Ministry to cancel the PDVSA debt in advance. Ancap will reimburse the 517 million dollars to the Ministry over 10 years with redemption payments in “indexed units” (UI) at an annual interest rate of four percent. Ancap will place this money in a trust fund (the pet Bolivarian modus operandi), whose management will be delegated by PDVSA to Venezuela’s state development bank Bandes (another favourite channel for such transactions).

Galuccio’s Bolivarian baptism

In Argentina’s case, the PDVSA connection can be seen at so many different levels which have ended up converging since May, 2004, in different letters of intent, agreements and trust funds — with Enarsa (the state oil company founded by Néstor Kirchner which has yet to become operational, accumulating more debts and more payroll), with Cammesa (the true dimensions of how much the company managing Argentina’s wholesale electricity market owes PDVSA remain a mystery — the official figure is close to two billion dollars while the unofficial tops 5.2 billion) and with YPF (once upon a time, Repsol YPF).

But ever since Venezuela sneaked into Mercosur, it may be said that the political and commercial ties between the two state oil companies, nationalized YPF and PDVSA, have shot up various declamatory decibels. In Caracas in late July, Ministers Julio De Vido (Federal Planning) and Hernán Lorenzino (Economy), along with YPF CEO Miguel Galuccio (making his first pilgrimage to the Bolivarian baptismal font on this visit) “advanced in the definition of a strategic integration alliance between the (state) oil companies of both countries” in their contacts with their Venezuelan counterparts. Unconditional love yet again.

These promises, expanded at the start of this month in Buenos Aires last Wednesday, include possible joint exploitation of the Petroanzoátegui oil refinery by YPF and PDVSA. Located in the Orinoco Oil Belt and confiscated from ConocoPhillips in 2007, Petroanzoátegui has huge operational problems meeting its daily target of 130,000 barrels. A dead end. Scant signs of a deal with YPF concerning the Vaca Muerta shale deposits in Neuquén, Argentina’s new El Dorado, which would require 40 billion dollars to tap. Nor of the possible entry of PDVSA into the YPF refinery business.

In order to contribute to the dowry of (or should we say “crown”?) this union, the next day (August 2, 2012) the Argentine Central Bank (BCRA), in Point 4.6.2 of Communication “A” 5337, cleared access to dollars at the official exchange rate on behalf of the companies doing business with PDVSA, including those seeking to import goods from a third country. Membership has its privileges.

Abreu e Lima

As for Brazil, the strategic alliance of Petrobras with PDVSA has been somewhat accident-prone. The Abreu e Lima refinery project (in the northeastern state of Pernambuco), signed in 2005 by former Brazilian president Lula and by Venezuela’s Hugo Chávez, to refine up to 230,000 barrels per day of Orinoco crude, will not come on stream until 2014 with luck. No less than Petrobras president Graça Foster herself has highlighted this project as an example of how not to do things. In 2005 it was assigned a budget of 2.3 billion dollars — a month ago it was upped to 20.1 billion.

In the face of this Pantagruelian “Bolivarian inflation”, the experts compare — the cost of an Abreu e Lima barrel ascends to 87 dollars against an average between 10 and 25 dollars for high-complexity refineries recently inaugurated elsewhere in the world. But to that cost should be issued other figures released by the Agência Nacional do Petróleo (ANP), which show the tight spot in which Brazil’s fossil fuels are trapped today — in the first five months of this year, Brazilian fuel imports rose 315 percent compared with the same period last year. Expressed in other terms — 1.4 billion dollars more or filling up the tanks of 1.6 million new cars starting to circulate.

So despite the complaints that the inauguration of the refinery is running three years behind schedule with hardly any Venezuelan investment thus far, the strong Brazilian demand for fuel and crude oil prompts the critics to swallow hard and look more kindly on the idle slackers at PDVSA.