Chavez Government to pay debt to public workers with Petrorinoco (Petroripoff?) bonds

April 2, 2012

As the Chavez administration has given billions to other countries and received billions in oil income, imposing new taxes and a new windfall tax on oil, it failed to budget to pay public employees their benefits. Given that most of these public employees are Rojo/Rojitos and march to the tune of the all-mighty leader, the wonder is how they stay loyal.

And as if that was not enough, now there is a proposal to take money away from all Venezuelans (the usual) and “pay” these debts to these workers using an instrument to be called Petrorinoco, which in the end should be called Petroripoff. Because in the end, what the Chavez administration will do is simply to pay only part of the debt to these workers, issuing this novel instrument.

The details are fuzzy (What else is new?), but if one puts together what Chavez, Ramirez and the press (particularly El Mundo) have said, it goes something like this:

The Government will give 4% of all of the partnerships of the Orinoco oil belt to a “Fund”. Between now and 2034, when the contracts for the partnerships expire, this 4% plus 3.3% in royalties and taxes that will also go to the “Fund” will generate about $18 billion in capital plus the interest.

Thus, the Government will issue about US$ 18 billion in bonds, about US$ 1.7 billion in Bs. and the rest in US$. The Bs. bonds will matures in three or four years, but the dollar bonds will mature in 2034.

Since the Government owes public workers US$ 18 billion in benefits, including severance, it will pay these workers with these bonds guaranteed by the “Fund” (It is unclear what the money in the fund will be used for in the meantime, but you can guess). Workers will not be able to sell the bonds for two years, but they will be able to do it after that. What this means is that the workers that sell after two years will only get part of what they are owed, because these bonds will likely have a low coupon and thus will not be worth 100% but much less of what the worker will be owed.

Sure the worker can wait until 2034 to get 100%, but he may not only be dead, but who knows what other trick will be played with the “Fund” before then. Because it is a funny mechanism to have the fund accumulate the capital until maturity, who will use those funds in the meantime?

Thus, the Government creates an instrument to rip off the workers twice, once, because they were not paid, twice, because they will be paid much less. To say nothing of the fact that this “money” will come from equity in these oil projects that belongs to all Venezuelans, not only to public workers.

Finally,I wonder if anyone in this inventive and creative Government has thought about the impact of US$ 18 billion in bonds due in 2034 hitting the market all at once when millions of workers sell their bonds after the two years have expired. As the 2034 bond drops, it will offer more yield than other bonds, bringing the whole Venezuela/PDVSA curve of bonds crashing down all at once.

Not pretty…

31 Responses to “Chavez Government to pay debt to public workers with Petrorinoco (Petroripoff?) bonds”

  1. Ken Price Says:

    Chavez is finding the truth in the statement “reality’s a bitch”! At least the workers paid in this “funny money” can use it to paper their walls; ’cause that’s all it’s going to be good for.

  2. Alexander Says:

    Chavez will pay the “prestaciones” with a new version of FONDEN, This time the FANT (national employees saving fund) will issue “new” colateralized -3.3% of PDVSA mix companies arrangements as well as a 4% of the “oil wiindfall high prices” tax. Chavez and his financial advisers intend to securitize recycled venezuelan external debt in para-fiscal funds held by venezuelan government banks, and other “government” institucions like FOGADE and CEntral Bank..

    • m_astera Says:

      “intend to securitize recycled venezuelan external debt”

      Does that mean what I think it does, pretending to pay by monetizing their own IOU’s and passing those along?

  3. metodex Says:

    Y la partida de vivos creeran que les estan dando mas de lo que les deben.

    Probably why they will be as chavista as ever after this.

    Sorry i don’t know how to say it in english,Diablo.

    • R.Sarjeant Says:

      You are assuming that all the people that’s owed some money are Chavistas… but that’s far from the truth. In fact, I bet that just like in the case of my Mother, these are mostly people that worked as public employees long before Chavez (30 years or so as a professor at “FACES en la Carabobo” in her case) and have been waiting for their “prestaciones” for many years…and trust me, few people I know are more anti-Chavista than her (but in words and in actions). So don’t assume so much because that usually leads to the wrong conclusion.

      • moctavio Says:

        I used the word “most” and that is the case. When Chavez came to power there were 2 million public workers, this has increased to over three million. If they reflect the population, then of the original 2 million, half were pro-Chavez. But I would bet of the new ones, 80% are Chavistas, if not more. Add to that the Tascon list, firings and the like of the original 1 million and you probably have at least three quarters are Chavistas. The educational sector has been more immune to purges, unless you were in one of the new universities of course. I imagine Professors are 80% against Chavez, if my knowledge of the sector serves me right.

