Caracas seeks more credit from Moscow

Market: Crude oil
27/08/19

The Venezuelan government is hoping to secure more credit from Moscow as Venezuelan national oil company PdV pays off its current oil-backed debt to Russian state-controlled Rosneft.

In its second quarter results issued last week, Rosneft indicated that PdV still owed about $1.1bn, excluding interest, down from $2.3bn at the end of 2018. As PdV whittles down its debt to Rosneft, the government of President Nicolas Maduro is redoubling efforts to access new Russian loans and capital expenditure commitments to finance bilateral oil ventures in Venezuela that have lost momentum since 2016.

Vice president Delcy Rodriguez, a member of Maduro's inner circle, visited Moscow on 19-21 August for meetings with senior Russian officials, including foreign minister Sergei Lavrov, to seek more credit lines. She also met with Russian defense and agriculture officials to discuss the expansion of bilateral security relations and plans to increase agriculture commodity imports from Russia, including expanded wheat shipments and meat, pork and poultry products. Venezuela started importing wheat from Russia in mid-2017 but has not reached a targeted 60,000 tons a month, apparently because of payment problems. The Maduro government hopes to eventually import up to 700,000 t/yr of frozen poultry from Russia, the Venezuelan agriculture ministry said.

No new agreements were signed at last week's meetings, Venezuela's foreign ministry said. But the Maduro government is "confident of Russia's continued friendship and support", a reference to Moscow's backing for Maduro's presidency that most Western countries no longer recognize as legitimate.

Lavrov reaffirmed after meeting Rodriguez that Russia "always will be supportive" of the Maduro government in "countering pressures against Caracas".

At the meetings in Russia, the Venezuelan delegation also discussed PdV's plan to move its European office to Moscow from Lisbon. The Moscow office was originally scheduled to open in June.

Caracas is aiming to draw in Russian commitments to revive its oil projects with PdV. Rosneft's main Venezuelan asset is a 40pc stake in the 130,000 b/d PetroMonagas integrated joint venture with PdV. The upgrader at Jose has been out of service for months, but the project is producing around 78,000 b/d of extra-heavy crude in the Orinoco oil belt that is blended at PdV's PetroPiar joint venture plant with Chevron, according to PdV internal reports.

Longer term Rosneft is hoping to develop its 100pc rights to the Mejillones and Parao shallow-water gas fields, which are well-positioned for export to nearly Trinidad and Tobago.

Channel to India

Rosneft channels most of the Venezuelan crude it lifts to its Nayara Energy refining system in India, which alternates with China as the top destination for Venezuelan exports since the US closed off purchases in January. According to Indian customs data for July, Nayara received 103,000 b/d of Venezuelan crude for its 400,000 b/d Vadinar refinery and another 67,000 b/d at Sikka. The balance of the 253,000 b/d of total Venezuelan crude that went to India last month went to Reliance Industries (RIL). The average delivered price for the Venezuelan cargoes was $49/bl.

PdV's debt to Rosneft as of July accounted for a third of the $3.1bn in total outstanding debt that the government of President Nicolas Maduro owed Russian creditors, according to Venezuelan central bank, finance ministry and Russian diplomatic officials. Besides PdV's remaining debt to Rosneft, the Maduro government owes other Russian lenders another $2bn mainly for weapons and agricultural commodity purchases in previous years.

Most of PdV's crude exports go toward servicing oil-backed loans to China and Russia, leaving few cash barrels to support Maduro's government. Prior to the late January 2019 imposition of US oil sanctions aimed at ousting Maduro, Caracas had been earning cash from PdV's exports to the US market which is now closed. Washington had already imposed financial sanctions on Venezuela starting in August 2017.

Venezuela is Russia's largest debtor outside the former Soviet bloc of nations, reflecting its importance to Moscow's efforts to expand its economic and strategic interests in Latin America, a Russian diplomat said.

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