The Devil's Excrement

Scene: Last Thursday, supposedly a working day.

Total Time: three hours plus. A very expensive restaurant in Las Mercedes. Outside several 4×4 luxury station wagons, two dozen drivers and bodyguards. Inside, seven leaders of the chavocracia, it is unclear whether only scammers alone or true front men. Two bottles of Johny Walker blue label on the table, talking to each other about yachts and airplanes. Ostentation and Showing off. The story comes to me via an engineer friend to whom one of the chavócratas, a lawyer and old friend from the days when they both had nothing, asked him to be there to help him out with something he needed. After an hour and a half of having to listen to the shouts, the lawyer called my friend aside, to take care of him. During the conversation, a waiter comes and reports to the chavócrata that another participant in the banquet insists on paying the bill. The lawyer raises his voice and making sure everyone can hear him  says that the bills is his and does not accept that anyone else pay. A brief verbal tussle,some shouting and finally my friend’s friend paid the account of 18 000 strong bolivars.

Eighteen million of the old bolivars. This is the way they govern. Who are these guys? The New Class.

The new bourgeoisie, the chavoburguesía. Those who have become millionaires from bond issuest, with food imports, with imports of luxury cars, charging fees for moving a straw, or the black market for dollars, putting their hands on all misplaced Bolívars that they see around themselves. The denial of all the ideals and dreams of a few idiots who still believe that this shit is a socialist revolution.

(Comptroller: I feel very comfortable in my position)

Criminal Corruption: There is an interesting interview with Carlos Machado Allison in today’s El Universal. But what caught my attention was the side note on the milk that was imported by Pudreval with melamine from China.

The milk contaminated with melamine was a scandal in 2008 of contaminated milk found in many countries. What is interesting is that Machado Allison, a food expert, says that Venezuela was not among the recipient countries of the tainted milk exported from China.

What this appears to imply is that the milk was purchased in the secondary market at a cheap price, after the scandal broke. Thus, there was not only an act of corruption, the milk was imported as if it was good quality milk, but lower prices were paid for it, but high prices were charged to PDVSA. But the biggest and most criminal act of corruption is that this milk endangered Venezuelan citizens, particularly children. This is simply unacceptable and should be looked into and investigated, but where is the People’s Defender when this things happen?

Truly criminal corruption

The lucky winner style corruption: When  a big infrastructure project comes up for bids, companies make a special effort to bid low, simply because once a subway system project or training gets built by a company, the technology is so locked in that if you win the initial bid, you will have recurrent revenues from the project in the future. Such was the case of Caracas’s Metro where the French locked in the original contract and have continude to receive the contracts for new lines and maintenance.

Until now…

Because this time, the French submitted a bid for US$ 1.86 billion for the overhaul of Line 1 of the Caracas subway (Page A6 El Nacional) for US$ 1.86 billion.

And watch the dates now, Chavez approved US$ 1.86 billion on February 13 2008.

June 13 2008: A Spanish “consortium” presents its bid for US$ 1.856 billion

August 4th. 2008. The “consortium” is approved as the “winner”

September 25th 2008: The “consortium is legally registered for the first time

October 3d. 2008: Contract is signed!!!

There you have it, the Government negotiates with a non-existent consortium for months and only after it has been “approved” is the consortium legalized and registered.

This violates everything single bidding law, regulation in Venezuela and then some…

It was all “pre-arranged” , they were just the “lucky winners”, even if they did not exist. Let’s hope the French subway cars learn to speak Spanish technology…

And the missing funds type of corruption: The head of the union of CVG (fomerly a member of Chavez’ PSUV party) wrote a letter to Minister Giordani asking about the now famous or infamous US$ 500 million sold against future shipments of Aluminum. It is a strange story. Russia’s Gazprombank paid the money into its Lebanese affiliate

Supposedly the money would be used to improve the infrastructure of the Aluminum plant.

But the money is nowhere to be found. It was transferred to the Ministry of Finance. However, the Minister for Basic Industries says it was used to pay suppliers. Even an Argentinian-Venezuelan that is involved in the 15% commissions says the money was used to solve the electricity problem.

The problem is that 4 years of aluminum exports were sold and without the money, the plants will not be able to produce it. It’s robolutionary Catch-22…

Money was obtained for one purpose, but in the mismanagement of the revolution, it is used somewhere else. Under Venezuela corruptions laws, this is illegal and punishable with jail. Except that nobody is going to go after Giordani, Sanz or any of those involved.

That’s the way it is, if you are with Chavez you have a magic shield, if not, you are screwed, even if you did nothing…

But it is corruption, nevertheless.

By now, nothing can surprise us, even if the Government backtracked on the prohibition of violent or bloody pictures, according to VTV presenter Tania Diaz, the Government plans to take a shot at singer onechot for the video Rotten Town which he released three days ago.

The funny thing is that even onechot’s nationality is being put into question because he lives in Spain. As usual, attempting to disqualify the messenger and not the message.

Another day, another stupid, repressive act by the Chavez Government. Thus, to make sure that everyone sees the video and to help it go around the world like El-Nacional’s morgue picture, here is my small contribution, Caracas is indeed Rotten Town:

Last week the workers of the refractory brick factory of Ceramica Carabobo held another protest trying to get Chavez’ attention to their plight. These guys continue to be pro-Government, which is remarkable, despite the fact that while Chavez did do what they wanted, it has all been downhill since then.

