The Devil's Excrement

(In Spanish here)

In 1990, even before Hugo Chavez had stumbled into the world of Venezuelan politics, I was advocating the eliminations of the country’s Armed Forces, with only a corps like the National Guard remaining, overseen by civilians, not Generals, in order to maintain internal security. Last night, I used the hashtag #sinmilitares in Tweeter to send messages about this topic. Today, I had decided not to write about the grotesque spectacle of today as Hugo Chavez showed his military might, as Venezuelans live in the same squalor as when he got to power.

But then fate put the letter that I translate below in my Inbox, which expresses more eloquently that I could ever expect to express why Venezuela and all Latin American countries should get rid of their respective Armed Forces. Chavez’ toys and his own presence, in military custome, showed today more than ever why this should become a rallying cry for a post-Chavez Venezuela. Once again Oscar Arias shows why development is a state of mind, not something that depends on wealth. Kudos to the President of Costa Rica, let Venezuela get a guiding light like his sometime in what is left of my life!

San Jose, March 26, 2010

Sir
José Alberto Mujica Cordano
President of the Oriental Republic of Uruguay
Montevideo, Uruguay

Dear Mr. Chairman:

I do not write today to Don Jose Alberto Mujica Cordano, but to “Pepe” the revolutionary , that man who in the midst of the mud of horror, always kept intact the flower of justice, that dreamer who never turned off the light of utopia, not even in the darkest corner of his overlooked cell , that idealist who championed , despite insults and threats, an abiding faith in a better future for Uruguay and Latin America. I write to “Pepe” to say that there is still, in the backpack of time, a final utopia: the abolition of the Uruguayan army.

My words emerge from affection and from goodwill. I know that I have no mandate on the fate of your people. I do not mean to disrespect the sovereignty of a sister nation. I just want to give an advice that I see written on the wall of the history of mankind: armies are the enemies of development, the enemies of peace, the enemies of freedom and the enemies of joy.

In much of the world, and especially in Latin America, the armed forces have been the source of the most thankless collective memory. It was the military boot that trampled human rights in our region. It was the general’s voice that issued the most violent arrest warrants for students and artists. It was the hand of the soldier who fired into the back of innocent people. In the best of scenarios, the Latin American armies have meant a prohibitive expense for our economies. And in the worst one they have been a permanent trap for our democracies.

Uruguay does not need an army. Its internal security can be handled by the police, and its national security gains nothing from a military that will never be more powerful than its neighbors, which are also democracies. No matter how much it invests in its armed forces, Uruguay can not win an arms race against Brazil, Colombia, Argentina, Chile and Venezuela. In the present circumstances, helplessness is a better national security policy for your people, than a military apparatus below that of your neighbors.

I speak from experience. Costa Rica was the first country in history to abolish its army and declare world peace. More than sixty years ago, another revolutionary Pepe, Commander José Figueres, decided to banish forever the armed forces from my country. Since then, Costa Ricans have never had to live in a war. They have not shed their blood again in a civil war. They have feared a coup, a dictatorship or a regime of political persecution. My people live in peace because they bet on life, they live in peace because they trusted the power of reason to govern the impulses of violence.

You will tell me, my dear friend, that Costa Rica lives in the middle of peaceful countries. But that was not always so. There was a time when my people bordered to the north and south with a dictatorship. There was a time when the whistle of shrapnel sounded very close to our borders. Instead of taking up arms, Costa Rica came out to fight for peace in Central America. We did not need the army. On the contrary, being demilitarized allowed us to be perceived as allies of all parties to the conflict. In truth I tell you that there has been no decision that has strengthened the Costa Rican national security more, than to eliminate the army.

Two other Latin American countries have followed our example, Panama and Haiti. In 1994, the Panamanian Congress approved through a constitutional reform, the abolition of the armed forces. Since then, Costa Rica and Panama have shared the most peaceful border in the world. And not coincidentally, they are also the two most successful economies in Central America. Because the money we used to destine to our armies, we now destine for the education of our children, the health of our citizens and the competitiveness of our industries and businesses. We have reaped the dividends of peace, also garnered to a lesser extent, by the people of Haiti, that with the abolition of their army ended an eternal string of coups.

There are so many martyrs in history against military tutelage! You who suffered under the yoke of oppression, now have the opportunity to rid forever from that yoke the children of tomorrow. When the future comes, in the words of Mario Benedetti, “With its sharp blade and its scales, asking firstly about the dreams, and then about the homelands, the memories and the newborns” We must know what we will say. We need to know what we have been. Let us hope that future will recognize in you, my friend the President, “Pepe” the revolutionary, who declared peace to the world and decreed life to be holy  in Uruguay.

