Archive for December, 2008

Venezuelan Government officials once again at the heart of a huge worldwide corruption scandal

December 15, 2008

When this blog began, I recall some of the cheerleaders of
the revolution accusing some members of the opposition of corruption during the
IVth. Republic. While we all knew some of the cases (not all) they were mostly
based on hearsay and the scale was small compared to what the robolution has
accustomed us to.

But somehow, every single case I brought up for
corruption, from Argentinean bonds, to structured notes to the lack of
separation of State and party did not seem to convince them.

But evidence mounted and what the Devil had been saying
became the standard in corruption cases in Venezuela. Then, Maletagate happened
and it seemed to link all of the cases, as the principals of Maletagate seemed
to have participated in a most of the corrupt shenanigans of the robolution.

And a funny thing happened: The cheerleaders went on the
blink, no comments, no defense. They were dumb, but not THAT dumb. Even worse,
the Venezuelan Government simply blamed the “Empire” claiming the infamous
Antonini suitcase full of cash was just a combined CIA/FBI plot to embarrass Hugo Chavez.
Only Evo has a bigger conspiracy theory than this.

But the robolution, can hide, but it can’t run. It is here
to stay and today a certain German company by the name of Siemens agreed
to pay
US$ 1.34 billion in fines for a criminal investigation on bribery
payments around the world and the robolution was very much at the center of it.

According to
the SEC complaint
, between 2001 and 2007, Siemens paid bribes in Venezuela
to the tune of US$ 16.7 million to Government officials in order to obtain
contracts for the subway systems of Valencia and Maracaibo. Using schemes that
you can read about in the complaint, Siemens paid a “consultant” or “fixer” US$
6.8 million dollars to funnel the money to Venezuelan Government officials.

While no names are given out, the money went into the bank
accounts of Venezuelan “government officials’ and “politically connected individuals”
including:

-A high ranking member of the Central Government

-A former Venezuelan Minister of Defense and diplomat

-Two prominent Venezuelan Attorneys

-A relative of a local politician

who, according to the complaint “all had influence in these
and other Siemens contracts”

This consultant, a former “advisor to former Presidents”
got some US$ 6.8 millions to steer these contracts in the right direction.

So, once again the robolution finds itself at the center
of one of the biggest corruptions scandals in the world, this time a corporate
scandal. Much like the other cases, we learn about it not because the
supposedly “clean” revolution finds out about it, but more because somewhere else
the checks and balances that that have been obliterated by the robolution in
Venezuela have revealed the intimacies of the cesspool of people surrounding
Hugo Chavez and his robolution and how he allows it to happen and continue day after day.

Because tomorrow we will hear the same tiring tune that
this is simply another attempt by the oligarchs and the empire and the CIA and
the FBI to discredit Hugo and those that closely surround him.

And don’t even dream of an investigation, the General
Prosecutor and the Comptroller and the Courts are just too busy studying the intricacies
of any laws the leading members of the opposition may have violated while
running their states and municipalities, so they can ban them from running.

They are after all the real enemy of the “process” not
these small hoodlums that rip off a few million dollars at a time. 

And the cheerleaders of the robolution?

Sinking in their own lies, defending the few things they can talk about, before they are also shown to be lies.

Venezuela: Oil, Lies and the Internet

December 14, 2008


One of the powerful things about writing a blog is the
ability to link to sources. In fact, I started this blog with “The Fable”  four posts (1,2,3,4)
which contained so many links, that it may have set a record for the number of
hyperlinks contained per line, in telling the Fable about the recent history of
Venezuela. Unfortunately, many of those links no longer exist, as other don’t
seem to have the same respect for the power of links that I do.

Take Venezuela’s oil production for example,, while PDVSA
claims to be producing 3.2 millions of barrels of oil a day, more reputable
organizations in terms of honesty and transparency like OPEC or the IEA,
claim the number is about 800,000 barrels a day less.  I mean, these are not fly-b- night operations, these are
well=respected organizations. In fact, Venezuela happens to be a member of OPEC
and you can hardly accuse OPEC of being a tool of imperialism or anything like
that. In fact, Minister of Oil and Energy and President of PDVSA once announced
Venezuela had requested that OPEC “fix” those numbers.

Which never happened…

OPEC actually lowered its quotas for Venezuela at some
point in order to adjust it to the lies of the Venezuelan Government.

And locally, if you happen to talk to someone at PDVSA,
they tell you that indeed, the country’s oil production is down (mostly
production down in the West of the country) and well below that official number
that only the cheerleaders of the robolution seem to believe in.

Well, this week the World Bank joined the chorus, when it
reported that Venezuela’s oil production had fallen 19% since 2000. Given that
the Venezuelan Government has not been able to alter all of the numbers, then
we can go to the website of
the Ministry of Energy and Oil and look up the oldest annual report with all
the details about the country and its oil. And there under PODE (Petroleo y Otros
Datos Estadisticos) on
page 39 for the 2003 report
, you find indeed that Venezuela produced in
2000 a total of 1,151,436 millions of barrel of oil, which happens to be 3.15
millions of barrels of oil per day and you get 2.55 million barrels of oil per
day using the 19% number. This is above OPEC and the IEA, but below my high estimate
the other day.
So, while the World Bank does not tell us where it got its
number, it certainly was not from OPEC, IEA or the Venezuelan Government.

