Caracas weighs PdV successor, free of debt

Spanish Market: Coal, Crude oil, Electricity, Oil products, Petrochemicals
23/10/18

Venezuela's constituent assembly is proposing to replace state-owned oil company PdV with a new national energy company that would inherit everything but PdV's mounting debts.

The new company, tentatively called the Venezuelan Energy Corporation (CVE), would be tasked with developing export-oriented energy projects on its own and through joint ventures with foreign partners, says economist David Paravisini, who chairs the national constituent assembly's (ANC) petroleum, gas, energy and water subcommittee.

The ANC is a rubber-stamp body that Venezuela´s president Nicolas Maduro installed to replace the opposition-controlled national assembly in July 2017.

Under the proposal, CVE would absorb all of PdV's administrative, operational and physical assets, including PdV´s US refining subsidiary Citgo, but not its liabilities. These include debts owed to bondholders, joint venture partners, suppliers and other creditors.

PdV stopped paying interest and principal on all outstanding bond debt in September 2017 except for a $3.4bn PdV 2020 bond that is collateralized with 50.1pc of the shares in Citgo's indirect parent firm, Delaware-based PdV Holding. Combined PdV and government bond arrears currently total about $7bn.

Looming on 27 October is PdV´s obligation to pay over $950mn of principal and interest due on the 2020 bond. PdV assured bondholders last week that the payment would be made on schedule. In the meantime, Citgo, considered PdV´s most valuable asset, is subject to a separate lien by former Canadian mining firm Crystallex over an unpaid arbitration claim.

If PdV falls further behind on its debts, the CVE proposal could be a strategy to cushion the blow from the potential loss of Citgo and to spin off liabilities, possibly by formally declaring the bankruptcy or dissolution of PdV, a scenario that has been discussed in the international financial community for months.

A US-based financial sector executive close to bondholders tells Argus that the move would be "tossed out in any court outside of Venezuela" because a company cannot transfer all of its assets to a new entity without transferring the liabilities as well. "You can´t escape the debt in this way," the executive said.

According to an ANC official with direct knowledge of the proposal, "CVE's creation to replace PdV could be a new beginning for Venezuela's oil industry without the burdens of debt, corruption and deteriorated assets that currently characterize PdV. As CVE absorbs the country's energy companies and PdV is phased out gradually, its debts would be settled fairly as the company moves towards dissolution."

CVE would go beyond PdV to absorb the physical and human assets of other state-owned energy firms such as power utility Corpoelec, coal producer Carbozulia and petrochemicals manufacturer Pequiven. "CVE would be an integrated energy corporation, a single entity responsible for all of Venezuela's energy resources," the official told Argus.

The consolidated approach would eliminate administrative and management redundancies; concentrate financial resources; and centralize long-term strategic planning, project execution and procurement into a single entity, the ANC official said.

PdV was incorporated in 1975, a year before then-president Carlos Andres Perez nationalized Venezuela's historically foreign-owned oil and gas industry. The company has an estimated $22bn in liabilities, although precise data is unavailable because no 2017 external financial audit was conducted.

It is unclear if the CVE proposal is supported by the ANC's top leadership. ANC president Diosdado Cabello, who is widely viewed in Venezuela one of the three most powerful individuals in the ruling socialist party hierarchy alongside Maduro and economy vice president Tareck El Aissami, is currently overseeing a secretive process to draft a new constitution to replace the 1999 Bolivarian constitution authored by late president Hugo Chavez.

The Maduro government hopes to secure popular approval via referendum for its proposed constitutional reforms before 10 January 2019. The CVE's proposed creation could be part of those reforms.

A presidential palace official confirms that there is "some internal discussion" about creating a new company to replace PdV, adding that any such decision would require approval by the political factions headed by Maduro and his spouse Cilia Flores, Cabello and El Aissami.

The armed forces, which already have an industry foothold through the military-run Camimpeg oil, gas and mining company, also would play a major role in this decision, the palace official added.