        • CharlesC Says:

          This is disgusting. And, the military and PDVSA,on and on.The whole country is turning into N.Korea

        • R.Sarjeant Says:

          Miguel Octavio,

          I didn’t realize you had used the word “most”… in reality what ticked me off was not your post but the comment I replied to, because it sounded just like the type of extreme, us-vs-them thinking that usually alienates a lot of people.
          Also, I wanted to point out that at this point people like my mom are feeling pretty much hopeless with this deal they are getting. Both my parents are owed tons of money that they worked hard to get for their retirement.
          Besides my mom situation, my dad was a VIASA pilot until it disappeared along with his “pension”.
          As I’m not much of an economist, I would like to ask: is there any way people would be willing to make any money out of these bonds? Is it pretty much a lose-lose situation?

          • moctavio Says:

            The best thing is not to rush to sell them like what happened when Professors were given the Vebonos a few years ago. I gave talks at universities and wrote articles telling people to hold on to them for a while at least and most people did not listen. I expect a more rational structure, but this one is absolutely horrible.

  4. extorres Says:

    “rip off the workers twice” The third ripoff that you point to is to me the most ironic one because, as you point out that the equity comes from all Venezuelans, so it is also coming from the workers themselves. We can calculate 18billion dollars divided by 29million venezuelans = 621 dollars per venezuelan. chavez is actually taking away 621 dollars from each of the workers to pay them!

  5. GeronL Says:

    If the “public workers” vote for this crap by re-electing Hugo, then maybe they deserve being paid in worthless scrip. Only a “true believer”, a fool, would think this was a great idea.

  6. Dan Says:

    what makes you think they’re going to issue dollar bonds as Petrorinocos? i understand it will all be in bolivars. the fund receives dollars from oil extraction tax and dividends, trades with BCV at 5.3, and pays interest and principal with those bolivars. Ramirez said yesterday a 2nd fund, Fondo de Ahorro Nacional, may have possibility of obtaining USD, but I don’t think plan is to issue $15bln in Petrorinocos, that would be insane.

    • moctavio Says:

      Thats what the El Mundo reporter was told by Pdvsa, that only the first part would be Bs., the rest would be a $ bond maturing in 2034. It makes some sense, what rate would you give a 2034 bond in Bolivars? And you do ha ve to pay US$ 18 billion to the workers. Howver, the only possible structure would be to make it sinking fund and restrict s,ales more.

      • Getashrink Says:

        So, lets say that for example the government owes me 100.000 Bs.

        Will they give me a bond worth 100.000/4.3 ~ 23.000$? Or will a different rate, say sitme, be used, in which case I’ll get 100.000/5.3 ~ 19.000$ in bonds? Some other rate? It is hard to believe they will give that kind of money to many people.

        Will I be able to sell it in two years and get the dollars, just like it is done with the PDVSA and Sovereign bonds?

        What happens if a person doesn’t have a bank account abroad (which you need in the case of the PDVSA and Sovereign bonds if you want to get the dollars)?

        Who will be the custodians of the bonds?

        What will be the interest rate bonds? (Important, as this will be one of the things that will determine for how much you can sell the bond).

        If they plan to issue some bonds in Bs. and some in dollars, how much of the 100.000 Bs. they owe me will be paid in bonds in Bs. and how much in bonds in $’s?

        It’s all very obscure to me.

        • moctavio Says:

          I would bet they will do like in the Bs/$ bonds where they are at 4.3 but they have a low coupon that gives youa discount in $

      • Dan Says:

        I’ve heard total of something like 20 billion bolivars owed to state workers (only like $4.6 billion), I think El Mundo is confused. Felix Franco of Bolsa Publica put the figure at 40 bln bolivars last year and Chavez said last weeked its closer to 20 bln bs with Giordani nodding (off) next to him. I think it’s just a clever way, like you said, of tricking people into thinking that they’re petrorinoco will pay them face value after 2 years when it won’t and someone will end up arbitraging rates of USD coming into fund, sold to BCV then pay out peanuts in local currency to retirees. Also who ever buys up all the petrorinocos at a discount will likely do pretty well.

      • Getashrink Says:

        Whoa! I finally found a link where they clarify the issue and guess what, the bonds are going to be exclusively in Bs.!!

        http://www.entornointeligente.com/articulo/1248987/VENEZUELA-Petrorinocos-para-empleados–publicos-seran-emitidos-en-bolivares-rss-03042012

        Now, THAT will be a real rip off!!

        Who the hell is gonna buy that crap in two years?

        At least if the bonds were in dollars, you would be protected against inflation and devaluation, and depending on the interest rate, you might get a significant fraction of the face value of the bond when you sell it, which wouldn’t be such a bad deal after all. Now, with a bond in Bs that you can only sell in two years, it will get eaten by inflation, and on top of that, if you do sell it, it will have to be for peanuts because nobody is gonna want that worthless piece of trash.

