The Devil's Excrement

Venezuela survived its first day after the injunction, markets went into panic, bounced back, PDVSA said nothing has been seized, which is almost correct and everyone gave its opinion even if they had no clue as to what they are talking about.

From what I have read, ExxonMobil obtained at least three injunctions of that size in three different jurisdictions. As I said yesterday, ExxonMobil is simply playing hardball. ExxonMobil had signed a contract with PDVSA and it was violated, it was told by the Venezuelan Government that they had to sell a piece of the Cerro Negro to PDVSA, at PDVSA’s price, so that PDVSA would own a 60% majority of the heavy crude projects. If ExxonMobil did not agree to it, it had to lave the country and take an offer from PDVSA which was not only low in price, but payable in kind, i.e. heavy crude, and not in cash.

This was a very straightforward expropriation, but whenever ExxonMobil signs a contract anywhere, it includes and international arbitration clause. For ExxonMobil this is actually a small part of its enterprise, but there is a matter of defending its rights not only in Venezuela, but everywhere else in the planet wherever they may go. Thus, ExxonMobil pulled off from a country where it had been for years and immediately filed for arbitration in the Court specified in its contracts. This was arbitration over its compensation on its US$ 1.6 billion investment, which is now wort more simply becasue oil is somuch higher than it was in the 90’s when it was first built. Comparables suggest the project is worth around US$ 3 billion, even if ExxonMobil as asked for about US$ 6 billion. ExxonMobil has yet to take action on intellectual property rights, as the Cerro Negro plant uses ExxonMobil’s technology and PDVSA has yet to pay for using it. This could be the matter of a lawsuit, but it will likely be settled as part of the arbitration. We note Venezuela under Chavez has lost all three cases that have gone to arbitration in very quiet fashion and the country paid up.

PDVSA said that it will have its day in Court and if its lawyers are any good, they should be able to lower the amount of the injunction, but we are sure that the amount will remain high. PDVSA could even argue that it paid a scant US$ 1.3 billion to its partners in Sincor, state owned companies Statoil and Total, both of which not only accepted the low price but also payment in the form of oil and not cash. Thus, the Court is likely to lower the amount to US$ 4-6 billion on February 13th. when PDVSA will have its side heard. Exxon in any case will have the ability to block PDVSA from any financial mobility as the Curt will block any sale of assets and cash will have to be moved around very carefully by PDVSA. ExxonMobil will keep a full Court press (Yes, it’s a pun!), trying to obtain similar injunctions in various jurisdictions, putting even more pressure on PDVSA.

For PDVSA and Venezuela this is bad news and it is likely to force them to settle fast, which we are sure is what ExxonMobil was after. Besides PDVSA’s cash flow problems, the company needs to borrow money by either issuing new bonds or borrowing from a bank, the Government needs to sterilize some of the excess liquidity by issuing a Government bond in local currency but denominated in US$ or PDVSA bonds. Besides this, the country has plans to issue debt in foreign currency to the tune of US$ 4 billion during the year to cover the budget. As long as this inunction is hanging over the market, it will be more expensive to issue these bonds for both, if at all possible.

Even worse, this is not the only case that PDVSA is negotiating as ConocoPhillips has also filed for arbitration over the Petrozuata project, a similar heavy crude partnership, which is actually more valuable, as production was 75% larger than Cerro Negro’s and thus the value was in the range of US$ 10 billion, of which ConocoPhillips owned half. ConocoPhillips has written off his investment and was negotiating in parallel with its arbitration filing.

The problem is that these arbitration processes can take years and certainly ExxonMobil is looking for a quicker solution. If ConocoPhillips can not reach an agreement in its negotiations, it may resort to high pressure tactics like ExxonMobil. These injunctions certainly do not help PDVSA’s negotiation capability in either case.

Thus, once again, the pressure is on Chavez, PDVSA and Venezuela to get this out of the way, as things continue to unravel locally after years of economic mismanagement. How the Government handles this impacts everything in the end. PDVSA is being used to solve and finance the problems the Government can’t handle, but its financial and management resources are strained to their limits. Much like the Venezuelan economy, there is little room for maneuver. There is money, some US$ 12 billion in Fonden and oil prices remain high, but something had to give and is doing it from shortages, to inflation, to inefficiencies ,to the slowing economy. It is certainly not the right time to reduce PDVSA’s social spending, but production is dropping and
little investment in production is being made.

