Archive for May, 2011

New Scientific Paper: Meniscus-Induced Verbal Constipation With Totally Silenced Venezuelan Media

May 29, 2011

For two to three weeks, the most loquacious President in the planet has been silent. But for his daily 140 character message in the novel medium called Twitter, whose authorship can not even be confirmed, there has been total silence from the All Mighty, even when given a brilliant chance to blast the big, bad enemy.

The cause of all this? The big guy has a knee ailment…

Yeap, sure, as the diagram above shows the brain is connected to the knee.

By the arrow…

But nobody says anything. The press is quiet. Muzzled, Fearful. TV? Not even you know who mentions it. We don’t seem to have the right to know. It appears we could go until January 2013 without seeing the guy and reading tweets from him explaining how bad that pain is. So bad, that he can’t even sit on a chair in front of a desk, like he usually does any way, to let his mouth go.


Haven’t found the direct connection between meniscus and mouth, but I probably don’t understand medical terms sufficiently well.

But the pantomime goes on. Somebody must be running the country (Maybe not…), but in the era of transparency and openness, nobody asks who it is, nobody asks why and all we get are silly explanations.

Yeah, sure, knee problems cause verbal incontinence. A new ailment for science journals. maybe I should publish it.

Only in the revolution can this happen and we are so gullible and repressed, nobody even argues it.

The Perverse Gasoline Subsidy in Petrostates

May 27, 2011

A reader was kind enough to send me this table he found on the size of the largest  gasoline  subsidies in the world by monetary value and its respective correspondence as a percentage of GDP.  As you can see oil is indeed the Devil Excrement in oil producing countries, as this subsidy always ends up being one to the rich, who are the ones that own cars and benefit the most from it. And who pays? The poor of course!

(Source IEA World Energy Outlook)

The subsidy in Venezuela is actually larger than the IEA estimates shown above. To begin with, these number come from official statistics on gasoline consumption by PDVSA and the Government which are really low compared to what gasoline consumption truly is, but that is a small correction on the scale of things. (Economist Angel Garcia Banchs estimates it to be US$ 19.9 billion or 8.5% of Venezuela’s GDP)

Of course, in Venezuela, much like what has happened in Iran, this subsidy has a compounding effect, as people use gasoline more and more, because it is so cheap and oil production is going down simultaneusly, so that you get hit twice, as more of the lower production has to be used internally.

What is amazing is that while nothing is done to remedy this problem by eliminating or reducing this perverse subsidy, other subsidies which are likely to be fairer (and even guaranteed by the Constitution) are eliminated or reduced, as the price of the subway is increased and tuition is no longer free “retroactively” at the Bolivarian University.

It is indeed the Devil Excrement at work in all of these Petrostates…

Chavez shakes up PDVSA’s Board

May 26, 2011

In a surprise move, President Chavez shook up the Board of Venezuela’s oil company PDVSA. Chavez removed half of the Board, including many long time members during Chavez. But the name that jumps out the most is that of PDVSA’s CFO Eudomario Carruyo, who was responsible for the Pension Funds that invested close to half a billion dollar in a fund that turned out to be a Ponzi scheme and was managed by a former consultant to PDVSA. Carruyo washed his hands in the matter and the company President said he will replace the missing funds.

Others removed from the Board were the internal Director for Production Luis Pulido, the Head of the Gas Division Carlos Vallejo, Planning Director Fadi Kabboul and Research Director Hercilio Rivas. Pulido and Kabboul had also been involved in scandals in the past, including the rotten food scandal, but appeared to be untouchable.The new internal members are Victor Aular, Jesus Luongo, Orlando Chacin, Ower Manrique and Willis Rangel (from the union)

Curiously, Gral. Aref Richany, President of the Government’s weapons manufacturer CAVIM, which was also included in the sanctions by the US State Department, was also removed from the Board. As I have suggested, the CAVIM sanction was a message to the Venezuelan Government and it was clearly understood.

As external members Chavez named Foreign Minister Nicolas Maduro and Planning and Finance Minister Jorge Giordani. This indicates that Giordani continues to have the ear of the President and he is likely to impose more control over the oil company’s finances and debt issuing now that he is on the Board.

US Government Sends Warning To Venezuelan Government

May 24, 2011

The sanctions announced today by the US Government against Venezuela’s oil company PDVSA and lesser known arms manufacturers CAVIM, represent a clear message of warning to the Venezuelan Government to watch the line they step over with Iran and other terrorist Nations.

The US had already sent a warning over PDVSA’s shipments on two tankers of a catalytic product used in the production of gasoline earlier this year.  However, the President of PDVSA said in February that it had not made such shipment. It is less clear in what way CAVIM violated the US sanctions against Iran, we just note that the President off CAVIM happens to be a Director of PDVSAand in my interpretation, including CAVIM might have an implied message of warning in itself.

