Las cuatro asociaciones para mejorar crudo extrapesado que impulsa Petróleos de Venezuela con capital extranjero, ya están en completo funcionamiento tras la reactivación el viernes del proyecto Petrozuata.

Los proyectos, que comparte la estatal Petróleos de Venezuela (PDVSA) con firmas internacionales como la estadounidense ExxonMobil y la francesa TotalFinaElf, habían estado produciendo más de 400.000 barriles de crudo extra pesado antes de cerrar debido a un paro que empezó el 2 de diciembre, reseñó Reuters.

Los proyectos Sincor y Cerro Negro reiniciaron su producción esta semana luego que PDVSA restauró el suministro de gas natural necesario para que las unidades de procesamiento conviertan el crudo extra pesado en una sintético para exportación.

La calificadora Standard & Poor"s dijo el viernes que la producción de los campos de Petrozuata "está avanzando en la medida en que sube el nivel de carga de la planta mejoradora".

Un cuarto proyecto, Hamaca, ha reactivado limitadamente su producción de crudo de la faja del Orinoco que mezcla con crudo más liviano para crear un producto exportable. El mejoramiento de crudo de Hamaca no ha sido completado.

La producción inicial de los proyectos se incrementará al ritmo del mejoramiento en el suministro de gas.

El gobierno de Venezuela ha estado luchando para reactivar la industria petrolera, que aporta la mitad de los ingresos del país. Chávez ha despedido a más 15.000 trabajadores que participaron en la protesta y ha usado tropas y personal de reemplazo para sustituirlos.

El socio de la OPEP, que normalmente es el quinto exportador mundial de crudo, producía antes del paro cerca de 3,1 millones de bpd de crudo, incluyendo la producción de los proyectos del Orinoco.

El ministro de Energía, Rafael Ramírez, dijo el jueves que la producción petrolera total había sido restaurada hasta 2,08 millones de bpd. Pero los trabajadores despedidos dijeron el viernes que la producción había caído temporalmente entre 450.000 y 500.000 bpd.

Los huelguistas reportaron una producción actual de 1,13 millón de bpd.

Overall View: Heavier Than Oil
We returned from Caracas with a negative view on the credit. While the government has managed to reign over PDVSA and crude production will likely exceed 2 mbpd on average for the year, the severity of the political crisis suggests that bonds should be repriced lower.

The room for a negotiated, non-violent solution to the political stand has significantly narrowed as the government evades engaging in meaningful conversations towards anticipated elections or a recall referendum. Meanwhile, the tactics used by both sides have dramatically damaged the economy.

As a result of our findings on the trip, we expect bonds to reprice to lower trading ranges, and thus we cut Venezuela to Underweight. While our base-case scenario does not include an external debt default, risks are increasing rapidly as the economy collapses. In the short-term, the risks appear to be on the side of more negative news. We do not expect however that Venezuelan bonds would enter into a downward spiral unless the government is unable to bring oil production above 2 mbpd.

It’s The Politics!
The room for a negotiated, non-violent solution to the political stand off has narrowed as the government evades engaging in meaningful conversations for anticipated elections or a recall referendum. Despite months of negotiations, there has been no progress on finding an institutional way out of the current political crisis. As he indicated in his public addresses, President Hugo Chávez believes that he has defeated the opposition and is now moving to increase his control of the political arena. Only one day after the signing of a non-aggression agreement between the government and the opposition, Fedecamaras President and opposition leader Carlos Fernández was arrested under charges of looting, betrayal and rebellion.

Meanwhile, the tactics used by both sides have dramatically damaged the economy. We estimate the cost of the two-month strike called by the opposition to be at around US$9 billion, or 10% of Venezuelan GDP. On the other side, the capital controls are likely to be used to allocate foreign exchange to companies that have not opposed the government, as indicated by Chávez when announcing the measure. This would cause the bankruptcy of an important amount of businesses given that the Venezuelan economy is heavily dependent on imported raw materials.

The military remains on the sideline. Just as before the events of April 11, the military remains divided in three groups: Chávez supporters, anti-Chavez, and the ?institutional' group, which aims at preserving the Constitution but have no political allegiance. However, since April 11 President Chávez has strengthened control over the military by naming allies at top posts. Those in the army that are opposed to the government appear to lack the coordination needed to act, while the 'institutional group' does not appear to be willing to get involved in any action as they believe there is no material proof that the government has departed from the Constitution. Consequently, only if it becomes evident that the government is breaking from the constitution could it be expected that the military would get involved, as they did on April 11.

The opposition appears weakened following the failure of the strike. The two-month stoppage hurt the private sector financially, sending a large segment of workers into unemployment. The opposition remains divided in the sense that it still lacks a program that could be posted as an alternative to Chávez’s. Moreover there is no could-be-president able to gather the opposition behind him and discuss tete-a-tete with the President.

Chávez still counts with a 35% of support, according to the latest polls, however, his administration is seen as positive by only 10% of the population. While still having a lot of charisma at a personal level, large groups of the population appear discontent with the revolution, according to the polls. Irrespective of who is to blame for the significant drop in GDP and the spike in inflation and unemployment, Chávez sees that the way ahead is to accelerate the control of strategic sectors of the economy (oil, media, staples, and foreign exchange), while radicalizing his rhetoric.

