Illarramendi in his own words: He was a pawn

Francisco Illarramendi, who is currently appealing his 13-year sentence for securities fraud related to the pension fund of Venezuelan state oil company Petroleos de Venezuela SA, filed this interesting document into the federal court docket back in January. I missed it, but if you were interested in his case, it’s worth reading. It’s basically his version of events, laid out in very long form. Among other details, he basically claims to have invented Venezuela’s permuta Bs./$ bond sales system:

Prior to the instant offense, Mr. Illarramendi worked in the securities industry with Credit Suisse from 1994 to 2004, conducting extensive work in Latin American countries, including Venezuela (“BROV”). PSR, at 23. While at Credit Suisse, Mr. Illarramendi was the leader of a team that developed a bolivar to U.S. dollar (“BVD/USD”) arbitrage mechanism that spawned the BROV’s ability to fund itself at significantly discounted interest rates. In 2004, he took a sabbatical from Credit Suisse, and began a special assignment as an advisor to Venezuela’s national oil company “Petroleos de Venezuela, S.A.” (PDVSA). PSR, at 22-23. During this assignment Mr. Illarramendi generated approximately $1.6 billion in savings, when based on his advice, PDVSA was able to repurchase $2.0 billion in outstanding bonds, utilizing Mr. Illarraendi’s arbitrage innovation. Thereafter, the BROV began issuing profitable bonds. PSR, at 22. Specifically, Mr. Illarramendi advised the Venezuelan government to issue bonds denominated in U.S. dollars, which were purchased using bolivars (“BVD”) at the official exchange rate. This allowed the financing of currency exchanges, and lower yields than would otherwise be available in the international markets. PSR, at 5. Ultimately, Mr. Illarramendi’s instruction and advice paid dividends well into the future, to the tune of billions of dollars for the BROV and PDVSA.

He then describes what his fund, Highview Point, did to make money. If you are keen on finance, go read it. He then describes how he ended up stuck in a bad deal:

Leak of Venezuela contractor documents raises questions (Updated)

Tomás Lander

What appears to be a leak of internal documents from Missouri electricity industry contractor ProEnergy Services and Venezuelan contractor Derwick Associates adds to questions about how ProEnergy got deals to sell products made by General Electric, Pratt & Whitney and Rolls Royce to Venezuelan state industries starting in late 2009.

The documents, posted to the website Scribd Nov. 17 by a person using the name “Tomás Lander,” include a proposal dated June 2009 from ProEnergy to Venezuela offering power plants. At the time, Venezuela was suffering periodic blackouts because demand for electricity was growing, a drought was draining hydroelectric reservoirs and the 2008 commodities bust had left the country with limited cash to deal with the crisis.

I haven’t been able to confirm that the documents are genuine. I sent e-mails to Derwick Associates’ press line, ProEnergy CEO Jeff Cannon and ProEnergy chief counsel Scott Dieball, asking them to validate or refute the authenticity of the documents and requesting comment. I haven’t received any response. At a glance, nothing about the documents indicates that they are forgeries. As such, for the rest of this article I will treat them as genuine documents. If ProEnergy, Derwick or anyone else offers any commentary on the documents, I will update this post to reflect their response.

The documents don’t show what happened to that ProEnergy proposal. However, another document shows that two months later, ProEnergy and Derwick agreed to cooperate in seeking work in Venezuela. Their agreement forbids either company from revealing “any and all details regarding transactions between Derwick and ProEnergy, details regarding transactions between a party and third parties, and the payment of fees and commissions.”*

Keeping up with the old stuff: Beracha case dismissed

Sorry I never posted this last week. I was one of the few outlets to write about Moris Beracha being sued for his alleged profits from Francisco Illarramendi’s hedge-fund-gone bad. So I should note that the US government dropped its case against Beracha last week. Thanks to Latin American Herald Tribune for staying on top of this. Beracha insists in their article that he has lost $100 million to the whole mess, and is a victim, not a perpetrator.

Given that the main Illarramendi case is now up to 891 filings and some related cases, like Beracha’s, extending well past 100 filings each, I have long since stopped paying for and reading these documents. I hope someone someday can be arsed to do so. Have fun.

(Oh look, Odo & Nancy Habeck’s case was dropped back in 2013. I should really keep more on top of these things.)