That this is a warning can be seen by the weak sanctions, as PDVSA will not be able to:

“compete for U.S. government procurement contracts, secure financing from the Export-Import Bank of the United States, and obtain U.S. export licenses”

Moreover, PDVSA’s affiliates (read CITGO, based in the US) will not be subject to the sanctions. Of the sanctions in itself only the last one may be of consequence as it will likely get tougher to obtain export licenses to Venezuela of sophisticated technology unless the exporter/importer can show that PDVSA will not have access to it.

The sanctions imposed are really mild. Under US law, the Secretary of State had to impose at least three sanctions from the nine possible ones (see Setty’s post). People who took part in the conference call and others I talked to today, indicate the three were chosen such that would not block oil trading between the two countries. The ban on import licenses applies to future ones, not past ones, it may be bad for PDVSA long term, but basically irrelevant at this time. PDVSA does not have any contracts with the US Government and Citgo is exempt from the sanctions. Venezuela has had no access to Ex-Im bank financing for a few years.

What is clear from the sanctions and various conversations with people in DC, is that this mild application of the sanctions is a warning and that were PDVSA to once again collaborate with Iran in violation of the sanctions, the US Government would take a much tougher stance.

So far Venezuela’s response has been mixed. There was the usual rhetoric, “imperialistc”, “Illegal”, “no fear from more”, but no threat to stop shipping oil to the US (so much for the revolution that needs capitalism to function). PDVSA “officials” told Reuters that this was done by the Obama administration to appease Senate critics.

Surprisingly, Chavez did not speak, either by premeditation or because that morphine for the pain in his knee is really taking a toll.

Perhaps the main impact of the sanctions will be on the Government’s finances. Both PDVSA and the Government have been issuing bonds mostly to create the supply for the Central Bank’s SITME system, the only legal mechanism (other than the Central Bank) to move money in and out of the country. In January, for example, PDVSA reopened the 2017, 8.5% coupon bond to pay the Central Bank US$ 1.9 billion (Or was it US$ 2 billion? Or was it US$ 2.4 billion?) which the bank has been selling via SITME. Similarly, in February it sold US$ 3 billion of a PDVSA issue, of which US$ 1 billion was kept by the Government.

The problem is that these bonds were sold at Bs. 4.3 per US$, which means that if they are sold through the SITME, the price of the bond needs to be above 81% for these institutions to break even. With the news today, PDVSA’s and Venezuela’s bond fell and the PDVSA 2022 closed below 80%, increasing possible losses if they began selling it in the SITME system. We suspect these bonds will be under pressure for a while with the news.

The next few days are important, after the initial rhetoric settles down, Chavez is likely to forget the topic. All he wants and needs is to be reelected, Iran may be an ally, but is not worth the sacrifice.

Stay tuned!!!

US To Sanction PDVSA And Six Other Firms For Dealings With Iran

May 24, 2011

US officials said that the US Government will sanction PDVSA and seven other firms for dealing with Iran. Companies and individuals from Venezuela, Israel, China, Syria and Belarus will be sanctioned for either commercial or nuclear violations. PDVSA sold gasoline to Iran in violation of the sanctions. In January a group of US Congressman wrote to PDVSA’s President Rafael Ramirez warning that this could happen if PDVSA continued selling gasoline to Iran.

Sanctions may include the closing of bank accounts and access to the US financial system and banning PDVSA from contracts in the US. It will not stop PDVSA from selling oil to the US, but it will not be able to get financing for import/exports.

Not good, the reaction will likely radicalize the Government.

The Chinese Sell Trinkets To The Chavista “intelligentsia”

May 23, 2011

Almost thirty years ago, I joined a group of brilliant and wonderful Venezuelan engineers and scientists (and friends!) to start an engineering research institute. We had a budget of maybe US$ 10 million per year ($20 million at the top!, sometimes zero on January 1st), but somehow we were ambitious (and naive?) enough to think we could do so much.

And we did.

We not only did the “classical” areas, electronics, systems, control, metallurgy, but we also created, because it was needed, a digital image processing center. This center became a showcase for what we could do, remote sensing, image processing, agriculture, soils, the works. This all resonated with the Government and the projects began to flow. The institution still exists, it even sports as its symbol the Panare basked weaved by indians (shown above) which we chose at the time as a symbol of “local” technology. They no longer pay the international domain name (, you can only access it via the .ve link, probably to save ten bucks a year in a country with exchange controls.

