China plays increasing role in Venezuela’s economy

Posted on Thursday, 07.12.12
Venezuela

China plays increasing role in Venezuela's economy
By Antonio Maria Delgado
adelgado@ElNuevoHerald.com

Venezuelan President Hugo Chávez's socialist revolution, which has
seized billions of dollars in assets from western oil companies in the
name of national sovereignty, is gradually giving control of its
industry to China, a country that plays an increasingly dominating role
in decisions about development in the country.

Experts consulted and documents obtained by El Nuevo Herald break down
Venezuela's growing dependence on China's financing and executive
capacity, and how the Chávez administration's hunger for resources has
led it to grant concessions to Beijing that are unfavorable to the South
American oil country.

Extending the red carpet to Beijing has allowed Chávez's government to
obtain nearly $80 billion in financing and direct foreign investment.
Yet the leader of the Bolivarian Revolution is sacrificing sovereignty
along the way, heavily mortgaging the industry under significantly more
unfavorable terms than it is able to obtain in international markets,
analysts said.

Ironically, these agreements, which translate into a revenue loss of
billions of dollars, take place at a time when Venezuela should have no
need to seek financing abroad.

In recent years, Caracas has been enjoying an unprecedented oil bonanza,
with a price per barrel that increased from $12, when Chávez assumed
power in 1998, to $95 now.

The oil industry plays an increasingly important role in Venezuela.
Years of persecution of the private sector by Chávez's government have
turned oil, previously the largest economic engine in the nation, into
the only one actually working.

NEW JOINT VENTURES

Yet, even more worrisome for the future of the nation's industry is the
loss of sovereignty as China assumes a more significant role in the
strategic decisions of this sector, especially through the new joint
ventures in which the Asian country helps develop the Orinoco's
strategic oil strip.

"In appearance, PDVSA [Venezuela's Petroleum] is the owner of
everything, but it actually owns nothing," said Evan Ellis, professor at
the Center for Hemispheric Defense Studies in Washington, referring to
the projects to which Chinese enterprises are linked.

"In all these places, decisions on how and when these projects are done,
whether it is convenient to invest in a bridge at Puerto Cabello, are
being made under the authorization of Chinese banks that are giving
instructions to PDVSA, questioning whether it makes sense to invest here
or there," he said.

Some of these areas granted to China used to belong to foreign companies
that the Venezuelan government pushed out of the country.

Documents obtained by El Nuevo Herald reveal details of a series of
negotiations carried early this year between the Venezuelan government,
China International Trust and Investment Corporation, and the Industrial
and Commercial Bank of China Ltd. to acquire a 10 percent share in
Petropiar, a Venezuelan mixed enterprise with assets confiscated from
ConocoPhillips.

These assets are part of a billionaire claim that the oil company has
filed in international courts against Venezuela. According to the
documents, Venezuela was demanding a "non-negotiable" sum of $944
million for the 10 percent share, which places the value of the company
at $9.44 billion.

"What we have here is a clear example of stealing from Pedro to give to
Pablo," said Vanessa Neumann, senior researcher at the Foreign Policy
Research Institute in New York.

"The assets now given away belonged to companies confiscated in the name
of national sovereignty and are now being privatized to the Chinese,"
Newmann said. "It's a big act of hypocrisy from the ideological
standpoint and grand theft from the perspective of international law."

GREAT RISKS

It is also an operation that could convey great risks for the country.
The established price for the 10 percent share means that the U.S.
companies would have a base on which to claim the confiscated assets at
international courts, she said.

But it's also a proof of the great need the Chávez administration has of
obtaining Chinese funds.

"It shows the urgency with which Chávez is needing that money. A sign
that he is extremely desperate, because they are going against the
ideological base he professes, turning the argument of independence and
national sovereignty he branded to reach power in an act of hypocrisy,"
he said.

The documents obtained reflect the official preoccupation about the risk
that international courts evaluating the claims filed by international
companies may have adverse results.

In one of the documents, the Venezuelan ambassador to China, Rocío
Maneíro, informs Chávez of the issue discussed in negotiations with
representatives of CITIC, as part of a new loan.

"The fundamental objective of this negotiation is to agree on a
mechanism to protect, against any unilateral action or measure by
foreign powers, funds resulting from loans executed by CITIC
Construction for PDVSA. The issue of handling these funds through trust
accounts, opened at CITIC Trust" was highlighted in the document.

Fear was also present in the conversations to transfer to CITIC the
Petropiar shares, said Juan Fernández, former executive director of
planning at PDVSA, who analyzed one of the documents at the request of
El Nuevo Herald.

Among the various assets confiscated by Chávez's government from
ConocoPhillips is the company's 40 percent share it had in Petropiar.
That is one of the claims the company is making against Venezuela in court.

"This is why CITIC people ask this question [in the negotiations], if
the ConocoPhillips's demand could have an impact on the project,"
Fernández said.

http://www.miamiherald.com/2012/07/12/v-fullstory/2893416/china-plays-increasing-role-in.html