March 2018 – @alvaroriosroca – What will Venezuela have to do sooner or later to get out of the deep economic, financial and social crisis in which it finds itself? This in a country that depends approximately 90% of exports of oil and derivatives, which produces almost nothing and that basically imports everything. The only pragmatic solution to pay the debt and to straighten the economy is to privatize part or a large part of this industry and it is also going downhill and there are no signs of how to recover it. But what we observe, is that the partition of PDVSA already started before taking a formal decision in this regard and we will analyze this further on.
PDVSA is in a tailspin and its upturn is extremely complicated. Oil production fell sharply from 2006 to 2017 from 2.9 to 1.96 Million barrels per day (MMBbld). Crude exports also fell significantly (2006 – 2017) from 2.21 to 1.54 MMBbld. Exports of petroleum products slumped in the same period from 0.765 to 0.298 MMBbld.
Venezuela depends almost entirely on these exports and with which it must maintain a significant slice of the State’s needs. If we add the drop in oil prices since 2014, the situation is disastrous and manifests itself in the humanitarian crisis that has been unleashed.
Only 12 to 15 years ago Venezuela: 1) Offered cheaper oil and credit to several countries under the slogan of Latin American integration; 2) Gave away or bartered for political assistance (I think it still does) with approximately 100,000 Bbld to Cuba; 3) Offered to finance and build gas pipelines on the coasts of Latin America (Petroamerica, Petrosur, Petrocaribe, etc.); 4) Reached the countries with PDVSA full of money offering large investments in the hydrocarbons sector; 5) And much more. Sadly, today it does not have the resources to import food and medicines that it does not produce and its people flee and ask for asylum in almost all the countries of our region (except Cuba of course).
On this matter, the total debt of Venezuela is estimated at 120,000 million dollars and from time to time, it makes a “selective default” taking care of covering especially the bonds of PDVSA and the State to avoid falling into total default. However, it has a number of other obligations that it does not comply with and which we will explain below.
PDVSA accumulates a huge debt with several PDVSA partner operating companies, to which it pays little or nothing for production that is performed, and that sooner or later will have to be paid. These operators know that sooner or later something will happen and that they will have to pay the accumulated debts. Obviously they will not be able to pay them in cash, however, they will be able to keep reserves of underground oil or gas or assets in a infrastructure that will be negotiated in unbeatable conditions. That is why all of them remain crouched there, with no or few investments and declining fields. It is known that the debt with only one of them is approximately 4,000 MMUSD.
PDVSA also holds a high debt with oil service companies that is estimated at 24,000 million dollars. For some time, if cash is not paid, the service is not done and the production facilities are left in a deplorable state and production continues to fall. There is no way to get Venezuela’s base industry back on its feet. How will these service companies charge? Probably also with reserves or assets of PDVSA.
A company already owned two natural gas assets to develop them without restrictions in exchange for the payment of a maturing bond. 50% of Citgo, the refining and marketing company in the USA and other countries of PDVSA has been delivered in exchange for payment of debt. Now a diplomatic outcome has been unleashed between Russia and the USA for this 50%. And there is much more, for example in the relationship to the debt with China and its companies and that also has an eye on various assets and reserves when the debts are not paid
Is not all this the beginning of a privatization disguised and negotiated between roosters and midnight and in complete despair? There is already an early partition of PDVSA and more will come soon, as we have explained, from creditors who wait patiently. Probably additional assets will be formally delivered when trying to straighten the economy of the country. What a way to destroy value in an industry with extreme politicization, corruption and ineptitude. For a case study.