The Red Apertura and the forgotten art of disarming atomic bombs


Here’s a factoid you’d do well to squirrel away: through a crazy quirk of geology, there’s more recoverable oil under Southern Guárico, Anzoátegui and Monagas States than anywhere else in the world.

296 billion barrels or so.

At current prices, that’s worth something in the order of $25 trillion: a crazy number, almost twice the US’s yearly GDP. It works out to $860,000 for every man woman and child in the country.

It’s a transcendent story – world-almanac worthy in some ways.

From a Venezuelan political economy point of view, it’s really the only story that will matter for the next generation or so. What happens to that oil, usually called the Orinoco Tar Belt or Faja, and what happens to the impossible riches we’ll (hopefully) get in return for it, will be a determining factor in the lives of Venezuelans for decades to come.

Back in 2005 Chávez had one look at this ocean of money and decided to … drill, baby, drill! And who could blame him? Announcing a kind of Red Apertura to bring in foreign capital to help develop the faja, he vowed to vastly increase Venezuela’s production capacity within a few years.

So how’s that all going?

Well, the good news is that at least one Red Apertura project is now “shovel ready”. There’s just one catch: it’s in China!

That’s right, the only Orinoco Tar Belt project that’s actually ready to start work (i.e., project finance in place, basic engineering worked out, permits cleared, work ready to start this year) is the construction of a massive new refinery in Guandong province.

As for the rest, well, it’s a funny story.

Just looking at PDVSA’s Apertura map, you’d think there are dozens of deals already in place and just rearing to go.

In fact, the map glosses over an extremely heterogenous picture, showing projects that are basically cancelled (hello, Junin 10!) alongside others where broad Memorandums of Understanding (MoUs) have been published but detailed terms are still being haggled over, and others still that really are ready to go as soon as a project finance deal is in place.

Take Carabobo 1 and Carabobo 3. Supposedly, PDVSA has put together two big consortia that are rearing to run, ready to pump as much as 240,000 b/d out of each block within a few years.

The catch? They haven’t actually worked out such small details as where the tar is supposed to be processed after it’s out of the ground. PDVSA’s Management Report 2010 treats it as a settled fact that it will go to two new high tech upgraders to be built in the town of Soledad, in southern Guárico. But the foreign partners have never agreed to that and continue to grumble that it’s lunacy to try to build an upgrader in a tiny town in the middle of nowhere that has neither the roads, the electrical grid, the sewers, or even the population to sustain it.

Operational disputes of this kind seem to plague the Red Apertura projects. Take Junin 5. Italy’s ENI has signed on to develop that field together with PDVSA, and has a second agreement to build a refinery in Jose to handle the tar. But the refinery deal is supposed to have capacity for 350,000 b/d, and Junin 5 is only meant to pump out 240,000 b/d. The remainder is supposed to come from “somewhere else” in the region, but PDVSA is exquisitely vague on where, and ENI has no clear indication of whether it will be able to get those supplies.

Serious as all that is, these kinds of operational problems pale in comparison to the real bottleneck these projects face: where’s the money gonna come from?

It’s now six years since the Red Apertura was announced, and at this point the project finance is worked out for a grand total of one deal: ENI’s Junin 5 block.

For the rest of the Red Apertura, what you have is a bunch of flighty MoUs without financing deals in place. Obviously work can’t start until you know how you’re going to pay for it. But project finance is extremely hard to nail down here because PDVSA’s borrowing costs are so astronomical now that nobody sane would lend to them on the scale needed.

The result is one of those Chávez-era impossibilities come true: PDVSA’s honest-to-goodness negotiating position now is that for much of the Red Apertura, PDVSA will retain 60% of each joint venture’s ownership but will put up none of the start-up capital, because it can’t.

Now, I’m no MBA. What I understand about finance fits on the small-print on the back of my credit card contract. But I do know this – that’s batshit insane.

Remarkably, though, that’s what ENI signed up for in Junin 5. The Italians are basically spotting PDVSA the $2 billion it was supposed to put up in development costs. But as to the exact conditions of the deal? Well, those aren’t published, of course.

