Posts Tagged ‘China’

Venezuela : Chavez returning to dirty tricks ?

hugo-chavez-venezuela1For the last 4 years, soaring worldwide oil prices and 9% growth rates have underpinned President Chavez’s generous social programs & his (none too successful) campaign to build an international anti-American alliance. The oil windfall saw the socialist government of Venezuela threaten to divert oil exports from the US to competitors in China and India, even though the Asian markets would be costlier to serve. Currently 60% of Venezuela’s production goes to the States.

As if Venezuela were not doing well enough, the government then imposed crippling tax increases & royalties on the IOCs (International Oil Companies) working there. Snapping up majority shares in oil-producing joint ventures & effectively forcing the multinationals to either take smaller roles or leave Venezuela. Now with oil revenues failing due to lack of demand on global markets, Chavez looks as though he is turning his attention to agriculture.

Chavez is hugely popular with Venezuela’s poor due to his heavy spending on social services, however,  continued investment in social programmes is not sustainable with the crash in oil prices. Oil accounts for 94 percent of Venezuela’s exports and about half of the national budget. Chavez decided on Wednesday (04/03/09) to take over at least one rice plant owned by Cargill Inc, the largest U.S. agricultural company, extending his grip on food producers as the government seeks to slow inflation.

“We’re going to continue to tighten the screws,” Chavez said during a cabinet meeting that was broadcast on Venezuelan state television. “Begin the process of expropriating Cargill. This is a flagrant violation.”

Chavez, has also threatened to seize all plants run by Empresas Polar SA, Venezuela’s biggest privately owned company, in his push to increase state control of the economy. Venezuela has the highest inflation rate in Latin America, and food prices rose 43.7 percent in January from a year earlier. Over the last four years, following Chavez’s re-election as president, Venezuela has increasingly moved to a government-run economy, announcing takeovers in the electricity, cement, telecommunications and now food production industries.

In the 1990s, Venezuela offered discounted taxes and royalties to entice IOCs such as BP, ConocoPhillips, Exxon Mobil & Total to develop the Orinoco basin deposits. The Orinoco Belt holds over 1.2 trillion barrels of extra-heavy oil which is refined locally. Previous estimates claim that the Orinoco Belt may contain more than 250 bn barrels of recoverable synthetic crude, making Venezuela potentially the biggest source of oil in the world, topping Saudi Arabia. Following more than $16 bn of direct investment, four international “strategic alliances” began producing synthetic crude in 2001. Production now totals about 600,000 barrels a day, roughly one-quarter of Venezuela’s total output.

In May 2007, Chavez announced the nationalisation of oil assets in the Orinoco belt, prompting Exxon Mobil Corp. and ConocoPhillips to pull out of the country and seek international arbitration. Total remained & is still attempting to work under tough government constraints, which saw its stake in the Sincor project reduced from 47% to 30%. Massive revenues generated by high oil prices have managed to mask years of economic mismanagement. Currently, inflation stands at 35%, capital is fleeing the country & unemployment is rampant. Continued rhetoric about revolution, socialism and expropriation has caused foreign investment, which is vital to the oil industry, to dry up. Venezuela’s private sector recorded zero growth in 2008, according to the central bank.

Back to today & a reliance on his populist support seems to have forced, Chavez to maintain his 2007 pledge that the government would secure supplies of basic food staples, as the country experienced widespread shortages of milk, beans and rice. Chavez issued a raft of  decrees last year, increasing government control over food storage and distribution and allowing the state to jail company owners for hoarding. This week, he set new production quotas for food makers to boost supply of price- controlled foods. The Cargill seizure follows troops being deployed in rice plants across the country, in a blaze of publicity, claiming that private owned companies are hoarding rice stocks in order to manipulate prices.

“Cargill is committed to the production of food in Venezuela that complies with all laws and regulations,” Mark Klein, a spokesman for the Minnetonka, Minnesota-based company, said by email late yesterday. “Cargill expects the opportunity to clarify the situation with the government and is respectful of the Venezuelan government decision.”