PDVSA financials: pena ajena (updated)

There was a time when I took some pleasure in finding concealed admissions of weakness hidden within the rosy financial results of Venezuela’s state oil company. Today, I read them and I am just embarrassed. Writing about these numbers is like watching the end of bullfight. The once mighty beast is crippled, bleeding and it seems in bad taste to stare.

You can find plenty of articles about sales, production volumes, and “net income,” whatever that means for a company like this. Let me just point out a couple tables that show what’s going on:

The facepalmingly stupidest part of the Venezuela sanctions debate is

that nobody mentions that the US already imposed sanctions on Venezuela’s state oil company, back in 2011. It has also imposed targeted sanctions against several members of the government for allegedly being drug kingpins, from this one in 2008 to one just last year.

Despite warnings that Hugo Chávez would use these sanctions as a means to attack the US in rhetoric and blame the US for Venezuela’s failings, Venezuela’s response was muted from the start, and has fallen so silent that these sanctions now go unmentioned by everyone: scholar David Smilde of WOLA and Tulane University, who argued today in the Washington Post against sanctions; US Asst Secretary of State Roberta Jacobson, who recently said that the US had been asked by the Venezuelan opposition not to impose sanctions on Venezuela; Sen. Marco Rubio, who is pushing specific sanctions against individuals in the Venezuelan government; and even Chavismo’s top English-language polemicist, Eva Golinger.

I think anyone arguing that Maduro will use US sanctions to bolster his position needs to explain why he hasn’t already done that. Here’s what I think: the Venezuelan people aren’t stupid. Even die-hard government supporters know there are some awfully corrupt people in their government. People from the political right might say corruption is a natural facet of central planning and socialism, those from the center might blame history or say Venezuela has always had its bad apples (mangoes?), and those on the left call the corrupt ones the “derecha endogena” and blame them for halting the revolution’s progress. Different diagnoses, but they can agree on the presence of corruption. They know that the country’s problems don’t come from a few US sanctions against unpopular individuals and light sanctions on PDVSA.

I don’t have an opinion on whether the US should impose sanctions on supposed human rights violators from Venezuela, but I wish those debating would recognize the status quo for what it is.

PDVSA boosts electricity supply, in Bolivia

Somehow I missed that PDVSA was building a power plant in Bolivia.

May 19 2014, Santa Cruz, Bolivia – The CEO of PDVSA in Bolivia, Darío Merchán, said the construction and assembly of the Planta Termoeléctrica del Sur, in Tarija, entered its final phase and its launch is forecasted for June… Termoeléctrica del Sur is a project of the joint venture Empresa Nacional de Electricidad Andina and required a $122 million investment, financed by the Bolivian Central Bank (BCB). …160 megawatts…inauguration in a matter of weeks…Energy consumption in the country is rising to 1,200 megawatts and supply is 1,400 megawatts, leaving a 200 MW reserve. Merchán emphasized that the Termoeléctrica del Sur will bring Bolivia closer to its goal of exporting electricity in the medium term.

Now all they need is a power line to the llanos, and Venezuela will be ready for El Niño.

The other Keystone XL

While North American greens spend all their energy fighting against Keystone XL (and driving crude oil onto exploding freight trains) Venezuela is getting ready to commission this.

This is a 153-km, 42″ oil pipeline with a capacity of 750,000 barrels a day of high-sulfur, high-carbon, processing-intensive oil. It will one day take oil from Venezuela’s quiet, biodiverse Orinoco Belt to the largely pristine Caribbean coast. There the oil will be partially refined (upgraded) into higher-quality crude. Upgrading is the removal of petroleum coke and sulfur. Those unpleasant byproducts sit in great heaps near the sea until they are sold to industrial users around the world. Concrete-makers love Venezuelan petcoke because it is a high-energy fuel for their kilns, never mind that it’s very carbon-intense.

The Keystone XL, which has gotten people so up in arms, has 830,000 barrels a day of capacity, with its source oil being mined rather than drilled. That’s a big deal, no doubt. And you can’t easily compare one polluter to the other. Still, I think it’s fair to say that the Venezuelan pipeline is at least on the same order of magnitude as Keystone. And it’s being built with US dollars that come from US drivers.

Oil notes from around South America

You have no idea how many half-written blog posts I have in my stack. Not going to publish before their time. But here are a few interesting things to keep you busy:

Flooding in the Neuquén province of Argentina is causing problems for the local oil industry, including a truck stuck in a washout and a spill of crude oil and produced water.