And while PDVSA claims that we are using 520,000 barrels
of oil a day, in
the same webpage
we see that in 2002, the country was using 560,000 barrels
of oil a day, which would make it very difficult to reconcile with the “new”
number which is simply part of the “fudging” going on today, except they can’t
change all of the sources. Even if Ramirez holds both positions, it requires
too much work to change history Soviet style like that.

But in Spanish, there is a saying that says that that “Mas
sabe el Diablo por Viejo que por Diablo” loosely translated as “The Devil knows
more because he is old more than because he is the Devil”. Which in my case, it
fits very well, as this Devil can never forget when Venezuela began using more
than 500,000 barrels of oil a day, which happened in the year 2001 and the
country used 517,000 barrels per day and I happened to be covering the oil
industry for job-related functions.

Thus, we are expected to believe that after a huge
increase in GDP (Thanks to high oil prices, not Hugo Chavez) and a huge
increase in the number of cars on the road (Thanks to absurd subsidies in the
price of cars and gasoline), consumption actually went down.

And the lies continue. As Russian officials suggest today
that the country is already in a recession, that leader of Chavista shameless
economic “thinking” Rodrigo Cabezas, joins
the cheerleading chorus
, saying that growth in Venezuela in 2009 will be
3%. Certainly not with the country’ oil basket at US$ 31.36, as
reported on Friday by PDVSA
. (A funny number in itself, as it sports the
widest difference all year with the five day WTI average, but I haven’t been
able to figure that one out yet)

And by the way, don’t be fooled by the headline in that
Bloomberg article “48% below the budget
plan
”.  Because the lie about
the country’s oil production is not only used, but is given a Pincocchial
twist, by assuming the country will produce 3.6 millions of barrels of oil a
day at US$ 60 per barrel.

Thus, if the right numbers are used, it should really read
65% below the budget plans” if one
considers the total amount.

Thus, one should not take Cabezas’ predictions too
seriously, recall he was the one that made up the 2008 budget with inflation at
12% and we will close the year at 31%-plus., an error only comparable to naming
Cabezas Minister again, which he is lobbying hard for.

But Chavez has
been clear
, while the crisis will affect Venezuela, “we are shielded”.

Of course, this is from the same man who said oil prices
would stabilize at $100 per barrel, then at $90 and now he is talking about
surviving at $60.

Which reminds me, wasn’t it Hugo Chavez who rescued world oil
prices from oblivion, doing it again?

How come his magic is not working this time around?

The truth is that this is just a bunch of lies and liars
and they will twist and turn as the year progresses. Hugo Chavez was saved by
the “horrible” projects of the Orinoco oil belt, all planed in the terrible
days of the IVth. Republic. 
Without them the country’s oil production will be down 37% since 2000
and Hugo Chavez can’t say he has added a single new producing project in
his ten years in power.

Yes, not a single new oil producing project has been born under the
revolution.

Saying otherwise would be simply another lie.

The ultimate idiotic conspiracy theory: The US created credit crisis to get back at Hugo and other revolutionaries

December 13, 2008


When you think you have heard the ultimate stupidity
coming out of the mouths of Latin-American revolutionary leaders, here comes
Bolivia’s President Evo Morales suggesting
the ultimate stupid conspiracy theory:
that the credit crisis was provoked by the
US:

“The lower oil prices could have been provoked to punish revolutionary
Governments such as Hugo Chavez’ and some oil producing Middle East countries”

“Sadly, the Empire knows how to use financial systems in
order to punish someone”

Ironically, the Bolivian President made the statement at a
speech celebrating the end of illiteracy at the Beni Department, which goes to
show how much you need education, it is not enough to learn how to read as
Morales himself proves.

Can you imagine the scene at the CIA?: Let’s screw Hugo
even if we send the US and world economy into the worst recession since the
Depression. Who cares, we just want to get back at the guy!

Yeah! Makes lots of sense Evo, I think you have qualified now
to for a top spot in the next version of the Guide
to the Prefect Latin American Idiot
, with this brilliant idea, you have
taken the dependency theory to a new level of idiocy and stupidity. Which is
why under your leadership and that of Hugo Chavez, Bolivia and Venezuela will
sink deeper into underdevelopment.

Catching up with the revolution: Briefs on everything I have missed

December 12, 2008

—-In another triumph for the revolution, for the fourth
time in 2008, lights
went out in most of Caracas for over an hour
as another power failure hit the
system, creating a city wide blackout. Recall that Electricidad de Caracas was
nationalized in another Chavez whim in June 2007. The company had a sterling
record of maintenance with only one large blackout in five years, which was due
to a failure in the Government-run interconnected system. We have now had four
in this year and if last time they jailed four engineers, maybe the National
Assembly should jail President Chavez for paying US$ 1 billion for the company
and naming incompetent people to run it, so as to deteriorate its quality of
service in less than a year.

—-And S&P has
downgraded Venezuela
because it gets the inkling that Chavez may not do
much to attack the problems in the economy until things get worse. And they are
right, not only is the country in trouble, but now we have embarked in the
doubly illegal enmierda until at least March. At that time, no matter what the
outcome, the Government will begin deciding what to do, but by then things will
be much worse.

—-And for the fools that think things are ok in Venezuela,
overnight rates have shot up
to 50% from 5% on November 1st
.