Chavez hasn’t specified whether the Cargill expropriation order would apply to all of the company’s plants in Venezuela. According to Cargill’s Web site, it has operated in Venezuela since 1986, and runs 13 plants that produce foods including rice, pasta, flour and juice.

Meanwhile, Venezuela is courting Asian countries for FDI for future growth in the oil indusry, recently China & Venezuela announced a $12B pact for a JV in the Orinoco belt, part of China’s ongoing spree of buying into national projects. Vietnam via its state owned oil company PetroVietnam has also entered into a JV with Petrolos de Venezuela, where the expecation is to extract 200,000 barrels per day for export to Vietnamese refineries, as previously discussed. This follows inconclusive talks with neighbour Brazil regarding an accord with Petrobras, whcih would have seen the Brailian giant investing 40% into the construction of a $4Bn / 200,000 barrel a day refining operation.

With this latest bout of  “nationalisation”, Venezuela is surely set to lose more friends in the West & also on its doorstep. Chavez has been pouring billions into local economies to shore up Latin American support for his Bolivista government, but now the revenues have dried up, he is seen as a political blusterer.  It is clear that Asian nations starved of natural resources will make deals at favourable rates right now whilst oil prices are in a slump, however, it will be interesting to see which rabbit Chavez will pull out of the hat when oil goes back over $70 a barrel.

Advertisements

the Bear & the Dragon shake hands on $25Bn energy deal

siberianpipeline1Whilst having previously discussed the Byzantine workings of Russia’s energy players in previous articles & also the direction that China has taken recently in securing strategic reserves, it was only a matter of time befiore the Dragon & the Bear came to an accord together. During a visit to China this week, Russian Deputy Prime Minister Igor Sechin has succeeded in bringing together a massive deal for Russian oil producers in Siberia.

On Tuesday (17/02/09), Russia and China signed  an intergovernmental agreement on the construction of a branch of the East Siberia-Pacific Ocean (ESPO) oil pipeline toward China. Under this agreement, Russia will supply 15 million metric tons (300,000 barrels per day) of crude oil annually for 20 years to China, in return China via state owned China National Petroleum Company (CNPC) will extend a total of $25 billion in loans to Russian state-controlled crude producer Rosneft and pipeline operator Transneft at 6% per annum in exchange for the long-term oil supply. Transneft plans to start building a Chinese leg of the East Siberia-Pacific Ocean later this year and to commission it in 2010, Russia’s monopoly pipeline operator said in a statement on Tuesday.

“The construction of the leg should be synchronized with the construction of the first line of the ESPO pipeline,” the statement quoted the company’s vice president, Mikhail Barkov, as saying. Barkov also said that China’s $10 billion loan to Transeft would primarily be invested in the construction of the Chinese leg. “In addition, there are projects that will contribute to the functioning of the entire eastern pipeline and this leg in particular,” the Transneft official said.

The pipeline’s first leg was launched in October 2008 in the reverse direction, running westwards. The construction of the pipeline, designed to bring Russian oil to the lucrative Asia-Pacific market, is due to be completed later this year, which will enable ESPO to pump its first oil eastwards. The terms of the agreement stipulate that China will extend a $15 billion loan to Russian state-run oil giant Rosneft against the guarantee of oil supplies, while Transneft’s $10 billion would be granted with the infrastructure as collateral. Currently Rosneft, which is expected to be the main oil exporter via the pipeline, supplys around 10 million tonnes of oil a year to China by railway under the terms of a deal signed in 2004.

The ESPO was originally conceived in the mid-90’s by now disgraced Yukos Chairman, Mikhail Khodorkovsky, as a private pipeline. Following the “collapse” of Yukos, state owned Transneft picked up the baton & began construction of the first leg in 2006, which completed last year. The pipeline is supplied via spurs from the Tomsk Oblast & Khanty-Mansi Autonomous Okrug oil fields in Western Siberia, Transneft’s existing Omsk-Irkutsk pipeline has also been connected, allowing Rosneft to pump up to 22 million tons of oil annually into the pipeline, whilst smaller competitor Surgutneftegas will contribute around 8 million tons.

