Published by Minyanville
“What would Hugo Chávez do without China?” asks a Financial Times editorial this week. Venezuela has signed numerous development deals with the Asian giant, totaling $4 billion in the oil, mining, finance and construction sectors.
"We have signed the birth certificate of what will be a giant; a joint venture between Petróleos de Venezuela (PDVSA) and Citic Group," Chavez said, in typically flamboyant language. That agreement between the two state-owned companies is designed to help with Venezuela’s much-needed infrastructure projects. The previous day, China’s XCMG Construction Machinery signed an agreement to import hydraulic trucks for construction projects while another Chinese company is to begin exporting agricultural machinery to Venezuela.
This all adds to the $20 billion credit line Venezuela received from the China Development Bank last year—the money allocated for housing projects. PDVSA is expecting Chinese oil companies to invest $40 billion over the next six years.
In return, Venezuela is using oil revenues to repay the debts. Barrels of oil are crossing the Pacific for as little as $5 a pop, according to WikiLeaks cables.
The Venezuelan government has recently acknowledged that it must cut domestic oil use—which it subsidizes up to 90%—in order to maintain profits at PDVSA. As with many of Chávez’s economic policies, however, the acknowledgment ignores the bigger picture with further subsidized oil being sold to friendly nations such as China.
Chávez hopes that oil shipments to China will hit a million barrels a day by 2014. Production, however, has declined over the years. In 2010, PDVSA claimed that 2.78 million barrels were produced a day, far below the 3 million the same officials had cited over the year. Just this week, the company submitted its annual report to the National Assembly showing that exports were at 2.41 million barrels per day, down 11.6% last year compared to 2009.
PDVSA came under other criticism this week as staff learned that their pension funds may have been used in a Ponzi scheme run by a former financial adviser to the company. To make matters worse, legislators in the national parliament have been banned from discussing the subject. "I think that it's amazing that no one in the government is talking about it," said Russ Dallen, an analyst at BBO Financial Services in Caracas. "There is only silence."
Connecticut-based financial adviser Francisco Illarramendi allegedly juggled hundreds of millions of dollars between hedge funds whilst concealing losses. The US Securities and Exchange Commission accused him of misappropriating $53 million from a fund he was managing. Oil minister Rafael Ramirez was pressed by opposition legislators early this year on the subject, however, parried their questions by insisting that PDVSA does not directly manage pension plans, insisting they were controlled by the workers themselves. This was news to the 90,000 staff at PDVSA.
It will most likely never be revealed whether Illarramendi was working alone or under orders, especially after the ban on discussing the subject in the Venezuelan parliament.
Venezuelans are used to their oil company’s apparently fraudulent activities. Just last year, more than 2,000 containers of rotting food—75,000 tonnes—were discovered in the hands of a PDVSA subsidiary. The scandal came at a time when state-run grocery stores were short of basic foodstuffs.
Meanwhile, the ‘suitcase scandal’ in 2007 saw a PDVSA-connected businessman caught carrying $800,000 into Argentina, apparently as a donation to Cristina Fernández de Kirchner during her presidential campaign.
Following recent safety fears at Japan’s Fukushima nuclear plant, Chávez hastily froze all Venezuelan nuclear energy plans. He had signed a deal with Russia last year, hoping to build South America’s first nuclear power plant. However, plans were called off as the president said: "[Nuclear power] is extremely risky and dangerous for the whole world. Despite the great technology and advances that Japan has, look at what is happening with some of its nuclear reactors."
Chile signed a nuclear power co-operation agreement with Washington last week, just before a visit to the country by US President Barack Obama. Like Japan—and unlike Venezuela—Chile is on a tectonic rift, having suffered a 9.5-magnitude earthquake in 1960.
Caps on food prices were raised this week, threatening to speed up inflation in Venezuela. The year to February 2011 has already seen inflation at 28.7%. The rise in bread and pasta prices—by as much as 33%—will worry consumers who have already seen food prices rise 37.2% in the past year.
“We’re adjusting the prices for the goods made with wheat, a product that we don’t produce locally and that we’ve become accustomed to consume through imports in the past,” food minister Carlos Osorio said. “The price of wheat has risen internationally.”
In a speech to mark World Water Day on Tuesday, Chávez went off on a slight tangent, musing that capitalism may be to blame for the lack of life on Mars. "I have always said that it would not be strange that there had been civilization on Mars, but maybe capitalism arrived there, imperialism arrived and finished off the planet.”