The reason? Easy, the Government has begun withdrawing funds
from the private commercial banking system, not because it has a grandiose plan
to screw them or anything like that. The reason is much simpler. They
Government needs the money! Indeed, after using up all of the “dozavos”
(twelfths) the amount allocated monthly by the budget, in order to pay for the Government-mandated four salary Christmas bonuses for every worker, as well as spending as much as possible
ahead of the regional elections, most Ministries and Government institutions
ran out of cash to finish the year and began using their “savings”, deposited in
the commercial banks. This particularly affected smaller banking institutions
full of Government deposits which move according to who pays the highest
commission (i.e. graft!) and they had to go to the overnight market to be able to pay their
commitments.

—-And PDVSA seemed to have the same problem as it
continued selling US dollars like crazy into the parallel market so that the
Government could keep this pantomime that there is a single exchange rate in
Venezuela at Bs. 2.15 per US$, while the biggest supplier of foreign currency
in the country sells dollars at near Bs. 5 per Bs. (It is illegal to give the
quote for this market) so it can improve it s cash flow.  And PDVSA is doing this, not as a way
of intervening that market, but because it needs Bolivars.

Just think, on Sept. 28th. the Venezuelan oil
basket stood at US$ 98 per barrel. Venezuela sells most of its oil with 90-day
payment. Thus, On Dec. 28th. of this year Venezuela will still be
enjoying oil revenues at near US$ 100 per barrel, but PDVSA is having problems
with its cash flow. What will happen in March when we feel the equivalent of
around US$ 38 (my estimate) of today for the Venezuelan oil basket?

Certainly unnerving

—-And today, the National Assembly found
Manuel Rosales “politically guilty”
for illegal acts in the hiring of the
company to run the Lottery of Zulia State where he was Governor.

So, after accusing Rosales for weeks for enrichment,
claiming he has farms and the like, they only find he is guilty of  “a violation
in the procedures followed to give a Government contract to a private company
which damaged the country’s equity”.

Wow, it is truly remarkable how in a country with no checks
and balances and in which 80% of the publicly held positions are in the hands
of Chavismo, violations of these technicalities are always found to be
committed by opposition Governors and Mayors, while Chavistas are so careful
and competent that they never violate the same laws. Of course, PDVSA does not
even follow those rules, but nothing is said. To say nothing of the way Chavez
and his Ministers use Government resources for the benefit of the PSUV party.
Or the corruption charges in the Miami trial. Or Jorge Rodriguez’ visible
wealth. Or Chavez’ family, according to him always poor and now owning large
chunks of the State of Barinas. I could go on, but why bother?

There you have it, almost caught up with the news from
Chavez’ revolutionary la-la land.

Round Table discussion at the White House on Human Rights Day

December 11, 2008

Today I participated in an event with the President of the
United States who invited eight bloggers from different countries to tell him
how we use blogging and Internet technologies to tell the world our message of
what is happening in our respective countries where Human Rights are constantly
being violated. While Human Rights is not the sole subject of my blog, someone
thought my discussion of such topics in my blog made me an appropriate
representative of the Venezuelan blogosphere on Human Rights Day, which celebrated today on 60th.
Anniversary of the of the UN’s Declaration of Human Rights.

I accepted this invitation immediately, because I began this
blog six and a half years abroad in the belief I had an important story to tell, which I believed would be
much shorter in time, and I was willing to tell it to to anyone that wanted to listen to me. Never did I believe
that so many people wanted to listen and least of all, that I would be heard,
or as you will see below, attempted to be heard, at such heights of power in the
world.

The other people invited simply humbled me, not only because
they devote most of their time to human right activities, but also because some
of them have faced dangers and threats, including prison and exile, which are
far from the experience I have lived here so far.

Each of them told a different story;
all dissimilar, of how they have fought for what they believed in and how they
used technology to convey their message.

There was Qiang Xiao from China, a
name I have known for too long, for reasons beyond the scope of this post and
who blogs at Rock n Go. Xiao has not been to
his country in a long time and has been at this longer than the word blog even
existed. There was Alexander Klaskovskiy and Olga Kozulina from Belarus,
the first a journalist, the second the daughter of Alexander Kozulin who has
been both a candidate and a prisoner in that country and I must apologize
because I have not followed Belarus as close as I could have if days had 26 or
30 hours.

There was, of course, Val Prieto, who runs Babalu blog, from Miami, we are that strange category of virtual friends, never met, but somehow have this cosmic affinity that can never be explained.Val covers
every breadth of Cuban life, with emphasis on human rights. You want to learn
about Cuba and human rights, please read and talk to Val.

There was Maung Maung Win from Burma and who
is in exile in San Francisco where he spends his time coordinating information
in and out of Burma.  Finally there
was Arash Sigarchi, an Iranian blogger, jailed and now in exile and a winner of
the Human Rights Watch Hellman/ Hammett Award in 2007. And there was Mahmoud Saber from Egypt, who nlogs from that country promoting democracy and freedom in Egypt as well as the Middle East.

And then there was me, certainly not in the category of
those above, but with a story to tell. Six and a half years of reporting the
abuses and violations of the Constitution by Hugo Chavez and his cronies from within
and in English. I have felt cowardly intimidated but never threatened, certainly not
like those above.But maybe I am in the end an optimist, which is why I blog.

