Tag Archives: natural resources in Venezuela

Jul
12
2010
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Oil issues in Venezuela: has Cuba sent a ’sell’ signal?

This blog entry was originally posted by the Financial Times.

The faceless capitalists of Wall Street have long considered Venezuela a “sell” – the oil producing country’s foreign currency bonds are considered almost twice as risky as Greece’s. But might even Cuba’s revolutionary gerontocracy now believe the same?

For those who like to look at the world through the lens of financial conspiracies, that’s one tentative reading of why Cuba pledged last week to release 52 political prisoners. Yes, the issue was attracting unwelcome international attention. But it is also true that throughout its history, Cuba has been a master at playing its geo-strategic cards. The US and the USSR used to play the role of sugar daddy to the country before. Lately it’s been President Hugo Chávez’s Venezuela. But Venezuela’s economy, like Cuba’s, is now in a mess.

Any move that suggests Cuba wants to improve ties with the US – and freeing political prisoners is one step that could ease the US travel ban and, ultimately, the embargo – therefore represents a hedging of Cuba’s geo-strategic bets. Looked at another way, it is also a tacit recognition by Havana that Caracas, despite its similar ideological outlook and oil wealth, might now be, in traders’ parlance, an “underperform”.

The list of reasons of why Cuba – or Wall Street – might think so is long and growing. Venezuela this year tightened capital controls as it no longer has sufficient reserves to sustain the capital flight of the last year. Oil sector output – according to independent estimates – has fallen considerably over the past decade due to a lack of investment. And the country also faces a large and rising contingent liability in the form of unpaid compensation owed to private business that have been nationalised by Mr Chávez.

There are currently 11 lawsuits and arbitration claims totalling $43.5bn lodged with the World Bank’s International Centre for Settlement on Investment Disputes. The bulk of this relates to a $10bn claim by ExxonMobil and a $30bn claim by ConocoPhillips. Looked at another way, according to local consulting firm Ecoanalitica, Mr Chavez has announced nationalizations of some $23bn since 2006, and of that amount, the authorities have paid almost $9bn, leaving $14bn owing.

Lately, brokers only tend to recommend buying Venezuelan bonds on the basis of how long they need to hold them and not lose money. (About 4 years, assuming current 15 per cent yields and a recovery rate of 30 cents on the dollar.) With the largest oil reserves outside the Middle East, and a relatively comfortable foreign reserves position, Venezuela certainly can pay, should it wish to. The question for investors in a country where the government calls its private brokers a “tumor” is: how long will it? The Castro brothers may have given a clue.

 
Jul
12
2010
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Challenging Chavez’s grip on Venezuela: More on Globovision

This blog was originally published by the Washington Post.

During one of his interminable appearances on national television, Hugo Chávez demanded to know last month why Guillermo Zuloaga, the majority owner of Venezuela’s last opposition television station, was not in jail. “How is it possible that he can accuse me of such things and walk free?” the strongman demanded.

The answer is fairly simple: Zuloaga’s statements about Chávez were hardly criminal, and years of government investigations had turned up nothing else prosecutors could plausibly use against him. But that, of course, was not the response of Chavez’s henchmen. Within days of the broadcast, an investigation against the businessman that had been abandoned was reopened; charges were filed. On June 11, a judge ordered Zuloaga arrested and confined to one of the country’s high-security prisons.

By then, the 67-year-old owner of Globovision, an all-news channel that is now the only alternative in Venezuela to government propaganda, was no longer in the country. Like Globovision’s minority owner, another businessman whose bank was taken over by the government three days after the arrest warrant, Zuloaga sought refuge in the United States. Last week he and his son, whose arrest was also ordered, were in Washington, where they were considering making a request for asylum.

“It never crossed my mind that I would be forced to live someplace besides Venezuela,” Zuloaga told me in an interview. “But I can’t be of much help to anyone if I am in a high-security prison. And I think it’s public knowledge that all of the institutions of justice in Venezuela are controlled by the president.”