A fraternal embrace,

Oscar Arias Sanchez
President of the Republic of Costa Rica

It was a remarkable strategy, as Hugo spewed his usual vile against the imperialists and the Empire, Minister of Energy and Oil and President of PDVSA was in Washington, looking for US investment in Venezuela’s oil industry. Ramirez said the US “can’t miss this opportunity”, as if everything was normal in the relations between the two countries.

But wait, the US has no Government oil companies and most oil companies whether US based or not, simply were not that interested in what PDVSA and Ramirez had to offer. In fact, the Carabobo oil field only managed to sell two of the three projects, for reasons that go from high royalties, to high taxes, to PDVSA cpntrol, to no international arbitration to quationable financing.

So while the deranged leader spewed out his best stuff here, Ramirez was in DC, asking and lobbying for a meeting with the US Secretary of Energy in a clear sign that the Government of Venezuela or someone in it knows that that there is a serious financing problem going forward. So serious that we let Chevron get a piece of Carabobo and if Obama asked nicely, we may give an oil company of his choice the field that nobody wanted.

A truly amazing spectacle and turn around. What’s next? Alvarez Paz as Chavez’ VP?

But the truth is that to undo what Chavez has so carefully worked on in the last eleven years will not be easy. Both US and European oil companies distrust PDVSA and Venezuela and have better places to invest their money than in the overall uncertainty of a Venezuela with law. order, money and electricity.

At this time, it looks very difficult for these projects to ever be completed unless oil soars to $150-$200. PDVSA simply has no money. In fact, it is my personal opinion that the economic puzzle of how come if oil is up, the swap rate is also up, CADIVI outflows are down and international reserves are also dropping (even if Fonden money is ignored) has a simple answer: PDVSA has not been handing over enough foreign currency to the Central Bank because of its own cash flow problems.

So, Ramitez comes to Washington with his hat in hand, reversing Giordani’s ten year old promise that he would need to use his hat to get rid of all of the investors trying to get in Venezuela.

But I doubt he will accomplish much. The changes made are simply to vast to make Venezuela interesting at this time.

Somehow, even the simplest projects are not working. To begin with, any PDVSA controlled project implies a limit of Bs. 12,000 per month to the highest ranked engineers, while independent contractors offer four to six times more. Ad to that that the company is supposed to be everything to everyone and the whole thing is simplynon-sensical.

Meanwhile at the other end of the spectrum, the “Arepera Socialista” that started operations barely three and half months ago, is already in trouble: The “solidarity” price of Bs. 5 per arepa, had to be increased by 50% to Bs. 7.5, as the reality of such silly things like markets, inventories and costs hit the project. I guess Saman is no longer a volunteer, and cheese went up, and they paid a penalty for too much electric consumption or did not open often enough. Of course, if the idealists increase prices by 50% it is not speculation, it is good management and nobody goes after them. It is the oligarchs that can’t increase prices.

So, please my good gringo friends, we have always admired you in our revolutionary Government, we just had to express hate and dislike because we only care about getting elected and being anti-US is very popular. So, please send us some dollars, we really don’s care if oil projects are not working well, but when our incompetence affects serious stuff like eating arepas on the cheap, it is time to invite you back.

The last three rallies that Hugo Chávez has held show a qualitative change over the heyday of the now fat Dictator’s popularity. In one, in the El Valle area of Caracas, attendance was so bad that Huguito had to cut short his speech.  The buses were there, but the people weren’t

Then we had the rally in El Calvario with the “Peasant Militias”. The militias attended in brand new uniforms and Cogollo hats, evidence that they recently got to their attire. They surely got paid to go, I guess they got to keep the hat and the uniform, but had to return the rifle. There were no bullets.

Then we had yesterday’s militia rally, once again a way of guaranteeing attendance. We don’t know how much they  got paid for attending, but note the uniforms are different below from those in El Calvario.

And yes, it was supposed to be a militia rally, but it was also supposed to be a celebration of the phantom rise of the “people” in favor of Chavez in April 13th. 2002. This time, like then, the “people” decided to stay home as evidenced by the pictures below, taken from the front:

or from the back:

There are more “militia” than  people. It is not that the people have become militia, it is that dressing them in fatigues and giving them guns, it is harder for them to escape to the Malls or parks of Caracas.

Not all of them had guns, I guess you did not get your unloaded gun if you were in bad shape:

or if you were too weak or to old to carry one all day around the heat of Caracas:

Some people say that the rally was made to scare the Venezuelan military. I am not sure they were scared by this not-ready-for-prime-time-force, I would hope that the real Venezuelan military is in better shape than this one. I would be afraid of leading these people with loaded weapons to go visit Parque del Este, even if only for an ice cream, let alone to fight someone who has fired a weapon once in his or her life.

