Posts Tagged ‘vietnam’

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.

Ups & downs in Vietnam

images155628_2nam2009 can be considered as a  special year for Vietnam & it’s economy as the country has now belonged to the World Trade Organisation (WTO) for two years, facing both opportunities for growth along with internal challenges & heralding a sea change as Vietnams markets are now open to foreign companies as never before. Foreign investors now have the opportunity to enter into Vietnam’s domestic markets & enjoy fairer treatment under law, service sectors such as banking & consumer retail are prime targets for 2009.

Vietnam attracted 1,171 new foreign direct investment (FDI) projects with a total registered capital of more than $60.2 Bn in 2008, tripling last year’s figure, according to the Foreign Investment Agency under the Ministry of Planning and Investment. Demonstrating that Vietnam remains attractive destination for foreign investors, Taiwan being the leader, with an estimated $19.6 Bn flowing into the fledgling tiger last year alone. Malayias & Korea both recently made hefty investments in gaining operational licences for retail operations in Shinhan Vietnam Bank & Hong Leong Vietnam Bank respectively. The SE Asian nation has one of the regions largest domestic market potentials, currently Vietnam is the worlds 13th most populous country, with a population of 82.6M, making it an attractive prospect for both domestic & foreign firms as the population achieves  financial liquidity.

India’s Tata Steel is committed to investing $5Bn in a new steel production plant having entered into a joint venture with Vietnam Steel Corporation and Vietnam Cement Industries for building the integrated steel mill in the Ha Tinh province. For the plant, the company requires 1,300 hectares of land. However bureaucratic holdups & intense competition for land rights have seen the projects first phase being pushed back to 2011. The Indian steel giant, through its wholly-owned subsidiary in Singapore, Tata Steel Global Holding Pte Ltd, will hold a 65 % stake in the joint venture, whilst also extending an equity holding of 30 per cent in Thach Khe Iron Ore mining project in Vietnam, allowing it to become the countrys first integrated steel maker. Korean competitor POSCO already has made investments of $1.2Bn project for building two rolling mills in the Phu My Industrial Park in Ba Ria-Vung Tau province near Ho Chi Minh City. The company is also building a private harbor on the site  to support the two plants and is carrying out feasibility studies for a stainless steel plant and an integrated steel mill in Vietnam.

Meanwhile, domestic steel firms are also booming, helped by a recent tarriff increase on imported steel billet and steel ingot, which was introduced in early December 2008.  According to the Vietnamese Ministry of Finance, “the adjustment of steel import tariffs is necessary to boost the domestic steel consumption and to ensure the stability of the country’s steel market as the current stockpiled steel in companies and manufacturers nationwide has reached  around 3 million tons.”

Thep Viet Steel Corp recently revealed plans to invest in Cambodia, it currently exports 5,000 tonnes of steel per month to Cambodia, which is reported to have large iron deposits, and Vietnamese companies have been granted concessions to explore for the mineral – a major feedstock for steel production. “Iron ore will be a big source of income if the country is able to utilise this natural resource,” CEO Tann Kin Vin said. Prime Minister Hun Sen last year called on foreign investment to take advantage of Cambodia’s iron resources.

In a similar story to Indonesia, Vietnam, which is the regions third largest oil producer,  enjoyed a boom year in 2008, mainly due to the large increases in commodity & oil prices, which saw The Vietnam National Oil and Gas Group, PetroVietnam (PVN), earn  total revenue of about $16.5 Bn in 2008. An increase of 31% over 2007. PVN contributed about $7.1Bn  to the state,  accounting for over 30% of the total state budget revenue.  However, due to lack of refining capacity, Vietnam imports most of its refined oil products. The company is seeking to gain supplies of up to 26.5 million tons of crude per annum in order to supply three proposed refineries in an effort to satisfy domestic demand.

“The company is willing to offer stakes in the refineries in exchange for long term crude contracts”, Tran Ngoc Canh, CEOP of PVN told reporters at the Gasex conference last year, “PVN could offer as much as 30% in each refinery under Vietnam law & more in special cases.” 

Late December, it appears that a “special case” has come to fruition, when PVN announced that it would give up to 49% equity in the Dung Quat oil refinery in exchange for prefernetial crude contracts. The $2.5-billion refinery, located in central Vietnam, has a designed capacity to process 130,000 barrels of crude oil a day and will be able to meet 30% of the country’s demand for petroleum products.In a seperate announcement PVN confirmed that BP will be signing a supply contract to provide up to 50% of the refinery requirements for the plant this week.

PetroVietnam is counting on new exploration projects to boost crude production as the ageing Bach Ho field has shown declining output for the last four years. Projects are currently underway on blocks such as Ca Ngu Vang, Phuong Dong & Si Va Tang alomg with further efforts in the South China Sea around the Spratly Islands. The Spratly project involves an international tangle, as both neighbours China & Malaysia claim sovereign rights in the area. Last year, China forced Exxon Mobil to cease exploration in the area, whilst BP pulled out of a JV with PVN in 2007, citing regional instability.

Meanwhile, PVN is eyeing overseas opportunities for investment & development, the country has interests in 16 foreign oil & gas projects, with 6 in Asia, 4 in Africa & the rest in America. In a joint venture with the Venezuelan Petroleum Corporation (CVP), Vietnam will look to invest $11.4Bn in a project to exploit and refine heavy oil in the Orinoco heavy oil belt in Venezuela. Once operational, the project will turn out up to 200,000 barrels a day, equivalent to 10 million tonnes of oil per year, oil pumped up by the JV will be refined on site into light oil by its own refining plant.

Also, following China National Patroleum Company – CNPC’s recent success in signing a reputed $3Bn contract with Iraq on the Ahdab oilfield, Vietnam is holding talks with the Iraqi oil ministry in attempts to revive a contract signed under the leadership of Saddam Hussein. PVN originally signed a deal with Iraq in 2002 to develop the Amra oilfield, with an estimated output of 80,000 barrels per day. The original deal was never implemented due to United Nations sanctions that followed Iraqs 1990 invasion of Kuwait.

According to Jason GW over at Frontier Markets in his recent, Dong losing its Ding , “the government estimates that the economy will grow by as much as 6.5% in 2009. But an IMF report last week forecasted growth of just 5%. Additionally, a report by Vietnam’s Bank for Investment and Development released this week concluded that the country would likely show a trade deficit of about $7 billion next year, which would lead the dong to fall 3.5 to 5% against the dollar.”

This is all very promising, however, from a personal point of view, concerns still remain regards the tangle of bureacracy that may overshadow the new “open” face of Vietnam for foreign companies & investors. Reports in local media complain that continued over investment in State owned enterprises (as much as 50% of the annual budget) stifle entrepeneurial efforts. Small & medium sized companies are still finding it difficult to access long term loans in order to expand inflation, due to government efforts in curbing inflation. So mixed messages in my opinion, but progress is progress, however slow, I can only hope that investments continue to flow in order to help the economy grow & stabilise in the near term. In addition to these shortcomings, there remain some limitations in Vietnam’s economy this year such as corruption, quality control and allocation of human resources. The World Bank’s report on December 10, 2008 stated that Vietnam’s economy will recover in 2009. Without these issues being aggressively tackled, I fear the flow & recovery may dry up.