I guess the oil industry is so profitable a deal like that can be made to work, but it’s rough going, and it makes it impossible to develop the region at anything like the pace the government keeps saying it wants to achieve. I mean, it’s taken six years to finance a single project to pump 240,000 b/d out of the richest untapped oil reserve in the world. And, keep in mind, even the ENI project isn’t really shovel-ready: none of the supporting infrastructure in roads, bridges, electrical grid, etc. that PDVSA was supposed to build are in place.

So now are you starting to see why Venezuela keeps putting back its production targets?

The oil is there, but the conditions – both financial and physical – are so far from ready for prime time that getting foreigners to risk money in the Faja is one tough slog.

This way of managing the Faja is storing up an enormous amount of future trouble in terms of Venezuela relationship with China, our soon-to-be economic overlords. Because, remember, within a few years, the Chinese will have built their big refinery in Guangdong, and the Venezuelan side is going to be late. Very late. The shiny new $8.6 billion piece of kit is going to just sit there.

Except, don’t forget, China’s already paid for that oil! That’s where the Fondo Chino money comes from. If Venezuela doesn’t ship it, we’re looking at defaulting on bilateral debt with a country that will soon be as globally economically dominant as the U.S. was in the early 70s.

Something about this dynamic puts me in mind of that interview Moises Naím gave Mirtha Rivero a few months back. You remember, the one where he talked about the panic attacks he’d get as a minister for CAP II due to,

that never-ending feeling that all the time there was a atomic bomb waiting for the minister to disarm. It’s like you got there, sat at your desk, and they brought you a box that said “there is a atomic bomb here, you have to disarm it because it’s going to explode exactly at such and such a time.” And while you were trying to figure out how to disable it, they’d bring in another bomb. And another one, and another one. And the pace at which the atomic bombs that needed to be disarmed immediately were coming in was much higher than our ability to disarm them…

That Chinese Refinery is an atomic bomb in the making. Pity the poor Capriles minister who gets called in to deal with it.


    • Very informative. You’re right about the plethora of problems PDVSA has in
      getting Faja production going, and yes the Chinese role is deepening, and
      won’t dissappear under an opposition government. However, I’d say (see on China’s deepening role in Venezuela):

      -1- There are ways PDVSA can get a certain increase in oil production from
      the Faja, and it seems Chevron, ENI and CNPC are seriously trying to do
      this. Chavez’ attitude seems to have changed on this.

      -2- There is a long story about Chinese frustrations with PDVSA/Chavez
      and, in turn, about Chavista mistrust (or, at least the PDVSA/state bureaucracy’s
      mistrust) of China, but that seems to have significantly changed lately. China has also started to understand better the institutional dysfunction in Venezuela and learn how to navigate it and insulate themselves from ecoomic and geopolitical risk in Venezuela.

  1. For Chavez, this is his Achilles’ heel. If you continually upset investors, allow incompetents to run your golden goose industry and rely on your largesse to woo supporters, the combination will eventually become toxic. But exactly when will all that have such an effect on production revenues that money problems reach a tipping point?

  2. Terrific post. Thanks for the work that went into it!

    There’s a side of me that thinks all those people willing to sign deals with Chávez … deserve everything that’s coming to them.

  3. “There’s a side of me that thinks all those people willing to sign deals with Chávez … deserve everything that’s coming to them.”

    The chinese have been able to keep on drilling in the mess that is Sudan. I suspect that they will do the same in Venezuela no matter who comes into power after Chavez.

  4. Two things:
    1. Is it possible for the writer to report on the (projected) costs of actually extracting this type of oil? That the information is lacking or hasn’t been reported underscores the pie-in-the-sky aspect of these so-called deals.
    2. Is it possible for the writer to spell out what MoU stands for? Not all readers are as oh-so-slick as the writer, and they may not be familiar with the business term for memorandum of understanding.