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

22/11/24

Cop 29 goes into overtime on finance deadlock

Developing countries' discontent over the climate finance offer is meeting a muted response, writes Caroline Varin Baku, 22 November (Argus) — As the UN Cop 29 climate conference went into overtime, early reactions of consternation towards a new climate finance draft quickly gave way to studious silence, and some new numbers floated by developing nations. Parties are negotiating a new collective quantified goal — or climate finance target — building on the $100bn/yr that developed countries agreed to deliver to developing countries over 2020-25. The updated draft of the new finance goal text — the centrepiece of this Cop — proposes a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". This is the developed country parties' submission, the Cop 29 presidency acknowledged. Developing nations have been waiting for this number for months, and calling on developed economies to come up with one throughout this summit. They rejected the offer instantly. "The [$250bn/yr] offered by developed countries is a spit in the face of vulnerable nations like mine," Panama's lead climate negotiator, Juan Carlos Monterrey Gomez, said. Negotiating group the Alliance of Small Island States called it "a cap that will severely stagnate climate action efforts". The African Group of Negotiators and Colombia called it "unacceptable". This is far off the mark for developing economies, which earlier this week floated numbers of $440bn-600bn/yr for a public finance layer. They also called for $1.3 trillion/yr in total climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. China reiterated on 21 November that "the voluntary support" of the global south was not to be counted towards the goal. A UN-mandated expert group indicated that the figure put forward by developed countries "is too low" and not consistent with the Paris Agreement goals. The new finance goal for developing countries, based on components that it covers, should commit developed countries to provide at least $300bn/yr by 2030 and $390bn/yr by 2035, it said. Brazil indicated that it is now pushing for these targets. The final amount for the new finance goal could potentially be around $300bn-350bn/yr, a Somalian delegate told Argus . A goal of $300bn/yr by 2035 is achievable with projected finance, further reforms and shareholder support at multilateral development banks (MDBs), and some growth in bilateral funding, climate think-tank WRI's finance programme director, Melanie Robinson, said. "Going beyond [$300bn/yr] would even be possible if a high proportion of developing countries' share of MDB finance is included," she added. All eyes turn to the EU Unsurprisingly, developed nations offered more muted responses. "It has been a significant lift over the past decade to meet the prior goal [of $100bn/yr]," a senior US official said, and the new goal will require even more ambition and "extraordinary reach". The US has just achieved its target to provide $11bn/yr in climate finance under the Paris climate agreement by 2024. But US climate funding is likely to dry up once president-elect Donald Trump, a climate sceptic who withdrew the US from the Paris accord during his first term, takes office. Norway simply told Argus that the delegation was "happier" with the text. The EU has stayed silent, with all eyes on the bloc as the US' influence wanes. The EU contributed €28.6bn ($29.8bn) in climate finance from public budgets in 2023. Developed nations expressed frustration towards the lack of progress on mitigation — actions to cut greenhouse gas emissions. Mentions of fossil fuels have been removed from new draft texts, including "transitioning away" from fossil fuels. This could still represent a potential red line for them. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Opinion: Bridging the divide

