Another “Creative” Transaction For PDVSA Where The Loser Is Venezuela

August 17, 2012

When the history of the past 14 years is finally written, people will wonder how a Government claiming to be revolutionary and a defender of the country’s sovereignty and the “people”,  managed to give away so much of the “people’s” money just to cover up mismanagement and in the interest of buying allies around the world.

In the latest such transaction, PDVSA has given away money to Uruguay, a country with a higher GDP per capita than Venezuela, not once, but twice, in one of the strangest transactions to date.

It all begins in 2006. PDVSA begins sending oil to Uruguay’s oil company Ancap under the following exceedingly favorable conditions: 75% to be paid in 30 days and the remainder 25% in 15 years at the absurdly favorable interest rate of 2%. (Think about it, Venezuela, which needs to pay 10-12% interest rate when it issues bonds, only charges 2% to a country that can issue bonds paying only 3% interest in 15 years)

By now, Ancap owes Venezuela US$ 718 million, but if the interest that needs to be paid is included, Ancap will owe US$ 860 million.

Curiously, just after Venezuela finally managed to enter Mercosur through the backdoor, PDVSA has agreed to accept that Ancpap pay it with PDVSA bonds worth US$ 860 million in face value, but which are only worth US$ 510 million today. Thus, PDVSA “receives” bonds worth US$ 810, registers that it got paid that amount, but if it sells them gets US$ 343 million less. But Ancap only pays US$ 510 million of its money, for oil worth US% 710 million plus interest.

Thus, Ancap, which already got a sweet deal with 2% financing for 15 years so that Uruguyans can vacation in Punta del Este, now gets a substantial discount for its debt.

The only benefit for PDVSA is that it gets the money today, rather than over the 15 years and Ramirez and Co. can use the money elsewhere.

But there is absolutely no justification for the discount. PDVSA is using an interest rate, as if Ancap were PDVSA, which needs to pay high rates. In fact, the transaction is being funded by the Government of Uruguay, which is lending Ancap the US$ 510 million at a rate of 4% interest plus inflation. This is easy for Uruguay to do, since it can borrow at even lower rates than that.

And, of course, we are supposed to believe this had nothing to do with paying back Uruguay for allowing Venezuela to sneak into Mercosur. Sure!

13 Responses to “Another “Creative” Transaction For PDVSA Where The Loser Is Venezuela”


  1. They need the money now because there are a lot of votes to be bought, campaign ads to produce, wealth to spread, etc.

  2. clobber Says:

    I wonder how many more “favourable” deals were done to facilitate Venezuela’s entry to MERCOSUR. I imagine that the list would be a long one!

  3. Ronaldo Says:

    It makes no sense for Uruguay to finance oil over time. The oil is used immediately and future governments must pay for it. Oil is not like a permanent infrastructure improvement like a bridge, water system, or other development projects that will still be around in 15 years.

    Someone in Uruguay is getting the oil at a 25 percent discount and selling it at near full price. Are Uruguay consumers getting a price break for the gasoline in their cars? I doubt it.

    This is clearly a payoff for Uruguay politicians.

  4. Dr. Faustus Says:

    “Someone in Uruguay is getting the oil at a 25 percent discount ….”

    Everyone in Venezuela is getting oil at a 92 percent discount…

    It is a stunning fact that more than 50% of all Venezuelan oil produced is sold at a discount. The ‘opportunity costs’ which are thus lost are staggering, beyond belief.

    • CharlesC Says:

      “It is a stunning fact that more than 50% of all Venezuelan oil produced is sold at a discount”- Ramirez has been assuring everyone these past few days that is not true.He says all oil was sold at a premium. Even to China and all of the Caribbean.(I guess he includes Cuba, too.)[I think I heard a who!]

      I remember though- Chavez bragging about getting “educational software” cd’s etc. from Uruguay and semen for dairy cows in exchange for oil.

      Now last week, Ramirez said “heifers from Uruguay” to build Venezuela’s herd….

  5. Isa Says:

    I wonder where the PSF’s are? Venezuela gives away gas to a richer country and then gives them a discount. Cute!

  6. gordo Says:

    Having studied finance, I find this situation extremely alarming! The whole concept of trade has to do with the exchange of value where, presumably, the best trades are those those exchanges which are of low cost to the seller and high value to the buyer. It’s not apparent to me what Venezuela received, if anything, in the trade.

    I also don’t understand what competing opportunities there were for the oil sale at that time. Certainly, if Venezuela is paying a higher interest on it’s own debt than Uruguay, it has no bearing on this trade, because Uruguay is not going to pay a higher interest just because Venezuela has bad credit. On the other hand, if Venezuela needs to make this sale for some reason, and financing is required to consummate the deal, Venezuela has to pony up!

    Therefore, with the information given, the above transactions only describe the precarious financial position of Venezuela and the unpredictable nature of the oil market. We need more information.

  7. CharlesC Says:

    Let’s not forget the 10 million hospital gift to Uruguay from Chavez.


  8. Payment to Uruguay was through bonds, like in this transaction. Payment to Brazil through the acquisition of Embraers. Payment to Argentina through capital injection to YPF.
    Of these only the Embraers were needed, we just don’t know how much money Chavez gave Roussef for them.

    • VJ Says:

      And don´t forget the $uitcase of Antonini Wilson……

    • CharlesC Says:

      Has PDVSA come up with the money for their share of the refinery being built by Brazil in N.Brazil near VZ -to handle VZ crude.Maybe it will be totally owned by Brazil? And, is Brazil going to build a pipeline to the refinery from
      Faja del Orinoco-share given to Brazil?In other words, will Brazil controll all of it-their share(that would be illegal)? And, it seems like Chavez is sending this same message to China- re. Faja del Orinoco development. So the Chinese will build a high-speed rail to job , a rail and a pipeline and their container ships will be waiting in their port all from Chavez?
      Who knows the truth, certainly you will not hear it from Ramirez…


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