Russia signals priority of debt over party in Venezuela

Russia is signaling that Venezuela´s oil-backed debt payments take priority over its political support for Nicolas Maduro, whom the US, Canada and most of Latin America no longer recognize as the Opec country´s legitimate president.

Speaking in Moscow today, Russian foreign minister Sergei Lavrov highlighted that the Venezuelan debt was contracted "on the basis of inter-governmental agreements, which are fully implemented. Russian finance minister Anton Siluanov recently noted that all payments due to Russia are being transferred on time and fully."

Lavrov reiterated a call for dialogue and "balanced mediation", condemning the "destructive stance" of the western-backed opposition.

His remarks, which avoided mention of Maduro specifically, suggest that Moscow will hold Caracas accountable for repayment regardless of who is in charge.

Venezuela´s opposition-controlled National Assembly, whose speaker Juan Guaidó is regarded by Washington and most of the western hemisphere as Venezuela´s president since last week, has said that agreements signed by the Maduro government and not approved by the assembly as required by the 1999 constitution are null and void.

Russia is owed some $3bn in restructured debt which was extended by Russian state-controlled oil company Rosneft. Part of the debt is collateralized with 49.9pc of the parent company of Citgo, the US refining arm of Venezuelan state-owned oil company PdV.

A Caracas-based Russian diplomat told Argus that Moscow will not accept new US sanctions on PdV announced on 28 January as an excuse for Venezuela to fall behind on its debt payments.

Last year Moscow promised another $5bn in credit to raise crude production and purchase 600,000 tons of Russian wheat, but this has not been dispersed, the diplomat said, adding that any debt default would cut off Russian maintenance and technical support for Venezuela´s military.

Rosneft´s Indian refining subsidiary Nayara takes Venezuelan heavy sour crude in a debt repayment arrangement. The Russian company´s main asset in Venezuela is PetroMonagas, an integrated project that produces extra-heavy Orinoco crude and upgrades it into about 100,000 b/d of lighter synthetic crude for export. PdV is the controlling shareholder in PetroMonagas, but Russian officials are closely involved in operations, an official close to the project tells Argus.

Russia's energy minister Alexander Novak today reiterated Moscow's view of the US sanctions on PdV "as unlawful, breaking international law and interfering into the economic activity of companies."

But he played down the market impact of US sanctions on PdV, saying "oil markets are calm and there is almost no volatility — if there is one, it is insignificant."

All of PdV´s bond debt is in default with the exception of a 2020 issuance that is collateralized by the remaining 50.1pc of Citgo´s parent. But the company is still servicing the oil-backed debt to Russia and its main patron, China, which has extended around $60bn in loans to Venezuela over the past decade. More than $20bn of the Chinese credit is still outstanding.