It all started in April 2009, at a meeting with Chavista union leaders, Chavez bombastically announced the nationalization of a bunch of companies, mostly those that made hot iron briquettes for which the Government provided the iron ore. This was done at the request of the Chavista union. Thrown in the nationalization pot was the refractory brick factory owned by Ceramica Carabobo, which sold most of its product to Sidor.

Jorge Giordani was there with his stupid smile of victory over capitalism that he always exhibits in these events, but this was the last time the workers smiled.

Of the 190 workers of the factory, 60 have resigned by now. Sidor went through the inventory and used up all of the refractory bricks that were there when the Argentineans left. When they ran out, surprise, surprise, they started importing the refractory bricks from Brazil and Argentina.

The happy workers, the nationalizers, stopped getting paid, the factory was shut down. They are still owed money today. The Governor of the State began giving the food so they could survived. The protests started and in December the Minister of basic Industries said he would fix the problem.

Except for a small salary, smaller than the minimum salary, nothing happened, the workers staged protests in March and now are back at it, including threats of a hunger strike.

The factory remains closed. Sidor keeps importing refractory bricks.

The destruction of Venezuela by the Chavez Government continues, one factory at a time.

One way to start a conversation about the bizarre Venezuelan economic system under XXIst. Century Pseudo socialism is to talk about gasoline prices. The conversation may go something like this:

Foreign Friend who does not follow Venezuela closely (call him F): How expensive is gas in Venezuela?

Devil: Gasoline is essentially free in Venezuela.

F: Free? Are you nuts? How can they give it away?

Devil: Ok, I lied, it’s not free, it’s 50 cents…

F: Woa! 50 cents a gallon that is truly cheap, almost free.

Devil: no, no, not for a gallon, it takes about 50 dollar cents to fill the full gas tank of a medium to large size car. It’s easier to calculate it that way than to figure out per liter or per gallon cost, but basically it is 1.1 cent per liter or 4.2 cents per gallon.

F: (puzzled look, glassy eyes): but this makes no sense, the poor have no cars, it is the rich that benefit from this. You can’t produce gasoline at that price.

Devil: You are absolutely right. Chavez says that profit is a capitalistic concept and the “people” own the oil anyway, so he has kept the price fixed for 11 years as inflation has hit 1,000% in the same period.

F: But still, it’s not a matter of profit, but cost. You are selling the gas way below cost and someone is paying for it. And on top of that such cheap gas promotes wasteful use of the oil, if it does not cost anything, then why drive less? In any case, how much does it cost to produce the gas in Venezuela?

Devil: You are right on all counts, gas consumption has doubled in six years and the estimate is that the subisidy is about $35 per barrel or about 10 billion a year, but it is hard to know the cost of producing oil in Venezuela, the company’s financials are hard to undestand. For example, the company makes free or fake profits when it buys and sell its own bonds.

F: Wait, wait! What do you mean free profits? That makes no sense.

Devil: Well, few economic things make much sense in Venezuela. But let me try to explain the free profits at Pdvsa:

You see, last year in Venezuela we had two exchange rates (This year we have more, but that is a different story) In November PDVSA sold about US$ 3 billion in bonds to local investors in exchange for Bolivars. The bonds were sold at about 140% of their face value, so PDVSA got 3 billion x 1.4 x 2.15 Bs. in the sale or Bs. 9.03 billion. People essentialy bought dollars at Bs. 5.3.

A few days later, PDVSA bought something like 300 million dollars cash value of its own bonds in the international markets and used it to pay debts it had with contractors for Bs. 1.6 billion and in that way it made $445 million dollars.

F: This makes no sense, how did it make so much money? Buying 300 million, they made 445 million?

Devil: it’s the magic of exchange rates. See, Pdvsa had debt in the amount of Bs. 1.6 billion with contractors. The cost of a dollar for PDVSA is Bs. 2.15 each (official rate) it “bought” 300 million dollars of bonds at Bs. 2.15 or Bs. 645 million, but it paid the contractors with the bonds at a different rate of Bs. 5.3 per dollar. So, it “made” a profit of the difference between the two or 1.6 billion minus 645 million or about 955 million Bolivars, which through the magic of PDVSA’s accounting in US$ is 955/2.15= 445 million dollars. Voila, free profits!

F: Wow! But doesn’t this mean they could do this as many times as they wanted?

Devil: Yes, but if there is a devaluation, those Bolivars are worth much less. With January’s devaluation, half the profit simply evaporared for example. In fact, all of PDVSA’s Bolivars were worth half after the devaluation. It’s all smoke and mirrors, doing this is in fact a devaluation, Pdvsa sold dollars at Bs. 5.3, repurchased them at Bs. 2.15 and then sold them again at Bs. 5.3, that is the key, It’s all fake profits in the end. It could do it again and again.

F: Well Devil, this is too bizarre for me to understand, let’s go back to looking at those beautiful mountains.

(Note, the numbers are all approximate, I invented them to fit the profits claimed by PDVSA as closely as possible)