The meeting was quite informal. I must confess that when I
saw the President of the United States come out I got nervous and was certainly hoping I
would not be first. Now I wish I had. The meeting was truly private, only one person was allowed
in the room with me. The President of the US was quite informal and asking
questions as each person told his/her story. The questions went from how to they used blogs and technology to promote human rights, to specifc issues about each country. The informality made the jitters disappeared, as I
was about to tell my story…

And then technology, the same stuff we were there to talk
about, played a trick on us, as President Bush asked where I was (in Spanish)
and I tried to answer, there was no sound. Nothing, zippo, niente, total
silence.

So, I guess from their side they saw me making gestures that
we were checking things out, as the President kept calling my name and trying to
make things work.

But it was not to be, I was last and the problem was never
traced and I did not get to tell my story. 

Even with the sound problem I was by then fairly relaxed and
my story would have been something like this:

I began blogging six years ago, intrigued by this simple
technology that my brother, who had a blog, introduced me to. Blogging was
relatively new then, my blog was the third blog of any kind in Venezuela and I felt
starting a blog in English to relate what was going on in Venezuela both
politically and economically was appropriate. I had planned to talk mostly
about how President Hugo Chavez was walking a very fine line to abuse the
Venezuelan Constitution and violate the rights of the almost half of the
country that did not agree with him. Democracy is not electing someone every so
often. Democracy for a Government should be  a way of life and Government’s have a
higher responsibility towards human and democratic rights.

I chose a name that I knew would somehow shock readers from
abroad, but it was a good selection and the name itself intrigues those that
come to visit my blog.It is also a tribute to Juan Pablo Perez Alfonso a Venezuelan visionary, who somehow I feel I have partly stolen a copyrighted name from.

I had originally planned to talk about many other things,
but soon events took over my blog and in some sense my own life. Little did I know
that I was getting a night job when I began to write here.

I also was intrigued by the power of the Internet and its links. What I say daily is more than my opinion, I can link to sources like the Constitution, a document I opposed, but accept as the law of the land as long as it is valid. But Hugo Chavez., who promoted it, does not. Or I can link to news stories, sources, opinions. It is not only me writing, it is me communicationg, integrating and distributing.

Within three months after I started my blog, there was a
general strike in Venezuela, which increased attention to my blog. But it was
the use of images that really made readership go up to the point that I begin
to feel I had a responsibility to my readers. Readers from abroad began
understanding the Venezuelan story when they saw that the peaceful demonstrations
were composed of young and old, maklee as well as females, who cheerfully went out to
march and demand for and their rights.And women, with no more weapons than the country’s flag, were repressed violently by heavily armed National Guardsmen and cops.

And as we were met with violence, we soon became accustomed
to our rights being violated.

Since then, I have reported on too many issues, from the
deaths of people, to their illegal jailing, to the illegal firing of 20,000 oil
company workers, to the creation of a fascist (The Tascon/Chavez list) and discriminatory list containing
the ID’s, names and addresses of 3.4 million Venezuelans who signed a
petition to recall President Hugo Chavez. Media outlets have been shutdown and
others threatened repeteadly and I myself have felt the threats, which I optimistically
interpreted as more as cowardly attempts to intimidate me.

On the way, I was joined by Daniel, Alek Boyd and Quico with a very similar message, none of which I knew
at the beginning, and who together and with no other tools than our personal
time and effort, managed to provide a good counterweight to the money thrown around by
the Chavez Government on worldwide lobbying for promoting the image of Hugo
Chavez and his fake revolution.

And it is a battle that I believe we helped win in the Court
of international opinion. Most of the world knows and understands what Hugo
Chavez stands for by now, and it is not human rights, democracy and/or the poor.

It is all about Hugo Chavez and how to keep him in  power.

And as we celebrate this day, little has changed internally
in Venezuela and, as I said in the first few months of my blog and would have
said today if I had had the chance to, nobody is going to come from the
outside and solve our problems. We have to do it ourselves.

And as Chavez ignores the results of the 2007 referendum,
proving once again he does not believe in democracy his comrades’ block
democratically elected Governors and Mayors from taking office these days, removing hospitals and responsibilities from their jurisdictions and our the fight
continues.

And rather than worrying about the poor, or the upcoming
fiscal crisis or the fact that he has spent an amount (US$850 billion) larger
than the US bailout plan (US$ 700 billion) with little real effect on the
country’s citizens and their well being, Hugo Chavez continues to pursue his autocratic agenda. It
is all about HIM, it is all about pushing a doubly illegal Constitutional
amendment to allow him to stay in power forever.

But forever is too long a time.

And we plan to be there fighting it and telling the world
about it!

