President Hugo Chavez said during his weekly “Hello President” on 23 May that he plans to discuss soon with Italy’s ambassador to Venezuela “a special financing mechanism similar to what we now have with China.”
Venezuela has two credit-for-oil mechanisms in place with China that are worth a combined $28 billion.
One consists of a special $12 billion Venezuela-China infrastructure fund that was created in 2008 to finance infrastructure projects in Venezuela. China’s contribution to this fund totaled $8 billion and is structured as a loan payable with approximately 60,000 b/d of crude oil and refined products over three years. About $11 billion of this fund already has been spent. Chavez said on 23 May that half of this loan, or $4 billion, will be repaid in full by end-2010.
The second is a $20 billion credit, half in dollars and half in yuan, that is payable with 100,000 b/d of crude oil or refined products over the coming ten years. This loan, granted in April 2010, will be used to finance oil and other projects in Venezuela in which Chinese companies have a direct stake or are equipment suppliers.
Chavez said on 23 May that Venezuela could borrow up to $6 billion from Italian (government?) lenders, payable over five years with 50,000 b/d of crude oil assuming a price of $70 per barrel. He added that the 50,000 b/d earmarked to repay a possible Italian loan to Venezuela’s government would be taken from Pdvsa’s planned 1 million b/d increase in its crude oil production capacity between 2010 and 2015.
The response from Italy’s embassy in Caracas: “Nessuno commenti.”
But Caracas Gringo’s sources in the Energy and Finance Ministries confirm that the regime wants to replicate with other countries the debt-for-oil deals it has in place with China, with a small difference: the oil that Chavez proposes to repay such loans with is still in the ground, and as yet there is no production infrastructure in place to extract that oil.
The ministry sources said that the Venezuela-China special credit-for-oil agreements provide the Chavez government a way to monetize the country’s crude oil reserves before the crude comes out of the ground.
But they declined to disclose how much new debt the regime hopes to secure by offering payment in crude oil, because no decisions have been reached yet on how much money will be sought. The officials also declined to identify the countries that the Chavez regime hopes to negotiate credit-for-oil deals with. But they add that Venezuela’s crude oil reserves provide the country with very substantial borrowing capability.
Pdvsa claims that Venezuela’s certified proven reserves of crude oil totaled over 211 billion barrels as of 18 March 2010, and are expected to rise to over 315 billion barrels by end-2010 when its Magna Reserva reserves certification initiative in the Orinoco oil belt is scheduled for completion. The US Geological survey reported last year that the oil belt may hold recoverable reserves of over 500 billion barrels.
These certified crude oil reserves give Venezuela the leverage (“palanca”) to borrow tens of billions of dollars that could be used to pay for all of the revolution’s energy, power, basic infrastructure and social programs, and still have billions left over, says an Energy Ministry source. Looking at the paper numbers that Pdvsa and Corpoelec routinely toss around, this adds up potentially to close to $200 billion.
However, the president’s plans to mortgage the country’s crude oil reserves while still in the ground are, in a word, insane. More importantly, it tends to confirm that the revolution is scraping the bottom of the barrel in terms of cash resources available to keep the regime afloat. Assuming that other governments besides China’s are willing to lend tens of billions of dollars to the Chavez regime, mortgaging billions of barrels of crude oil still in the ground to finance current spending programs is a surefire way of burning up the bulk of the revenues that Venezuela could receive in future years when (and if) the production infrastructure is finally developed.
But Chavez has a plan: In 10 or 15 or 20 years, he said on 23 May, the average international price of oil could be as high as $150 per barrel, perhaps even higher, which means that securing loans today payable with oil shipments over the coming years would not deplete Venezuela’s future oil earnings. Just the sort of thinking “Manimal” (thank you, Venepiramides) Giordani excels at.
Caracas Gringo thinks that the president’s idea of replicating with other countries the financing mechanisms it now has with China is proof of the regime’s growing desperation.
Chavez has achieved the seemingly impossible: He bankrupted the Venezuelan state despite the fact that Venezuela during the past decade has seen its oil export revenues climb to the highest levels in its history as a democracy – before Chavez arrived and systematically destroyed the country. The signs of the Bolivarian revolution’s insolvency are abundant.
The Finance Ministry claims that Venezuela’s total debt, including Pdvsa’s debt, is about $63.58 billion, of which $21.41 billion is owed by Pdvsa. The ministry also says that the internal debt is about Bs.F. 53.17 billion, which at the official exchange rate of Bs.F. 2.60 per dollar is $20.45 billion. Thus, the regime’s total officially acknowledged debt is about $84.03 billion. However, these official numbers significantly understate the Chavez regime’s total debt.
For example, the ministry’s official debt numbers do not include $28 billion owed to China, so the real total rises to over $112 billion, but that’s still the tip of the iceberg.
The official debt numbers also do not include the billions owed by the regime to the legal owners of the more than 750 productive assets including lands stolen since 2005 by the revolution. For example, Noticias Centro estimates that the regime owes Spanish creditors alone between $20 billion and $24 billion. Additionally, another $20 billion to $30 billion are owed (estimates vary depending on the source) as compensation claimed by foreign companies whose assets were expropriated unlawfully. The official figures also do not include other liabilities like an estimated $15 billion worth of past-due government obligations to workers which have been piling up since before the Chavez era.
The bottom line is that no one really knows precisely how much the Chavez regime’s debts total. But there certainly are no doubts at all that the regime isn’t paying anyone.
Evidence of the revolution’s bankruptcy include Pdvsa’s demands that its minority partners pay front-end bonuses and also secure billions in project financing loans on Pdvsa’s behalf. Also, Citgo’s just-announced $1.5 billion bond issue, Pdvsa’s continued refusal to pay oil companies and services companies for their expropriated assets, its failure to honor debts owed to the oil workers, and its inability to advance even a single major oil, refining and gas project all point to a cash-starved revolution.
Moreover, oil services companies aren’t the only ones who aren’t being paid. Eurobras Guri, a German-Brazilian consortium contracted to modernize the Guri Dam’s aging Francis turbines, has suspended work due to non-payment. The companies building the regime’s railroad from Caracas to Puerto Cabello also have practically stopped working because they aren’t being paid.
Meanwhile, hundreds of thousands of Venezuelan workers who foolishly embraced the Bolivarian revolution because they believed Chavez’s propaganda about a “people’s revolution” are now habitually scolded by a president who says that workers should stop their whiney complaining about unpaid wages, and focus instead on making the revolution a success.
Besides, adds Chavez, it’s bad to own one’s own vehicle and save a little money in one’s lifetime. Socialism is not supposed to make people wealthier, he adds. Many workers finally appear to be realizing that they were deceived by a regime that now routinely jails workers who protest against the deadbeat regime. However, no one should expect the “bravo pueblo” to rise up gloriously against the despotic Chavez regime.
After 11 years of Chavez, and before that, decades of self-serving AD-Copei corruption, it appears that the majority of Venezuelans have become a gelded pueblo resigned to waiting submissively while the Bolivarian revolution sinks into the sea of 21st Century Socialist felicity that Chavez has always promised.