Editorial / Commentary / Opinion
VenEconomy : Bolivarian smarts
How difficult it is for a mere mortal to understand or even conceive of the strange mind set of those who, today, are in charge of the oil industry! How twisted and sly it has become!
One example of the bizarre fantasies of these “managers” of Hugo Chávez’s revolution is to be found in Gaceta Oficial No. 39,312 of November 23 this year, in which several agreements between Russia and Venezuela, approved by the National Assembly, are published. These agreements give rise to broad commitments that are far from favorable for the Republic.
These commitments include an agreement to set up a mixed enterprise for developing Junín Block 6 in the Orinoco Oil Belt, in which Venezuela will have a 60% share and Russia 40%.
The idea is for this company to produce (and upgrade) 450,000 barrels a day of the Belt’s extra-heavy crude starting in 2016.
Strangely enough, however, the Russian-Venezuelan agreement does not clarify a number of vital aspects such as:
1) Who will provide the technology required to upgrade the extra-heavy crude? The point is that neither Russia nor Venezuela has experience in this highly specialized field. What is more, it will be recalled that all the technology used by the existing four upgraders in the Oil Belt was brought in by and is the property of non-Russian foreign companies.
2) Even more importantly, it does not specify where the funding for this project will come from. It so happens that this project is twice the size of the biggest project operating today in the Oil Belt and that it will require an investment of some $30 billion: $18 billion to be put up by Venezuela and $12 billion by Russia.
It is known that neither have this amount of capital available and it is feared that they will find it extremely difficult (not to say impossible) to get someone to finance the project, given the bad experiences that there have been with both partners, in addition to their technological shortcomings.
However, what gives most cause for concern is a “minor” attachment included in one of the agreements, according to which the Russians undertake to provide Venezuela with unspecified “goods and services” to the value of $6.4 billion between 2010 and 2012.
The cherry on the cake is that more than half the cost of these purchases will be absorbed by PDVSA, as the agreement establishes that, during the initial phase, PDVSA will have to pay Russia $3.3 billion on account of these purchases. And as though that were not enough, the agreement also provides that part of that payment will be made in the form of Venezuelan crude and products.
It is reasonable to assume that the Russians will sell the crude and products obtained under the agreement to PDVSA’s customers in the United States. In other words, Venezuela will be paving the way for the Russians to have access to its best customers.
As a corollary, with these “masterly” Russian-Venezuelan agreements, the Chávez administration is not only incurring in more debt, which the State will find it impossible to pay, but it is handing the country’s secure market on a silver platter to the Russians.
What Bolivarian smarts and what a twisted concept of sovereignty the neo managers of 21st century socialism are proving to have!
VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VeneEconomy on 11/26/2009. Petroleumworld reprint this article in the interest of our readers .
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Petroleumworld News 11/30/09
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