Amuay = devaluation?

The country's finances up in flames

The country’s finances up in flames

Today marks the six-month “anniversary” of the explosion in the Amuay Refining Complex. Aside from being a massive tragedy, Amuay could have also been responsible for the devaluation of the bolivar.

These two events might seem to be unrelated at first. The first caused a fire that took days to put out and left dozens dead. The second is an immediate impoverishment of Venezuelans by lowering their real wages in foreign currency terms.

The link, however, comes through nicely in this El Nacional story. Venezuela has been importing 108 thousand barrels a day in gasoline and components, all to be used in giving gasoline away to Venezuelan consumers for free.

It’s one thing to have a ridiculous subsidy when the thing you’re giving away is being produced internally. Here, the cost is mostly an opportunity cost.

But when you have to import the gasoline you give away, that creates an immediate impact on your cash flow, on the government’s wallet. I wouldn’t venture to speculate the direct cost of these imports, but even if we were to use the low benchmark of $100 per barrel of gasoline, we’d be talking about $10.8 million per day, almost $2 billion for the semester. (The real figure is definitely higher, since a barrel of gasoline is more expensive than a $100 barrel of crude).

Add to that the money PDVSA needs to invest in order to bring the refinery back to speed – typically these things are insured, but I’m not holding my breath before we found out the policies had lapsed – and you have an important catalyst in causing a fiscal crisis to go from bad to worse.

Amuay didn’t cause the economic crisis. But my hunch is that, when all is said and done, we will find out that one of the casualties of Amuay was Venezuela’s public finances.

24 thoughts on “Amuay = devaluation?

  1. Good call-out for those of us who don’t look daily at El Nacional. Thanks. One quibble: in the petroleum world, it’s good to say “gasoline” rather than “gas” to avoid confusion with natural gas. But I think we get the point!

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    • In my business it’s good to say “place concrete” rather than “pour cement”. But that doesn’t stop anyone from getting it wrong and we still understand what they mean.

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  2. The sad thing about Amuay is that given the government record with the safety protocols in oil refineries, we have come to a point were its not IF there will be another tragedy like Amuay, but WHEN there will be another tragedy like Amuay. Really sad to see how backwards my country has become this last few years.

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  3. The impact must have been very high , not only because the price of gasoline is at least three times that of crude oil but also because when the facilities that make gasoline are affected there are many other pricey oil products that cease to be produced, both reducing Pdvsa’s income from their export abroad and increasing its costs (so as to pay for the import of such petrol products to continue the supply of domestic demand ) . US Agencies report a ninefold increase in the amount of petrol prouducts exported from the US to Venezuela at the height of the crisis . A friend familiar with the international oil trade told me at the time of the crisis that Venezuela was purchasing petrol products all over the place at ‘distress prices’ , at prices much higher than ordinary market prices . The economic impact must have been enormous !!

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  4. That’s one thing, but not the only one. What about the CADIVI supported imported goods scams?
    (http://www.el-nacional.com/economia/Gobierno-corregir-deficit-venezolanos-pagan_0_137987483.html)

    “La rectificación del anclaje cambiario en 46,5% implicará que el Gobierno recibirá dinero adicional por el orden de 13,4 millardos de dólares (84,5 millardos de bolívares), según proyecciones oficiales.”

    “… las importaciones ficticias aprobadas por Cadivi, que según un estudio de la firma Ecoanalitica promedia 28% del total. Este monto equivale a 15,6 millardos de dólares…”

    If the alleged amount of money ($15,6 billions) that’s been scammed is true, that could make things easier on us, if they were interested in solving that huge hole…

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    • Good old Blanca Vera.

      “La rectificación del anclaje cambiario en 46,5% implicará que el Gobierno recibirá dinero adicional por el orden de 13,4 millardos de dólares (84,5 millardos de bolívares), según proyecciones oficiales.”

      Siiiiiigh. No chama, la devaluación le podrá rendir muchos más bolívares al gobierno, pero te aseguro que no recibirá ni un dólar adicional por ella…

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      • Now reading the original piece. The first graf must be the most gloriously mangled piece of misreporting I’ve read in a long time. Not only will 32% devaluation mean an automatic linear 32% loss in purchasing power (since, in Veraworld, 100% of everything Venezuelans consumed is imported) but “Adicionalmente, significará un aumento de 30% en promedio en el índice de precios, lo que se traducirá en un mayor empobrecimiento en las personas de menos recursos.”

        Adicionalmente.

        Her blunder was so good, she made it twice!

