Fausta's Blog

Miguel Octavio posts, Why I Think PDVSA Plans To Sell Stock In One Heavy Crude Oil Project Via The Chinese Governement

A couple of notes here. First, note that the upside of the sale goes to the Chinese, not to, for example, to Venezuelan investors. Perverse, no?. Two, for Venezuela this is a no-brainer, PDVSA gives up dividends (investors will have to be paid somehow), but the Venezuelan Government will continue to charge royalties, taxes and windfall taxes on each barrel produced, which is where the big money really is.Three, the Chinese have realized a profit in their investment and can now plow the money back into Venezuela. Simply recirculate it, they can buy 40% of Petroanzoategui (formerly Petrozuata, fully owned by PDVSA) or they could buy 23.3% of Petromonagas (formerly Cerro Negro, where BP has a small stake). Then, they can turn around and sell these in the Hong Kong Stock Exchange.

And they can take their money and their profits or whatever they sell their shares for and plow it back into Venezuelan oil fields.

But more importantly, PDVSA has found a way to raise money for the new projects, which are not producing yet and the Chinese to establish how much they will be worth when producing, a nice way to know your return in investment ahead of the project. After all, a barrel of improved oil from any of these projects is worth roughly the same in all of them. The Chinese get some money back, likely have clauses that the oil from new projects will be shipped exclusively to China and more importantly, they can sell their stakes in the new projects once they are fully functioning too.

And in a virtuous circle, an almost pyramid, as long as people need oil, they can invest the money in ever new projects in Venezuela’s heavy oil fields. The much-hated markets will provide the endless funding, like this, as long as it is profitable:

You must read the whole post.

Remember, as oil prices rise and the Keystone pipeline cancellation benefits Venezuela, this will matter to us.

Related (in Spanish),
PDVSA: EL NEGOCIO FAMILIAR DEL CLAN CHÁVEZ REPORTE: LA “OLLA PODRIDA” DEL RÉGIMEN
and,
Hugo Chavez’s illness triggers new reports of discontent, fear in the military

Must-read article at Deutsche Welle on the upcoming report by The Financial Action Task Force (FATF),
Ecuador emerges as hub for international crime
Ecuador is emerging as a focus for transnational criminal groups, according to US and European officials. Colombian and Mexican drug traffickers as well as Chinese and African human traffickers use it as a business hub.

The Financial Action Task Force (FATF), the inter-governmental body responsible for combating money laundering and the financing of terrorism, is expected at its meeting in February in Abu Dhabi to include Ecuador on its high-risk jurisdiction list at the request of G20 finance ministers.

Why?

Ecuador attracting transnational crime
FARC’s penetration of Ecuador’s government and judiciary, the country’s weak institutions and anti-money laundering laws and its nonexistent anti‐terror financing laws as well as its porous borders with its drugs producing neighbors have turned Ecuador into a place where transnational criminal organizations from Latin America, Russia, China, India and Africa can conduct business, according to a just-released report by the Washington-based International Assessment and Strategy Center (IASC).
…
The report goes on to say that Ecuador is “increasingly attractive for Russian organized criminal groups, both for weapon sales to the FARC and to launder money” and that “Chinese triads, particularly those involved in smuggling human beings, have greatly increased their presence in Ecuador.” The Financial Action Task Force warned in 2007 that Ecuador had failed to comply with 48 of its 49 recommendations on money laundering and terrorist financing.
The officials say the lifting in 2008 of visa requirements for nationals of most countries and the adoption in 2000 of the US dollar as Ecuador’s national currency make it easy for Russian, Chinese, Indian and African criminal organizations to operate in Ecuador.
The dollarization of Ecuador’s economy, lax restrictions on the movement of large amounts of money and some of world’s strongest bank secrecy laws enable the laundering by Russian crime groups of proceeds of Mexican drug and Asian and African human traffickers. A recent study by Quito’s San Francisco University concluded that annually up to $1billion (0.7 billion euros) are laundered through Ecuador. US law enforcement officials say the figure could be substantially higher.
The lifting of visa requirements has allowed Chinese triads as well as Indian and African human traffickers to process people they are trafficking through Ecuador, the Washington institute’s report says. US diplomats say that virtually every non-Latin American immigrant caught since the lifting entering the United States from Central America and Mexico has transited through Ecuador. “They are mostly Africans or Central Asians, which raises security concerns,” one diplomat said.

