Archive for November, 2011

Venezuela: The Fondo Chino Papers, Contracts and Details

November 28, 2011

No sooner had I finished the post last night that I received a few mails with more information on the Fondo Chino. There is a lot of information in this, but I will simply note the highlights and look at the details later, or have others look at the details.

The best source for documents that I received is this one, a little disorganized and duplicate documents, but all but one of the documents that I received today are there.

The main document is this one:

View this document on Scribd

This is the agreement between Bandes, the Chinese Oil Company, PDVSA and the China Development Bank on how the fund would work.  And it is indeed as I described last night.

But what got my interest was that this Government that wants only Venezuelan laws to apply to agreements, easily gives in to the Chinese Government, saying that any arbitration will go to the Singapore International Arbitration Center, as if Venezuela would have a chance there against China. (page 6)

There are many more details. For example, there is a contract for the oil sales, which clearly states what the formula for calculating what the Chinese Oil Company will pay is (page 7):

5. FOB PRICE

THE PRICE OF THE PRODUCT TO BE DELIVERED PURSUANT TO THE CONTRACT HEREOF, SHALL BE DETERMINED BY MEANS OF THE FOLLOWING PRICE FORMULA:

IFO380:  HSFO 380 4% SINGAPORE PLATT´S MID (USD/MT) PLUS K (USD/MT) MINUS FREIGHT (USD/MT).

WHERE K = USD -2.50 PER METRIC TON (MINUS USD TWO DOLLARS AND FIFTY CENTS PER METRIC TON)

and the pricing period is a market price period:

5.1.2 FINAL PRICING PERIOD (FOR FINAL INVOICE): THE PRICING PERIOD SHALL BE BASED ON THE AVERAGE OF THE EFFECTIVE PUBLISHED PRICE QUOTATIONS STARTING CALENDAR DATE FROM THIRTY ONE (31) TO SIXTY (60) AFTER BILL OF LADING DATE (B/L DATE COUNTS AS DAY ZERO)

This makes me feel better, there seems to be a “market” (sort of) mechanism for setting the price, of course, a dollar in oil prices can make someone millions, but this is better than saying that Venezuela was selling oil at US$ 40 or $50 per barrel, as understood by many.

And it made me feel quite good when I read this document, that establishes what the interest rate will be:

La parte ohina propuso que para la porcion en dolares, aplicar
una tasa de interes promedio entre la tasa vigente para la
Fase E del Fondo Conjunto China Venezueia (Libor + 2,35%)
y la tasa vigente para la linea de oreciito a empresas
venezoiar1as{Libor + 4,5%).

An average of Libor +2.35% and Libor + 4.5% is not bad for Venezuela. Ramirez fails to get that this may be the only reason this is good, not those given in his memo to Chavez.

The problem is that the same document says that these guys want to borrow, the not insignificant amount of US$ 116 billion from the Chinese. Not that the Chinese are lending it, they seem to mistrust what Venezuela will invest this money in, but these guys really are thinking BIG!

And this spreadsheet confirms what I said last night, the “excess money” at US$ 80 per barrel in one year is US$ 7.33 billion, Venezuela sends about US$ 11.2 billion in oil (at the estimated price of US$ 80) and “only” about US$ 3.9 billion actually pay for the loan, the rest is available to be returned to PDVSA or the Government (or the CVG for that matter!) to be used at discretion and out of the oversight of Venezuelan institutions.

As I said, Guilty, guilty, guilty! But nothing or little happens. There is a lot of stuff in those links, please look at them and let us know what you find.

Hugo Chavez and the Illegal Chinese Funds: Guilty, Guilty, Guilty!

November 27, 2011

While I was on vacation, I wrote a post based on a document a reader had sent me, in which the Minister of Energy and Oil and President of PDVSA, Rafael Ramirez, asked Chavez for the excess money in the Chinese Funds to be returned to PDVSA.

Since I was on vacation, I concentrated on the numbers given there for Venezuela’s oil production, which contradict official numbers. What I fail to understand or  comprehend, is that the document is a huge indictment for the illegality of the Chinese Funds, which the Government has been using to finance its activities and bypass the structure of the State.

