Arevenca end game? González jailed in Venezuela (Updates on everything #1)

Yes, this blog is mostly shut down, as I am now working full-time. I’m just updating some old stories. Please note that this is just my personal research and thoughts, no connection to my employer.

Maybe you remember Arevenca. It’s mostly a guy named Francisco González, with a few colleagues and family members. Using the name of a defunct sandlot on the coast of Venezuela, Arenera de Venezuela CA, he pulled a series of big, long cons over the last decade. They include:

• a deepwater port
• an oil refining & shipping company
• an airline
• a bank

I first covered Arevenca here and I wrote about it in Vice and CJR.

As you can read in the Vice story, González and a string of accomplices — some of them apparently themselves victims of the deception — hit a home run with the Díaz family in Puerto Rico, extracting US$7.8 million for a nonexistent shipment of asphalt. The Díaz family has been going after him for years in Aruba, Puerto Rico and Spain. A month ago, after González failed to show up to court in Spain too many times, the court issued this arrest warrant:

Soon, Venezuelan authorities arrested him for possible extradition to Spain.

After a few relatively quiet years, González had just recently popped up again. First, the Arevenca Bank website was redesigned.

And then there was this letter to Venezuelan Trade Minister Jesús Farías, offering Arevenca’s British Virgin Islands corporation as a source of US$10 billion in financing for food imports to Venezuela.

In addition to all of this, González is also facing legal processes in the USA. And Aruban authorities auctioned off his helicopter.

Whether González ever goes to trial, however, is an open question. Article 69 of the Venezuelan constitution says “Extradition of Venezuelans is prohibited,” and the Venezuelan justice system isn’t exactly a model of efficiency. But in any event, this guy seems to be nearing the end of his run.

Colombia, Venezuela get opportunity to overcome oil addiction. You’ll believe what happens next.

Venezuela and Colombia, where I’ve been hanging out for the last couple weeks, are terminal oil junkies. Both countries have built economies so oil dependent that with the current low price of crude, people are freaking out.

Of course crisis=opportunity and all that, so what better way to stimulate the local economy and set the countries up for the next cycle than invest in renewable energy? Good time to build some wind farms and microhydro projects, you might think. Good time to lay some solar panels onto reservoirs, you might think. Well, that’s not what’s happening.

In Venezuela, the government is bragging that it’s reactivating mature oil wells. And as the government faces the country’s worst financial crisis since at least the 1990s, it continues to give away gasoline to anyone who can take it. Free. Seriously. Younger people with dollar signs in their eyes are now investing their cash into oil, too. The folks behind Derwick Associates, led by Alejandro Betancourt, have spent about $250 million on shares of Bogota-based oil company Pacific E & P (formerly known as Pacific Rubiales), while their pal Francisco D’Agostino is part of a group that is putting more than $30 million into Harvest Natural Resources, a Texas oil company. Everybody’s betting on oil.

Here in Colombia, I heard Finance Minister Mauricio Cárdenas address an oil conference. He told the crowd that his country is committed to maintaining oil output at 1 million barrels a day or more, despite the fall in oil prices. “That’s why it’s important for the hydrocarbons sector to have all the stimuli, all the incentives, so that in this low-price scenario, it can invest, it can explore, and most of all, increase production. This is fundamental for the national economy, and indispensable for the public finance of the country.” (Link to story about his speech here, but the quote is from my own recording.)

The same day that he spoke, August 26, this report came out:

The consequences of global sea level rise could be even scarier than the worst-case scenarios predicted by the dominant climate models, which don’t fully account for the fast breakup of ice sheets and glaciers, NASA scientists said today (Aug. 26) at a press briefing.

What’s more, sea level rise is already occurring. The open question, NASA scientists say, is just how quickly the seas will rise in the future.

So you have these two tropical, coastal countries, facing the loss of their coral reefs and atolls, not to mention their glaciers and the unique alpine moors called páramos. Two countries that depend on a robust, constant hydrologic cycle for their energy supply and their basic survival. And their reaction to a crisis in the oil industry is to keep investing in oil.

Humanity! Never change.

Gold-oil ratio goes wild

Gold miners can now buy 30.33 barrels of West Texas Intermediate crude oil for every ounce of gold they sell. That is the most in at least 15 years.

If history is any guide, I’d expect that extreme reading to revert to the mean, which would require cheaper gold or pricier oil. But for now, gold miners are doing great. Which is probably why their stock index looks like this:

Oil corruption in icier climes

I focus a lot on energy industry corruption in Latin America and Latinish America (Texas, California), but please don’t get the idea that oil stinks worse in southern latitudes. No, you can pretty much count on the energy industry attracting interesting characters like flies to shit.