DW also explains some of the shady financial dealings with Iran, and the corrupt judicial system.

If you are one of the many Americans considering retirement in Ecuador, I urge you to read this article.

Scott Johnson nails it: Thomas Friedman, you pitiful fool,

Friedman’s utopian daydream is a liberal fantasy that fits into a long and disgraceful tradition of protecting or celebrating Communists and Communism at the Times.

By contrast, journalist and China scholar Jonathan Mirsky is an honorable left-winger who has been a close and critical observer of the high price of Communism on the citizens of China. Mirsky’s essay on Liu Xiabo, the 2010 Nobel Peace Prize winner, appears in the current New York Times Book Review under the headline “Exiled at home” and online under the headline “Liu Xiaobo’s plea for the human spirit.” Appearing in the Times, the essay can’t be given my fantasy heading for it: “Thomas Friedman, you pitiful fool.”

Liu Xiaobo’s book, No Enemies, No Hatred: Selected Essays and Poems, has a foreword by Vaclac Havel.

Read the review, buy the book.

This week’s big news: the helicopter crash that killed to Cabinet Secretary Francisco Blake Mora; he was Mexico’s second-in-command.

ARGENTINA
Argentina Can’t Slow Drain on Dollar Reserves

Currency control efforts worry Argentines

BRAZIL
Will Brazil become like Venezuela?

How Brazil can benefit from helping Europe
Brazil’s growing economy and 200 million people make it a major market
A financial contribution by Brazil to help the EU combat its debt crisis would be small, but provide an opportunity to improve ties with Europe and play a bigger international role. (h/t Gates of Vienna)

COLOMBIA
Se derrumba otro mito: El Caso Mapiripán

CUBA
Che’s Secret Diary
The guerrilla hero as a dispirited racist.

Michael Moore Salutes Our ‘Hispanic’ Veterans

EL SALVADOR
NYTimes book review: In the New Gangland of El Salvador

HAITI
The UN in Haiti
Damned if you do

MEXICO

Mexico Under Siege

Border: The helicopter crash Friday that killed Mexico’s top Cabinet official, Jose Francisco Blake, couldn’t have come at a worse time. Cartels are acquiring heavy arms to challenge the state and to move their war to the U.S.

In Mexico, Blake, the Interior Secretary, was the best hope of winning the war against the vicious cartels, who’ve killed as many as 86,000 people.

Blake, 45, had managed to crush the cartels and cut crime in his native Tijuana before he was asked to do the same for the country in the top Cabinet job in 2010.

He had some success — five of the top seven cartel capos were knocked off by the end of his watch.

But he’s the second interior secretary killed in a helicopter crash since 2008, and that leaves a great sense of uneasiness. Mexico’s currency fell on news of his death, the cause of which is still undetermined.

A fatal crash

Grassley: Holder refusing to provide 11 witnesses for Fast and Furious interviews

PERU
Leaders of China, Peru seek new cooperation

PUERTO RICO
Puerto Rico matches last year’s record for second-highest number of killings

URUGUAY
Quiet Success in South America
The underappreciated economic achievements of Uruguay and Paraguay

VENEZUELA
Venezuela’s Perez would revise Cuba oil deal

In yet one more display of stupidity and showmanship, the increasingly bloated Hugo Chavez is calling for the BRICs (Brasil, Rusia, India and China) – along with the ALBA countries – to stand up and fight for Muammar.

He also urged Gaddafi to continue resisting,

“Nobody knows where Qaddafi is,” Chavez said today in a phone interview broadcast on state television. “I’m sure that he’s very far from thinking about leaving Libya. He’ll resist with what power he has left.”
…
Chavez, who last month pledged support to Qaddafi and called the armed conflict in Libya the result of “imperial insanity,” said he doesn’t have information on the leader’s whereabouts. He said that by resisting, Qaddafi can lay the groundwork for a lasting peace in Libya.