    • 1. I have no idea. The First Wave Apertura deals – if memory serves – counted on lifting-and-upgrading costs at $12-$15 per barrel at first, but then falling as volumes rose. PDVSA likewise claims that the cost is going down fast, but who can tell? (And of course you have to wonder if you’re talking about costs in official dollars, sitme dollars or black market dollars – as Facebook might put it, it’s complicated.) Anyway, with oil prices at $85, we’re really arguing whether the projects are going to be deliriously profitable or downright obscenely profitable…

      • 1. It’s important. No, let me rephrase: it’s critical for the writer to make mention of this issue of extracting costs. And if the facts aren’t in, that has to be mentioned. Reminds me of some of the pie-in-the-sky land developers I came across, while in banking many moons ago. First question: where’s the (pre-)feasilbility study. Meaning, what are the financial outlays, primarily costs, etc. Facebook quips would never cut it in the real world.

        2. don’t be a smart-ass.

        and 3. congratulations on shaving that bird’s nest. I worried about the pending baby getting lost in it.

          • 1. I don’t know the protocol in most areas of communication. But I can say for sure that in business, in Law, and in serious journalism, you always spell things out, followed by the abbreviation, usually in brackets. After that step is taken, you can use the abbreviation to your heart’s content, in whatever write-up you produce. Not doing so, sets up a gong-show for the reader and does not enhance the writer’s credibility.

            2. The bud’s a dame, bub 🙂

          • I didn’t know you were a girl, I always thought you were a guy. I do have a problem with the “Dame” thing, though. It smacks of someone old. In this day an age, people are not old, just mightily experienced. Haven’t you heard of the one in which someone asks what is the best thing grandparents can do with children and grandchildren? Neglect them, and go to the Mediterranee!

          • pues sí, but girl sounds like I’m 12 years old. And I am far from that. The use of dame followed the bud lingo. And yes, I’ve been out in versatile trenches for quite some time.

  5. “…what happens to the impossible riches we’ll (hopefully) get in return for it, will be a determining factor in the lives of Venezuelans for decades to come.”

    And if it’s pre-sold to the Chinese at a discount to buy refrigerators before an ounce has even been pumped out of the ground?

  6. “What I understand about finance fits on the small-print on the back of my credit card contract.” Nor should you or the president have to know more than that. Simply put, a government should not be getting involved in the oil business, neither its finance nor its production. He should only be “permitting” those in the oil business to extract all the oil they want at the market price per barrel(and by permitting I mean handing out actual permits), then following up that they pay for what they take.

    Then –needless to say but I must– distribute that cash equally to all citizens. 🙂

    No atomic bombs to diffuse.

    • Market prices? And who determines what is really paid? Like Glencore to Zambia for its copper?
      This is just the tip of the tip of the tip of the iceberg:
      It’s actually about billions.

      But on the topic proper: I think the Chinese will just let Venezuelans to tighten the rope very well before pulling it. And then the government will do anything the Chinese want and then Venezuelans will better learn Chinese.

      • In simplest terms, market pricing simply means having a price equal for all buyers at a price that attempts to maximize revenues (usually based on supply and demand curves):

        Sell too high, not enough buyers.
        Sell too low, subsidizing the buyers.
        Take to long to sell, may end up with worthless inventory.
        Sell too quickly, may miss out on highest price per barrel.

        Like a gas station advertising it’s price on a big sign by the highway, the price changes frequently, but it is the same for all buyers, regardless of how much they pump out.

        But, Kepler, the point is that it’s not like diffusing an atomic bomb, which is to what we are comparing and contrasting.

        • In principle I don’t +have anything against what you were saying but for one thing: people in underdeveloped – never developing countries – always end up stating we don’t progress because we don’t push for full free markets – from our side- without considering others don’t practice that unless forced to.

          Don’t get me wrong: the current government of Venezuela is not just a mess but probably the worst mess since the Federal War.
          Still, once this government is over: how do we prevent Venezuela from becoming another Zambia? As I said: try to see the Glencore case. Norway gets 70% of the revenues for oil. How can we approach the level of Norway?
          Why do we tend to have in Venezuela either leftist populist or people who, with or without good intentions, end up becoming just compradores in the traditional 1900 sense of the word?