Zuloaga’s own cases offers vivid proof of that. Judges who have dared to rule in his favor have been summarily fired; charges have been blatantly concocted to serve Chávez’s whim. The case that forced him into exile concerns not the criticism the caudillo complained of but a claim that the broadcaster, who also owns a car dealership, was guilty of “hoarding” his inventory — a charge so ludicrous that Chávez’s own attorney general had dropped it, before scrambling to revive it after the televised diktat.
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The attack on Globovision betrays Chávez’s desperation. Alone in Latin America, Venezuela’s economy continues to plunge sharply downward; inflation is at 30 percent; violent crime is soaring. Zuloaga’s journalists have devoted much of their attention in recent weeks to a scandal concerning the spoilage of tens of thousands of tons of food imported by the regime — at a time when shortages of basic goods are widespread.

Worst of all for Chávez, an election — for the National Assembly — is scheduled for Sept. 26. Five years ago a foolish opposition boycott turned the congress into a rubber stamp for Chávez. This year, having hammered together a unity list, the anti-Chávez forces think they could win a majority of the seats. That’s certainly what polls show. The outstanding question is what the government will do — beyond a district gerrymander that has already been imposed — to skew or steal the election.

Silencing Globovision appears to be the beginning of Chávez’s answer. “Legally there is no way the government can close Globovision,” Zuloaga said. “But that doesn’t mean there won’t be an arbitrary decision. Chávez has been trying in any way he can to control the screens of Globovision. They want to inspire fear more than they want to win votes, because they know they have run out of money to buy votes with.”

The crackdown is not without risk. Globovision, seen in more than 2 million Venezuelan homes, is popular. The government’s shutdown of another opposition broadcaster, RCTV, in 2007 provoked nationwide demonstrations and gave birth to an opposition student movement. Already, the arrest order against Zuloaga has caused considerable international condemnation, including from the U.N. rapporteur on free expression and the State Department, which called it “the latest example of the government of Venezuela’s continuing assault on the freedom of the press.”

Zuloaga says Globovision will go on, “as if we are going to be on the air forever.” He, meanwhile, will hope that Chávez cannot do the same. “I really believe what is happening in Venezuela is unsustainable,” he said. “I don’t think people can accept that the quality of life continues to do down the drain. How can that keep on happening?”

 
Jul
7
2010
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Helmerich Warns Other Firms After Venezuela Seizes Oil Rigs

Article originally published by The Wall Street Journal

Helmerich & Payne is warning other oil-field-services companies doing business in Venezuela after the drilling contractor saw 11 of its idled rigs expropriated last week by the government of President Hugo Chavez.

In a press release Tuesday, the Oklahoma-based company said other oil-services firms should be contemplating whether to stay in Venezuela. It also criticized the way state oil company Petroleos de Venezuela, or PDVSA, conducts its business.

“Reflecting on last week’s forced exit from Venezuela, it is clear now that PDVSA was not interested in both sides achieving commercial terms to return our rigs to work,” Helmerich said. “That approach only heightens concerns for our oil-field-service peers contemplating their future there, as it should.”

The Chavez-led government, which has nationalized large parts of its all-important oil industry as part of a declared push toward socialism, announced plans last month to take ownership of Helmerich’s rigs.

The rigs haven’t been used since late 2009, and the U.S. company said it wasn’t going to put them back into service until PDVSA paid it the $43 million it owed for work that was already completed.

PDVSA President Rafael Ramirez said the government decided to nationalize Helmerich’s rigs because the country couldn’t afford to let them continue to sit idle while new wells needed to be drilled.

In a partial response to PDVSA’s nonpayment to Helmerich, Mr. Ramirez accused the company of stubbornly refusing to renegotiate the rates it charged to PDVSA when oil prices were falling in early 2009 and PDVSA was falling behind on its bills.

Venezuela’s legislature approved the nationalization plan of Helmerich’s rigs last week, and the government has officially taken control of them. Mr. Ramirez said PDVSA plans to pay Helmerich for the rigs at “book value.”

In announcing the nationalization plan for Helmerich’s rigs last month, PDVSA also said it reached a deal for oil-services work with U.S. energy giant Schlumberger Ltd.

Helmerich said in its statement Tuesday that it leaves Venezuela “with our heads held high,” adding that the company fulfilled all of its contractual obligations. It also said it trained and employed thousands of Venezuelans and achieved an outstanding long-term safety record.

“The loyalty of our employees and many suppliers there will long be appreciated and remembered,” Helmerich said.

Helmerich said its future is partly reflected in new rig-building for “paying customers.”

Officials at PDVSA weren’t available to comment on Helmerich’s latest statement.