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.

13 Responses to “Venezuela: The Fondo Chino Papers, Contracts and Details”

  1. sapitosetty Says:

    Devil — nice work! I’m glad you were able to publish these documents. There are two points in there that confirm what I had heard earlier:

    One, that the price of the oil is essentially market price. This is what I have always heard from inside PDVSA and CNPC, and I’m glad this document confirms it. (It also shows that Fadi Khabboul lied to the US Embassy about the oil being sold for $5 a barrel, which raises the question of why he would have done that.)

    Two, that the initial proposal was for over $100 billion in loans. I had heard $120 billion. The Chinese apparently laughed that one out of the room.

    Interesting that the interest rate is also fair. I suspect that Ramírez does understand this. You have to imagine what it’s like to work for Hugo Chávez. You don’t turn in a memo justifying things in normal terms like “good interest rates.” You need to refer to all sorts of weird ideological stuff if you want him to sign off.

    Anyway, regardless of whether the deal would theoretically be good or bad for Venezuela if its government were clean, I think you’re right that billions of dollars are being shifted into unaccountable places and we’ll never know where the money went.

  2. Alfred Says:

    The price is for Fuel Oil, not Crude Oil. Wherever Crude Oil is mentionned the contract says that this will be “SUBJECT TO DISCUSSION CASE BY CASE PER MUTUAL AGREEMENT” so the price of Crude Oil under this contract could be anything… What are the quantities of Fuel Oil vs Crude Oil that have been sold to the Chinese? It would be interesting to know the price terms of those “CASE BY CASE” agreements.

  3. CharlesC Says:

    Regardless, what is happening with the Crude right now.
    When China receives a load of Crude from Venezuela, today
    for example, how often does the tanker go to USA and
    deliver it?And, if there is no refinery in China for the
    Venezuelan Crude yet, then, why carry the crude to China now?
    Isn’t China simply a new “middleman” for Chavez to sell to the
    evil Yanqui empire?

  4. Alfred Says:

    Of course. In 2010 Venezuela was the 7th biggest source of Crude Oil for the US with 359 million bbls (http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm). Most of the time the Chinese sell on to other companies who sell into the US. All that Venezuela manages to do is give money away…


  5. my comments on this topic are in http://www.lasarmasdecoronel.blogspot.com You are invited to read them,
    Gustavo

  6. megaescualidus Says:

    Chanchullos por todos lados en los 13 a~os de HC. Los chanchullos de los adecos y los copeyanos no se comparan.


  7. We should ask ourselves, what does the venezuelan people think about this “fondo chino” or in wich way this treatment can helpthem?
    Why are they letting China tell them at wich price should sell them the oil and if they fail on the prices they will be able to “punishment”


  8. […] Funny, that he only mentions “companies”, because when it comes to countries, Chavez and Ramirez seem to have no problem in selling the heart, the soul and that same sovereignty of the country, as shown by the Devil himself a while back. […]

  9. Smoreira31 Says:

    Thank you for posting this! Really interesting information. Any information on the “Gran Volumen” loan? I saw the Ramirez document but it it is hard to figure out in the end how much oil is getting there. By the way, my sources at PDVSA suggest that the price is market minus a discount for transportation, which Chinese pocket since they are selling back to the US.

  10. Saba Says:

    Also how they operate? How fccv pay to the chinese vendors?


  11. […] value, Venezuela, or rather Hugo Chavez acting unilaterally and without Congress’ approval, wants to borrow $116 billion from China. In Miguel’s own […]


  12. […] I learn that The Devil’s Excrement and Armas del Coronel blogs had these documents years ago. I missed them at the time. Credit where […]


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