The center  for digital image processing still exists, you can read about it here, you can read all of the applications. Since the mid-eighties this has been available in Venezuela for anyone to use, contract, whatever. The knowledge is there. In fact, one of the Presidents of the Institute came from that project. These are projects that required high power computing and computer techniques to process and understand images. The cost is in the brains and the computers. The images? They are accessible, you can buy them from the French (At the time we used to buy them from the Spot satellite in France, I am not sure how that has evolved) or the Americans, but I guess that’s verboten for the revolution.

But today I learn that this work was for naught. Because the Minister of Science and Technology tells us that Venezuela is buying a second satellite from the Chinese for US$ 405 million. And wow! Imagine! We will be able to tell how much soil we have that can be planted, something we could tell in the 80′s with no satellite, just Venezuelans working very hard on a shoestring.

I guess the Chinese are now selling trinkets to the Chavista “intellingentsia”.

Imagine the dialogue:

Ok, you have now borrowed US$ Y billion from us (Y as in Yuan!). Here is a list, what do you need.

Satellite, says Menendez, who happens to be a geographer, which in Venezuela is not necessarily a very scientific profession, least of all him. Because he is an expert on “The Geometry of Power” and has few, if any, scientific accomplishments or credntials. So, he says, having no monetary scale to compare with:

“I’ll take it”

and Venezuela has bought itself a remote sensing satellite with C and Ku and Ka  band capabilities for “only” US$ 405 million, from the same people (colonizers?) that sold it the crappy telecom satellite that is still faulty.

But for a million a year, you could buy all of the images you want and use the other US$ 404 million in training people and buying the real tools of remote sensing.

But much like Cristopohorus Colombus, the Chinese have found their ignorant Bolivarian crowd to sell their worthless trinkets to, they have money, they have no clue, a great deal…

…if you are Chinese.

I think the satellite should be called Chiguire Bipolar!

Or better, Ignorant Chavista! They deserve it!

Venezuelan Oil GDP has been negative for the last ten quarters

May 19, 2011

In the comments of the previous post there has been a lot of discussion about the data for first quarter GDP, which rose by 4.5%. Hey, it’s positive, but it is nothing to gloat about. GDP is measured in a very quirky way, it measures the growth in the 1Q11 (first quarter 2011) when compared to 1Q10 (first quarter 2010), thus it is not sequential. Thus, the 4.5% growth has to be compared with the 5.1% contraction one year ago, due largely to the electrical crisis.

Thus, compared to a year ago, the Venezuelan economy is still below two years ago, and below the last quarter of 2010, nothing to hold a press conference for like Giordani and Merentes did and all the money they spent printing gloating references to this non-achievement.

But the most worrisome part of the report is this graph from El Nacional, which shows how oil GDP has done for the last thirteen quarters. As you can see oil GDP has been negative for ten quarters now, a true cause for concern in the country where The Devils’ Excrement dominates the economy. And since Giordani loves to talk about “trends”, the “trend” in the graph above, compiled by El Nacional, shows that oil GDP topped near zero and seems to be heading back down.

In another funny twist, a UCV economist (Garcia Banchs) found some “funny” numbers in the GDP data and they have been altered three times since the GDP report three days ago.

Oh! The revolution!

Electrical crisis continues in Venezuela despite ample rains

May 17, 2011

Nothing exemplifies the mismanagement of Venezuela by the revolution than the electricity crisis. Through a series of missteps and the lack of investments, Venezuela continues mired in an electrical crisis over a year and a half after it began. We have gone from blaming El Niño, to saying the problem had been solved, to now saying it is the increase in use of electricity hat created the problem.

A while back I wrote this post to show the timeline of contradictions by the Government and I have actually been updating it given all that is being said. So, if you are interested in the problem that post is dynamic, as I add news links to it. Check it out.

What is interesting is that despite the Vice-President’s claim that “the growth in demand” is one of the main culprit of the electrical problem, data shows otherwise, as at least peak demand was higher in 2009 and 2010, due mostly to lower temperatures this year.

The problem seems to be due more to not only the lack of investment, but the lack of planning and capable people making the decisions. Miguel Lara, former Head of OPSIS said that “the solution the implemented were inconvenient and what they did was to purchase new problems and not worry about maintainance”, while a former Vice Minister of Energy says that the electric system has become a patchwork.

But Jose Manuel Aller a Prof. of Engineering at Universidad Simon Bolivar makes more serious accusations, he says that because there was an emergency, purchases without bids were allowed, but that many of those acquired are inadequate, of dubious origin and very expensive.

This is the case, says Aller, of the distributed power plants that came from Cuba, they shoudl have cost half of the between US$ 1.6-1.8 billion.

The same is true of the barges that were purchased from General Electric, which cost US$ 250 million each, the market price for these is US$ 160 million. Reportedly the overcharge is so that they could be delivered in 2011.

