Venezuela seeks to harness scrap metals business

The Venezuelan government is quietly seeking to harness the informal scrap metals industry to generate desperately needed cash.

A new presidential decree issued on 21 August gives state-owned oil, electricity, steel, iron, aluminum, cement and even paper companies the exclusive authority to buy, sell and export metallic and non-metallic scrap.

The decree "reserves for the national executive (state) the purchase of waste solids including aluminum, copper, bronze, steel, nickel and other types of metal or ferrous scrap in any condition."

Solids scrap purchases also include "non-metallic solids, optic cable, and secondary fibers from paper and cardboard recycling," the decree adds.

The takeover of the scrap industry is the latest government attempt to impose some controls and regulations on an activity dominated by thousands of poor Venezuelans scrounging for scrap that is often sold to smugglers and shipped abroad.

The decree seeks to strengthen the state's capacity to identify and capture new hard currency streams by creating a government-controlled scrap metals market and enacting security measures with military support to curb contraband to nearby countries, a presidential palace official told Argus.

Dutch-controlled Aruba and Curacao are destinations for growing volumes of smuggled Venezuelan copper and gold that is re-exported from the islands to the Netherlands and Switzerland, respectively, the official said. Colombia is another favored destination for ferrous scrap and copper that smugglers trade in small lots mainly in the Colombian border city of Cucuta.

The government is hoping that tighter state controls will cut back on theft that has severely damaged electricity, telecommunications and oil infrastructure. "It doesn't matter if the infrastructure that the thieves strip of copper and ferrous metal is operational," the palace official said.

State-owned oil company PdV's internal upstream reports obtained by Argus indicate that the theft of power cables and equipment is a frequent cause of production problems.

In the power sector, electricity minister Luis Motta often blames power outages on sabotage involving severed copper transmission cables.

"Motta blames the political opposition for the cable cutting, because he doesn't dare admit that most of the incidents in which power cables are cut and stolen frequently involve employees of government and security services including his ministry and (state-owned utility) Corpoelec," the palace official added.

Previous state expropriations decreed since 2006 by late president Hugo Chavez and since 2013 by Maduro have involved the physical takeover of oil, electricity, mining, steel, aluminum and other assets.

But in Venezuela's scrap metals industry there are no large or even medium-sized private recycling and processing facilities for the government to seize, according to a Caracas scrap merchant who buys copper and ferrous scrap in tiny volumes of 10 kilograms or less from street-level scrap scroungers called "burreros," or donkey men.

There are no reliable estimates of the size of Venezuela's scrap metals industry in terms of volume, value and export activity. But state-owned companies including steelmaker National Steel Complex (CSN, formerly Sidor) and iron producer Ferrominera Orinoco started exporting ferrous scrap this year to raise cash as their own steel and iron output have declined, an aide to industry and national production minister Tareck El Aissami tells Argus.

PdV was also authorized in May 2018 to engage in ferrous and non-ferrous scrap metal trading through one of its services subsidiaries PdV Industrial. The government maintains that domestic scrap buyers should have first priority over foreign clients, but in practice export clients have been favored because they pay in hard currency, an energy ministry official said.

PdV has not disclosed any information on its scrap metals business, but a union official says the company is combing its oldest oil fields for discarded ferrous scrap including pipe, pumps, valves, storage tanks, compressors, and even screws and nails, the ministry official added.

Government environmental officials have also teamed up recently with PdV and the Venezuelan navy to develop a ferrous scrap salvage program in marine areas including Lake Maracaibo and congested coastal areas at Paraguana, Puerto Cabello, Caracas and Puerto La Cruz, the palace official said.