The Devil's Excrement

US officials said that the US Government will sanction PDVSA and seven other firms for dealing with Iran. Companies and individuals from Venezuela, Israel, China, Syria and Belarus will be sanctioned for either commercial or nuclear violations. PDVSA sold gasoline to Iran in violation of the sanctions. In January a group of US Congressman wrote to PDVSA’s President Rafael Ramirez warning that this could happen if PDVSA continued selling gasoline to Iran.

Sanctions may include the closing of bank accounts and access to the US financial system and banning PDVSA from contracts in the US. It will not stop PDVSA from selling oil to the US, but it will not be able to get financing for import/exports.

Not good, the reaction will likely radicalize the Government.

Almost thirty years ago, I joined a group of brilliant and wonderful Venezuelan engineers and scientists (and friends!) to start an engineering research institute. We had a budget of maybe US$ 10 million per year ($20 million at the top!, sometimes zero on January 1st), but somehow we were ambitious (and naive?) enough to think we could do so much.

And we did.

We not only did the “classical” areas, electronics, systems, control, metallurgy, but we also created, because it was needed, a digital image processing center. This center became a showcase for what we could do, remote sensing, image processing, agriculture, soils, the works. This all resonated with the Government and the projects began to flow. The institution still exists, it even sports as its symbol the Panare basked weaved by indians (shown above) which we chose at the time as a symbol of “local” technology. They no longer pay the international domain name (fii.org), you can only access it via the .ve link, probably to save ten bucks a year in a country with exchange controls.

The center  for digital image processing still exists, you can read about it here, you can read all of the applications. Since the mid-eighties this has been available in Venezuela for anyone to use, contract, whatever. The knowledge is there. In fact, one of the Presidents of the Institute came from that project. These are projects that required high power computing and computer techniques to process and understand images. The cost is in the brains and the computers. The images? They are accessible, you can buy them from the French (At the time we used to buy them from the Spot satellite in France, I am not sure how that has evolved) or the Americans, but I guess that’s verboten for the revolution.

But today I learn that this work was for naught. Because the Minister of Science and Technology tells us that Venezuela is buying a second satellite from the Chinese for US$ 405 million. And wow! Imagine! We will be able to tell how much soil we have that can be planted, something we could tell in the 80’s with no satellite, just Venezuelans working very hard on a shoestring.

I guess the Chinese are now selling trinkets to the Chavista “intellingentsia”.

Imagine the dialogue:

Ok, you have now borrowed US$ Y billion from us (Y as in Yuan!). Here is a list, what do you need.

Satellite, says Menendez, who happens to be a geographer, which in Venezuela is not necessarily a very scientific profession, least of all him. Because he is an expert on “The Geometry of Power” and has few, if any, scientific accomplishments or credntials. So, he says, having no monetary scale to compare with:

“I’ll take it”

and Venezuela has bought itself a remote sensing satellite with C and Ku and Ka  band capabilities for “only” US$ 405 million, from the same people (colonizers?) that sold it the crappy telecom satellite that is still faulty.

But for a million a year, you could buy all of the images you want and use the other US$ 404 million in training people and buying the real tools of remote sensing.

But much like Cristopohorus Colombus, the Chinese have found their ignorant Bolivarian crowd to sell their worthless trinkets to, they have money, they have no clue, a great deal…

…if you are Chinese.

I think the satellite should be called Chiguire Bipolar!

Or better, Ignorant Chavista! They deserve it!

In the comments of the previous post there has been a lot of discussion about the data for first quarter GDP, which rose by 4.5%. Hey, it’s positive, but it is nothing to gloat about. GDP is measured in a very quirky way, it measures the growth in the 1Q11 (first quarter 2011) when compared to 1Q10 (first quarter 2010), thus it is not sequential. Thus, the 4.5% growth has to be compared with the 5.1% contraction one year ago, due largely to the electrical crisis.

Thus, compared to a year ago, the Venezuelan economy is still below two years ago, and below the last quarter of 2010, nothing to hold a press conference for like Giordani and Merentes did and all the money they spent printing gloating references to this non-achievement.

But the most worrisome part of the report is this graph from El Nacional, which shows how oil GDP has done for the last thirteen quarters. As you can see oil GDP has been negative for ten quarters now, a true cause for concern in the country where The Devils’ Excrement dominates the economy. And since Giordani loves to talk about “trends”, the “trend” in the graph above, compiled by El Nacional, shows that oil GDP topped near zero and seems to be heading back down.

In another funny twist, a UCV economist (Garcia Banchs) found some “funny” numbers in the GDP data and they have been altered three times since the GDP report three days ago.

Oh! The revolution!

