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Hugo Chavez selling off Venezuela's assets

By Jeffrey Snyder

Oxford 17.08.06 | Today, Rafael Ramirez finalized the sale of PDVSA's 41.25% stake in a Texas oil refinery which it held jointly with Lyondell through its wholly owned subsidiary Citgo. The proceeds come to about $1.3 billion after taxes.

Chavez et al. have argued that the structure of the refining contract, which has a $2/barrel discount, is unfavorable. Even though no one denies that it's extremely profitable at current oil prices, the result of the so called 'netback' arrangement which maximizes profit when oil prices are high, Ramirez claims that PDVSA will begin to lose money on the deal if oil were to slip back to rates prevailing during the mid 1990s.

Selling now is an indication that Ramirez expects oil prices to fall before the contract is up (to be fair, it does have another 17 years to go) or a sign that liquidity problems are mounting back home in Caracas, or both. Most analysts expect a prolonged period of high oil prices given the situation in the Middle East and growing demand from China so it seems strange to sell now when this particular contract will probably be at its most valuable in the next 5 years.

Whatever the case, the most noteworthy issue is perhaps not the sale itself but that the $1.3 billion is going straight to the government, rather than PDVSA, which itself made the original investment in the 1990s. That's right, PDVSA will not get one Bolivar from the sale of its own investment. It's true that the government would certainly get its cut if the funds came through PDVSA accounts first, but in bypassing even these limited forms of company autonomy this seems more like wildly selling off assets to raise revenue rather than a careful reallocation of investments. Does this mean PDVSA can't even put the money towards its heavy crude refinery construction projects, which it desperately needs to maintain production capacity? Who knows. It's up to Chavez now. Perhaps it will be enough to get Bolivia's YPFB out of hoc for a few months or to subsidize a year's worth of oil exports to Cuba in return for some sugar cane.

[News Source: Citgo salió de refinería Lyondell, El Universal (Caracas, 16 August 2006)]

Source Venezuelan News Analysis

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