The Devil's Excrement

In another indication of either the incompetence or the corruption of the Chavez administration, CITGO and PDVSA were defrauded in the amount of US$ 200 to 560 million, depending on the source, by brokerage firm FTC Capital Markets. Both companies sent funds to FTC to be invested in fixed income securities and certificates of deposits, but instead the money was used to cover losses in FTC’s operations and/or invest in higher risk strategies.

Reportedly, Citgo has sued FTC Capital Markets to recover the funds, as FTC gave the company fake statements in order to hide the fraud. The company does not have the capital  to respond for even a small fraction of the amount missing.

Where is the incompetence in all this? Simple, as noted by website Venepiramides, at the end of 2008 FTC Capital Markets had equity of barely US$ 1.1 million and it incurred in losses for 2008 of over four hundred thousand dollars. What was Citgo doing working with such a small outfit and sending hundred of millions of dollars to it? Either those managing the funds were extremely stupid and incompetent or they were getting paid to do so. Obviously, a lot of people failed to do their job and perform the required due diligence. Even local brokerage firms are required to have more capital than FTC did.

This is another example of what happens when there are no checks and balances. Chavez has allowed Rafael Ramirez to run PDVSA at will, losing the old controls and supervision. From suitcases to cases like this, Venezuelans get ripped off by the revolutionary Government everyday. Of course, nobody will be punished for this, so that the corruption, waste and mismanagement will continue.

As if he did not have enough on his plate, Hugo Chavez announced yesterday that he will nationalize all of the hot iron briquette companies, including Orinoco Iron and Venprecar, as well as pipe planta Tavsa and Ceramica Carabobo.

Hot iron briquettes are a substitute of steel scrap used worldwide. Essentially, iron ore is processed and produces a more uniform substitute for steel scrap used largely in the automotive industry. Venezuela is one of the main producers of such briquettes. The companies producing these were owned by Venezuelan, Japanese and Argentinean companies. One of them Sivensa, owner of Venprecar and Orinoco Iron, which trades in the Caracas Stock Exchange. Chavez said he would create a large briquette producing company. That seems to be the only plan.

A Venezuelan state owned company, Ferrominera del Orinoco, produces the raw iron ore for the production of briquettes. The Orinoco Iron plant has been plagued with problems since inception, it has never worked up to its full capacity.

Producing and selling briquettes is complex. Prices can gyrate wildly and it is a technically difficult process. Currently, Ferrominera can not supply these companies with all of the iron ore required, forcing some of them to import the raw material.

This is of course another liability for the Chavez Government. Another legal problem. Another future arbitration process in the horizon.

What’s next?