Annals of Lede-Burial: China Development Bank Edition

china-development-bank_0Today, the Wall Street Journal has an interesting piece on China Development Bank’s ballooning, questionably-performing Venezuela engagement with Hugoslavia: $37 billion in loans that may or may not end up getting repaid, some 14% of its foreign currency loans.

Yikes. Sure, CDB is state-owned, so it would almost certainly get bailed out rather than collapse if Venezuela doesn’t pay up.

Still: yikes.

The really interesting bit, though, is buried wayyyyyy down in the 20th (I counted – twentieth!) graf:

Despite its torrent of lending, China’s crude-oil imports from Venezuela dropped 11% in 2014 as a whole, remaining more or less flat year on year so far in 2015, according to Chinese customs data. China imported 296,000 barrels a day of oil from Venezuela in April.

This – and not the financial performance of the loans – is the real measure of the failure of Chinese engagement with Venezuela. Because the point of all the relationship wasn’t to make money on the loans. It wasn’t to prop up the regime. And it sure as hell wasn’t to build a “high speed rail” line between Tinaco and Anaco.

The point of the loans was to bankroll development of the Orinoco extra-heavy crude belt, expanding production and opening up a new route of energy supply for the Chinese market.

And it’s just not happening.

What’s shocking is that despite the torrent of cash, Venezuela just can’t get its act together to bring online any significant sources of new production from the Faja. None of the new Syncrude upgraders that have been announced again and again since 2007 are anywhere near coming on stream.

We’re now down to signing long-term supply deals to buy oil from Russia to refine in Curaçao just so we have some Maracaibo Lake crude left over that we can mix with the gunk that comes out of the Orinoco. Shameful!

This – and not the financial performance of the loans – is the real sign PDVSA is the ultimate Leaky Bucket: it doesn’t matter how much project finance you pour into it, none of it translates into increased production.