Anglo-Russian or Russo-Anglo (depending on which side of the political fence you sit on) TNK-BP is also involved in this project, having began supplying oil to the pipeline in October 2008. TNK-BP in a joint venture with Rosneft has extensive operations in the Verkhnechonskoye field, which has proven reserves of 409 million barrels of oil equivalent.

“The first shipment of VC crude into the ESPO marks an important event for TNK-BP and for the industry.” commented Chief Operating Officer Tim Summers at the launch. ” We are establishing a major new production center in East Siberia. Application of world—class technology and the timely launch of the ESPO pipeline allowed us to begin commercial development of this project, which has been deemed uneconomic for the past 30 years. The beginning of regular commercial shipments from VC to the ESPO marks the emergence of East Siberia as a new and important oil and gas province in Russia”.

So win-win all round? Certainly for the Chinese in the long term, as we have argued in previous articles, China is on a spending spree on commodities, particularly in the energy sector where it seems almost desperate to secure strategic reserves. Russia also gains, in that with the recent devaluation of the rouble, access to funding in capital markets has been harder to come by, especially for Russia’s energy firms. Do we in the West gain from this ? That remains to be seen, from a persoanl viewpoint, this may well help to stabilise geo-political issues in the region whilst also contributing to oil price stability in the long run.

Chinese raw material companies continue on acquisition trail

Continue reading

Indonesia – the long road back

indonesia

The Asian financial crisis in 1997 pushed Indonesia to economic collapse a decade ago. Its overextended banking system imploded, spurring high unemployment, severe rioting and, eventually, the fall of the Suharto government. Weathering an even more calamitous global storm now, Indonesia has managed relatively well.

 

Now, to help it endure the global recession, Indonesia, Asia’s third-most populous nation after China and India, is planning an aggressive economic stimulus, the governor of Indonesia’s central bank said Monday in an interview.

“One of the key actions has to be fiscal stimulus for getting us through this crisis,” Boediono, the governor of Indonesia’s central bank, said

2008 has been a boom year for Indonesia, The energy and mining sector was forecast to book Rp 346 trillion (about 31.2 billion U.S. dollars) in revenue for the state by the end of 2008, up from Rp 225 trillion  in 2007. The sector contributes 36 percent to total state revenues, the biggest slice coming from oil and gas companies, which contributed Rp 303 trillion this year.

Despite these soaring revenues, the Energy and Mineral Resources Ministry has decided to put limits on lower revenue targets for next year. According to the ministry’s secretary general Waryono Karno, the government was looking at about Rp 271 trillion in revenue from the energy and mining sectors for next year. Of the total expected revenue, Rp 227 trillion would be from oil and gas, Rp 43 trillion from mining, and Rp 1.5 trillion from other sources. The ministry said Indonesia had received $28.60 billion in investment commitments for the energy and mining sectors in 2009.

Indonesia, the world’s largest coal exporter, is expected to produce 183 million tons of coal this year, about 134 million tons of which will be exported, China being the largest customer. Production in 2009 is projected to increase to 198 million tons, 145 million of which will be exported.

Indonesia is also theworld’s second largest LNG (Liquid Natural Gas) exporter & should by rights be able to take advantage of growing LNG demand from overseas, which is projected to increase in line with the rise in demand from China. China imports about 5 million tons of LNG every year, and this figure is expected to further increase in the coming years. China has signed a 25-year contract to buy 2.6 million tons of LNG annually from BP‘s LNG terminal project in Tangguh, Papua. The first delivery will be shipped in early 2009.