In fact, as I will show, the whole mechanism is not only illegal, but it represents a perverse scheme for the Government to spend without the usual oversight, while simultaneously severely damaging PDVSA’s finances. For completeness, here is that document again:

View this document on Scribd

Between jet lag and catching up, I had not gone back to the document, even if I meant to. But two things made me look back: One, the interview in today’s papers (El Universal here, El Nacional, by subscription) with Deputy Miguel Angel Rodriguez and a simple question: What is Venezuela’s US$ debt service per year.

In the interview, Rodriguez says: “The truth is that crude is advanced, but money is returned”. This piqued my interest, together with the fact that I calculated that 430,000 barrels of oil a day, at US$ 100 per barrel for a full year, corresponds, to the staggering amount of US$ 15.7 billion dollars a year. Since the official document above clearly states (page 6) that the total debt of the Chinese Funds is US$ 20.8 billion, how could it be that it takes US$ 15.7 billion to service that debt per year?

Clearly, something did not add up and it was time to go back to the document and really study it!

The whole thing is perverse, incredible and totally illegal, here is how the whole thing works, as clearly explained in the document by the Minister of Energy and Oil and President of PDVSA:

1) PDVSA sells the oil to the China National Oil Corporation (CNOOC)

2) CNOOC pays the oil into a Bandes account at the Chinese Development Bank (CDB), which is the lender to the Republic of Venezuela.

3) CDB subtracts from the amounts debt service, both capital and interest.

4) If there is an excess, PDVSA asks CDB that the money be transferred to pay royalties to the Government, taxes to the Government and cover some of the production and refining costs.

Except that starting on Jan 2010, as the document clearly states, PDVSA stopped even getting that. It got zilch, the Funds got it all!

So, let’s make it really simple: The Republic borrows US$ 20.8 billion from the Chinese. PDVSA “pays” for this loan to the tune of US$ 15.7 billion per year, clearly an inordinate amount of money for the loan received. The Chinese collect interest and capital and any “excess”, of which there is a lot, returns to the Government, not to PDVSA, via parallel funds, which bypass the controls and approvals of Venezuelan Laws.

This is absolutely illegal for a number of reasons: First of all, as Deputy Rodriguez says in the interview,the Organic Law for the Financial management of the Public Sector says in its Art. 93 that no credit operation can be guaranteed with income or assets of the Republic. This is exactly what the Chavez Government has been doing by guaranteeing it with oil. Second, there is a clear intent here to bypass the laws of Venezuela, spending the money outside of the budget and controls of both the National Assembly and the Comptroller in the interest of “expediency”, but the law was clearly established to guarantee the money is well spent and this represents a way to circumvent  both the spirit and the letter of the law. But the worst crime is that the Republic is making use of PDVSA funds to pay for its debts, a clear violation of the law, but in the process, Chavez and his Government are weakening the finances of the company, as stated by Minister Ramirez in the memo to the President.

When Richard Nixon was President, in the midst of the Watergate affair, there was a big scandal with comic strip Doonesbury, which presented a cartoon indicting one of Nixon’s collaborators, by saying “Guilty, Guilty, Guilty”. Most of you can’t even remember this, but here is that strip:

Some newspapers did not run this, the Washington Post even ran an Editorial on it criticizing the cartoon for “reaching a verdict” on the Watergate affair in such fashion.

Well, today much like then, Hugo Chavez is ‘Guilty, guilty, guilty” of creating a mechanism to bypass the controls of the State, not only in violation of the law, but in order to spend the money at his discretion. The Chinese may one day have to face up to these illegalities and its consequences, but Chavez and his collaborators, if they lose power, will have to answer to Venezuela’s Courts.

Guilty, Guilty, Guilty!

Hugo Chavez: Still Improvising On His Cabinet After All These Years

November 26, 2011

It would be funny, if it were not so tragic: Thirteen years after taking power, Hugo Chavez keeps improvising in how he manages the Government. The amazing thing is that he announced that he would merge the Ministry of Basic Industries with the Ministry of Intermediate Industries as if it was the result of a study or an amazing inspiration in order to achieve more efficiencies, when the truth is that he was the one that separated the two functions. No only that, but by a mysterious chain of thought, Chavez merged the Ministry of Intermediate Industries with that of Science and Technology in 2009, a whim that has yet to be explained or understood by anyone.

