Chinese, Russian officials in Caracas for debt talks

Chinese and Russian government delegations are in Caracas this week for separate meetings with senior Venezuelan officials to discuss ways to stabilize the economy, protect their investments and recover their oil-backed loans.

The delegations are there "to make sure their investments are secure, and find out why Venezuela is falling behind on its oil debt payments and what can be done about it," a presidential palace official tells Argus.

Beijing and Moscow are Venezuela´s main political and economic patrons. In both cases, Venezuela´s state-owned PdV appears to have fallen behind on crude shipments tied to the loans. The Venezuelan firm is currently in default on all of its debt except for a 2020 bond backed by its US refining unit Citgo, and a $2bn settlement with US independent ConocoPhillips.

The Chinese group, led by financial executives from China Development Bank (CDB), is reviewing Venezuela's economic strategies, including the introduction in August of a new currency and a controversial commodity-backed instrument called the petro, and the loosening of currency and price controls.

The Chinese review was agreed at last month's 16th meeting in Beijing of the High-Level Mixed China-Venezuela Commission that oversees Chinese-financed projects in Venezuela. The results of the review will determine how quickly China disburses a fresh $5bn loan earmarked for oil joint ventures in which Chinese state-owned CNPC holds a minority stake alongside majority shareholder PdV. These include the 130,000 b/d Sinovensa crude-blending project at Jose, the 15,000 b/d PetroZumano upstream venture in eastern Venezuela, and the stalled 400,000 b/d PetroUrica venture in the Orinoco heavy oil belt.

Caracas has borrowed over $54bn in oil-backed loans from China since 2007-08, and still owes Beijing $23bn that PdV is repaying with oil shipments.

PdV's oil debt payments were expected to rise in October to about 340,000 b/d from about 164,000 b/d in September after Beijing denied a Venezuelan request for an extension of a two-year agreement of a moratorium on oil shipments booked as principal payment.

Instead, exports to China appear to have declined slightly in the first half of October, and PdV's oil debt payments to Rosneft also have suffered disruptions since September, a mid-level PdV marketing executive added.

PdV blames the shipment delays on a late-August tanker collision that damaged a key dock at the Jose export terminal, cutting off up to 300,000 b/d of loading and unloading capacity. The dock remains out of service because US-sanctioned PdV cannot access credit to import needed spare parts.

Exports were also dented by an early October equipment breakdown that shut down the 140,000 b/d PetroMonagas heavy crude upgrader, in which Rosneft holds a 40pc stake.

A local Russian diplomat said Rosneft is concerned that the US financial sanctions could delay the scheduled 20 November restart of PetroMonagas because many of the components used in the upgrader built in the 1990s by ExxonMobil were manufactured in the US.

Besides PetroMonagas, Rosneft owns a 32pc stake in PetroMiranda, a planned 400,000 b/d Orinoco project. Rosneft also holds 40pc of a similiar planned Orinoco project, PetroVictoria.

The Russian delegation is headed by deputy finance minister Sergey Storchak, whom the Russian embassy identifies as an expert in debt restructuring. The team also includes senior government finance and energy officials tasked with advising the Maduro government on ways to reverse the economy's collapse, root out hyperinflation and help Venezuela overcome the impact of the US financial sanctions, the presidential palace official said.

Among the measures that Venezuela has started to implement with Russia is a routing of all transactions, including those based on Venezuela´s new petro instrument, through Moscow-based Evrofinance Mosnarbank.

According to its website, Evrofinance Mosnarbank is a joint Russian-Venezuelan financial institution created in 2003 in which Venezuelan state-owned national development fund (Fonden) holds a 49.99pc stake, with the remainder split between Russian Gazprombank and Russian investment group VTB Capital.