Nothing exemplifies the mismanagement of Venezuela by the revolution than the electricity crisis. Through a series of missteps and the lack of investments, Venezuela continues mired in an electrical crisis over a year and a half after it began. We have gone from blaming El Niño, to saying the problem had been solved, to now saying it is the increase in use of electricity hat created the problem.

A while back I wrote this post to show the timeline of contradictions by the Government and I have actually been updating it given all that is being said. So, if you are interested in the problem that post is dynamic, as I add news links to it. Check it out.

What is interesting is that despite the Vice-President’s claim that “the growth in demand” is one of the main culprit of the electrical problem, data shows otherwise, as at least peak demand was higher in 2009 and 2010, due mostly to lower temperatures this year.

The problem seems to be due more to not only the lack of investment, but the lack of planning and capable people making the decisions. Miguel Lara, former Head of OPSIS said that “the solution the implemented were inconvenient and what they did was to purchase new problems and not worry about maintainance”, while a former Vice Minister of Energy says that the electric system has become a patchwork.

But Jose Manuel Aller a Prof. of Engineering at Universidad Simon Bolivar makes more serious accusations, he says that because there was an emergency, purchases without bids were allowed, but that many of those acquired are inadequate, of dubious origin and very expensive.

This is the case, says Aller, of the distributed power plants that came from Cuba, they shoudl have cost half of the between US$ 1.6-1.8 billion.

The same is true of the barges that were purchased from General Electric, which cost US$ 250 million each, the market price for these is US$ 160 million. Reportedly the overcharge is so that they could be delivered in 2011.

While the Government spent all of 2010 blaming the rains, now the Guri dam is 10 meters above the operational level as it has never really stopped raining all year, but between problems with generation and problems with transmission, there is insufficient capacity.

Meanwhile, the Government installed thermoelectric power plants that run on natural gas, but the country’s production continues to go down and fuel oil has been used in some of them.

In another chapter of the characteristic “Yo no fui” (Who me?) attitude, PDVSA’s CFO has told the National Assembly in his report on the matter that”it is unfounded and irresponsible to link PDVSA’s Board of Director with the investments in the funds”.

Funny, Mr Carruyo, who is a member of the Board according to the PDVSA website (see above, it says Junta Directiva in the red square and then in the bigger red square is Mr. Carruyo himself) and according to this letter I published a while back, happens to be at the same time: “President of the Board of retired people of PDVSA and its affiliates”, he claims the Board (which apparently includes himself) has not made any decisions with respect to the investment decisions.

Say what? What is he President of?

Better yet, as President of the Board of the Pension Fund he had nothing to do with investment decisions, overseeing what was done and the like? Has he ever heard the words “administrative responsibility”?

But even worse, how could the same Board of PDVSA allow Mr. Carruyo to investigate himself and write the report?

And he says very funny things, such as “Mr. Illaramendi was never an employee of PDVSA, his professional link, was via outsourcing through a foreign company”

Which is true, Mr. Illaramendi made so much money at Credit Suisse, that he would have never taken a salaried job at PDVSA, he would have had to make more money than Carruyo and Ramirez together just to make the minimum salary of a Managing Director at CS. Thus, the magic “solution”: Hire him as a sweet deal consultant and to make it a little obscure, have him do it via a company owned by him.

But the most irresponsible and hilarious part is that Carruyo then blames what happen on “the capitalistic nature” of the fund, subject to the “ups and downs” of the markets.

Sorry Eudomauro, anyone that placed money with Madoff, Stanford and Illaramendi should not be allowed to get even close to one Bolivar or one dollar of money to be managed and should actually be punished for the loss. But this case is even more fishy, because Illaramendi was a Venezuelan friend of the “house”, hired as a high flying consultant, a job that he left precisely to start managing money, an area in which he had no experience. Stinks to high heaven.

In fact, the same report says how bad things are (or were), as the funds had a total of US$ 2.7 billion, of which only US$ 580 million was being managed abroad and of these US$ 453 million were with Illaramendi (The SEC says it is more)

So, 21.5% of the funds were managed abroad, but of this percentage, 78% was managed by an unknown Venezuelan investment manager, without a track record, unregistered to do the job in the US and who at some point had a sweet consulting deal with PDVSA?

Cuentame una de vaqueros Eudomaro. (Tell me a story about cowboys)

But as if this were not enough, the report says that of the total, 2% is in real state, 15% in local banks (pensioners get paid in local currency), 5% what is managed by others and 61% in PDVSA and Venezuela bonds.

