Sinovensa works halted on PdV arrears

Chinese contractor HuanQiu Contracting and Engineering has suspended a project to expand Venezuela's Sinovensa crude blending plant because of overdue payment.

Sinovensa is a joint venture led by Venezuelan state-owned PdV with a 51pc stake, and China's state-owned CNPC with 49pc.

The plant is one of the few oil-processing facilities in Venezuela that has sustained operations despite a host of problems, including US sanctions that impede the supply of spare parts, power outages and equipment breakdowns and theft.

Sinovensa produces 16ºAPI Merey crude by blending extra-heavy crude from the Orinoco heavy oil belt's Morichal district with domestic light grades. The production is exported, mainly to China.

In a 3 September letter seen by Argus, HuanQui's senior executive in Venezuela Liang Qiang notified Sinovensa project manager and CNPC official Zhao Xiongfei that construction of "complementary works" associated with Sinovensa's capacity expansion from 105,000 b/d to 165,000 b/d would be suspended immediately pending full payment of two invoices totaling $52mn issued in November 2018 and February 2019 .

"After a long time waiting for payment, under pressure for lack of cash flow, regrettably we are obliged to send this notification suspending the contract…for complementary works to raise production from 105,000 b/d to 165,000 b/d at the Jose blending plant and Morichal installations," the letter states.

Liang Qiang's letter cites HuanQiu's discretionary authority under the contract it has with Sinovensa to suspend work unilaterally if Sinovensa misses two successive invoice payments.

"HuanQiu suspended its activities to encourage Sinovensa, in this case PdV, to pay its past due debts promptly so that work can resume quickly," a Chinese diplomat told Argus.

PdV and the oil ministry declined to comment.

President Nicolas Maduro announced in July that PdV and CNPC had signed new agreements reaffirming plans to raise Sinovensa's crude blending capacity in stages, with first stage output rising from 105,000 b/d to 165,000 b/d. HuanQiu officials were present at the signing ceremony. Cost estimates and timelines were not disclosed five years after the original expansion financing deal was signed in 2014.

The Maduro government initially said in July 2019 that Sinovensa's first stage capacity expansion to 165,000 b/d had been completed, but the oil ministry later clarified that the agreements signed in July referred to ongoing first-stage expansion work that should be finished by mid-2020.

Second-stage expansion would double Sinovensa's capacity from 165,000 b/d to 330,000 b/d.