You have drivers, power plants and other fuel-burners demanding USD2 trillion a year worth of gunk to be pulled out of the ground, refined and shipped to their far-flung machines. The companies who comply with this demand do what they can to seal the oil and its derivatives hermetically into pipes and tanks and tubes and ships. When all goes right, the stuff never sees sunlight before it’s burned. In the other direction, money is supposed to be just as well contained. Credit cards slide into gas pumps, letters of credit are transferred from power plant operators to refiners, tax collectors take their direct deposits, and money travels back up the line, retracing the route of the oil. But with so much money. So much money. So much money at stake, you just can’t stop people from trying to poke holes into the system. It’s too tempting. They can get physical oil, or much better, get virtual streams of cash, never contaminating their silk ties with the stink of sulfur and pitch.

Here in Canadialandia, land of the Canadialandians, the desire to extract a bit of money and power from the oil system is as irresistible as anywhere else. A new publication is chronicling the local money and power games: National Observer.

Subscribe to its tweets since the kids these days refuse to provide an RSS feed and since “following” something on Facebook is unreliable. Thanks to Jesse Brown of Canadaland, chronicler of happenings here in Canadialandia, land of the Canadialandians, for highlighting National Observer on his podcast. If you care about Canadian politics you can subscribe to his podcast — which wisely does have an RSS feed.

Otto does PREC

A few interesting Pacific Rubiales items recently, picked up by the always attentive Otto at IKN. Go over there, he’s better at this blogging stuff than I am.

For what it’s worth I watched the video he linked there, and I thought it desperately needed an edit. And I hate, hate hate documentaries with looming drama music. But if for nothing else, it’s worth watching the video to see the spectacular video of the Colombian llanos that are being exploited for both petroleum and palm oil these days. Good to know what kind of paradise you’re wrecking every time you fire up the old V-8.

Joker brokers still snagging suckers

Today I got another mail from a perfectly nice-sounding guy who had been invited into a deal with a shady broker offering oil, which he was going to buy and then turn over to some shady client. I’m amazed that there are still thousands of people out there trying to do this sort of work every day. To make life easier for all of you, here is a flow chart to help you decide whether to accept a “mandate” from some supposed buyer and then use that to buy “oil” from a “refinery” you find on the internet.

 

Citgo was biggest client for top DC lobby firms in 2014 (Updated)

Citgo Petroleum, the US refining subsidiary of Venezuelan state oil company PDVSA, had a big year on the lobbying front in 2014. According to current records at OpenSecrets.org, the company spent $2.16 million on DC lobbying, a five-fold increase over 2013. It was the 9th-biggest among the 100+ clients of  Cornerstone Government Affairs and fourth-biggest at Brownstein Hyatt. But it really shone by becoming the biggest client of the year at both Dutko Grayling and Squire Patton Boggs.

Patton Boggs client ranking per records at OpenSecrets.org. Current as of Jan 25 2015.

Yes, that Patton Boggs. From Ken Silverstein’s article on the lobby house from last week:

And no one is, or was, more symptomatic or responsible for this pathetic state of dysfunction than Thomas Hale Boggs Jr., who died last September… Boggs was a richly-paid lobbyist who ran his firm like a brothel, once saying, “We pick our clients by taking the first one who comes in the door.” With that as his guiding principle, Boggs and his firm compiled a client list that included America’s biggest, most criminally minded corporations and the world’s worst dictators.

Really a worthwhile read, so go click over there. It takes a lot of work to be the #1 client of Patton Boggs. The company had 179 paid clients last year. Following well behind PDVSA you find companies with massive regulatory worries. (Note that all figures were current at time of writing. Future disclosures may change the ranking.) So what was all that money spent on?

50 years

The current situation

In case your Monday is just a bit too cheery, here is something to think about.

I am in Montreal, cherishing something that has become scarcer every decade: a day with wind-chills of -30°C, blasting snow crystals that sting the eyes, parents pulling their kids to school on little sleds, bundled up like blue burritos in their puffy snowsuits. Winter days like this were once routine across much of continental North America and Asia; today they are often newsworthy. (And the news is always full of people remarking about how this disproves climate change. Argh.)

This week is also an important anniversary. It’s been 50 years since the first US presidential address on the climate change consequences of excessive carbon dioxide in the atmosphere.

50 years!

I had no idea. (This is one more reason to subscribe to the daily “Above the Fold” e-mail from Environmental Health News. Good stuff in there.)

“Air pollution is no longer confined to isolated places,” said Johnson less than three weeks after his 1965 inauguration. “This generation has altered the composition of the atmosphere on a global scale through radioactive materials and a steady increase in carbon dioxide from the burning of fossil fuels.”

 

I like fossil fuels. We can burn rocks! We can turn underground gases into phones, chairs, keyboards, eyeglasses, false teeth, blue snow suits and nerf footballs. We are amazing. The problem, of course, is we do it too much. It’s a shame to see one species among millions changing the lived experience of every square centimeter of our planet. But hey. At least we are doing something useful with all that fuel.

