Posts Tagged ‘hugo chavez’

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.

Bolivia’s Lithium quandary

battery-lithium-cr20321In one of the more remote regions on the planet, high in the Andes, lies the Salar de Uyuni, the famed salt flats stretch across more than 4,000 square miles in Potosi, Bolivia, well known for the fabulous wealth in silver extracted there by the Spanish in colonial times. Now a new age of mining could bring a 21st century El Dorado for the impoverished South American nation, as geologists believe that more than half the world’s reserves of lithium may  lie under the salt pans.

Government officials claim that Bolivia possesses the world’s biggest lithium reserves, and they also believe the country is poised to profit from car manufacturers which are driving to develop electric cars that will run on lithium ion batteries.

“Bolivia will become a big producer in six years of batteries,” Luis Alberto Echazu, the minister of mining and metallurgy, said in an interview. He ticked off three companies that he said have expressed interest in investing in the government’s lithium venture: Sumitomo, Mitsubishi and Bollore, a French company.

Lithium is the lightest metal and the least-dense solid. It’s typically extracted from beneath salt flats, currently about 70% of the world’s supplies come from Chile and Argentina. The U.S. Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China. Independent geologists estimate that Bolivia may have further lithium deposits at Uyuni and its other salt deserts, though high altitudes and the quality of the reserves could make access & extraction difficult.

While estimates vary widely, some geologists say electric-car manufacturers could draw on Bolivia’s lithium deposits for decades. More importantly, the US is estimated to have less than 400,000 metric tonnes available for expoloitation within its borders. While lithium batteries don’t currently power hybrid vehicles, analysts think that the fuel-efficient electric cars of the future likely will use them. With an estimated 20,000 tons of lithium carbonate expected yearly from the salt flats, a rising demand for lithium for electric car batteries, and with the price of a ton of lithium up from $350 in 2003 to $3,000 this year, a potential bonanza beckons for socialist President Evo Morales. 

“There are salt lakes in Chile and Argentina, and a promising lithium deposit in Tibet, but the prize is clearly in Bolivia,” Oji Baba, an executive in Mitsubishi’s Base Metals Unit, said in La Paz. “If we want to be a force in the next wave of automobiles and the batteries that power them, then we must be here.”

Mitsubishi is not alone in planning to produce cars using lithium-ion batteries. Ailing car manufacturers in the United States are pinning their hopes on lithium. General Motors (NYSE – GM)  plans to roll out its Volt in 2010,  pairing a lithium-ion battery along with a petrol engine. Nissan, Ford and BMW, among other carmakers, have similar projects.

Demand for lithium, has climbed as makers of batteries for BlackBerrys, iPhones, laptops & other electronic devices use the mineral. But the automotive industry holds the biggest untapped potential for lithium, analysts say. Since it weighs less than nickel, which is also used in batteries, it would allow electric cars to store more energy and be driven longer distances.

However, President Evo Morales & Bolivias powerful popular movement are suspicious of foreign companies & have a track record of arbritary dealings with foreign concerns, as Brazil found out in 2006, when Morales nationalised all natural gas concerns in Bolivia, including operations by UK producer BP (NYSE – BP). The end result being that foreign companies have halted all investment in Bolivian opportunities.

“There are fairly significant barriers to developing the resource in Bolivia,” said Timothy McKenna, vice president of investor relations at Rockwood Holdings, one of the three major lithium producers in Latin America.

At the La Paz headquarters of Comibol, the state agency that oversees mining projects, Mr. Morales’s vision of combining socialism with advocacy for Bolivia’s Indians is prominently on display. Copies of Cambio, a new state-controlled daily newspaper, are available in the lobby, while posters of Che Guevara, the leftist icon killed in Bolivia in 1967, appear at the entrance to Comibol’s offices.

“The previous imperialist model of exploitation of our natural resources will never be repeated in Bolivia,” said Saúl Villegas, head of a division in Comibol that oversees lithium extraction. “Maybe there could be the possibility of foreigners accepted as minority partners, or better yet, as our clients.”

A potential model may already be in place, India’s Jindal Steel & Power signed a $2.1 billion deal in 2008 for the exploitation of iron reserves in south-eastern Bolivia, near the border with Brazil. This will allow Jindal, India’s leading steel producer, to develop 50% of El Mutun, widely believed to be the biggest untapped iron ore deposit in the world, along with steel making facilities. With an estimated 40 billion tons of iron ore reserve, El Mutun is expected to generate $200 million a year for Bolivia, plus up to 21,000 jobs when the commercial production of steel begins in 2010. It is heavily rumoured that Jindal won the concession due to its environmental track record. In 2007, Jindal was awarded India’s National Energy Conservation Award in the Integrated Steel Plants Sector for its success in protecting the environment by adopting eco-friendly processes and activities.