So now, Chavez reverts the whole thing in the name of efficiency, when his whims of creating and destroying Ministries represents one of the biggest inefficiencies of his rule. Every time Chavez improvises “creating” a new Ministry, millions of Bolivars have to be spent in reorganizing and restructuring the new and the old Ministries and its personnel and assets. Imagine now the Minister of Industries arguing with the Ministry of Science and Technology, which office space, which employees and which funding stays with whom. And if they disagree, they will have to wait until none other than Hugo Chavez decides on each issue. Which could take months or may never happen. Some efficiency!

Take the Ministry of Transport and Communications which Chavez received in 1998. He changed it into the Ministry for Infrastructure, then he divided it into two, then it became the Ministry of Transport And Communications again, then he divided it into two again recently. Just the cost in changing the paper and the envelopes is staggering. To say nothing of implementing the changes under Chavista “Managers”, as oxymoronic a concept as there ever was one.

The remarkable thing is that Hugo Chavez dramatically reduced the number of Ministries when he came to power in 1998, but by now, the number has more than doubled, as he thinks that creating new ones is some form of management technique. Chavez received 21 Ministries from Caldera, reduced it to 13 and if I count correctly and the web pages are up to date, there are now 31 of them. I wonder what it does to efficiency to have 31 people plus Chavez, plus the Procurador sitting at the same table discussing things…

For Science and Technology this is good. It now goes back to having its own Ministry, as it should be. The Minister seemed to be distracted with “Intermediate Industries” whatever that may be. Now he will at least focus on science and technology, which now that I think about it, may not be a good thing. After all, the Minister may start improvising himself and creating “efficiencies” and inventing new concepts in science and technology just like his boss. Maybe we were better off when he was distracted…

Did Venezuela Really Give US$ 2 billion in Bonds For Humanitarian Projects?

November 22, 2011

Today Alek Boyd presented some documents showing that the Venezuelan Central Bank transferred US$ 2 billion in bonds for humanitarian projects to be executed by a company Kellmar Limited run by Anthony Caplin, a former Chief Operating Officer of the UK’s Conservative Party.

I believe these documents are fake due to a number of inconsistencies. Among them:

- The bond supposedly transferred was a Global 2028 and in the nominal amount of US$ 2 billion. The Global 2028 bond was issued in May 2008 and sold to local investors in Venezuela in the amount of US$ 2 billion paired up with a Global 2023 bond in the same amount. There is no record of additional issuance of a Global 2028 and the numbers that identify the bond shown are identical to the ones issued in May 2008 and no bond could be transferred electronically, like these papers claim, if there was no registration of the issuance. As shown below, owners of this bond are multiple, topped by Fidelity Investments which holds 3.46% of the issue, thus the Venezuelan Central Bank could not have transferred the amount claimed.

-The documents contain a series of inconsistencies as to Venezuelan laws and institutions. For example, it says the bonds are registered with the Comision Nacional de Valores (page 3 in Alek’s document, shown below). Venezuelan Sovereign bonds are not subject to the regulation of the Securities regulator, as per Art. 1 of the old and the new law, nor do they trade in the Caracas Stock Exchange as it says in the document purportedly written by the Venezuelan Central Bank. Moreover, the Comision Nacional de Valores no longer existed in May 2011 when this letter was written, it’s name was changed to Superintendence of Securities in September 2010.

-The documents always refer to the Ministry of Finance, which in May 2011 was actually called Ministry of Finance and Planning.

-The suggestion by the BCV that the good relations of Kellmar Inc with the Vatican and the Sisters of Charity does not sound at all as something coming from the Chavista Government.

-There is a letter of compliance by the BCV. Why would this be needed at all? If the bonds were coming from the BCV, that alone certifies the origin of funds and adequate provenance.

-Page 5 of the document is supposed to be a SWIFT transfer of the bonds. As far as I know and have been able to determine today, SWIFT is a system for the transfer of money, not securities. Securities are transferred either via Euroclear or via Clearstream. The SWIFT document also contains unnecessary explanations of why the bonds are being transferred.

