Archive for November 28th, 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.

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