Yeah, right.

Hugo isn’t offering any help, though, not even one of the planned “socialist cars“

When asked if he would offer Qaddafi asylum, Chavez recalled a conversation he had with Cuba’s Fidel Castro about the capture of Saddam Hussein after Iraq was invaded. Chavez said Fidel told him that in such situations “what we have to do is win or die.”

Blah blah blah.

The BRICs ignored Chavez’s blather while Gaddafi pulled a Sir Robin,

Spain’s Duchess of Alba, one of the world’s richest women, is remarrying at age 85. The Will of the Duchess of Alba: All for Love and Money. All, except good judgement, at least when it comes to plastic surgery:

Maybe she’ll buy herself some eyebrows for the wedding.

UPDATE,
From my Facebook thread,

Todd wrote: “If I were going to marry a babboon, I’d pick a much younger one.”

Now, now, Todd…

How about an outline?

The last time I went to Ikea Bill Clinton was President; Charles Martin reminded me why: Dante’s IKEA.

What’s next for Moammar Gadhafi?
Nobody seems to know where the embattled Libyan leader is hiding, or where he’s headed. Here, 5 predictions.

I very much doubt that Muammar will be welcome in Caracas until Hugo’s moved the gold and is not worried about sanctions.

Which brings me to the next item,

How to get $12 billion of gold to Venezuela

It’s not much of a precedent, but it’s the only precedent we’ve got; my gut feeling is that Venezuela would be do well to get away with paying 3.3% of the total value of the gold in total expenses. Given that the gold is worth some $12.3 billion, the cost of Chávez’s gesture politics might reasonably be put at $400 million or so.

It seems to me that Chávez has four main choices here. He can go the FT’s route, and just fly the gold to Caracas while insuring each shipment for its market value. He can go the Spanish route, and try to transport the gold himself, perhaps making use of the Venezuelan navy. He could attempt the mother of all repo transactions. Or he could get clever.

In the first instance, the main cost would be paid by Venezuela to a big insurance company. I have no idea how many insurers there are in the world who would be willing to take on this job, but it can’t be very many, and it might well be zero. If Venezuela wanted just one five-ton shipment flown to Caracas in conditions of great secrecy, that would be one thing. But Chávez’s intentions have been well telegraphed at this point, making secrecy all but impossible. And even if the insurer got the first shipment through intact, there would be another, and another, and another — each one surely the target of criminally-inclined elements both inside and outside the Venezuelan government. Gold is the perfect heist: anonymous, untraceable, hugely valuable. Successfully intercepting just one of the shipments would yield a haul of more than $300 million, making it one of the greatest robberies of all time. And you’d have 39 chances to repeat the feat.

Would any insurer voluntarily hang a “come get me” sign around its neck like that? They’d have to be very well paid to do so. So maybe Chávez intends to take matters into his own hands, and just sail the booty back to Venezuela on one of his own naval ships. Again, the theft risk is obvious — seamen can be greedy too — and this time there would be no insurance. Chávez is pretty crazy, but I don’t think he’d risk $12 billion that way.

Chavez Credits Castro, Jesus for Recovery

Former Tiananmen Square Student Leader Urges Joe Biden to Call for an End to China’s One-Child Policy, after Biden says he “fully understands” the one-child policy.

while China is lending Venezuela an additional $4billion,
Venezuela Finalizing New Loans Totaling $8B With China, Russia

Venezuela is finalizing agreements for two separate credit lines of $4 billion each with Russia and China, with a portion of the financing earmarked for military equipment for the South American nation, according to Venezuelan state media.

With the world’s largest oil reserves, Venezuela needs a well equipped military to defend itself from foreign aggression, President Hugo Chavez said during a broadcast phone call reported by the Venezuelan News Agency.