But in the end it is all a matter of images. To someone in Santa Cruz de Mora, these images may impress or intimidate, but only as long as they did not see that the militias are in the end protected by the images of Hugo, Che and, of course, Snow White:

Numbers, numbers, numbers, they can be painful, but they tell the truth. Some interesting ones from around the country and the world.

1) Today Chinese company Synopec bought Conoco’s 9.03% stake in Syncrude for US$ 4.65 billion.

What does that have to do with Venezuela?

Easy. The Chavez Government nationalized Cerro Negro, a heavy oil crude project, in which Exxon Mobil owns 41.6% of the company. It also nationalized Petrozuata, a similar project in which ConocoPhillips had 50%. Both companies have gone to arbitration as Venezuela offered a tenth of what these companies want in compensation.

The World Bank arbitration Court always looks at comparable transactions in the world when awarding compensation. Thus, this becomes a good comparable, a very recent one at that. Moreover, ConocoPhillips sold a minority stake, while PDVSA took control of these projects, the price is different but we will ignore that in this discussion.

Syncrude produces 280,000 barrels a day according to their website, but they can take it to 500,000 barrels a day. But both Cerro Negro and Petrozuata can be expanded and that requires money in any case. So, I will consider all three projects to be static, valued at their current levels of production.

At the transaction price, the value of 100% of Syncrude is US$ 51.5 billion for a project that produces 280,000 barrels of oil a day, that says each 1,000 barrels is valued at 184 million dollars. That means that Cerro Negro with 120,000 barrels of production is valued at US$ 22 billion and Petrozuata at US$ 36 billion.

This also means that Exxon Mobil’s stake is worth around US$ 9.1 billion and CoconoPhillips’ stake is worth around US$ 18 billion. ExxonMobil is asking the arbitration Court for US$ 12 billion, I have not seen a number for what ConocoPhillips is demanding.

So, just there Venezuela has a debt of some US$ 27 billion. Not a pretty number. It will take four or five years, but the number is final, no appeal.

2) We continously hear about Carabobo and Junin, those wonderful projects that are the future of PDVSA. Except that they cost money and PDVSA has to come up with 60% of the money, to wit:

Carabobo 1 and 3 Total Cost 40 billion, Financing 2 billion, PDVSA’s share US$ 22 billion

Carabobo 2 Total cost 20 billion, PDVSA says it will go at it alone                   US$ 20 billion

Junin signed projects (3) in partnership with Russia, China and ENI. Total cost US$ 60 billion, PDVSA’s share US$ 36 billion. Assume Russia and China finance US$ 4 billion, PDVSA’s share US$ 32 billion.

Junin 10 field which PDVSA says it will do alone Total cost US$ 20 billion

PDVSA is responsible for US$ 3 billion in infrastructure, such as pipelines, power plants and the like.

That gives you like US$ 97 billion in five years if all of the promises of Hugo and Ramirez become reality, which, of course they will not. Half of that would be too much. I wonder if these companies or countries will sue Venezuela or ask for more if PDVSA can’t come up with the funds. BTW, the “oil opening” model of each project issuing its debt is looking better and better, except that PDVSA did not control them, the partner did. Hard to repeat now. Losing sovereignty one stupid mistake at a time.

We are talking 20 billion a year in debt, loans, whatever. Simply impossible. The stupidity of the last few years is coming back to haunt the Government. Add to this the other deficits and it gets very tough. And the arbitration in part 1) adds US$ 27 billion.

3) Venezuela’s reserves went under US$ 28 billion for the first time in one year.

Around US$ 12.7 billion is in gold.

Around US$ 10 billion is invested, mostly  euros.

Around US$ 4 is not there, it is rights, or money available to be borrowed

Getting tight there, no wonder CADIVI is so stingy. Reserves (without Fonden) are down US$ 2 billion so far this year.

You do the math, unless oil prices go up. Oh baby!

4) Good one (For once!). It must have rained quite a bit in the Caroni river basin. Flow jumped from something like 775 m^3/sec. on Friday to 2,886 m^3/sec on Sunday. Rarely has flow jumped down below 1,000 m^3/sec after being so high this late in the spring.

And since we are on the topic of Guri, here is a truly historical char, since 1950 of the flow into the area

So, as I have said for a while it looks ok, like we are going to make it, 2011 may be trouble, but it does not look like we will get to the critical point this year.