Venezuela on precipice, indulges in debate

Venezuela´s opposition-controlled legislative assembly has begun debating a sweeping presidential economic decree as plummeting oil prices approach production costs and big debt payments loom.

State-owned PdV´s average export price sank below $21/bl yesterday for the first time since 1999. The energy ministry is expecting prices to hit $10-15/bl, at which sparse Venezuelan production is profitable. PdV says it can soldier on at these prices, and denies that it has shut in any wells.

But the company is clearly at a breaking point. It has asked its foreign joint venture partners in the Orinoco extra heavy oil belt to finance imported naphtha needed for diluent and imported light crude for blending. Naphtha and light crude suppliers are requesting upfront cash payment or third-party guarantees. Venezuela´s persistent calls for Opec price action have been rebuffed.

The year´s overseas debt obligations total $10.5bn, roughly two thirds of Venezuela´s hard currency reserves. More than $2.3bn in Venezuelan sovereign and PdV debt payments come due next month. The next big chunk, $4.8bn, is due in October-November.

PdV chief executive Eulogio de Pino says PdV is seeking to restructure debt. His effort to raise domestic gasoline and diesel prices, long stuck at pennies a gallon, would have little meaningful impact in the immediate crisis, but would undoubtedly form part of a comprehensive economic package if Caracas is forced to resort to multilateral agencies for a bailout. Beijing, Venezuela´s source for some $50bn in oil-backed loans over the past decade, has no appetite for further exposure.

In an ongoing clash between the executive and legislative branches, Venezuelan president Nicolas Maduro has so far maneuvered to maintain the upper hand. He appointed a new public and private-sector commission this week to officially recharge nine "economic motors" led by the oil, petrochemicals and mining sectors.

But the government is widely seen as impotent in the face of the oil price rout. Venezuela´s main Caribbean container ports are virtually idle, threatening a humanitarian crisis as food and medicine dwindle.

The assembly is promising to approve or reject Maduro´s proposed decree by tomorrow, but opposition lawmakers appear to lose ground either way. If they approve the decree, Maduro secures even broader economic and political power for 60 days, renewable for another 60. If they reject it, the government will blame his opponents for the economy´s collapse.

Del Pino and other senior officials are scheduled to testify before an assembly commission this afternoon.