Accomodating Reality

A couple more notes on that CITIC-Petropiar privatization deal I wrote about in Foreign Policy.

1. I find it jaw-droppingly bizarre that at this point the only two Spanish language publications to have picked up the story are…PanfletoNegro and El Chigüire Bipolar. Seriously, how easy is it to pull the wool over Venezuelan journalists eyes? Just by burying the deal in a pile of other sino-venezuelan deals, the government managed to get the entire journalistic profession to simply miss it. Really.

2. It’s still hard to say what pushed PDVSA to make such a strange decision. The most encouraging interpretation is that they got mugged by reality. After years of pushing for investment deals with foreign majors on terms that no sane counterpart could accept, PDVSA is finally waking up to the simple mathematical fact that nobody is going to lend them the 240 billion bucks they need to develop the Faja del Orinoco. They need private capital in the mix if they’re ever going to come close to the massive figures needed in the Faja.

What’s remarkable about that is precisely that PDVSA is allowing itself to be mugged by reality rather than going for the tried-and-true ostrich-strategy.

Because the Venezuelan government’s usual reaction to overwhelming evidence that its preferred approach to a given problem is not working is simple stonewalling and denial. They approve a new apartment rental law that sees literally the entire legal rental market disappear overnight? Hell if they’re going to acknowledge it! They adopt an “inflation anchor” that leaves them with the world’s higher inflation? Psssssh, not if they know it. Their attempts at battling “hoarding” leads to deepening shortages? Maybe, but they’ll never admit it.

The really remarkable thing about Petropiar is that they seem to be siding with an actual solution over simple mindless denial. That never happens…

26 thoughts on “Accomodating Reality

  1. La Patilla had the news item as a headline for a whole day. Noticiero Digital had it also.

    • Ha, this ends up making me look good: proof positive that I don’t read La Patilla!

      But seriously, those are still two-bit websites. Hello Globovision?! Anybody home at Ultimas Noticias? El Mundo, Uds. no y que lo decían antes? (Eso como que era antes…)

  2. Correct me if I’m wrong, but this seems like the same approach to Giusti’s “Apertura”, but worse: instead of selling shares to Venezuelans, it’s the Chinese that’ll get the cheddar.
    Nice ole switcheroo for a government who had massive support for setting back Giusti’s EPIC plan.
    Don’t worry about the journos.
    If you blog it, they will come.

    • Bueno, as the Capybara grasped, where the market is located doesn’t really tell you much about where the eventual buyers will be – these days, it’s just as easy for a yuppie neoyorquino to buy shares in Hong Kong as it is for a yuppie beijingiano. (Though a yuppie caraqueño is shit out of luck – Cadivi won’t cough up the dollars it takes to play this game!)

      I don’t think it makes sense to talk about this in terms of whether this is a better or worse way to develop the faja. The scale of the investment needed is so ming-twistingly big, the real choice isn’t whether to privatize or not to privatize, it’s whether to develop it at all (and privatize to raise the cash) or just let the oil sit down there all mucky and tar like under Anzoátegui state.

      • Well, but then you seem to be saying it’s not a bad idea, just a question of contradicting their previous speech.
        So in a greater scheme of things, you’d be for the privatization of the faja, just that at a better price? Would that be your only critique?

        • I’m just in favor of honesty on one key point: you can’t develop the faja without substantial private investment. So you either welcome substantial private investment or you don’t develop the faja.

          That’s what Giusti said. Chávez called him a vendepatria…tried it the other way and, 14 years later, is coming around.

          • Of course, and the upside of this is that if HCR wins and continues these type of deals, he can say he’s just doing the same that Hugo did as even the Chavistas came around the fact that you need private investment to develop the faja

          • Quico, there’s more than just “honesty”. The chavez way of getting the private investment in this case is convoluted and inefficient, thus not competitive and prone to corruption. What the opposition would do doesn’t translate to merely “just a better price”, especially when the source of value of the business is oil, which is mostly owned by the poor. So the real translation is, a much, much less regressive way than chavez’s way.

      • One of the concerns I have is that with the present administration there is no certainty on the final destination of any funds in PDVSA. They treat it as a source of petty cash to finance whatever fantasy they come up with and I fear that is what we will see here.

  3. The last sentence of your article states-“The really remarkable thing about Petropiar is that they seem to be siding with an actual solution over simple mindless denial. That never happens…”
    All I want to say is(-and I know you said you do not want to argue about it)I do not believe
    this is true in the way it appears and I do believe it is not a good deal for Venezuela, not now
    and not later and should not be “replicated’.
    Can you imagine waking up one day and Chinese control PDVSA?

