Revisiting: Will and should Venezuela sell Citgo?

Argus is reporting that PDVSA is entertaining offers of $10 billion to $15 billion for Citgo Petroleum Corp. and is marketing its stake in the Chalmette refinery in Louisiana:

Venezuelan state-owned PdV has retained Deutsche Bank to find a buyer for its 50pc stake in the 184,000 b/d Chalmette refinery in Louisiana, a US-based PdV official told Argus… The energy ministry in Caracas confirmed today that Deutsche Bank is leading the search to find a buyer for PdV’s interest in the Chalmette refinery “as soon as possible.” …

Venezuelan officials told Argus yesterday that PdV is weighing offers in the range of $10bn-$15bn to buy its downstream subsidiary Citgo. The planned sale of Citgo is aimed at raising cash for upstream projects at home, redirecting more crude supply to China in exchange for oil-backed loans, and reducing the government´s potential exposure to international litigation.…

I don’t know if this will all be feasible from a legal standpoint, as the sale of assets that are subject to attachment in an arbitration claim could be frozen by the courts so that a potential winner can grab the assets. But assuming there’s a way to sell this stuff, does it make financial sense for PDVSA to do it?

The Carvajal kerfluffle leaves us with questions (updated)

(Updated to include New York indictment)

Last Wednesday, Aruba arrested Venezuelan general, former counterintelligence chief, Chávez coup participant, and man-about-town (in which “town” is the Venezuelan-Colombian border) on a US warrant for alleged drug smuggling. The Florida indictment is here and (UPDATE) here is the New York indictment. They are worth reading for its own sake, if you’re into that kind of thing. He was then freed after Venezuela raised a stink over diplomatic immunity, as Carvajal had entered Aruba to become consul in the island nation.

The affair leaves a heap of questions unanswered. Why did Venezuela name Carvajal to the post and then send him to the island, especially given Dutch opposition?

Did the US for some complicated reason support freeing Carvajal?

Was this all theatre, with something else entirely happening behind the scenes?

Is Carvajal now an informant? Was he before? El Nacional indicated that, and I also heard this rumor elsewhere.

Did he really travel to Aruba on N9GY, which belongs (indirectly) to Roberto Enrique Rincón and Jose Roberto Rincón of The Woodlands, Texas? (Columnist Nelson Bocaranda says he confirmed that fact, but I’ve been unable to do so. The Rincóns’ lawyer hasn’t responded to my e-mail asking detailed questions.) If so, what is the Rincóns’ connection to this guy? Did they really sell him out to save their skin, as one gossip rag claimed?

There are more questions, but those are enough for now. Since I am mostly interested in natural resources and not in Venezuelan politics per se, you might go check these other sites for more coverage: Here’s Daniel and Kepler and Raul. Also for some reason the Wall Street Journal has been pretty dominant in the English-language reporting on this. If you want to get around their paywall, for a few days anyway, find the stories you want, google them, and then click through from Google for free access. Like this one, which is temporarily free from here.

That Florida indictment again, and the New York one. Interesting.

Arevenca offers to buy airline

Arevenca, the fake oil company long followed around these parts, has offered to buy Cyprus Airways.

Επίσης, ενδιαφέρον υπέβαλε και o ισπανικός όμιλος Arevenca Group σε συνεργασία με την επίσης ισπανική Fly Aruba και την Air Atlantic, σε συνεργασία με επενδυτές από ΗΠΑ και Καναδά. Το ιδιαίτερο ενδιαφέρον αυτής της πρότασης είναι ότι πρόκειται για εταιρείες στενά συνδεδεμένες με τον γνωστό μαςκαναδικό όμιλο Triple Five του Ναντέρ Γκερμεζιάν, που είχε και στο παρελθόν ενδιαφερθεί για τις Κυπριακές Αερογραμμές.
– See more at: http://www.philenews.com/el-gr/oikonomia-kypros/146/211144/21-telika-oi-mnistires-gia-tis-kypriakes-aerogrammes#sthash.Rdd1TImQ.dpuf

(You don’t understand that? Don’t worry, it’s all Greek to me, too.)

That’s just a tease, as much is happening in Arevencaland. More soon.

Another day, another Amazon oil spill

PetroPerú tries its hand at environmental devastation. Environmental Health News writes it up in English:

On the last day of June, Roger Mangía Vega watched an oil slick and a mass of dead fish float past this tiny Kukama Indian community and into the Marañón River, a major tributary of the Amazon.

Community leaders called the emergency number for Petroperu, the state-run operator of the 845-kilometer pipeline that pumps crude oil from the Amazon over the Andes Mountains to a port on Peru’s northern coast.

By late afternoon, Mangía and a handful of his neighbors – contracted by the company and wearing only ordinary clothing – were up to their necks in oily water, searching for a leak in the pipe. Villagers, who depend on fish for subsistence and income, estimated that they had seen between two and seven tons of dead fish floating in lagoons and littering the landscape.

“It was the most horrible thing I’ve seen in my life – the amount of oil, the huge number of dead fish and my Kukama brothers working without the necessary protection,” said Ander Ordóñez Mozombite, an environmental monitor for an indigenous community group called Acodecospat who visited the site a few days later.