          • Kepler, you are mixing several issues, simultaneously.

            Regarding Zambia, the link you provide addresses taxation revenue, not payment for an amount of natural resource mined. For that, I have a separate suggestion, to which I did not make reference above.

            Regarding full free markets, as with the Zambia issue, I did not make reference to going to a full free market, although, as above, I do believe Venezuela should, but that is a discussion in which the last time we engaged we ended with neither an example of a full free market succeeding, nor an example of a full free market failing.

            Regarding Norway, as we’ve discussed on another occasion, it puts it’s oil money in a managed fund. The managing of that fund is a central issue to them, whereas in Venezuela it would be a non issue because chavez would have already cleaned it out. Setting one up for the future is only tempting fate…

            As for what I was suggesting, you did not address. My main argument addresses Quico’s analogy regarding defusing atomic bombs. I am suggesting that if we simplify the system enough, we reduce the chances of having atomic bombs. For example, imagine my becoming president of Venezuela. Would you prefer that I do or that I don’t have the power to create the series of atomic bomb situations chavez has created? I am suggesting that we take that power away from whomever is president, even myself. A really simple way of preventing *any* president from damaging the Venezuelan oil industry is to keep the government completely out of it. Government is about governing, not about oil. The only thing government need know about it is the price at which it should get the most money out of selling it to whomever wants to buy it.

            Which brings us to my mention of cash distribution. If I were president, would you want me deciding what to do with all those billions, making or breaking the private market, or would you prefer that I only get to decide what to do with the money taxed from those successful in the private market? The cash distributed directly eliminated middleman corruption, eliminated poverty, reactivates the market in all industries, while limiting government spending to taxation revenues.

            Which brings us back to Zambia. By limiting government spending to taxation revenues, the government will have a much greater incentive to be on top of its taxation role, while cash distribution would give the government incentive to keep the resources revenue as high as possible to keep its citizens as happy as possible with the distribution.

            The key, though, is these suggestions are to simplify in a fashion that makes the system more manageable, without having to be a an MBA, let alone a nuclear physicist.

  7. It sounds so simple Extorres, but the problem is corruption and lack of values.
    It’s what makes everything go to hell. WHat happens to honest people in Venezuela? They leave or settle with low income cause you ain’t getting far with that attitude. it’s like a very big gang, where you have to rob and kill, or spend the rest of your career “matando tigres”. I know many cases myself where politics and corruption ended or stopped the carreers of honest people who just wanna do stuff right.

    By the way, Theres more than this particular bomb the next government will have to defuse. Its a very large mouse trap.

    • Oh you got that right, Metodex: the concatenation of Atomic Bombs is going to make 1989 look like a Golden Age of peace and tranquility. The jails, the courts, the hollowed out private sector, the crazy ideologues ensconced in every nook and cranny of the bureaucracy, the food system that only works with deep subsidies, the scattered environmental catastrophes, the insane new levels of unserviceable debt, the money-pit SOEs…bomb after bomb after bomb…

    • metodex, that is precisely what I’m getting at. The more complex the system, the more likely it is that corruption finds leaks in it. By simplifying, taking the power and money out of the hands of as many people as possible and making the few left feel under high scrutiny you minimize losses to corruption. Like I said earlier, it’s not about coming up with a foolproof system, it’s about finding an improvement. If the people are the ones to spend all the oil revenue, there’s little room for corruption effects because you would have to corrupt many more people than with the current system in which you only need to corrupt a handfull to walk away with huge amounts. There is no incentive for the government to help the market develop because it’s not the market that provides the government’s income. If the government is forced to live off of taxation, it would have an incentive to help the market produce.

      How do we difuse so many bombs? Paraphrasing the chinese saying about a journey of a thousand steps, one bomb at a time. Simplify, simplify, simplify.

  8. Very nice post. Just FYI, the cost of production in the Faja is about $4 a barrel.

    I don’t think China is quite the threat you make it out to be. Even when the US “owned” Venezuela through big debt holdings, it wasn’t able to impose all that much in the way of policy prescriptions. China has both less of a tradition of such intervention, and less military capacity to enforce its will.