While the Government spent all of 2010 blaming the rains, now the Guri dam is 10 meters above the operational level as it has never really stopped raining all year, but between problems with generation and problems with transmission, there is insufficient capacity.

Meanwhile, the Government installed thermoelectric power plants that run on natural gas, but the country’s production continues to go down and fuel oil has been used in some of them.

PDVSA takes no responsibility for mismanagement of pension fund

May 15, 2011

In another chapter of the characteristic “Yo no fui” (Who me?) attitude, PDVSA’s CFO has told the National Assembly in his report on the matter that”it is unfounded and irresponsible to link PDVSA’s Board of Director with the investments in the funds”.

Funny, Mr Carruyo, who is a member of the Board according to the PDVSA website (see above, it says Junta Directiva in the red square and then in the bigger red square is Mr. Carruyo himself) and according to this letter I published a while back, happens to be at the same time: “President of the Board of retired people of PDVSA and its affiliates”, he claims the Board (which apparently includes himself) has not made any decisions with respect to the investment decisions.

Say what? What is he President of?

Better yet, as President of the Board of the Pension Fund he had nothing to do with investment decisions, overseeing what was done and the like? Has he ever heard the words “administrative responsibility”?

But even worse, how could the same Board of PDVSA allow Mr. Carruyo to investigate himself and write the report?

And he says very funny things, such as “Mr. Illaramendi was never an employee of PDVSA, his professional link, was via outsourcing through a foreign company”

Which is true, Mr. Illaramendi made so much money at Credit Suisse, that he would have never taken a salaried job at PDVSA, he would have had to make more money than Carruyo and Ramirez together just to make the minimum salary of a Managing Director at CS. Thus, the magic “solution”: Hire him as a sweet deal consultant and to make it a little obscure, have him do it via a company owned by him.

But the most irresponsible and hilarious part is that Carruyo then blames what happen on “the capitalistic nature” of the fund, subject to the “ups and downs” of the markets.

Sorry Eudomauro, anyone that placed money with Madoff, Stanford and Illaramendi should not be allowed to get even close to one Bolivar or one dollar of money to be managed and should actually be punished for the loss. But this case is even more fishy, because Illaramendi was a Venezuelan friend of the “house”, hired as a high flying consultant, a job that he left precisely to start managing money, an area in which he had no experience. Stinks to high heaven.

In fact, the same report says how bad things are (or were), as the funds had a total of US$ 2.7 billion, of which only US$ 580 million was being managed abroad and of these US$ 453 million were with Illaramendi (The SEC says it is more)

So, 21.5% of the funds were managed abroad, but of this percentage, 78% was managed by an unknown Venezuelan investment manager, without a track record, unregistered to do the job in the US and who at some point had a sweet consulting deal with PDVSA?

Cuentame una de vaqueros Eudomaro. (Tell me a story about cowboys)

But as if this were not enough, the report says that of the total, 2% is in real state, 15% in local banks (pensioners get paid in local currency), 5% what is managed by others and 61% in PDVSA and Venezuela bonds.

Let’s see 61% of US$ 2.7 billion is 1.65 billion, but Minister Ramirez himself told us in January that PDVSA had sold US$ 1.2 billion of the PDVSA 2017 bond with an 8.5% coupon to the pension funds. So, a full 44.4% is in bonds of the company itself, which is not what portfolio management theory says you should do. (Remember Nortel? Employees not only lost their jobs, but also their pensions as most of the pension fund was invested in stock of the company)

But this is also not kosher, because there is no independent body making decisions. First, it is too large of a fraction in a single bond (The rest may be in others). Second, it makes no sense to invest it in a single bond, with a single maturity. Yes, the pension fund should invest in PDVSA bonds, they do yield 15-16% after all and the people running the company know it better than anyone. But it should be diversified in a basket of PDVSA bonds and they should be actively traded as prices vary. But it should never be such a large fraction and least of all in a single instrument.

Carruyo’s whole argument is that the Board of PDVSA never made any decisions on the matter. But he did. And as such, he should be forced to leave the position (i.e. fired and be made to pay for the mistake and be investigated), because either he knew or he did not know, in both cases, he is guilty of not administering the money correctly and someone else should be placed in charge.

Preferably somebody that knows and I am not offering myself for the job. I would never work for the current PDVSA. I would advise a new PDVSA for free, but that I dont think will never happen.

And someone else should investigate Carruyo. It is called conflict of interest and in this case there is a HUGE one, to say the least.

Note Added: Today the SEC added Highview Owners to the accusation. More here and here.

Media Blitz is on: Chavez forever!

May 13, 2011

Maybe someone can explain the NASA rocket shot in the video. This guy has started campaigning and the media blitz is on!


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