So, I am of the opinion that these documents are fake, that the Venezuelan Central Bank has never made such a transfer, nor the Venezuelan Government wants to support projects by Kellmar and Mr. Caplin like those described.

Then, what is going on here?

My suspicion is that this is either an elaborate scheme to scam other philanthropic organizations to contribute to these projects by suggesting they already have a good “seed” funding provided by the Government of Venezuela or an attempt to create a cloud around Mr. Caplin or damage him politically. I would lean towards the first, but have no idea of how such an elaborate scheme would or could possibly work.

Feeling at Home in Cambodia

November 21, 2011

Imagine hearing this description of the politics in a country:

“The Government is corrupt and cheats in elections, people in the cities vote for the opposition, but when elections time comes around, the Government starts giving away stuff to the poor in rural areas and between that and cheating they win all elections”

While this may sound like Venezuela, this was told to me by my guide in Cambodia, a country where a liter of gasoline is “only” $1.50, but which I found to have many similarities to Venezuela despite the cultural, political and historical differences, which are clearly huge.

The feeling of familiarity began when entering the old hotel where I stayed in Siem Reap, it felt like a mixture of Hotel Avila with Tamanaco, lots of vegetation, 50’s style, big spaces.

But perhaps the biggest similarity was when visiting Lake Tonle Sap, a huge lake (in the rainy season) near Siem Reap. The Lake gets to be almost 135 kilometers at the peak of the rains. People there live off the lake, fishing and growing rice and other foodstuffs in the fertile lands left by the like whenever the rainy season ends.

But what was eerie was how much like the Llanos the whole region around the lake looks and feels. Were it not for the different customs, you would have thought these were morichales in flooded Venezuelan llanos:

I don’t think I ever saw a scene like the one below in the Venezuelan LLanos, but change the cart for cows or horses and I have seen very similar things in Venezuela in the height of the rainy season:

It is when you look at the details that things are different. The Cambodians have adapted to the flooding in a very dynamic way. Towns like this one:

are made up of floating palafitos, reminiscent of Maracaibo (another similarity). What is different is that these palafitos are movable, the whole town but the temple moving as the waters increase or decrease to be right “on” the edge of the lake. This ferrying of the whole town includes the floating public school, the floating dispensary and yes, the floating house of Cambodia’s PSUV, known as the Cambodian People’s party. These “moves” occur many times during the year, as the area of the lake increases dramatically. In the dry season, the lake is barely one meter deep, but when the rainy season begins, the Mekong river flows into the lake, quintupling its size and making it ten meters deep.

The difference there is that people live off the lake, thus they prefer to be on the lake. Look at these women “shopping” for fruit:

Only one of them is selling, the one in brown, the rest are “shoppers” rowing close to see what’s available today. The whole life of the town is like that, rowing boats, motor boats moving around for all needs and fishing and agriculture driving the economy.

And their PSUV equivalent seems to be more organized, it has merged the Mercal and party features all into one. And as you can see in the picture below:

It provides a full set of services, there is the Mercal inside, food tables and even beer outside. A full service and integrated service provider to the population. I never asked if the beer is subsidized too! Hope PSUV does not get any ideas from this.

And it is back to reality after this post!

Orchid Indigestion in Singapore

November 20, 2011

It was a veritable case of orchid indigestion for the Devil in Singapore at the World Orchid Show/Conference as you can see above in a sample of the many pictures I took. The lights were not great, but the flowers were, took hundreds of pictures, here are two that show a small sample of what we could see.

South Africa in 2014! Here we go!

As to my bucket list, it is not too long. Galapagos, eat ten stars in San Sebastian, jump in a parachute, Cuzco, Seychelles, New Guinea and South Africa…

There is Lhasa and Burma, but I need regime changes…

As Venezuelan Congress Investigates Contract, Williams F1 Appears Concerned

November 19, 2011

As reported by Alek Boyd, Venezuelan Congressman Carlos Ramos has opened an investigation over the contract between PDVSA and Williams F1, a huge contract awarded by PDVSA to Williams F1 by order of Hugo Chavez without approval by Congress, as required by law. The contract is much larger than all of the money devoted to soccer or any other national team.

