Say you’re a PDVSA official circa 2013-2014. Which country would you say you can least afford to shaft? Probably China, right? I mean, you need China as a customer, as a supplier, as a creditor, as a geopolitical patron, as an…everything. 

And yet shaft China is precisely what PDVSA decided to do, starting in 2012, over the most trivial matter possible: payment on $43.5 million worth of steel re-bars (a.k.a., cabillas) that China’s state-owned Sinopec shipped to Venezuela and didn’t get paid for in full.

The case eventually ended up in front of a judge in the U.S. — which does rather show exactly how much each side trusts the other’s judges.

As the Financial Times reports,

In a document filed on Tuesday in a US district court in Houston, Texas, PDVSA said that, “without implying acknowledgment of fault or responsibility but for the sole purpose of ending the controversy [between Sinopec USA and PDVSA]”, it agreed to pay Sinopec $21.5m, settling a contract agreed in May 2012.

However, the agreement stipulates that the amount be converted into Chinese renminbi and paid in two instalments, one on December 14 and another on January 15, 2018.

“That’s how cash poor and badly run PDVSA is,” said Russ Dallen of boutique investment bank Caracas Capital, who first made the dispute public. “They are sitting on top of the biggest oil reserves in the world and they can’t even write a cheque for $21.5m dollars.” He said worldwide publicity about the case over the past week had piled shame on PDVSA and the government in Caracas, “and they wanted it to go away as quickly as possible.”

The dispute centred on a $43.5m contract for supply of steel rebar, of which Sinopec said only half had been paid. It accused PDVSA of engaging in “intentional misrepresentations, deceit, and concealment of material facts” involving “wilful deception” and a co-ordinated conspiracy among several of its subsidiaries.

Sinopec, one of the biggest Chinese state oil companies, became involved in Venezuela as part of a package of Chinese loans and investments adding up to more than $62bn between 2007 and 2016. Caracas has struggled to repay its debts as the oil price has fallen from its 2014 peak and as production at PDVSA has dwindled.

Right when you think they can’t be any more criminally self-sabotaging, chavismo proves you wrong…again and again and again.

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  1. It is a clash of cultures.

    Sounds like some Chavista at PDVSA pocketed $43.5m but forgot that it was owed to China. If it was owed to Venezuela, it would have been covered up and forgotten with a few bribes taken out. The Chinese apparently are difficult to bribe.

    • It’s a “malandro culture”. Try selling something to a malandro with the promise that he will pay you later to see how that goes…

  2. That was back when money was available, perhaps that payment was “mistakenly” sent to the wrong account. Very easy to mix up “People’s Front of Judea” with “Judea People’s Front” (Monty Python.)

  3. Maybe there was some hanky panky in the deal which got discovered and new management balked at paying something which could neither be revealed nor disowned ……the chinese are not always so innocent in their business transactions specially when they are dealing with a corrupt counterpart, then on the govt side they might have feared paying for what they knew included a kickback for fear that sometime down the road they would be blamed as complicit in the deed. OR they just didnt have the money to pay for it and couldnt honour the payment , do remember that the guayana companies are broke and kept alive with direct infusions of Pdvsa money and sometimes even Pdvsa hasnt got enough to pay its own debts, Not all chinese companies doing business in Venezuela are state owned , many of them are privately owned and arent so willing to give up on a debt for political reasons ……!!

  4. That much money buys a huge amount of rebar! The big-time construction project(s) it was used for should be common knowledge. Who supplied the concrete? Who were the engineer/construct companies?

  5. Not rebar as for construction , pdvsa uses cabillas for pumping oil, either sucker rods or drive rods depending on the type of pump.

    In past it was typical for pdvsa to pay 30 days after receiving product and invoicing. Post May 2007/08. pdvsa would withhold payment forcing vendors to “take a haircut” just to get paid something. Vendors wised up, and built the haircut into pricing. And then BsF inflation hit, etc. Now it’s 50% payment in $US before product leaves manufacturing plant, and remainder before unloading from ship. Otherwise production ct stays onboard or returns to sender. I assume this case was somewhere inbetween, and a strong message to pdvsa crooks.

    And this is just one of a dozen huge reasons oil production will continue to fall, and people will starve. Only to get worse with ignorant, corrupt military now in charge.

  6. What, exactly, is Venezuela exporting that is generating capitol? Aside from US dollars rolling in from ongoing oil exports, what pays for those CLAP bags, and the little else that is still dribbling in? With the oil sector tanking bad, how much longer can the socialist charade actually go on? I’m sick of thinking it has to be soon, but surely they are circling the drain at this point. Are there any projections when the bottom will really and truly fall out? Bickering over political issues feels absurd at this point, unless I have this all wrong. WTF is sustaining Chavismo – as we speak? And what about the bond payments due in no time. Do the Chavistas just keep marching on sans comida, medicine, etc. At what point does all of this become impossible?

    • Juan Largo,
      The best that I can figure is that is that the only money the regime can get from PDVSA is the money that they hold onto by deferring maintenance and new drilling, hence the continuing decline in oil production and the collapse in the Bolivar has reduced the labor costs.
      The first million barrels of oil produced each day is going to Russia and China for debt service. I don’t think anyone outside of the inner circle knows how much oil is still being sent to Cuba and other Petrocaribe members. Cuba is receiving direct aid. Other Petrocaribe countries are receiving reduced prices and preferential payment terms.
      Before the collapse in the Bolivar and oil production the PDVSA lift costs were $27 per barrel. The highest cost of any OPEC member. As production declines, the fixed overhead costs divided by less barrels of oil, will increase the lift cost per barrel.
      PDVSA is not forthcoming with accurate information. This is a best guess. It is also an estimate without any allowance for corruption.


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