On Human Righst Day, not much to cheer for in Venezuela

December 10, 2008

As the world celebrates Human Rights Day, not much to cheer for in Venezuela:

Human Rights organization Provea reports an
increase of 31% in freedom of speech violations during the last year in
the country, led by aggressions against reporters and intimidation by
security forces. In 103 of the 186 cases reported, the State was
responsible for the abuses. Provea’s 2007-2008 report here.
—Opposition candidates that won in the regional elections are either barred from assuming office, or attacked as they do, as Chavez defends his
indefinite reelection, rejected last year in a national referendum,  as
being in the hands of  the “people” and proof that this is a democracy. 
—And
members of political party Podemos, who used to support Chavez but
split with him over his attempts to create a “unique” party, are denied the right to speak as rightful Deputies of the National Assembly by its President, on the proposal to amend the Constitution to allow Chavez’ indefinite reelection. 
And pro-Chavez Deputy Iris Varela proposes that
Peruvian writer Mario Vargas Llosa be expelled from the country after
Universidad Simon Bolivar gave him an honorary degree. Varela accused
Vargas Llosa of conspiring against the Government. Vargas Llosas said
Chavez’ political project should be “resisted, denounced and unmasked”
because of its authoritarian nature and the danger it represents for
Venezuela and Latin America. 
—And two former Governors, one opposition and one who used to be pro-Chavez
are prosecuted for corruption as most such cases are ignored and in one
case former Governor and Presidential candidate Manuel Rosales is found guilty even before he knows what he is being charged for.
—While
the right to life appears to have been suspended in Venezuela as the
grandson
of former major league great Luis Aparicio is found dead of
multiple shots, another senseless victim of the tripling of homicides
since Hugo Chavez became President ten years ago. According to Provea there
were 13,236 homicides in Venezuela in 2007, up from 4,550 in 1998 the
year Hugo Chavez was first elected President. The only positive sign is
that the number of people killed resisting arrest has dropped 30%,
after rising four-fold from 1998 to 2003.

Venezuela and Oil 101

December 9, 2008

The last post I made on oil, has generated lots of questions in large
part because of a link by Instapundit, there were many comments and
questions in private emails by people that do not necessarily follwo Venezuela closely, which leads me to believe some basic facts
about Venezuela and its oil production and consumption capabilities
and how they relate to my calculation should be clarified:

—What is Venezuela’s oil production?

This is a key part of the analysis in the previous article in this blog. Venezuela
claims to be producing 3.2 million barrels of oil before the recent
production cut of 173,000 barrels. However, no reputable source
believes this number including the IEA (reports here)and OPEC, of which Venezuela is
actually a member. Venezuela has lobbied OPEC to accept the official
Government’s number but OPEC went the other way and actually reduced the country’s quota to a
number near the production level it had been  reporting for the country. Every year
the Venezuelan Government presents a budget assuming a huge number for
oil production, but with a ridiculously low price. Only the cheerleaders of
the revolution believe these numbers.

In my calculation I used a range of oil production numbers which go
on the low side from the OPEC and IEA number (2.37 mbpd) and on the
high side the number used by an independent analyst who is the highest
number I know (2.6mbpd), but still well below what PDVSA and the Venezuelan
Government say (3.2 mbpd). It should be noted that OPEC and IEA mostly
agree and move in tandem in that they have lowered their numbers on
the country’s oil production, since 2003.

—What are Venezuela’s oil exports?

For the calculation below, the total exports are basically
irrelevant, because I only estimated the net foreign currency revenues
of the country. Venezuela has become a net importer of gasoline, thus
on the one hand Venezuela could be exporting 2 million barrels of oil
per day (mbpd), but it has to import an unknown amount of gasoline, which needs to
be paid for and thus represents foreign currency outflows for the
country. Thus, my calculation does not take exports into account, but
is simply:

Total Dollar Revenues for Venezuela= Dollars as if we exported all
production-dollars to pay for gasoline imports-Dollars for oil sold on
credit or not paid under agreements

I have NOT taken into account the fact that the imports are at a
higher prices than the average exports since they are higher quality
products.

—What is the country’s gasoline consumption?

PDVSA claims today’s internal consumption is 520,000 barrels of oil
a day, below the 560,000 barrels of oil PDVSA reported in 2002. This
number has no credibility, given the 57% increase in the number of
vehicles in the road since 2004 as well as the 44% growth in the
economy since 2002.

Our number for internal gasoline consumption only uses the increase in
the number of vehicle, but does not take into accounts other factors
such as smuggling to Colombia, which has to have increased as the
arbitrage difference between the price of gasoline between the two
countries has soared in the last four years and the fact that there
has been a drop in natural gas production in Western Venezuela
(acknowledged by PDVSA) which has led to the use of fuel oil instead
of natural gas in that part of the country. Reliable estimates range
from 680,000 to 820,000 barrels a day. I used 795,000 barrels of oil a
day, but believe it is actually higher.

—But if it costs so much to produce a barrel of oil what happens
to the country as the price of oil goes below PDVSA’s costs and there
are no earnings from selling the oil?

One has to separate the question into three parts:

1) PDVSA as a company making money

2)The dollar needs of the country

3)The fiscal picture of the country

1) PDVSA as a company would lose money if oil got below its production
costs. Because on top of that it still has to pay taxes and royalties
to the Government whether or not it makes money. And in the past,
PDVSA has paid dividends beyond its earnings. Thus “losing” money is
PDVSA’s problem as a “private” company if even Government owned. PDVSA
will have less capacity to explore and start new projects if this
happens and it has yet to pay for the nationalizations of heavy crude
producers Petrozuata and Cerro Negro. At the same time, PDVSA will
lose less on the gasoline subsidy, as the price at which gasoline is
sold in Venezuela (8 cents per gallon at the parallel swap exchange
rate or 18 cents at the official rate of exchange) is closer to the
production price

2) Venezuela needs dollars because, like most countries, it is not
self-sufficient on all products and the high levels of inflation have
hurt local production of goods and competition from cheap imports as
the currency has been held artificially constant for 4 years.