And now comes ExxonMobil to make it more difficult for everyone. It reminds me of a local saying: “Eramos muchos y pario la abuela…”(There were many of us and grandmother gave birth…)

So, ExxonMobil has begun playing hardball with PDVSA over its
arbitration case with the Venezuelan Government. To remind you of the
case, PDVSA tried to force ExxonMobil to give up a majority of its
stake in the Cerro Negro joint heavy crude project. Exxn Mobil held
42.5% and BP 16% and PDVSA the rest. PDVSA and ExxonMobil did not
agree on this and the Government took the company over and they could
ot agree on compensation. The same happened with ConocoPhillips in the
case of Petrozuata.

Today the news came that ExxonMobil has asked and obtained from a UK
Court an injunction for freezing US$12 billion in assets from PDVSA
worldwide, because it fears that PDVSA will dissipate its assets when
and if the arbitration panel overseeing the case rules in ExxonMobil’s
favor.

While there seems to be a little panic in Venezuela and abroad over
this and PDVSA and Venezuelan bonds have been dropping like stones
over the news. However, one should be a little more analytical over
this and don’t rush to judgment in my own opinion. While there may be
panic, it is clear that these are simple hardball tactics on
ExxonMobil’s case, trying to force PDVSA and the Venezuelan Government
to reach a settlement n the case or pay up ahead of schedule.

To begin with, one can try to eyeball how much PDVSA owes ExxonMobil.
Based on valuations of other companies that trade in the US stock
market, like Canada’s Suncor, which have sales of fur to five times
larger than those of Cerro Negro, one could get a highwater number of
roughly US$ 8 billion for ALL of Cerro Negro. Given that Exxon Mobil
owns 42.5% of Cerro Negro, we would only be talking of US$ 3.4
billion, if things like country risk premium and the like are not take
into account. In fact, the owners of Sincor, a similar company with
larger production agreed to be taken over by the Venezuelan Government
for an amount of US$ 1.2 billion, certainly well below its fair value
(I guess state owned companies can afford that luxury)

Thus, US$ 12 billion sounds like a huge amount compared to what PDVSA
may owe Exxon, but maybe the number was calculated to stop PDVSA from
selling any of the pieces of Citgo, 100% owned by PDVSA before an
arbitration ruling can be obtained n its favor.

Of course, I am assuming that Chavez will not consider this to be war
or something like that ordering the Government not to pay or
compensate ExxonMobil, in which case the recent shortages seeing
around Caracas in foodstuffs in the recent weeks may be rememebered as
the good old days.

Thus, I see this as a hard ball tactic which will force the Government
to offer ExxonMobii an adequate amount, which it can well afford. The
alternative is that you believe Venezuela will stop paying its
external debt, exporting oil and that type of doom scenario, which I
certainly don’t believe will happen.

Still at the beach, but other aren’t such as agricultural expert
Carlos Machado with this fine piece in today’s El Nacional on how the
Government did everything possible to insure the shortages we are now
seeing daily in Venezuela

The Agrarian and feeding destruction by Carlos Machado Allison

Picking fights with other countries or threatening with war if he
loses Governorships or City Councils will not solve the problem of
shortages that are affecting the country. They did everything possible
so that there would not be the irreplaceable milk, truly a crime
against humanity, while they wasted the oil income. Now they condemn
the people who live near the border to more shortages with stupid and
cumbersome measures that violate the freedom of movement of foodstuffs
towards Tachira and Apure.

The concept of “foodstuff security” managed by the Government is
wrong from A to Z and the results are there for everyone to see. Deaf
to any other idea, they began with endogenous development, when modern
countries try to produce for export. Then came the slogan of
self-sufficiency, something that very poor countries or those
incapable of importing or exporting try. To the treatise of wrongs
they added Exchange controls, the fixing of prices at the producer
level and the freezing of prices for the consumer, a formula tried and
failed across and along the planet. As if the above were not
sufficient to insure shortages they added the country leaving the
Andean Community of Nations and the Group of 3, not forgetting
violations to agreements aimed at free trade with the members of the
Andean group.

To the bottomless barrel of errors, they added a critical ingredient:
the weakling of the already precarious property rights, and to the
many non sensical parts of the Land Bill, they added the one on
agricultural marketing, while stimulating the invasion of land and
buildings, even using the armed forces to destroy productive
infrastructure. They created their own, costly and inefficient
Governmental system of distribution, transportation, cooperatives,
sugar processing plants, agricultural industries and as many porous
patches as were available. At the same time, they were tolerant with
criminals and we reached world record numbers in assassinations and
kidnappings, tragedies that also generate costs, which are passed to
consumers. Blaming producers and industries they promoted parallel
unions and organizations and financed the erosion of the system.
Thousands of millions were misspent.

Alter the perversion that fenced in cattleman and agricultural
producers, they went after the industrialists, the importers and the
distributors. They created, insuring that there would not be food for
the kids and the poor, all of the possible barriers for the free and
dynamic trade required to feed them, import licenses, new taxes, cash
registers that require id number and address, proof of being solvent
with Government institutions and any other piece of paper they could
think of. All of which makes it costly, difficult and slow to obtain
official foreign currency to import and distribute food. Populism led
them to increase the money in circulation, but not the needed
investments to produce more and generate more employment, infallible
formula to create inflation.

It all exploded in his face, the people will get even one day. They
now run around looking for milk, meat, oil eggs, black beans, flour,
yellow corn, sugar and sorghum, Imports jumped from US$ 1,5 billion to
US$ 5 billion and they are still not capable of satisfying demand. It
is not enough to adjust some prices, the bulls have left the corral
and only major changes will stop inflation from not dropping below 35%
and, on the way, that they lose half of the City councils and
Governorships.

Chávez’s Anti-Semitism

By Abraham H. Foxman
Tuesday, February 5, 2008; Page A19

Venezuelan President Hugo Chávez and his followers have sought to
harass and intimidate the Catholic Church, the media, university
students, political opponents and multinational companies doing
business in Venezuela, to name just a few targets. Thus it can hardly
come as a surprise that Chávez would also attack the Jewish community.
Indeed, it’s an old, old story.

The point, of course, is to bully and discredit institutions that have
existed and thrived for years in Venezuela. Perhaps because of their
vitality and independence, Chávez sees them as an intolerable threat.

The Venezuelan president has, of course, already turned public
institutions into pawns of his regime. His political party controls
the legislature, the vast majority of local governments, the trade
unions and the electoral commission. Chávez has undermined the
independence of the judiciary, sought enactment of laws to allow the
government to dominate the broadcast media, and generally used his
power to intimidate opponents and stifle dissent.

The rising wave of anti-Semitism in Venezuela is part and parcel of
this effort by Chávez’s increasingly repressive regime. The complex
housing the Jewish community school and cultural and sports center has
been inexplicably raided twice by Venezuelan police since Chávez came
to power. It is especially dangerous when law enforcement carries out
these kinds of unfounded acts, since some may interpret them as
justification to commit violence against Jews. When a community is
singled out and bullied in this way, the danger exists for xenophobes
and anti-Semites to take license from the government’s actions to
spread their hate.

Certain government officials and commentators in the official media
frequently resort to implicit and explicit anti-Semitic displays,
including rehashing the ancient canard about Jewish control, vilifying
Jews and Israel as agents of imperialism, and adopting anti-Semitic
stereotypes about Jewish financial influence. Instead of denouncing
such hateful speech, Chávez chooses to overlook anti-Jewish rhetoric
and often endorses notorious anti-Semites in the media. As dangerous
and hurtful as this is for the small Venezuelan Jewish community, it
is a symptom of something much deeper and far riskier for all
Venezuelans: the breakdown of democratic ideals and institutions.

Chávez has repeatedly compared Israel to Hitler and the Nazis, and he
has accused Israel of engaging in genocide against Arabs. These views
have been expressed in various Venezuelan government-sponsored media
outlets, on radio and TV broadcasts, and in newspaper articles and
political cartoons.

Chávez has aligned Venezuela with countries and radical Islamic
movements that are a verifiable threat to Israel and world Jewry,
including Iranian President Mahmoud Ahmadinejad; Hezbollah’s secretary
general, Hassan Nasrallah; and Syrian President Bashar al-Assad. He
has also fostered relationships with convicted guerrilla terrorist
Ilich Ramirez Sanchez (a.k.a. “Carlos the Jackal”) and the
now-deceased Holocaust denier Norberto Ceresole of Argentina.

Leading international human rights organizations have reported on
activities by the Venezuelan security forces such as torture,
extrajudicial executions and unexplained disappearances. Kidnappings
and contract killings, which are common in some parts of the country,
go unpunished. There have also been reports of threats and
intimidation directed at individuals who seek to vindicate the rights
of Venezuelans against the government. Under these conditions,
democracy cannot thrive.

Throughout the ages, Jews have been the canary in the coal mine, with
any downturn in their treatment or status as equal citizens signaling
the decline of democracy within a society. History has taught us that
when a government fosters intolerant attitudes and behavior among its
people, democracy and civil rights are endangered and the society
suffers. The people of Venezuela deserve better.

The writer is national director of the Anti-Defamation League and
author of “The Deadliest Lies: The Israel Lobby and the Myth of Jewish
Control.”

Today Chavez had a remarkable day:

–He celebrated with a military parade the 15th, year Anniversary of
his 1992 bloody coup, proving once again that he is no democrat.

–He said that Venezuela does not have a border with Colombia but with the FARC

–He stated that those in the hands of the FARC are prisoners of war,
proving once again that he supports the guerrilla group in his fight
with the democratically elected Government of Colombia

–Finally, he approved a decree which is not clearly unconstitutional,
but is almost a carbon copy of one of those rejected by the voters in
December as a change of the Constitution. The decree basically allows
the Government to take over any facility, plant or business in the
food sector without “mediation of any formality”. Once again, Chavez
shows he does not respect what the people clearly said on December in
rejecting his proposals and his own Constitution which clearly
establishes how and when the Government may expropriate private
property.

–By the way, it has been two months and we are still waiting for the
third bulletin of the Electoral Board

Chavez is getting nuttier by the day and is setting up a collision
course with either Colombia or internally as his popularity plummets
and he desperately tries to blame others for the mess he created in
the Venezuelan economy.

God help us!

Another good article by Luis Pedro España in El Nacional

It wasn’t me by LUIS PEDRO ESPAÑA

That would seem to be the main excuse the Government always has.
Everything takes place behind its back, without any chance of any of
those in Government being able to stop it. There is always a great
conspiracy against them.

There are people infiltrating the Government at all levels blocking
its ability to execute. According to legend, even in Cabinet meetings
the ministers debate the topic of conspirators and the agents of the
empire within the ranks of the Government. What for many would be
nothing but a subterfuge for the naïve, for the Government it is the
explanation of its poor accomplishments.

Do they really believe it or is it pure cynicism? There is evidence
that leads you to think it is both. The hallucinogenic left that is
governing us has historically liked to overestimate the explicative
and causal power of international influences.

Under the tradition of the school of dependency, the Government finds
explanations for its mistakes, errors and incompetence in the unequal
relationship and contradiction of existing interests between the
center and its periphery. That is why in the face of how tiring the
anti imperialist litany may be for the non ideological ears of the
citizens, for the Government and its followers, it is a healing balm
and hopeful breath in the face of all of the ills that are present
today and those to come in the future.

Obviously what begins as a wrong belief turns into a great lie, which
justifies the mistakes. Revolutionary utopia rapidly turns into a
sordid falsehood when it’s verified in practice that poverty and
injustice continue to be present in the streets and in the homes.

The recurrent use of external determinants ends up making the
Government far removed from internal problems, if not irresponsible
for not taking care of them. The most recent case, which may be the
most dangerous one, of the reckless use of the external explanation to
our internal ills, has been the treatment of shortages and our
relationship wit Colombia.

We have heard the President say that internal shortages are due to the
worldwide shortages of food as well as what they call extraction
smuggling into Colombia. Neither of those two things is true, but it
is used shamelessly to hide the true causes. Shortages have only one
explanation, which is the policy of controls extended to the extreme
and the constant attack against any activity or sector that has to do
with local production.

Neither the endogenous production nuclei, nor the cooperatives, nor
the social production companies, nor the harebrained ideas that that
are buried in the cemetery of XXIst. Century socialism have been able
to solve the productive deficit of the country. On the contrary, the
resources devoted to these senseless ideas, are part of the largest
and most grotesque misuse and waste that has been made with the oil
bonanza, a trend, that to top it all of, will not stop with its
failure, but we are sure the Government will depend on it until it
reaches a disastrous ending.

If, as we sadly presume, the Government will be incapable of dealing
with the problems of shortages and inflation, it is not beyond reason
to expect that that the external justifications will reach the point
of transforming themselves into real excuses to initiate preparations
for war against other countries. Even the President already raised
that possibility in the framework of his twisted explanations in which
he usually incurs, each time he faces the reality of the Government’s
incompetence.

That is why war, the war against the empire via Colombia, may be the
last and tragic act that we will have to witness from this
irresponsible Government.

Monday and Tuesday will be Carnival holidays in Venezuela and I will be spending the next isx or seven days at the beach, so posting will be light. I have a couple of articles to translate and lots of things in my mind to write about, but mostly I need a break from wor, Venezuela and “real” life for a few days, the beach should do the work…

I will leave the server on, hopefully there will be no blackouts and I will be able to mail in posts and they will not be scramble. Thanks for continuing to read my rants…