Let’s see 61% of US$ 2.7 billion is 1.65 billion, but Minister Ramirez himself told us in January that PDVSA had sold US$ 1.2 billion of the PDVSA 2017 bond with an 8.5% coupon to the pension funds. So, a full 44.4% is in bonds of the company itself, which is not what portfolio management theory says you should do. (Remember Nortel? Employees not only lost their jobs, but also their pensions as most of the pension fund was invested in stock of the company)

But this is also not kosher, because there is no independent body making decisions. First, it is too large of a fraction in a single bond (The rest may be in others). Second, it makes no sense to invest it in a single bond, with a single maturity. Yes, the pension fund should invest in PDVSA bonds, they do yield 15-16% after all and the people running the company know it better than anyone. But it should be diversified in a basket of PDVSA bonds and they should be actively traded as prices vary. But it should never be such a large fraction and least of all in a single instrument.

Carruyo’s whole argument is that the Board of PDVSA never made any decisions on the matter. But he did. And as such, he should be forced to leave the position (i.e. fired and be made to pay for the mistake and be investigated), because either he knew or he did not know, in both cases, he is guilty of not administering the money correctly and someone else should be placed in charge.

Preferably somebody that knows and I am not offering myself for the job. I would never work for the current PDVSA. I would advise a new PDVSA for free, but that I dont think will never happen.

And someone else should investigate Carruyo. It is called conflict of interest and in this case there is a HUGE one, to say the least.

Note Added: Today the SEC added Highview Owners to the accusation. More here and here.

Maybe someone can explain the NASA rocket shot in the video. This guy has started campaigning and the media blitz is on!

When Hugo Chavez nationalized phone company CANTV, not only did he rob the shareholders (He paid less than Carlos Slim was offering per share), but now he is ready to rip us all of, by driving a good company into the sort of useless company that most state enterprises have become. The difference is that CANTV has competition, which Chavez will try to solve the easy way out: By nationalizing the competition…

The problem begins with the fact that while the Government only generates 8% of CANTV’s business, Government entities only pay 9% of what they use. (They consumed Bs. 550 million (US$ 127 million at the official rate of exchange) but paid barely Bs. 50 million (US$ 11.7 million)) You see, the Government assigns each Minsitry or company a budget for services, but since nobody is watching (even less now that blind Russian is in Cuba getting his health back) they could care less, they use more and simply don’t pay.

It’s called the irresponsible revolution…

If this were not enough, CANTV is making more money, but remember two curses: One, inflation, and the second one, is that the company invests less and less as the main shareholder (The Venezuelan people…no, sorry, Hugo Chavez) demands larger dividends. Thus, even though, earnings went from Bs. 734 million to Bs. 2.4 billion, this year the Government demanded Bs. 1.5 billion on dividends.

Thus, the company has 65% more fixed lines, 70% more cell phones and 1.5 million Internet users, but the investment budget was fulfilled on;y 55%, less than US$ 500 million. Meanwhile, Chavez forced the company to buy computers for the poor.

Of course, CANTV stays competitive by insuring that the foreign exchange control office CADIVI does not approve official dollars for competitors Movistar and Digitel, while approving them for CANTV. But one day this rope will break, as margins collapse (they already are), profits go down (They already have) and the company stops investing. At this point, mighty Hugo will come out and announce that telecom is “strategic” (i.e. He needs it to be reelected in 2018), the Spanish and Venezuelan owners will never get paid for their assets (What else is new?) and then Hugo “The Terminator” will destroy all of the telecom infrastructure, insuring that Venezuela will be a backwards country as long as he is in charge.

Yeap! It’s called a “revolution”,  massive destruction of value and goodwill just because one man cares little about his country and his people, only about himself…

Reading the Raul Reyes papers, the thing that strikes you the most is the ever presence of Ramon Rodriguez Chacin, who has been Chavez’ Minister of many things and who has had a questionable past, including having two Venezuelan ID cards, and a huge account in a bank, but Chavistas are forgiven for such sins.Not the enemies.

Going through the Reyes emails, I was struck how Chacin met, communicated and contacted Reyes and the FARC’s leadership with incredible regularity and mostly representing Chavez. The whole strategy of acting as mediators to release the hostage is contained in the emails and Rodriguez Chacin is always present.

But the sentence that struck me the most was (1.2811):

“Rodriguez Chacin asked about the possibility of transmitting our experience in a guerrilla war, which they call the “asymmetric war”. They want to operating modes, explosives, Bolivarian speeches, forest camps, how to ambush, logistics, mobility, all of this thinking of an adequate response to the possibility of an invasion..There will be many levels, some of them with some Generals..Chavez proposes quarterly contacts to balance out the contacts with the two guerrilla groups”

All over the place, Rodriguez Chacin offers help and collaboration with the FARC, visiting and contacting them and even asking about people kidnapped in Venezuela, not because they care but because there is “pressure”.

Rodriguez Chacin has always been a shady character, Minister of the Interior twice, Head of the Intelligence Office DISIP and famous for calling the guerrillas “comrades” when the hostages were turned over and to “keep up their fight”

Yes, Chavistas, keep denying the obvious…

(Quico has a post on the documents and Bernal)