The opportunity to enrich the nation is there & a careful balance between foreign technological & financial assistance in developing the deposits, whilst providing an economical & ecological bias for Bolivia is obviously required. The real question is can Morales walk the tight rope between populist politics & reality ? My opinion, he will get there, as has recently been seen, collapsing oil prices have had a major negative effect on Venezuela  & Hugo Chavez influence in the region & beyond. So one route for Foreign Direct Investment looks to be closed. Morales is a sharp operator & I can see him letting foreign firms into partnership with Comibol, but definitely on Bolivian terms.

Argentina belatedly reacts to financial crisis

presidente-kirchner

Fresh woes have hit the government of Argentina’s Peronista President Christine Kirchner this week, as natural gas giant Transportadora de Gas del Norte (TGN) defaulted on  a debt payment of roughly $22 million and would seek a broad restructuring, citing difficulties related to government price controls, higher costs and the depreciation of the peso aginst global currencies, in particular the US dollar.

This has forced the government to intervene, as reported in Bloomberg.com yesterday. In a statement on Monday, TGN said the Luxembourg exchange had suspended trading of two of its bonds, “due to uncertainty over the company’s financial situation.”

The government will “undertake a complete audit of the company” during a 120-day period, Planning Minister Julio de Vido told reporters  in Buenos Aires. Roberto Pons, an acknowledged energy regulation specialist, will ensure that “consumers rights aren’t affected by the company’s decisions,” he said.

TGN is one of the two largest transporters of natural gas in Argentina, delivering approximately 40% of the country’s total gas consumption and more than 50% of Argentine total gas exports. TGN has an exclusive license to operate the northern Argentina gas pipeline system for a term of 35 years.

Meanwhile, the farmers crisis has reinvigorated itself, with Argentinian soya producers once again vigourously lobbying the governemnet to relax the export tax on soya products, which was implemented earlier this year whilst commodities prices were soaring. In March, a three-week farmers strike over the soybean levy caused food shortages across the country. Farmers blocked roads, preventing trucks delivering produce to supermarkets in Buenos Aires and other major cities. Argentina is the world’s third biggest soybean exporter, with an annual harvest estimated to be worth $24bn (£12bn), the bulk of which is exported. Last year, it earned $13bn from exports of the grain. Kirchner had levied a 45% tax on soya exports in an effort to boost public funds.

Since then, sporadic strikes by farmers have impacted the Argentinian economy, a series of climb downs on the tax rate has not been able to sate the farmers. Yesterday Kirchner announced a new set of measures to boost the economy.Regarding the agricultural sector, the cut in export duties will apply only to wheat and corn, which will see their rate cut by 5% on export tax to 23% and 20% respectively. Soy export tax will not be cut from the existing 35%, however the president intimated this may change.

This is on the back of a number of a number of efforts to stimulate the slowing economy, early December saw the car industry receiving a $900M fillip to help underwrite car loans. Kirchner also managed to force through a new bill which basically nationalised the pensions industry, transferring $23 billion in private pension funds to the state, an estimated 25% of Argentina’s 40 million citizens contribute to the private funds. Their $4.5 billion in annual contributions will go to the government as well.

In mid-December, Kirchner announced an expanded stimulus plan, which will see the Argentine government committing to invest up to 111 billion pesos ($32.65 billion) in infrastructure projects from now to 2011 as a way of shoring up Argentina’s economic growth against the pounding it is taking from the financial crisis.

She said that this plan “is the most ambitious” in Argentine history and will create some 380,000 jobs with investment in infrastructure that reaches a “record” 5 percent of gross domestic product. Of the plan’s total investment up to 2011 in the energy, transportation and housing sectors, among other works, some $20.88 billion “already have the financial structure needed to carry them out,” the president said.

At 55% of GDP, Argentina’s public debt is very large. But the cost of servicing it has been low, partly because of the tough restructuring  imposed on bondholders. Even so, to service its debts, the government needs to find an extra $2.5 billion or so in 2009. It cannot tap the international capital markets, because it has still not settled with some bondholders nor its sovereign creditors in the Paris Club. Instead, it is relying on Hugo Chávez. This month Venezuela’s president bought another $1 billion in Argentine bonds (taking his total purchases to $7 billion). The latest bonds pay interest of 15%—the same rate agreed by Domingo Cavallo, a former finance minister, in a notorious bond swap which precluded the 2001 financial collapse.