        So, basically the government is paying with toilet paper.

        I guess this wouldn’t be so outrageous if it weren’t because this is part of the presidential campaign, with the government telling the people “I’ll rob you, but you’re stupid and you’ll believe I’m paying you”, and people saying “Great! You got my vote!”

        And then they say Venezuelans are “vivos”…

  7. Dr. Faustus Says:

    I gather that Rafael Ramirez has been up late studying the recently published, “How to keep a ponzi scheme going in three easy steps” by Bernie Madoff.

    • Ira Says:

      Now THAT’S funny!

      And considering Madoff is a Jew and responsible for all the economic evils in the world, who better to learn from. If fits in perfectly with the Chavista ideology.

      And you understand my sarcasm here, correct?

  8. J Morales Says:

    Just an observation, aren’t public employees paid with their own money always?

    By definition they work for the state as well as “own” part of the states profits so it seems that the only thing out of the ordinary is that they are not actually getting paid. But that is ordinary for this government anyway.

    By the way congratulations on the blog. I just recently became a fan and Am already addicted to it.

    Regards
    JM

  9. Glenn Says:

    There’s some tweeting going on about unraveling in Havana- something to do with chavez………any good news to be had out there?

  10. LD Says:

    OK, c’est fini

  11. LD Says:

    And yet, will be there chavismo without Chávez?

  12. Carlos Says:

    BTW.. Chavez was talking abou this debt as an OLD debt, inheritated from OLD governments.. NOT AT ALL… I would estimate that well above 80% of this debt is related to the 1997 new severance labor system

    1.. many of olders were either fired, retired, dead
    2. Old debt, prior to 1997 was frozen and only caused interest for still active in the 1998-2012
    3. Salaries increases in the Chavez ruling are near 30% per year, well above manipulated low intest rates

    so..Miguel.. 80% or more?

  13. Susan Says:

    Based on Bloomberg, there may no longer be a Chavista governnment.
    Who will replace him ?
    Venezuelan President Hugo Chavez wiped tears from his face as he pleaded for life in his fight against an undisclosed cancer at a Catholic mass in his home state of Barinas.

    Chavez, speaking yesterday at the mass held for his health and broadcast on state television, said cancer is a “real threat” that takes many lives and that he has faith that he will win the fight against the disease.

    Chavez, who returned April 4 from Cuba where he underwent a second round of radiation therapy, said he shed tears when he felt the hands of his parents, Hugo and Elena, touch him during the mass. His siblings also attended the service.

    “If this was necessary, may it be welcome,” Chavez said, who wore a white T-shirt under a blue and white track suit. “But I ask God to give me life, however painful. I can carry 100 crosses, your crown of thorns, but don’t take me yet. I still have things to do.”

    Chavez, who has undergone three operations as part of his treatment since June, will seek re-election in October in a bid to extend his 13-year rule until 2019. The government hasn’t disclosed any succession plans in case Chavez, 57, isn’t healthy enough to participate in the elections.

    He may travel to Brazil for medical treatment after having a reaction to the radiation therapy, Merval Pereira, a columnist for O Globo newspaper reported yesterday, without saying where he got the information.
    No Trip Planned

    A spokeswoman at Venezuela’s Information Ministry, who isn’t authorized to comment, said Chavez didn’t have a trip to Brazil on his agenda.

    Chavez is also having intestinal problems, which might be a sign the cancer is spreading, Pereira added.

    Brazilian and Venezuelan doctors have clashed with Cubans on the medical team over whether radiation therapy is the appropriate treatment for Chavez, Nelson Bocaranda, a journalist who frequently reports developments on the president’s health in absence of details from the government, wrote yesterday on his blog.

    Chavez received a phone call from former Brazilian President Luiz Inacio Lula da Silva on April 3 in which the Venezuelan leader said he would like to visit Brazil soon to meet with Lula and President Dilma Rousseff, Venezuela’s Foreign Ministry said in a statement sent by e-mail.

    Chavez said on April 4 his body had no adverse reactions from the radiation treatment and that all tests showed his recovery was going well after arriving in Venezuela.

    To contact the reporters on this story: Corina Pons in Caracas at crpons@bloomberg.net; Jose Orozco in Caracas at jorozco8@bloomberg.net

    To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

  14. CharlesC Says:

    “The cancer is incurable; the treatment is not effective. The Venezuelans are being deceived by a president who is in his last days. The reality is that it has an incurable disease”, said the doctor[Dr.Jose Rafael Marquina]

  15. Kepler Says:

    Hey, guys…Hugo went to Cuba this time with his big brother Adán. May this mean something special?


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 11,831 other followers

%d bloggers like this: