Archive for December 21st, 2008

Interview with former PDVSA Economist on oil and 2009

December 21, 2008

Must read interview with former PDVSA Economist Ramon Espinaza in today’s El Universal.
Espinasa knows his stuff and understands oil markets line nobody else,
I have always been impressed by him and when PDVSA had an economic
office led by him, the company and the country could count on real hard
numbers economic analysis and not the clowns of today. In fact,
Minister of Planning Petkoff always used that office to calculate how
much things would cost. In contrast, Chavez and his Government don’t
calculate, they just do and hope for the best. Which style do you

In any case, Espinasa is also worried about
PDVSA’s revenues next year. His estimate, which he gives no details
about is that the company will have revenues of US$ 23 billion if oil
prices stay where they are today. Espinasa gives no details of what he
takes into account or not in coming up with this figure, but it is 15%
higher than mine, he may be calculating all revenues, including sales
that do not get paid. But US$ 23 billion is low, given that the country
will import about US$ 50 billion this year.
tells us that he expects some 4 million barrels of new oil to come into
market this year from the US and Africa. In the US he is talking about three platforms including “Thunder Horse”, while in Africa it is likely to be Angola, the new star in the oil producing world.
points out that the gap between the Venezuelan oil basket and WTI is
widening which is due to excess over of light crudes reducing interest
in heavy crudes, as the differential has grown from 8.5% last summer to
28% last week. (You can’t take Friday into account as it was options
expiration, creating a strange discrepancy in oil markets as traders
avoid delivery)
According to Espinasa gasoline
is sold at US$ 5 per barrel in Venezuela and it costs US$ 25 to
produce, thus he thinks this will be one of the adjustments the
Government will make. 
Espinasa estimates that
in 2008, PDVSA’s costs were US$ 23 billion, including social programs,
clearly this is simply unsustainable. 
Whether it is my number or Espinasa’s is not really important,what is important is that something needs to be done. 
you need more than just cutting travel allocations, which as today’s
paper says represents only US$ 700 million in savings. And don’t
believe the paper’s US$ 7 billion for food which is only used by
ignorants. That number comes from a category, which excludes imports
from Aladi which are dominated by food and represent US$ 10 billion a
year (no percentage is given for items within Aladi). It also does not
include feedstuffs and machinery using in food production. But it is
irrelevant, what is clear is that such a drop in revenues will force
the Government to reduce spending and the economy will contract and
people are going to feel it no matter how much money is in the
investment funds. 
Because as the economy
contracts, inflation will soar above the 30% this year and the
inefficiency of Government controlled imports will hit the people. 
And that is going to be very rough on those that are doing the worst.

Another Chavez whim: He orders expropriation of a huge mall in downtown Caracas

December 21, 2008

I guess it is very dangerous to have Hugo Chavez not be busy with his politicking. Yesterday he said he would let people rest from politics until next year, which allowed him to come up with another one of his whims as he announced today that he would like to expropriate and nationalize the building of the huge new Sambil Mall in La Candelaria, located right where Avenida Urdaneta begins near dowtown Caracas.

There are many reasons while Chavez’ new whim reaches new heights of stupidity and the capricious nature of his decisions:

First of all, the Mall was conceived and designed during Chavez’ tenure as President and the approvals came from the Mayors of Libertador District and the Metropolitan area of Caracas who were not only Chavez’ buddies, but got there because Chavze wanted them to get there.

Second, this Mall, built exclusively with private sector funds, was aimed at the poorest sectors of Venezuelan society. After building the Sambil in the East of Caracas and others in Margarita, Maracaibo and San Cristobal, the Cohen group decided to go for it and built this mall oriented towards the lower classes and placing it in a business area which ahs deteriorated in the belief that it will improve it and will allow people to spend their time safely at their mall. (And yes, make some money in the process!!!)

But the stupidest reason of all is: What will he do with it now? Here is a man that is incapable of finishing or even building anything right and he plans to stop the building of the mall to turn it into a Hospital a unversity or a school? is he high? How long will it take? How much will it cost? How much corruption money will be involved?  Will he ever pay the rightful owners sufficiently to compensate for their investment, time and planning?

Then of course is the usual problem: Who will invest in Venezuela now when even things like just the building of a mall are being taken over by an incompetent, destructive and voracious Government?

Finally, it shows how Chavez is so isolated that this Sambil Mall is being completed now, less than 2 Kms. away from the Miraflores Presidential Palaca where Chavez hides out. But by now Huguito is so paranoid that he barely steps out of it. He is no longer the man of the “people” who used to walk the streets and talk to them. He only goes out by helicopter, surrounded by ever increasing circles of protection to fend off his fears of an attack on his life, protected by a clique that tels him everything is fine.

And coming up with crazy whims and ideas that in the end will only make him less popular.

(I was going to post a google maps picture of the mall, but the ggogle picture still shows just a parking lot)