    I wrote more about this over at The Power and the Money.

    I think another old saying applies here. If you owe the bank a million dollars, you have a problem. If you owe the bank a billion dollars, the bank has a problem.

    • See, what I’m hearing from Other-People-With-Much-More-Detailed-Knowledge-Than-Me ™ is that for a number of technical reasons the cost in the faja are extremely hard to forecast ahead of time.

      • …and with all due respect to sapitosetty, $4 does NOT sound right. I believe the average production cost of the barrel for PDVSA is around $4 (which I find shocking considering the current selling price of a barrel). The production cost at the El Furrial field (which must be one of the lowest production costs in the world) is likely less than $4 while PDVSA Occidente with all their operational problems and the secondary recovery operations (water and gas injection) must be higher than $4. The cost per barrel of the tar sands in Alberta is said to be around $30.

          • Bueno but that’s clearly wrong: the faja tar HAS been getting extracted and upgraded day in and day out for over a decade. There’s a big question over just how much can really be extracted, but even a low estimate (150 billion barrels, say) is still a crazy big amount.

          • There you’re right. I forgot to finish my posting saying that the technology available now can only extract about 10% of it.

          • Quico, sorry if I am exasperating you but I am trying to put together the things I have read and talk to other people that have worked in the field and know much more than me, in order to undesrtand it myself.
            To start, Don Gustavo Coronel says that the 215.000 millons of barrels of “proven reserves” are a fraud. He has been saying this since PDVSA made the big announcement to the world and to OPEC.


            Then, I am in Alberta, and even though I am perhaps the only person here that has nothing to do with the oil industry, I am surrounding by them, and I do get to hear their professionals opinions on it. So the 10% is not simply a number I made up. In any case, I’m getting that the problem is not how much we extract, is that the number (the reserves) that was sold to the chinese is false.

            Just in case I am not understanding well the bold and capital letters of your reply I want to clarify that I am with you on this one.

      • for a number of technical reasons the cost in the faja are extremely hard to forecast ahead of time.

        I seriously doubt that. Every engineering study spills out reams of projections. These are vetted by specialists in the field, and by the associated specialists in banking, prior to financing. Ask any engineer who’s ever been involved in turn-key projects.

    • That being said -if Cuba owes Venezuela billions of dollars,
      then-Venezuela has a problem. Not according to Chavez
      who claims Raul has been making payments with “Sucre”(kisses?)….

  9. If you ask me, if I were the new government I would not only default Chinese debt and multiple agreements, or at least I would be announcing that I”ll challenge the constitutionality of those agreements in advance. There has to be a way to stop the dangerous mix of China imperial ambitions and a government with a time discount rate asymptotically tending to infinite…

      • Reneging on another set of contracts is also unlikely to be smiled upon. At some point it’s time to get serious and act like a working adult instead of a capricious lottery winner.

    • Librito Azul:

      Artículo 25. Todo acto dictado en ejercicio del Poder Público que viole o menoscabe los derechos garantizados por esta Constitución y la ley es nulo, y los funcionarios públicos y funcionarias públicas que lo ordenen o ejecuten incurren en responsabilidad penal, civil y administrativa, según los casos, sin que les sirvan de excusa órdenes superiores.

    • It is easy to sympathize with your position. I do. If there was a non-traumatic way to do so, we should do it in a heartbeat. However, I very much doubt that this would be the case. These are deals that unfortunately we have signed as a country, the Chavez government representing us (and, like it or not, we elected it in the eyes of the international community). At least, they will be viewed outside our borders as such, and they would gladly wipe their asses off with our constitution if it ever came to that just to protect their interests. probably, the best choice available would be to renegotiate. But, I am no expert in international law. Perhaps, someone could provide some precedent of a country defaulting on its obligations just because there was a regime change?

  10. The same future Venezuelans who will view Nationalization of Oil with an unmixed and quiet horror, after they have gotten over slaying the filthy creature once and for all.

    You illustrate it nicely, that the State is to decide and coordinate (micromanage) details of extraction, commercialization, transport and refining. You illustrate that it is a fine mess.