Venezuela imported US$ 50 billion in 2007 and will match that figure
this year. Clearly, if the country does not have the US$ 50 billion it
has to draw down international reserves and use money in the
development funds. But of course, the first solution will be fewer
imports. This implies lower economic growth, unemployment and even
shortages (Most people don’t realize that last year’s shortages had to
do with the Government not having the cash flow to import everything
needed). Look to the automotive sector, one of the ones that generate
more jobs to be the most affected by this.

3)The fiscal picture. The country has essentially two sources of
revenues for its budget: From oil and from taxes. If oil revenues go down, it may
raise taxes up to a point, but the fiscal balance looks awful.
Normally, the country can borrow internally and externally. Externally
is basically impossible in the short term because of the international
credit crisis. Internally will be an option but it is limited in size
and if there is a devaluation will become very expensive (A
devaluation will drive interest rates at least temporarily as
inflation expectations will go up and investors will ask to be paid
accordingly). Devaluation is the simplest solution, but it generates
inflation.

My post deals only with the second question, as the third is very
complicated and can be attacked in many different ways and the first
would take time to analyze in detail. (Which I don’t have). My guess is that foreign currency needs will generate a crisis first as has been the case in the past/

Finally, I would like to note that I don’t feel oil price are going
to weaken much more than they have, it seems as counter intuitive for
them to continue to go down as for them reaching $140. However, when
trends like this get so speculative in nature you overshoot to the
downside as well as the upside. But if I had to bet, I would bet that
the average price of the Venezuelan oil basket next year will be
around US$ 60 and I believe that still means trouble unless a serious
adjustment is made.=

As oil cycle overshoots on the downside the worst effects of The Devil’s Excrement will be in play

December 6, 2008

If oil prices stay where they are now, things are not going to get bad
for Venezuelans, unfortunately, they are going to get extremely ugly.
Basically, we are going into the worst possible scenario for
the country, where things will get very complicated and there will be
very little that can be done . All of the distortions in the economy,
all of the mismanagement and waste will now come to the surface in
more violent fashion that anyone could have ever imagined. And while
Chavez looks for his indefinite reelection, little is being done to
contain the effects of the collapse of oil prices. As seen below, the
price of the country’s oil basket is now at 34.40, something we had
not seen since 2004. Except that a lot has changed since 2004.

To begin with, there have been five years of inflation, while the
exchange rate has been maintained constant. This implies that PDVSA’s
local costs have increased at a rate of 119% (The rate of inflation
since January 2004), while the price of oil has now gone back to the same
levels. While I don’t know the details on what percentage of the costs
of PDVSA are in Bs. and what percentage in US$, an economist who used
to work at PDVSA tells me that this means in the same period the cost
of producing a barrel of oil has gone from US$ 15 to somewhere north
of 28 dollars per barrel. Thus, what was a $19.40 profit per barrel
five years ago, will now be only a profit of under $6 per barrel.

I have refined the calculation I did previously on the real foreign
currency cash flow of the Government, where I have now used a range of
independent production estimates for the country’s production of
between 2.37 mbpd to 2.6 mbpd (million barrels per day). I then redid
my calculation on the number of new vehicles on the road since PDVSA’s
last reliable number for local consumption which was in 2002. This
calculation yielded that there has been a 57% increase in gasoline
consumption which extrapolates to 795,000 barrels of local consumption
per day.

This gives a range for exports of oil between 1.575 and 1.805 mbpd for
current exports.

However, as I had noted before, Venezuela does not actually get paid
for all of these exports even if PDVSA registers it all as exports.
Essentially, of the 424,000 barrels per day sent to Cuba, Petrocaribe,
China fund, Argentina and San Jose Pact, Venezuela only gets paid for
172,000 barrels per day. This means that the real and true foreign
currency cash flow that the country and PDVSA actually see is between
1.32 and 1.55 mbpd. This leads to the following real foreign currency
revenues depending on the price of the Venezuelan oil basket in the
first column, where I have extended it now to low levels unforeseen a
few months ago.

US$ per b.

1.3 mbpd bil.  US$

1.5 mbpd bil. US$

10

4.83

5.67

15

7.24

8.50

20

9.66

11.34

25

12.07

14.17

30

14.49

17.01

35

16.90

19.84

40

19.32

22.67

50

24.14

28.34

60

28.97

34.01

70

33.80

39.68

80

38.63

45.35

90

43.46

51.02

100

48.29

56.68

Table I Calculation of real foreign currency cash flow based on  range of oil productions from 2.37 million to 2.6 millions of barrels of oil per day, where we have subtracted local consumption and all oil exports which generate no revenues. The firts column shows the price of the Venezuelan oil basket, the second the lower range of estimates of 2.37 mbpd and the second 2.6 mbpd, which correspond to 1.3 to 1,5 mpbd in real foreign currency cash flow for the country.

Thus, at current price levels, Venezuela will have foreign currency
revenues of slightly above US$ 17 billion in 2009. Given that imports
alone will top US$ 50 billion in 2009, you can see how problematic
things may get.

Of course, if things get critical, the Government could and is likely to
ask the countries that receive those 424,000 barrels per day to pay up
or else. This can be done with about 344,000 barrels as the money for
the China fund is already committed. This will improve the picture
somewhat, but it is a decision likely to be made only when things get
creally bad.

