Shipments of Oil-for-Loan Deals with China and Russia from Venezuela Falls Behind Schedule

Under oil-for-loan deals with China and Russia, Venezuela’s state-run oil company, PDVSA, has fallen months behind on shipments of crude and fuel.

New insight into PDVSA’s operational failures and their crippling impact on the country’s unraveling socialist economy is provided by the delayed shipments to such crucial political allies and trading partners. The two countries together have extended Venezuela at least $55 billion in credit.

Citizenry suffering through triple-digit inflation and food shortages reminiscent of the waning days of the Soviet Union are affected by PDVSA’s crisis because oil accounts for almost all of Venezuela’s export revenue.

According to a Reuters analysis of the PDVSA documents, standing at about is the total worth of the late cargoes to state-run Chinese and Russian firms. With shipments delayed by as much as 10 months, according to the documents, PDVSA was late on nearly 10 million barrels of refined products that the company owes the firms at the end of January. Deliveries of another 3.2 million barrels of crude shipments to China’s state-run China National Petroleum Corporation (CNPC) have also been late from the country.

Since firms from the two countries purchase about a third of the PDVSA’s total oil and fuel exports, shipments to China and Russia are critical for PDVSA’s financial health. In order to finance infrastructure and social investment in Venezuela, for years the administration of Venezuela president Nicolas Maduro has relied on credit from the two nations, especially China.

Venezuela agreed to pay back in crude and fuel deliveries to state-run Chinese firms a loan of nearly $50 billion from China during the decade-long oil boom that ended in 2014.

Venezuela is the largest in Latin America and was the seventh largest crude supplier to China in 2016. Under similar agreements, Russia’s state-run Rosneft lent at least $5 billion.

Now, according to internal operational reports about shipments of crude and refined products, a total of 45 cargoes bound for Russian and Chinese companies are late for a variety of reasons, and hence PDVSA is struggling to make good on its promises of repayment.

Financial disputes with service providers owed money by PDVSA and operational mishaps, such as refining outages and delayed cleaning of tanker hulls are some of the problems.

There were no comments from Rosneft, the Kremlin and the Russian Energy Ministry.

China paid great attention to its relationship with Venezuela, said Chinese Foreign Ministry spokesman Lu Kang.

“What I can tell you is that at present Venezuela’s providing of oil to China to repay the loan is basically normal,” Lu told a daily news briefing.

As laid out in a broad strategy document PDVSA will struggle this year to meet a planned increase in shipments to China and other countries, suggests the delayed deliveries. In part by reducing exports to India by 15 percent, PDVSA aims to boost crude deliveries to China by 55 percent in 2017, that document said.

According to the PDVSA strategy document, this year’s production projections are virtually unchanged and last year, the company produced about 2.5 million barrels a day, lowest in 23 years.

(Adapted from CNBC)

 

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Categories: Economy & Finance

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