Read it all here.

And on July 2, PetroEcuador had a freakishly similar situation. Amazon Watch offers the details:

The mysterious winners of a $644 million arbitration against PDVSA

CORRECTION 21 October 2015:

I have learned that the billion-dollar contract referred to in this report was not just for ship rental. It was also for the provision of ship crews, divers, and geotechnical engineers, and other professionals for the full project of pipeline mapping, repair and replacement.

AND AN UPDATE: Pdvsa said in its 2014 annual report that it paid this award.

========================================

PDVSA, Venezuela’s state oil company, released financial statements last month. One of the more remarkable items in there was a $644 million loss for an arbitration award in a case that I had never heard about before — and no Venezuela expert I’ve talked to had heard about, either. This is all that PDVSA has ever disclosed about the case:

In November 2013, the award related to the arbitration request filed by Gulmar Offshore Middle East LLC and Kaplan Industry Inc. was issued against PDVSA, corresponding to early unilateral termination of contract by PDVSA. The award established a compensation of $644 million.

That is a tremendous amount of money. I wrote last week in REDD Intelligence (subscription needed to read) about what this surprise means for Venezuela’s country risk. Here, I’m going to focus instead on what we know about the companies that won this money.

I had only heard of Gulmar Offshore as one of a long list of companies with assets that Venezuela expropriated back in 2009. I had never heard of Kaplan, as it was misspelled in the initial announcement (good English analysis here) as “Kapplan.”

Gulmar was, and is, a company that leases vessels for undersea projects in the oil industry. It was later purchased by Oaktree Capital Management (more on them later). Back in 2009, I had a hard time reaching them; for this article the one phone number I found didn’t even ring and Oaktree’s lawyer didn’t respond to an e-mailed request for comment.

Kaplan is more difficult to pin down. Bloomberg said that Kaplan was a gas-cylinder manufacturer from New Jersey. Oops! That’s Kaplan Industries.

Kaplan Industry website, unchanged since 2010

No, this was Kaplan Industry. At the top of its web page, it says it’s “An engineering design firm.” Then in the text, it’s “a leading independent international development consultancy.” The confusion may have come about as the website was thrown together, almost entirely plagiarized from other sites. The home page is from Adam Smith International, some of the “About” page is from Secunda Canada, and the line “Having fun inspires creativity, which rouses fresh ideas that we take to our clients” is from Zain Public Relations. Yes, having fun inspires creativity. And nothing demonstrates creativity like “copy-paste.”

No one answered at any of the three phone numbers listed on the website. Company president Vince Hulan didn’t respond to e-mails sent to the address on the website, including one e-mail asking specific questions about the plagiarism and other concerns raised in this article. Four lawyers connected to the company and its principals also failed to return calls and e-mails.

The untold story of Torre de David

Today we get word that the Torre de David in Caracas may be sold/given/loaned/something to a Chinese group to use as offices. This is good news.

The tower, also known as Torre Confinanzas, has become world-famous as a “vertical slum.” Or as I called it in a report on Monocle24, the world’s only squat with a heliport. It’s a 45-story building with a heliport, atrium, and parking garage. When mostly built in 1994, it was abandoned because of financing problems related to a banking crisis in Venezuela. The government’s bank intervenor, Fogade, took ownership of the tower, but did nothing with it for years. The place became a dangerous squat.

In 2007, the mayor of Caracas, Juan Barreto, helped organize the mass invasion of the tower by hundreds, if not thousands, of families. Within days, hundreds of families stayed there night and day, clearing out trash, booting the addicts who had been squatting there in a less dignified way, clearing out corpses of animals and who knows what else. In the end, the popuation of the building swelled to as much as 5,000. Residents built apartments in the skeleton of the old office building. Today, it’s a barrio (slum) like almost any other — a few things about it are better than the typical peripheral slum, especially the location, professional security controlling access, and decent conflict resolution through a system of floor councils and a building council. Other things are worse, like the danger of falling to one’s death through unfinished shaftways. And many things are about the same — unreliable water, lots of stairs to arrive at one’s home, broken sewer lines.

That’s all old news, right? It’s been in a hundred articles, videos and radio reports (guilty!). But here’s a part that few people know:

Somewhere in the middle of the 2000’s, Fogade prepared to sell the building. A private developer was ready to spend US$50 million on it, and committed to investing another $50 million to complete the building. According to my source inside Fogade, the contracts were written and ready to sign. And then President Hugo Chávez heard about it. He forbade Fogade from selling the building. It would be more fitting as the headquarters of a ministry, rather than being in private hands, Chávez supposedly said.

But the ministries never got the money to complete and refurbish the buildings, and before they could, it was a formal squat and nobody wanted to evict thousands of people.

This isn’t an energy story, but it’s a good story about what happens when ideology gets in the way of policy. I know a lot of people who fight against privatization of anything. In this case, what good did it do to avoid privatization? This building got lived in for 7 years, some kids fell to their deaths, and now the building ends up privatized anyway. It’s hard for me to see this as a big win.

I am just glad to know that the government may find someone who can use the tower for its best and highest use, and that the residents might be given homes. Sadly, their new homes are likely to be crappy, and a similar cycle is most likely to begin anew.