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      • Toro, I know you have your beef with local journalist, but the wasteful spending and misappropriation subventioned by CADIVI is the issue I pointed out here – not Vera Azaf’s writing skills.
        Yes, the article is almost unreadable, to put it mildly. However, the fact that I pointed out still remains: The gov is saving up to $13.4 billions thanks to the devaluation, while at the same time wasting $15.6 billions in make-believe imports. And the numbers I quote are not Vera Azaf’s, but Grisanti’s. Probably other economists have different numbers, but that’s something worth a conversation…

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    • From internationally verifiable reports average sales of CADIVI funded bulk food products imported to Venezuela carry a customary 30% mark up (made up of ‘comissions’ payable to 3rd parties outside Venezuela) . This special transaction cost of course never appears in the import invoice but is certainly paid for by Government funds. However the greatest impact to ordinary Venezuelans comes from the drastic rise in the value of Black market dollars stemming from Giordanis decision to cut short the supply of Dollars to SITME , this decision led to a doubling in the value of black market dollars in a few short months as supply of dollars dwindled putting pressure on the black market dollar to supply what formerly could be obtained trhough Sitme. Because CADIVI dollars only cover part of the conomy’s demand for dollars all other dollars having to be obtained through the black market the impact of a devaluation in the CADIVI exchange only reflects part of the inflationary effect of these decisions. In other words there are two devaluations impacting Venezuelas purchasing power , the CADIVI dollar devaluation (40%) and a much larger Black Market dollar devaluation (100 plus %), both of which together add up to more than 40%. .

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      • That’s the elephant in the room nobody mention. At least not the opposition leaders.
        If you wanna believe the internet rumor mill (http://dolar-paralelo.info/historico-dolar?f=2012-02-25&t=2013-02-25), the back market dollar has doubled it’s price in the last 12 months. And the government – i.e. Giordani – has not come up with an alternative to SITME. More scarcity and inflation are coming our way.
        Could it be that it’s part of the upcoming presidential campaign? To induce scarcity and inflation to feed the “people vs. evil acaparadores” rethoric and blame some scapegoat for it?

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  5. Another casualty of Amuay is diesel oil. As Corpoelec is now forced to import diesel oil to feed elcrtical generators (there is not enough natural gas) this is also a major portion of the financial diahrrea. But also the oil sent to Cuba, the money for food imports, the catastrophe at CVG,paying the 2+ million public employees, repaying the loans from China. The government is broke. Ergo, devaluation.

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  6. One begins to appreciate the depth and breadth of the old Russian quip, “If the Sahara were under communist control, there’d be a shortage of snad.”

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  7. Just goes to prove that the Bolivarian revolution has to go beyond the capitalist state that it still is.
    But to use the logic of the writer of this thread is wrong, PEMEX recently had a fire killing dozens and same in LA and Louisiana but is that the part of the cause of Mexico’s or the US economic crisis? Afraid not!

    No its because of the profit system and hundreds of years of greed and corruption.

    Rojo Rojito
    Cort

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    • Cort: The thing is that there are no non capitalist states any more other than maybe Cuba (which is backtracking) and North Korea , veritable economic disaster zones for years . You are right that accidents can happen anywhere , but whats different about Amuay is that its much more important an oil installation than any affected by the fires you mention and that the record for negligent maintenance is a very likely cause of the mishap despite Pdvsa being managed by people presumably ‘innocent of any greed and corruption ( if only it were true!!) .. .

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    • Unbelievable ignorance.

      Cort: As an adult, assuming such a label, you shouldn’t really need school to understand how a healthy and diversified market economy, where the oil industry is professionally managed, can bear very infrequent and unfortunate accidents.

      You shouldn’t really need school to compare Mexico’s and the U.S.’s economic and political framework, which work well to provide relative stability, to Venezuela’s, which is everything but.

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    • Cort: 40% of the Government’s imports (the subject of the article) are ficticious.

      Do you think that had a socialist motive? Nope. This was 100% capitalist profit by Government officials. And you really think these guys want to go beyond a “capitalist state”

      No, they are the new capitalist oligarchy of Venezuela, with infinite more resources than the old one. And they will use their money to preserve it.

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    • Cort, are you that thick? Are you on hard drugs? Who are your legal guardians? I cannot believe you are even adult or have been sane one day in your life, for an adult human being must once in his or her life have worked for something, used time, energy (not only internal but external) to make something, and paid or traded for something else.

      What part of “gasoline costs money to produce, specially if you have to pay for it in the U.S.” you did not understand or “gasoline produced domestically could be sold and the money and goods used for beneficial ends”?

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  8. There is something about what Setty says about diluent use for extra heavy crude that doesnt sound quite right but I may be mistaken . Main use of diluents was to allow for its transportation from the oil fields to the sea terminals , there the diluents would be taken out of the crude oil and sent back again to the fields to be reused in a closed loophole cycle with very little loss of diluent in the end . Extra heavy crude was then upgraded or mixed with lighter crudes for export purposes . Of course if the light crude gets scarce then you may need to keep the diluents mixed with the EHC for export purposes thus making the need for diluents permanent.
    the other comment is the missing tie between black $ price and petrol imports , if you need to incurr in higher than normal costs in purchasing petrol products then those $ may be withdrawn from Sitme , which puts pressure on the black market $ supply thus raising its value. Products prices are payable some 30 days after delivery which might help explain the two month lag.

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  9. @LT I dont know if you know the origin of this song, it comes from times of the iron curtain from russia. He was not allowed to sing the lyrics because the original is from the US so he sing the lala.. I just hope he made some money from the youtube hipe some time ago….

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  10. The question needs to be asked of why the government spends a fortune to support cheap/free gasoline when most Venezuelans would probably be much happier with high gas prices and cheap/free staple foods like Harina P.A.N. ?

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