Colombia palm: So many issues at once

Nick Miroff has a great article in tomorrow’s Washington Post about palm oil in Colombia:

…the palm industry’s rapid expansion is yielding new evidence of a boom that benefited from the displacement of small farmers, indigenous groups and others by the armed conflict. Several of the regions where palm has spread during the past decade are places notorious for paramilitary violence and rural terror, like the north coast outside Cartagena, the Venezuela border region and the southeastern plains of the Meta department, where Mapiripan is located.

As the government and the country’s largest rebel group, the FARC, now attempt to reach a peace accord to end the fighting, Colombia faces the painstaking task of trying to sort out what happened in Mapiripan and other places like it, and how to move forward.

Central to the dispute is a clashing vision of rural development, between the traditional model that has been partly destroyed by the violence and an agribusiness vision that promises growth, jobs and modernization through the spread of commodity crops like African palm.

Venezuela owes more $$ to Exxon (UPDATED)

In a surprise to no one*, a tribunal at the World Court’s International Centre for the Settlement of Investment Disputes decided that Venezuela was liable for expropriating ExxonMobil’s Cerro Negro heavy oil project and some other assets in 2007. The decision in English is here and in Spanish is here.

The money section is at the end:

, The Tribunal unanimously decides as follows:
(a) the Tribunal has no jurisdiction over the claim arising out of the increase in the
income tax rate for the participants to the Cerro Negro Project;
(b) the Tribunal has jurisdiction over the remaining claims, i.e.:
a. the claim arising out of the imposition of the extraction tax on the Cerro
Negro Project;
b. the claim arising out of the production and export curtailments imposed
on the Cerro Negro Project in 2006 and 2007; and
c. the claim arising out of the expropriation of the Claimants’ investments
in the Cerro Negro and La Ceiba Projects;
(c) the Respondent shall pay to the Claimants the sum of US$ 9,042,482 (nine
million, forty two thousand, four hundred and eighty two United States
dollars) in compensation for the production and export curtailments imposed
on the Cerro Negro project in 2006 and 2007;
(d) the Respondent shall pay to the Claimants the sum of US$ 1,411.7 million
(one thousand, four hundred and eleven million, seven hundred thousand
United States dollars) in compensation for the expropriation of their
investments in the Cerro Negro Project;
(e) the Tribunal takes note in both cases of the Claimants’ representation that, in
the event of favourable award, the Claimants are willing to make the required
reimbursements to PDVSA. Double recovery will thus be avoided;
(f) the Respondent shall pay to the Claimants the sum of US$ 179.3 million (one
hundred seventy nine million, three hundred thousand United States dollars)
in compensation for the expropriation of their investments in the La Ceiba
Project;
(g) these sums shall be paid to the Claimants net of any Venezuelan tax;
(h) these sums shall be increased by annual compound interest on their amount at
the rate of 3.25% from 27 June 2007 up to the date when payment of this
sums has been made in full;
(i) each Party shall bear its own costs and counsel fees
(j) the Parties shall equally share the fees and expenses of the Tribunal and the
costs of the ICSID Secretariat; and
(k) all other claims are rejected.

So, $1.6 billion plus 3.25% compounding interest, which according to my calculator, works out to a nice round $2 billion as of now, growing by another $65 million this year assuming Venezuela delays payment as long as it can.

*Note, the amount may be a surprise to some. I thought the award would be bigger, but it’s within the range that analysts have given for years. In any case, it’s almost 10% of Venezuela’s foreign exchange reserves, so it’s a lot by the Bolivarian Republic’s standards.

MAJOR UPDATE: No, it’s not $2 billion. It’s much less. Law prof and friend of the blog Julian Cardenas writes to point out paragraph 374:

Effectively, the total compensation payable to the Claimants is the amount specified
in paragraph 374 above, less the amount already received by the Claimants under
the ICC Award for the same damage. Double recovery will thus be avoided

And the referenced paragraph 374 says

As a consequence, the compensation to be paid by the Respondent for the
expropriation of the Cerro Negro Project remains in the amount of US$ 1,411.7
million (see para 368 above).

The ICC Award was $908 million. So I think this means the current value of the judgment is more like $1.1 billion. If that $908 million deduction also cuts into the interest owed, the award is less than $1 billion! That would indeed be a surprise, given how ExxonMobil originally demanded $15 billion and even (for a short time) got a Mareva injunction against Venezuelan state assets up to $12 billion. I don’t know how these things work, and additional writing on this will probably be for paying clients. But now you know!

ALSO: ExxonMobil writes with the following rather comment. I’ll just print it verbatim, it’s short:

The decision confirms that the Venezuelan government failed to provide fair compensation for expropriated assets.
Our goal with the arbitration was to seek compensation for the fair market value of assets that were expropriated by the Venezuelan government in June 2007. ExxonMobil recognizes the sovereignty of all nations and, while clearly not a desirable outcome, accepts Venezuela’s legal right to expropriate the assets of our affiliates subject to compensation at fair market value. ExxonMobil’s affiliate engaged in extensive discussions with PDVSA and government officials but was unable to reach agreement on fair compensation.