To the numbers above, you have to add about US$ 6 billion in non-
traditional exports, which still leaves a shortfall of abut US$ 25
billion at current prices in foreign currency needs.

From the point of view of the budget, which was estimate at US$ 79
billion, US$ 35.9 billion were assumed to come from PDVSA in the form
of dividends, taxes and royalties, which assumed US$ 86 billion in
revenues from exports. My calculation above has to be redone for this,
because oil sold to friendly countries under agreements, pays all of
the above, even if the countries are given credit. This is only a 17%
difference which brings foreign currency revenues to US$ 20 billion.

Thus, think about it, at current levels, PDVSA exports are HALF of
what the budget estimates will be paid to the Government in taxes,
dividends and royalties, which gives you an idea about the magnitude
of the problem.

Separately, the budget assumes tax collection of US$ 36 .23 billion up
from US$ 30 billion last year. If this scenario continues, the economy
will contract, consumption will go down and tax collection will drop.

The country has US$ 38 billion in foreign reserves, which implies they
would be around US$ 20 billion in a year.

But the only way to compensate the shortfall in Bolivars is to devalue
and increase taxes. This will put the burden of the problem on the
poor, who will have to buy more expensive food, now imported at the new
rate of exchange. Devaluing will also increase local production of
goods as producers getting killed by the fixed inflation rate and
cheap imports will have more incentives. Devaluing will increase
exports, which will protect some reserves and improve PDVSA’s profit/
loss picture, but it is going to be rough, very rough. Moreover the
longer Chavez postpones an adjustment, the worst it may become and
right now it does not look like anything may be done until the
reelection referendum is past.

It is now that all of the money given away and spent on purchasing
existing and well run companies (many not yet paid for BTW) for ideological reasons
will be needed for the basic needs of Venezuelans. The madness of
economic policies under Hugo Chavez will turn into a nightmare for his
Government and for all Venezuelans. It is the same oil cycle we have
seen over and over. It is the effect of The Devil’s Excrement at its
worst.

Venezuela’s technological and scientific “independence” appears to be malfunctioning

December 5, 2008

A friend from China sends me this article on the problems of the
Chinese satellite that was supposed to give Venezuela some form of
technological “independence”
, which leads me to ask:

What have we gained after spending US$ 400 million, if not even the
Chinese can figure out what the problem is?

Have we paid for it yet?

What happens now to the base station with no satellite?

Did the satellite have a warranty?

Was there a backup plan for communications?

What happens now to the stupid slogan of some Venezuelan “scientific”
institutions which had all their letterheads saying: “2009 The year of
the Simon Bolivar satellite”?

Simply another Chavez folly gone awry…

Satellite problems hit Beijing’s space export ambitions

A 3 billion yuan (HK$3.4 billion) satellite China built and launched
for Venezuela in late October had encountered some serious operational
glitches that Chinese engineers were striving to fix, space-industry
sources confirmed yesterday.

Details of the malfunction are unknown, and satellite experts are
divided on the cause of the issue, as only a handful of self-detecting
sensors are on board and the information they pass down is limited.

The technicians are anxious, as there is little time left for debate.
The Simon Bolivar Satellite – a 5-tonne communications device for
radio, television and data transmission – was launched at the Xichang
Satellite Launch Centre in Sichuan on October 30. It is being tested
and official service is scheduled to begin in February.

If the handover is postponed or aborted it would be a blow to the
Venezuelan government, which has touted the satellite as proof that
Latin American countries can achieve a technological breakthrough
without US assistance.

The incident would also hinder China’s ambitious and rapidly growing
“space diplomacy”, aimed at forging political and economic alliances
with developing countries – especially oil- or mineral-rich nations in
South America and Africa – by admitting them to the space club at an
affordable price.

But the reputation of China’s space programme would suffer the most,
industry experts say, as it represented the second failure of another
country’s satellite within a month.

Nigcomsat-1, a communication satellite built and launched for Nigeria
last year, failed on November 11 because of a solar-panel breakdown.

The failure was announced by the China Great Wall Industry
Corporation, the international outlet of the China Aerospace Science
and Technology Corporation, which then sacked a senior official in
charge of the programme, sending shock waves through the industry.

The nation rarely sacks senior officials for satellite failures, as
space missions often encounter problems. The unusually severe
punishment came partly because Nigcomsat-1 was China’s first exported
satellite.

The country hoped it could open the international satellite market
long dominated by the United States and Russia.

The punishment was harsh because a product-quality flaw on the solar
panel was “utterly unpreventable”, a satellite expert with the Chinese
Academy of Space Technology said.

“In a space project, we can make two kinds of mistakes. One is
unpreventable because we might be using a new technology, exploring a
new environment or be caught by an issue that we had not heard of
before.

“In this case, you would not expect to be punished,” the professor said.

“But if you mess up a mission because of management blunders, such as
bypassing necessary quality checks, you must take responsibility.” The
professor said the Nigcomsat-1 satellite had been hastily built to
meet a very tight deadline.

As Chavez attacks, the whole Venezuelan Government becomes offensive against its enemies

December 4, 2008

There is something very disturbing about the behavior of the
Government and its spokesmen in the last few days. While Chavez may
have accustomed us to be insulted and lied to in his long-winded
ramblings, his histrionics have reached an unparalleled level of
confrontation and distortions. Chavez is clearly on the attack and so
is the full force of the Government he controls.