El Cartel Negro is a remarkable investigation of how organized crime dominates Pemex, Mexico’s state oil company. The book is now available at Amazon and other on-line vendors. I’m reading it, I’ll try and review it at some point.

Colombian oil drilling is being blamed (passive mood quite intentional, I don’t know who’s behind this campaign) for a drought in Casanare. I have no idea if there’s anything to these accusations, but I have written before about how oil drilling in the Colombian llanos is really water drilling with a bit of oil mixed in.

Cuba is using Dassault Falcons with Venezuelan registrations as presidential jets. I can’t find much info about who owns these

Speaking of PDVSA, the company is continuing to provide millions of dollars a year for a Formula 1 racing team. (Thanks SM for the heads-up on that.) Cash crunch, what cash crunch?

US Senator Marco Rubio has been making a stink about Venezuela as a human rights violator, and threatening to revoke visitor visas for some government figures. He also says the US shouldn’t impose sanctions on Venezuelan oil.

Rebecca Solnit gives the very big picture on how the oil industry is a giant case of institutional violence.

If you want little tidbits like this all the time, you should subscribe to my Twitter feed. I may be off in the Great White North but I continue to track South American oil and energy.

Venezuela unrest: Just another delay for the oil industry

Photo courtesy of PDVSA

As Reuters ably showed yesterday, Venezuela’s wave of demonstrations and crackdowns are unlikely to affect the oil industry “in the short term.” The article left out the long term, but it’s pretty clear that it these rallies and counter-rallies can’t help the industry get out of its long-term slump. Every day that goes by like workers marching instead of, you know, working, and every time the oil minister has to spend hours either speaking about politics or attending cabinet meetings is another day of delay for PDVSA’s big capital projects: building new cities, ports, water systems and pipelines in the Orinoco belt, arranging financing with private partners, that sort of thing.

For those of us worried about global climate change, these delays are a good thing — they keep some of the world’s dirtiest crude in the ground, raising fuel prices and encouraging a transition to clean energy.

For those of us worried about the well-being of the Venezuelan people, the news isn’t so happy. Remember this chart, showing in schematic form how the government’s oil output goals have grown more ambitious over the years. When I wrote that, four months ago, Venezuela was aiming for roughly a 3 million barrel-a-day increase over the following five years. Of course output changes in big increments, but that works out to about 2,000 barrels a day of new production in order to overcome decline and also boost output. Every single day that workers are out enjoying the sunshine means those 2,000 barrels need to be spread out among the remaining days.

And what is PDVSA brass thinking about these days? I know there’s always a gap between public relations and reality, but here are the latest press releases via e-mail (a bit wider selection than what you can get from the company’s increasingly dysfunctional web site):

Since Feb. 16, the company has sent 53 press releases, of which one was specifically about oil operations (PDVSA to construct blending plant in Orinoco Belt), and one more about PDVSA bonds. In other words, the real cause of these protests — that Venezuela is falling into an economic shithole — has no near-term exit.

So to cheer you up, here are a few more of the photos PDVSA has sent out:

This slideshow requires JavaScript.

UPDATE: I just want to point out that this post is an example of the kind of lazy reporting I like to complain about. What happens on the internet (or in this case e-mail) doesn’t actually matter. What matters happens in the hands and heads of the Venezuelan people. And I’m not there, so I can’t report much on that, so I write what I know, which isn’t much. For better info, find people on the ground, especially people whose politics you disagree with, follow their tweeters, read what they are seeing and saying.

I missed it, but PDVSA met a deadline

No, seriously, this is interesting. I missed it, but look. Back in 2010, I wrote:

The venture expects to pump 240,000 barrels a day after spending $8.3 billion to develop the Junin 5 block, Ramirez said. First oil will be pumped in 2013, Eni said today on its Web site. It will reach full production in 2016, Scaroni said.

And then earlier this year, some smart guy named Anatoly wrote:

Eni SpA (ENI), Italy’s largest oil company, said its joint venture with Petroleos de Venezuela SA has started producing oil from the Junin-5 block, advancing Venzeula’s plans to develop the world’s largest reserves.

Production from the block in the Orinoco Belt will reach 15,000 barrels a day by the end of the year and 75,000 barrels in 2015, the Rome-based company said in a statement today. The company had previously estimated it would reach 75,000 barrels of output from Junin-5 this year.

I have a lot of fun around here with PDVSA, but if the Eni venture is on target, that makes the current meetings between PDVSA and Eni actually vaguely interesting.