    There is a concept, namely markets, that prevents this kind of mess. Maybe a future PDVSA with a licensing, or even a owner of oil and gas extraction rights role, and nothing more, will be able to drive the development of the Faja.

    Of course, that will have to happen before some other energy technology becomes more economically attractive than importing crude oil. Already many technologies seem more politically attractive. Let’s see if Venezuela can obtain benefit from that oil before it becomes worthless.

  11. A bit off-topic, but a “chuparnos esta mandarina:”

    El precandidato a las primarias y gobernador del estado Zulia, Pablo Perez:

    Por otro lado, desmintió que en el discurso de la unidad se hable de la “refundación del Estado capital” – como supuestamente habría dicho Aveledo, según un periodista presente – y afirmó que con esta propuesta se incentivará la participación privada, con vigilancia por parte del Gobierno y respetando la agenda social que riga al país.

    Al ser consultado sobre la posibilidad del fin del socialismo en Venezuela con la llegada de la Mesa de la Unidad al poder dijo: “No, no, jamás”. Una cosa es el gobierno socialista y otra un gobierno comunista. En los gobiernos socialistas como el de Felipe González, Fernando Lagos o Michelle Bachelet sí se respetaba la propiedad privada y había inclusión social. Por el contrario, el comunismo no respeta la propiedad privada“, apuntó.

    You know, like going back to the “guanabana” governments, pues. Is that the only way?

    • No. The problem is so many compatriots have this feudal mentality: it’s OUR waaay. Not even for the appearance do they try to say there are more ways.

      There is a simple term and the concept behind it that I have never heard expressed by a Venezuelan politician: pluralism. They have this fear to talk about this concept as if they had to explain to the masses what a Diophantine set is.

      Openly accepting pluralism means you have the cojones to accept more or less fair competition and actual debate (as opposed to parallel monologues).

      I don’t care if some groups openly define themselves as socialist, capitalist, blue, pink or whatever. I do miss none of them says they stand for whatever it is AND for pluralism.
      I also miss they don’t challenge the current government to a real debate.
      It doesn’t matter the government will try to avoid debate like a cat a bath.

      • You know, there are so many ways to explain why the current system does not work without alienating people that I am beginning to doubt about the intellectual capacity of the Venezuelan leadership. The fact that socialist policies do not work, does not mean that a different system has to do away with social protection nets. In fact, the freaking problems of the country are not solved by applying ideologies. It has been established that a free-market economy with the appropriate regulatory laws is the thing that works. However, that does not mean that a country like Venezuela cannot implement social policies that guarantee adequate education and healthcare, for instance. Is that too difficult to figure out?

  12. Norway is the gold standard for development of an oil resource. They take 78% of the profits from the oil patch, and put it in a Heritage fund. This fund insures that the money does not function as a giant inflation factor as the country becomes awash with money. At the same time, Norwegians expect to benefit individually to some extent during the course of their lives. At present, there is approximately $100,000 in the fund for every person in Norway.

    This takes stability and confidence that no one will be able to loot the find in the next hundred years or so. I hope Venezuela can achieve that before its amazingly vast oil resource has been depleted.

  13. Last I noticed China had deal with Canada and other heavy oil producers. Their not stupid and know that any promise by Chavez is well you know.
    Next, that 860K$ per person over whatever number of years will after the crooks, commisions and what ever be down to 8.6K per person if their lucky!

  14. Good stuff Quico. A couple points here — there’s a difference between the projects not setting up their upgraders in the middle of Monteyculebra, Edo Guarico, and simply not being able to get the crude out of the ground. They can produce the oil, they’re just going to have to mix it with something. The old school was way to mix it with lighter stuff, which they could still do, though of course they would eventually run out of the lighter stuff. But that means that well before they actually put up those upgraders, they will have at least some form of cash flow.

    And of financing, I don’t think it was just Eni that actually ran out and got financing, I think both the Chevron and the Repsol group in the Carabobo projects put up $1 billion in financing that they russled up, either secured by the own assets or secured against their credit rating.