The letter from the Congressman was received on November 18th. at Williams F1 and what is interesting is that Williams F1 appears to be concerned about it if their visits to at least two Venezuelan blogs are any indication. At least two Venezuelan blogs, Alek’s and yours truly, have received persistent visits from the company in the last two days, even if the Devil had yet to cover the subject. Williams F1 may be facing a PR disaster by its eagerness to receive the PDVSA/Venezuelan money and they seem to be truly concerned about it.

About time…

The Big Lie: Venezuela’s Oil Production

November 13, 2011
View this document on Scribd

We interrupt the Devil’s vacation for a short note on the Big Lie that Venezuela’s oil production represents. While I have not been keeping track of the news in much detail, I am after all on vacation, I do read my mail and the comments you make on the blog. One reader, call him VJ, sent me this incredibly revealing document above of a request by Minister Ramirez for Chavez to approve that PDVSA withdraw money from the Chinese funds to pay royalties and taxes as well as paying for the production of the oil that goes to pay for the Chinese loans.

When I return, I will analyze this document further, but for now, this document confirms clearly in page 3, the Big Lie that Venezuela’s official oil production represents.

According to the recently published financials of PDVSA, the country produced 2.95 million barrels of oil a day. These financials are audited, but using standard accounting rules, only financial aspects are audited, oil production is simply not part of the audit.

However, this document on page 3 contradicts this official number, as reader VJ notes. If 430,000 barrels of oil a day is sent to China to pay for the loans, as is clearly stated in the document, then Venezuela’s real oil production is 2.687 million barrels of oil a day, some 262,500 barrel a day less than the official numbers in PDVSA’s 2010 financials.

This number is higher than IEA or OPEC’s by a couple of hundred thousand of barrels of oil a day, but when one considers that in 2008 PDVSA said it was producing 3.3 million barrels a day, but this was reduced to comply with OPEC production cuts, you know the lie was even much bigger than it is today.

Not that one has any reason to believe this number either, after all: Would Ramirez tell the President the whole truth about his incompetence and the lies he has been telling since 2003? I doubt it, so take this number with a grain of salt. Do remember however, that PDVSA’s and CITGO’s US registered debt was repurchased in 2004 so that the members of the PDVSA Board could not be held liable in the US for lying. In Venezuela, they can lie all they want, there is no punishment for it.

But let’s assume for a moment the 2.687 million barrels a day is the truth.

Subtract Venezuela’s daily consumption of around 700,000 barrels

Subtract 430,000 barrels of oil a day to pay the Chinese loans

Subtract some 85,000 to Cuba, 20,000 to Argentina and 120,000 to Petrocaribe.

That’s some 1.355 million barrels of oil a day that do not generate any cash flow for the country in foreign currency (Except of Petrocaribe which we are told generates 50%). Subtract that from 2.6875 and you get 1.352 millions of barrel a days that generate foreign currency, according to official numbers. At US$ 100 per barrel that is less than US$ 50 billion a year, US$ 49.3 billion to be exact, a number smaller than CADIVI exports.

So, the Big Lie says that the Government is betting the farm on Chavez getting reelected. To Hell with the future, the future is NOW, borrow everywhere, issue bonds, borrow from China and hope for the best, unless the hand of God intervenes…

But the Big Lie is right there and it should be punishable by law at least as deception or misleading, at most as treason. But unless there is change, it will simply not matter. Ramirez can lie, deceive and manipulate all he wants as he allows PDVSA to be destroyed for the sake of Hugo’s reelection.

Delving Into the Past and Present of a Fascinating Country

November 13, 2011

This one is easy. Fascinating country, past and present and more like Venezuela that you could ever imagine.

Cross a second one off my Bucket List, not easy to do that in one year, but then again, I missed crossing one off in 2010.

More on this place later…

The Devil on a Pachyderm in a Jungle Trek

November 11, 2011

There are few places in the world where you can hop on an elephant and go through the jungle and even a river. The Devil always wanted to do that, so he figured out where you can do it and went for it. That’s not me on that elephant, I am on the one right behind taking the picture.

Another item crossed off my Bucket List…

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