An increase in violence could lead to the declaration of a state of emergency by the government, under which a recall referendum could be banned. Article 337 of the Venezuelan constitution allows the President to call for a state of emergency under any event considered to be threatening the security of the country and/or its institutions. The decree has to be ratified by the National Assembly (where the government counts with a majority). It could last as long as 180 days. According to the experts we met in Caracas, under the current political climate, we can expect the radicalization of some groups of the opposition, which could lead to a scaling up of the level of aggression in the political arena.

Foreign relations are likely to worsen as well. Two explosive devices went off in front of the Spanish embassy and the Colombian Consulate in the early hours of Tuesday. While the government condemned the explosions, these came as a follow up to Sunday’s weekly address to the nation in which President Hugo Chávez vehemently criticized Colombia’s President Álvaro Uribe Vélez and Spanish President José María Aznar.

Chávez accused both presidents of getting involved in domestic issues, as they protested the detention of opposition leader Carlos Fernández. The government and the opposition mutually blamed each other for the attack. In conclusion, the current political stand off is likely to continue for many months: it could even go beyond 2003. More dramatically, in the absence of an agreement, it appears that only a deterioration of the current situation would bring some change in the political landscape: either more violence gets the military involved or the collapse of the economy reshapes political alliances.

The Wild Card: A New CNE
A productive return to the negotiation table could unblock the political landscape. For this to happen, the opposition needs to refocus on pressuring the government to set a date for the recall referendum. The recall referendum can take place once half the mandate of President Hugo Chávez has passed (August 2003), and requires the signature of 20% of those allowed to vote to be called. The National Electorate Council (CNE) is in charge of validating the signatures and overseeing any election. However, the current CNE needs to be replaced. Therefore, the key to unblocking the political stalemate is to name a new CNE shortly. A committee of 21 people has just been named to elect 15 triplets from whom the Assembly would vote for 5 CNE members and 10 substitutes. The law gives 31 days to the committee to elect the candidates to the CNE. Then, the Assembly would have five days to vote on the candidates. Two thirds of the Assembly members are required to elect a candidate. Should the Assembly fail to elect a new CNE within the given deadline, the Supreme Court would do it. The opposition is concerned that the government might delay the election of the CNE.

A Devastated Economy: Update of Forecasts

As a consequence of the political crisis we now expect the economy to contract by 12.3% during 2003, from a forecast of –9.2% previously. In our opinion, the oil sector will contract by 14.6%, while the non-oil sector would do so by 9%. We expect PDVSA to recover production levels of 2 mbpd by the second quarter, and produce around 2.5-2.7 mbpd by the end of the year.

As a consequence of the capital controls and the recession, imports are likely to drop dramatically, allowing for a hefty current account surplus of about 13.5% of GDP, in our projections. We expect inflation to increase significantly as the government would have to resort to money printing to pay for expenditures. We forecast inflation at 45% in average for 2003, but ending the year at 80% year-over-year.

We expect a deficit of 7.2% of GDP despite a contraction in primary spending of about 17% in real terms. The deterioration in the fiscal accounts would come as a result of lower oil production and the effects of the contributing capacity of the non-oil sector. PDVSA dividends are likely to be lower in 2003 as the company has to bear the cost of importing gasoline to supply in the domestic market. Due to very high subsidies to domestics, PDVSA’s imports of US$500 million in gasoline are virtually all a loss for the company. Due to the fixing of the exchange rate at Bs. 1598/U$ and low oil production, the government is not going to fully enjoy the benefits of higher oil prices.

On the financing side, we see a funding gap of 4.4% of GDP that could be filled with money printing or higher Central Bank dividends (inflation tax), or more pressure on the domestic market. As oil production recovers, we can expect that the exchange rate would be depreciated to obtain more Bs. per barrel. In Bs. terms, we estimate a funding gap of 5.5 trillion, or more than 100% of money in circulation. Therefore, we expect a large increase in money supply, which would translate into high inflation. Also, the government is asking the Central Bank to impose ceilings on interest rates, which when paired with high inflation could translate into negative interest rates for government debt.

Do not expect much from the Macroeconomic Stabilization Fund, given that the Executive exhausted its share last year. The monies corresponding to PDVSA would only help maintain the level of dividends to the government, but not to increase them. Furthermore, the states and municipalities are likely to draw down their share, which actually equates to the withdrawals done in 2002 when there were no signs of the current crisis.

The Outlook at PDVSA
According to government officials PDVSA is currently producing at about 1.5-1.7 mbpd. This information appears accurate following cross checks with other sources in Venezuela and abroad. Also, the refineries at the Jose region should start receiving enough gas to resume production. The government expects to be producing around 2 mbpd during the second half of the year, and to reach 2.5-2.7 mbpd by the end of the year.

The government fired around 12,000 of PDVSA’s 60,000 employees due to their decision to join the strike. Those fired are mostly white collars from PDVSA’s headquarters in Caracas. They are being only partially replaced by professionals who had retired, are from abroad or new employees, some of them from the armed forces. The company has also signed a joint venture with Citgo, for the latter to act as an agent of PDVSA in commercialization activities. The government decided to restructure the company in three main blocks: two operating companies in the West and East regions, and a much smaller headquarter in Caracas.

Default Is Avoidable
Despite the bleak scenario we described above and the large funding gap, default could be avoided, but will depend on the willingness of the government to spend foreign reserves to pay for external debt. The table below shows that due to the combination of the controls and an expected large current account surplus, foreign reserves should be enough to meet debt payments.