And he seems to be using a full court press against everyone with no
respect for the law or the rights of others, including those of the
Governors and Mayors elected freely in the regional elections on
November 23d. The tactics being used are those of outlaw Governments,
beyond the autocracy we have believed Hugo Chavez was running in
Venezuela.

Juan Cristobal in Caracas Chronicles has given us some tidbits on how
the transfer of power from Chavista to non-Chavista leaders has gone
anything but smoothly. In many cases, such as Táchira and the
Metropolitan Mayor, there has been simply no transfer of power because
Chavismo has simply decided to boycott it. There has been no orderly
transfer of power, no accountability, not many meetings between the
two sides, simply because Chavismo was not even considering the fact
that it may have to hand over power in many States and municipalities.

This is the charade that Venezuelan democracy has become. Chavez fills
his mouth with his supposed respect for the results of the regional
elections, while behind the back of the incoming and democratically
elected officials, decrees are issued in which schools, hospitals,
stadiums and offices are transferred to the central Government. There
is no coordination in the transfers of powers and the Government wants
to have approval over the nominations of those in charge of the local
state and municipal police forces, a requirement which did not exist
until last week.

In other municipalities I have heard stories of massive pensioning off
of teachers right before the transition, leaving the municipality
powerless to teach, as well as students sent home for the remainder of
the year.

The law is simply being violated and trampled upon, without much
recourse as there is nobody to go to and ask for the rights of elected
officials to be respected and it is clear that Chavismo is ready to
boycott all opposition officials whenever they can by withholding
funds, resources and their cooperation.

Meanwhile, Chavez asks for the resignation of a member of the
supposedly independent electoral board because he expressed his opinion
that the referendum on changing the Constitution was not only
questionable from a legal point of view, which it obviously is, but
also suggested that the CNE has other priorities to take care of at
this time and even if the question of legality could be resolved, the
timetable set by the President was unworkable.

Meanwhile, the National Assembly completes an investigation proving a
conspiracy to assassinate Chavez, which is based on a manipulated and
illegally obtained telephone conversation, while the same General
Prosecutor who has yet to open an investigation on the many Government
officials accused of corruption in the Maletagate trial, opens a fuzzy
investigation
against one of the opposition main leaders Manuel Rosales.

But perhaps I have found nothing as offensive in the last few days
that the direct and despicable attacks on hard working Venezuelans
whose only crime was to vote against Chavez’ party PSUV. While former
Minister of Justice Pedro Carreńo, calls the middle class “stupid” for
not voting for Chavez, absurdly arguing their standard of living went
up during these ten years, Chavista=operated Diario Vea, stages a
disgusting attack on Venezuelans
of Spanish and Italian origin which
have contributed so much to the well being of this country.

According to this racist and crappy newspaper, run by true fascist and
hatchet man of the revolution a large fraction of this “rich middle
class’ has a fascist origin, because they escaped the misery and
hunger of Europe after World War II. According to these empty
intellectuals of the revolution, these honest and hard working
Venezuelans transmitted to their children and grandchildren “the
irrational and barbaric hate of communism and that joins a
sort of racism against plain and common people”.

The same article proceeds to accuse this class of having come form a
rich bureaucracy from corruption and commissions during the IVth.
Republic, which one could just have as easily described the
bolibourgeois class created at the shadow of the Chavez revolution,
rich beyond the most impossible dreams of the same children and
grandchildren of the Second World War.

And I take offense at this attack, not because it applies to my roots,
as most of my ancestors arrived in Venezuela well before the 1940’s,
but because I have always admired these same immigrants who are being
unjustly attacked today. These people came to Venezuela and mostly
stayed, working hard and building business and families and giving
Venezuela a dynamism in the 50’s and 60’s that can only be compared,
respecting the difference in scale, to what has happened in China over
the last ten years.

In one generation these people became middle class and despite many
not having an education, made it a priority for their kids. And it was
through that where I met most of their kids and grandkids and admire
what they did for Venezuela.

And I find it very offensive that this Government now wants to
question them because they did not vote for their irrationality and
disrespect. Who voted against a man who preaches love, while wielding
hate, who says he is there to work for other, but cares only about
himself.

Chavismo (or Chavez!) has apparently decided to deny again some basic
democratic rights to those that oppose it. To criminalize once again
being anti-Chavez. To withdraw from democratically elected officials
the resources and requirements to do their jobs. But even worse, it
has decided to generate unnecessary hate and division based on people’s
class or national origin. All of this is not only unacceptable, but
unforgivable.

(Many years ago, when I was in my first year teaching at a local
university, I randomly walked into a small carpentry shop in Caracas.
The Italian owner paid little attention to me as we discussed price of
a dining room table. As we talked and closed the deal, he learned that
I taught at the same university where his first-born was a second year
student. From that point on, I became “Profesore” despite my young age
(I was 28). Despite living far from Caracas, the owner showed up to
deliver the table and make sure it was balanced and everything was
perfect. The quality of his work, his pride in his work and his
intuitive understanding that there was something good and to be
respected in academia, left a huge impression in me on the meaning of
the countless of immigrants that helped to build this once backwards
country. This impression was only reinforced later as I met dozens of
fine Venezuelans whose parents came to this country empty-handed, but
whose kids reached the highest levels of academia and professional
life. All of them and their descendants deserve better than this
Government)=

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