As the government tries to spur growth, spending will rise nearly twice as fast as the projected inflation rate of 6 percent next year, Mr. Boediono said. Indonesia expects to save $1.5 billion next year from lower spending on fuel subsidies with the decline in oil prices and plans to use the money as a down payment on the stimulus program, he said, but most of the money will be borrowed overseas. Boediono predicted that the Indonesian economy could still manage 5 percent growth next year, which probably would make it one of the better performers in the region. As part of this fundraising, Jakarta plans to issue global bonds next year despite the global slowdown, it would seem that Indonesia is banking  on the US stimulus planto spur the  appetite of  investors in  emerging market assets, including Indonesia.

President Susilo Bambang Yudhoyono called in a speech on Sunday for greater government spending to help maintain consumers’ buying power at a time of stress for the Indonesian economy. The finance ministry plans to increase government spending on road construction and other investment projects by a third next year, to $9.1 billion. Mr. Boediono said that the focus would be on small and medium-size projects that would create jobs quickly. He said education spending would also have to rise because the Indonesian Constitution requires that 20 percent of the government’s budget go to education.

As part of this government sponsored plan & in an effort to move aweay from reliance on mining & energy, 30 state owned companies are slated to be privatised next year via IPO on the Indonesian (IDX) & Jakarta Stock Exchanges (JXE).

“Most of the firms will be privatized via an IPO, except those companies in which the government has only a small proportion of shares,” the Jakarta Post  quoted Muhammad Yasin, Deputy Indonesian State Minister for State Enterprises, as saying.

The program will also include IPOs of flag carrier Garuda Indonesia and Bank Tabungan Negara, construction firms PT Pembangunan Perumahan and PT Waskita Karya are currently waiting for House of Representatives approval for their IPOs, according to Yasin.

 The Indonesian government expects to generate about Rp 10 trillion  ($906 million) from floating 30percent of the shares in each of these companies. Indonesia has 139 state-owned companies that deal with businesses, covering energy, mining, utilities, telecom, banks, services and commodities, which means that there is plenty of opportunity for foreign investors to enter the market & help buoy the economy.

China stocks up on energy & raw materials while prices are depressed

001320d123b90949ce3308 China has embarked on an ambitious spending spree in order to help stave off recessionary pressures & attempt to maintain a growth target of  8% in 2009. Following on from its massive $585M stimulus package, announced in early November, news of deals in energy & metals has been flowing over the last week. When the stimulus package was originally announced, we heard this from our friends at RBS :

“Whats important here is just how quickly that money hits the street,” said Ben Simfendorfer, chief China economist for Royal Bank of Scotland, speaking on CNBC

Well it would seem not to have taken too long, as we have news that apart from pulling forward the long anticipated 3G rollout, as reported on MyStockVoice in an earlier post, China is beginning to stockpile oil & gas via imports whilst building an inventory of  aluminium & other metals from domestic producers.

Zhang Guobao, the head of the National Energy Administration, said in remarks published on Monday that China would actively push forward the construction of the second phase of state strategic oil reserves after having largely completed the first phase. China has completed the planning of the second phase of government storage facilities that would be able to hold up to 26.8 million cubic metres of oil, or some 170 million barrels, but has not disclosed whether construction has begun. Nor has the government disclosed if the tank farms set up in four locations in the first phase, with total capacity of some 102 million barrels, have been fully filled.

The world’s second-largest oil user will also take advantage of opportunities resulting from the financial crisis and weak energy market to expand energy cooperation with neighboring countries and major energy producers, Zhang said.

State controlled Sinopec (NYSE – SNP) recently completed the construction of oil storage tanks with a capacity of 3.8 million cubic metres in the coastal province of Zhejiang & has also announced a mutual supply agreement with fellow oil giant CNPC  . Similarly, rival PetroChina (NYSE – PTR) has begun to fill a new facility of 1 million cubic metres in the northwestern Xinjiang region in partnership with Kazakhstani oil firm KazMunay. Zhang also confirmed that China will push forward the construction of the proposed China-Myanmar oil and gas pipelines while also proceeding with the China-Central Asia gas pipes and the second phase of the China-Kazakh oil lines.