    The problems are of course above ground here …

    • hey!

      OK, maybe I’m confused, but I thought the Carabobo 1 & 3 loans were more a kind of augmented signing fee, rather than fully worked out project finance deals. Or is that a distinction without a difference?

      • I believe that nobody has publicly said that they are lending PDVSA the money. THe ENI “announcement” was made by PDVSA, not ENI, giving that ENI has an ADR, I doubt it’s official. Even worse, PDVSA has to build the infrastructure everywhere and has not started.

        As for the Chinese, if there is political change, they are not going to get much sympathy. People I talk to say, debts and agreements will be honored, but Government to Government deals will be scrutinized for their. legality. For example, no deal with the Chinese has been approved by the new Assembly. They are all void.

  15. That’s a reasonable-sounding take on the Chinese situation in Venezuela after an opposition government comes in.

    However, my experience has been that, on the one hand, the Chinese feel they have covered themselves by talking to the right people in Venezuela (and in N. America) to insure they will not be misunderstood or excluded after a transition. “We do business with COUNTRIES,not governments!” They say this repeatedly and they really do mean this.

    Additionally,: my information was that, in the months before the $20 billion loan guarantee was signed, very contentious negotiations were going on. The Chinese, for a while, were apparently insisting that PDVSA not be the recipient/guarantor, as the Chinese had very limited confidence in PDVSA’s future, its ability to avoid bankruptcy, also worrying that PDVSA might be partially sold (privatised) some day to raise cash, etc. etc. … Instead, they were insisting that it be a state-to-state loan because a state’s debt is more reliable, no matter what may come … and that they know better how to deal with a state to recover their money in such matters.

    So, your point is interesting: that a: Venezuelan opposition administration in the future might claim that the previous Chavista administration did not follow the proper internal procedures to finalize the obligation. How would an international court of arbitration look upon that argument?

    Well, in any case, the Chinese have only delivered a small percentage of that loan, and won’t deliver much more without very specific and detailed plans for the use of each tranch according to the agreed-upon conditions for use of the funds..

  16. Dear Quico:
    This is your own personal nuke, my friend; double congratulations! Talk about an issue for your oppos! It’s a game-changer. And like a lot of game-changers, it’s been obvious for years (once you pointed it out, of course…).


    About the Chinese: I agree they are no more to be feared than Exxon would be (even if they were as nasty as the lefties claim). Why would they use military force if they own the only practical refinery in the world? That’s where they have you by the coglioni, more or less fair and square. If you raise the price too far, they shut the plant for a few days (for maintenance) and see who squeals first.They can probably use Canadian tar sands as well. You gotta admire the Chinese – they are the cagiest capitalists in the world; always were, at least as ex-pats. They know they will outlive Chavez, as you also will, incredible as it may sound.

    So they’ve already tied up the biggest pool of oil the world without firing a shot; and it doesn’t matter who’s in charge, cuz they own the refinery, and it’s on Chinese soil. They needn’t fear YOUR army. They are your only customer in a buyer’s market. All they need do is keep the prices low enough so you can’t afford to build your own refinery – even if PDVSA recovers its excellence of yore from the ashes of Chavismo.

    The only flaw in this plan is their obvious reliance on long-term Venezuelan stupidity. You might surprise them when the worm turns. With people like you around, that’s always possible…

    Keep up the great work!


  17. Here is Gustavo Coronel’s reaction to R. Ramirez announcing the 296.5 billion barrels of reserves. (“Venezuelan liars”). Excellent spokesman for the opposition is Gustavo….

    In fact the US reckons that recoverable reserves are in fact 505 billion barrels. In other words 44% of the certified reserves are recoverable using the latest technology which does not yet operate in the Bolivarin Republic.

    Lots of research but the normal negative conclusions driven on by political malfeasance. Man, I’ve been waiting since late 2002 since FT launched this blog for either the opposition to come to power, Chavez to be ousted or Venezuela to go broke.

    Ironically it’s more likely for Europe and the US to go under before Venezuela. No one saw that coming ten yeqrs ago, did they?

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