Chavez had to call in the news from Havana, where he is undergoing chemotherapy.

Readers of this blog may recall that Russia has financed over $6billion worth of military equipment from 2005-2010.

On the other hand, Venezuela is borrowing at least $24billion from China,

last year, Venezuela received a $20 billion credit line from the China Development Bank for housing

The housing construction has not started, but Hugo’s betting on oil futures, so to speak, in a very big way.

Cross-posted at Real Clear World.

Outsourcing defense components?

Definitely not a good idea.

While the US economy is in a growth recession and economic growth is anemic at best,
Terrence Jeffrey of CNS News reports that China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.

Uncoverage asks,

all of this discussion [on raising the debt ceiling] is now moot, because if no one wants to buy your debt,   why bother to raise the debt limit?

Doug Ross posts,

It turns out that 150 prominent economists back the GOP on the debt ceiling fight.

More than 150 economists back U.S. House of Representatives Speaker John Boehner’s call to match any increase in the debt limit with spending cuts of equal size, according to a letter released by the Republican leader’s office Wednesday… Signatories include Nobel laureate Robert Mundell of Columbia University and economists from schools like New York University and Georgetown University, as well as conservative think tanks like the American Enterprise Institute… Republicans say they will not back any increase that does not include steep spending cuts and other limits to ensure that debt stays at a manageable level.

Meanwhile, after QE1 & QE2 have fueled inflation, the current anti-business environment of higher taxes and higher regulation is doing nothing to pull the economy out of the doldrums.

UPDATE, Monday 6 June,
Reader Clark comments,

Hello Fausta,

I love your blog and read it often.

Perhaps you would wish to know that this story is more or less nonsense.

China sold short-term US debt instruments ( which pay almost nothing in interest ) and bought longer-term US debt instruments ( which pay slightly more than nothing). Moreover all this took place many months ago.

http://www.zerohedge.com/article/china-dumps-us-bonds-attempts-clickbaiting

I stand corrected on the bonds story.

“Cuba’s Deep-Water Drilling Proposal Raises Concern“, as well it should, since it’s sixty miles off the Florida coast,

Interior Secretary Ken Salazar expressed concern Thursday about Cuba’s proposal to allow deep-water oil and gas drilling off the Florida coast.

The U.S. has banned offshore drilling in waters near the Florida coast. Following last year’s Deepwater Horizon oil spill in the Gulf of Mexico off the Louisiana coast, Mr. Salazar and other U.S. officials have been engaging Mexico, Brazil and other countries in discussions about offshore-drilling safety, following on U.S. actions to tighten safety standards.

But so far they haven’t talked with officials in Cuba, where several global companies have signed leases, and Spain’s Respol is expected to begin drilling this year.

“Obviously because it’s located sixty miles off the coast of Florida, it’s an issue that we’re monitoring very carefully,” Mr. Salazar said during a forum on offshore-drilling safety. “It’s an issue of concern.”

Last week, Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, endorsed the idea of establishing uniform safety standards among the U.S., Mexico and Cuba for drilling in the Gulf of Mexico. He cautioned that finding a way to do so would be “tricky” and needed to be explored.

Mexico’s talks with Cuba have been limited to a dispute over the border between the two nations’ territorial waters, which the United Nations is helping to resolve, said Mario Gabriel Budebo, undersecretary for hydrocarbons in Mexico’s Ministry of Energy.

“Once that is solved, then we can move forward to other issues,” Mr. Budebo said Thursday during the drilling-safety forum.

Unmentioned in the article is the fact that Cuba hired Chinese and Canadian companies to work on 36 oil wells five years ago.

Rather than address the issue in the USA that we are the only nation in the world which prevents itself from exploring and exploiting its own energy resources, Salazar and the US officials are attending a conference where they are trying to impose rules on 12 other countries – among them China and Canada – on how to drill offshore. Those countries see energy production as necessary for their national best interest, unlike the USA.

Good luck with that.

Meanwhile, the no-drill zone remains intact for Americans, while others, such as Cuba, drink our milkshake.
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