Meanwhile, counterparts at the State Reserve Bureau (SRB), have announced that will buy 300,000 tons of aluminum at 12,300 yuan (about $1,750) per ton in January 2009 to push up prices and support producers, as reported by Rednet. China’s aluminium producers, like their competitors worldwide and their peers in other base metals, have been forced to shut down some production to cope with the impact of the global economic crisis, which has crippled demand. 

“Aluminium prices were encouraged on the reserve purchase news,” said analyst Jia Zheng at Southwest Futures. “The decided purchase volume seems to be lower than expected but we are looking forward to more movement by the reserve bureau.”

 

Chinese officials have said they plan to buy up resources and materials to support producers, who are smarting from prices that have fallen below the cost of production, rumours abound that this buy up on aluminium could reach a total of 1 million tons by April 2009. The major recipient for this windfall will be state controlled Chinalco subsidiary Chalco (NYSE – ACH), who is reported to be receiving 50% of the order, whilst the remainder will be shared by seven regional producers.

 On the same day as the SRB announced the procurement plan, Bao Steel Group, China’s top steel maker, raised its February steel prices by 100 yuan/ton to 300 yuan/ton, this is widely believed to be in response to a previous SRB announcement that  another 3 trillion yuan ($400M)would be set aside for railway infrastructure construction projects and post-quake reconstruction efforts, the investments are expected to increase steel demand by 200 million tons in 2009. This could also be potential good news for other steel majors, particularly Mittal Steel (NYSE – MT), which acquired a 37% stake in government owned  Hunan Valin, Mittal  already has a $100 million steel plant under construction in the northeast China port city of Yingkou, Liaoning province.

Update 1 (30/12/08) : Myanmar signs gas deal with SKorea, India, China as reported in The Times of India

Military-run Myanmar has signed a deal with South Korean and Indian companies to pipe natural gas from the energy-rich nation’s offshore fields to China, state media reported Monday.

“The agreement was signed to export natural gas to China from Shwe natural gas project at Block A-1 and A-3 at Rakhine coastal region through pipelines,” the New Light of Myanmar newspaper said. The paper gave no other details of the project, but Beijing media reported last month that China was planning to start construction on a gas pipeline to Myanmar in early 2009.

 

Macquarie Group flexes muscles at home & abroad

maconly

Sydney quoted Macquarie Group  (ASX – MQG) is currently involved in two major plays, one domestic & one in China. Macquarie functions as a non-operating holding company with seven different segments : Financial Services, Adisory Services, Private Wealth, Funds Management, Banking & Securitization, Treasury & Commodities & Equity Markets, yielding a market cap of  A$ 8.9Bn, at todays closing price of A$29.50. Macquarie has traded at a 52 week high of  A$82.20 & a low of A$20.08.

 

Possibly bolstered by Moodys recent Aaa rating for its fixed backed bonds, traditionally bullish Macquarie are involved in a potential takeover of ailing Citigroups Australian operations, as reported  in the Australian Financial Review. The acquisition would bolster Macquarie’s position as the largest full service retail in Australia with about 430 advisers, Citi Smith Barney, the retail stock broking and wealth management unit, had sales of more than A$150 million ($100 million) and net profit of A$21.4 million last year.

Further away from home, Macquarie has signed a deal with China’s Hengtai Securities, which will allow Macqaurie to realise access to the potentially lucrative capital markets, which are currently valued at $70Bn per annum. The deal would see the Australian investment firm take a 33% stake in a joint venture. Hengtai, based in Hohhot, Inner Mongolia, owns more than 30 outlets in Shanghai, Beijing, and Shenzhen. Its businesses include stock underwriting, stock trading, brokerage and fund management

‘Macquarie is less affected by the crisis and China’s capital markets still have huge potential to grow,’ said Liang Jing, analyst at Guotai Junan Securities Co. ‘So it’s understandable that Macquarie wants to be in China for long-term growth.’

China pledged on Saturday to quicken reform and innovation of its capital markets to lay the groundwork for future growth. Such reforms included expanding the corporate bond market, launching NASDAQ-style start-up boards when appropriate and developing real estate investment trusts (REITs) on a pilot basis.