    • Why do you say it shouldn’t be replicated? PDVSA maintains a controlling 51% stake regardless of how much it floats.

      • Referring back to the Mapa -Faja del Orinoco. I do not want to quote Ramirez or Chavez..
        but -for example-originally 27 blocks each about 500 sq. kilometers.
        I have no idea how truthfully those parcels were doled out to Chavez’s international “friends-for example Iran got 2 or 3 , CUba got 2-3, Belorussia-got 2
        Ecuador,1, Malaysia one..China got ?5..
        Anyway-for example-Peru-stated a few months ago-they don’t have money to develop their block and don’t know when if ever in the future they will have the money either-(and Chavez went out in public with Humala standing beside him and lied and said the opppsite-
        that Peru was investing millions in Venezuela- couple of days later -the truth came out PDVSA was throwing millions away in Peru..)
        How much has Malaysia promised to invest or do you think Belarussia has milllions to invest? How about Cuba- that is a real partner-you think so?

        No, China will help each of these underlings and get a share of each of them and as well
        China will “help” PDVSA with each of their share of each block -get it-both sides
        China eats both sides! Does PDVSA win? Does Venezuela get gobbled up by CHina?
        By the way- China is building a railroad in Colombia too..
        And, contrary to what Mr. Setty was saying- China will bring in their own workers
        and pay them “chinese wages” too.

        • Point is – each parcel holder is supposed to share investment costs with PDVSA
          and none of them have any money except China. (Well Russia-but they already have
          plenty of oil..)And PDVSA has to borrow money from China to match their share-and instead of borrowing money -PDVSA GIVES away their share…C’mon man-I know I heard a who!
          Look at the deal with PDVSA and Brazil to build a refinery- PDVSA did not have and could not borrow the money-really it is all stupid anyway..
          Look at the map of Faja del Orinoco- only idiots could have schemed up that one..

    • Again, selling shares in a Chinese Stock Exchange is not the same thing as selling shares to Chinese people (or to the PRC government.)

  4. “After years of pushing for investment deals with foreign majors on terms that no sane counterpart could accept, PDVSA is finally waking up to the simple mathematical fact that nobody is going to lend them the 240 billion bucks they need to develop the Faja del Orinoco.”

    Oh, they finally learnt that lesson. Huh. If only people would have predicted this was going to happen, we could have saved ourselves a lot of time. Oh wait, EVERYBODY did.

    • Yes, except it is not what you think. Venezuela (PDVSA) is on a one-way street
      straight into China’s arms.

      • If that’s your concern, you should be welcoming the Petropiar deal. The decision to float in the HK stock market is specifically about limiting the official funds the PRC has to contribute and shifting the burden onto private shoulders – whether they’re chinese or from anywhere else. Deals like this cap Chinese influence over the Faja.

        • Could this ‘shift’ in policy be the beginning of La Piñata that you blogged about a couple of months ago? With the president experiencing a recurrence of his cancer, the time could be ripe to ‘legitimize’ some offshore capital by purchasing shares of PDVSA on a stock exchange. From a PSUV point of view, shares acquired under a red capitalist system would be more red than capitalist. Thus the ‘rightful owners’ of the state’s resources will emerge: PSUV loyalists owning the country’s oil on behalf of el pueblo. It would all culminate perfectly. Is the fat lady about to sing?

  5. Depends on the numbers, doesn’t it?

    If they need to get $240bn for that 10% of the Faja they sell to CITIC, then 100% of Faja is worth over $2.4Trillion present value. The Chinese NEVER accept break-even deals, so the plan to sell stock in Hong Kong means China sells its 10% stockholdings for $480bn and nets about $240 billion on what amounts to simple pass-through stock underwriting. It’s just a business deal from their point of view.

    All the actual risk is borne by the world’s clueless leftists who buy the stock (lots of people – like actors and athletes – make money without arithmetic) and think Venezuela (still 60% owner) is a worker’s paradise that would never ever waste THEIR social investment. Call it Bolivarian Socialist wealth re-redistribution – Venezuela’s gift to China.

    China must LOVE NYC, London and Chavez: if the effective Chavismo premium to China is about 100%…
    …’s because PDVSA would have to pay even more in London and New York.

    That’s my guess-metic using your numbers, Quico. The reality is likely summat wuss….




  6. I am probably missing something here but hasn’t PDVSA just agreed to play the sucker in something akin to a giant securities flip?

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