China has in the past year tightened approval on securities joint ventures. So far, Morgan Stanley, Goldman Sachs, UBS AG ,  Credit Suisse AG  and CLSA Asia-Pacific Markets have obtained licences to operate in China. Macquarie, which offers banking, investment and fund-management services, has been investing in China’s residential real estate for more than a decade.

India & China move to secure oil reserves

ongcHaving written about Lukoil making moves for a stake in Spanish oil company Repsol (NYSE – REP), (Russian Energy Bears) I thought it may be interesting to have a look & see what else is going on with regards to securing oil reserves & rights. It would seeem that India’s Oil & National Gas Corporation – Videsh ONGC is in the final stages of acquiring London based Imperial Energy for $1.9Bn.

As Imperial is a Russian focussed player, ONGC had to jump the bureaucratic hoops with the Russian Competition board, which it successfully concluded in mid-October. ONGC agreed to buy  Imperial  in August, valuing the company at 1.3 billion pounds ($1.9 bln).

Analysts at JP Morgan said in a research note on Wednesday that the shares offered a potential 236% annualized return. The bid is conditional on ONGC receiving acceptances in respect of 90% of the shares and ONGC is expected to pull out if this threshold is not met by the close of the offer period. Imperial and its advisors are therefore working around the clock to ensure that all investors tender their shares by the 1300 GMT Dec. 30 deadline.

“We’re leaving no stone unturned,” a source close to the company said. “It’s going to go right down to the wire”.

This follows a long & exhaustive battle earlier this year with Chinese state controlled Sinopec (NYSE – SHI) where the offer had been pushed as high as £12.90 rather than todays price of £12.50. Sinopec is China’s largest oil refiner, which is thought to have carried out due diligence on Imperial and to have requested clearance for a possible bid from the Russian authorities. Some analysts had suggested that a bid proposal from Sinopec might encounter resistence within Russia from officials nervous about ceding oilfield interests to a company controlled by the Chinese State.

The sale means that Peter Levine, the chairman of Imperial Energy, is heading for a cash windfall. The former corporate lawyer, who owns 6 per cent of the company, stands to collect about £90 million if the sale goes through. The grandson of Russian émigrés, Mr Levine, a fluent Russian-speaker, has transformed Imperial from a £2 million minnow listed on the Alternative Investment Market in London four years ago into a £1.27 billion group. Last year he successfully negotiated his way through a dispute with the authorities in Russia that had threatened to jeopardise Imperial’s future in the country.

Having been spurned, the Chinese have played a waiting game, watching as the oil price has heavily declined from $147 a barrell to near $43 a barrel in the last few weeks. On Wednesday, it emerged that China has made an offer to Brazilian oil major Petrobras (NYSE – PBR) of $10Bn in “aid” to assist the company in developing its recent offshore find.

“Conversations with a number of funding sources, including the Chinese development bank, are ongoing,” Petrobras investor relations manager Theodore Helms said today in an interview in New York, without giving more details. The company plans to invest about $30 billion this year, with about half that amount going to Brazilian exploration and production projects, he said.

The Chinese bank has offered Petrobras $10 billion in loans for development of the offshore pre-salt fields known as the Tupi Cluster, a spokesman at the energy ministry in Brasilia, who asked not to be named under ministry rules, said today. This follows State owned CNPC in the securing of oil development rights in Iraq, as reported in November by The New York Times. The United Arab Emirates sovereign wealth fund has also approached Petrobras about financing oil projects in Brazil, he said.

Petrobras on Nov. 21 said it found light oil in two wells off the coast of Brazil’s Espirito Santo state, expanding its pre-salt discoveries. The company in November 2007 said that Tupi, off the coast of Rio de Janeiro, may hold an estimated 5 billion to 8 billion barrels of recoverable oil, making it the largest oil discovery in the Americas since 1976.

So, along with my forecasted long on REP, I am now also looking at PBR as an interesting destination for investing some beer vouchers.