22/11/24

Opinion: Bridging the divide

Cop summits put the gap between developed and developing countries in stark relief and demand a strong moderator Baku, 22 November (Argus) — The UN's Cop climate summits always involve a high-stakes test of multilateralism. But the Cop 29 gathering that is crawling towards its conclusion in Baku this week has pushed this concept to its limit. The summit faced serious challenges even before it kicked off. Azerbaijan took on the presidency relatively late in the day and the country's president, Ilham Aliyev, irritated some delegates with an opening speech that lauded oil and gas as a "gift from God" and railed against "western fake news". His comments on European nations' Pacific island territories prompted France's energy minister to boycott the talks, while the Cop chief executive was caught on film trying to facilitate fossil fuel deals. And the broader geopolitical background for the gathering was, of course, "grim", as EU climate commissioner Wopke Hoekstra noted, even before delegates tackled the summit's key discussion topic — money. At the heart of this year's Cop is the need to agree a new climate finance goal — a hugely divisive subject at the best of times. Discussions start with countries' wealth, take into account historical responsibility for emissions, and often end up with accusations of neocolonialism and calls for reparations. Figuring out who pays for what is crucial to advancing any kind of meaningful energy transition — and is hence a regular Cop sticking point. Developing countries have long argued that they are not able to decarbonise or implement energy transition plans without adequate financing, and they are prepared to hold other issues hostage to achieve this. Equally, developed countries will not budge on finance until stronger emissions cuts are pledged. Cop summits throw the developed/developing world divide into stark relief as well as shine an unforgiving light on weak management and oversight of Cop debate — an event where every country has an equal vote and needs a strong moderator to bridge that deepening developed and developing world division. This year's summit falls between two much more heavily-hyped Cops, and next year's host Brazil has already taken centre stage, boosted by also holding the G20 presidency. Cop 29 president Mukhtar Babayev asked Brazil and 2021 host the UK to help ensure a balanced outcome, while a strong focus on climate at this week's G20 summit in Rio de Janeiro lent some support to discussions in Baku. More challenges loom. US president-elect Donald Trump has threatened to pull the US — the world's second-largest greenhouse gas emitter — out of the UN Paris Agreement for a second time, and there are fears that fellow G20 member Argentina might quit too. But the Cop process has dealt with some of these challenges before — it is built to withstand a term or two of an unsympathetic world leader, and any exits from the Paris accord could galvanise others to step up their policy commitments, several delegates in Baku suggest. And the issue overshadowing it all — and the reason nearly 200 countries still turn up each year — is not going away. The world has already warmed by around 1.3°C above pre-industrial levels and this year is set to smash last year's record as the hottest. Leaders from both developed and developing countries spoke of catastrophic floods, droughts, heatwaves and storms. It has become a truism, but when it comes to the tricky issue of money, the only thing more daunting than the cost of tackling climate change is the cost of ignoring it. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Brazil eyes $300bn/yr for climate finance goal

22/11/24

Cop: Brazil eyes $300bn/yr for climate finance goal

Baku, 22 November (Argus) — Brazil has set out a suggestion of "at least" $300bn/yr in climate finance to be provided by developed countries to developing nations. Brazilian representatives set out their proposal today, in response to a draft text on a new climate finance goal. Brazil's proposal of $300bn/yr in climate finance by 2030 and $390bn/yr by 2035 are in line with the recommendations of a UN-mandated expert group. Negotiations at Cop are continuing late into the evening of the official last day of the conference, with no final texts in sight. Discussions centre around the new collective quantified goal (NCQG) — the climate financing that will be made available to developing countries in the coming years to help them reduce emissions and adapt to the effects of climate change. The presidency draft text released this morning put the figure at $250bn/yr by 2035, with a call for "all actors" to work towards a stretch goal of $1.3tn/yr. Representatives of developing countries have reacted angrily to the figure put forward in the text, saying it is far too low. Brazil's proposal appears to call for all of the $300bn-$390bn to be made up of direct public financing, which could then mobilise further funding to reach the $1.3tn/yr. It was inspired by the findings of a UN report, Brazil said. The UN-backed independent high-level group on climate finance today said that the $250bn/yr figure was "too low," and recommended the higher $300bn-390bn/yr goal. Brazil's ask would be a significant step up in the required public financing. The $250bn/yr target includes direct public financing and mobilised private financing, and potentially includes contributions from both developed and developing countries. Wealthier developing countries have been hesitant to see their climate financing fall in this category, which they say should be made up exclusively of developed country money, in line with the Paris Agreement. But $300bn/yr would represent an increase in ambition, Brazil said, while the $250bn/yr called for in the draft text would be very similar to the $100bn/yr goal set in 2009, after taking into account inflation. Delegates at Cop look set to continue discussions into the night. A plenary session planned for late in the evening, which would have allowed parties to express their positions in public, has been cancelled, suggesting groups still have differences to hammer out. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Drafts point to trade-off on finance, fossil fuels

22/11/24

Cop: Drafts point to trade-off on finance, fossil fuels

Baku, 22 November (Argus) — The new draft on the climate finance goal from the UN Cop 29 climate summit presidency has developed nations contributing $250bn/yr by 2035, while language on fossil fuels has been dropped, indicating work towards a compromise on these two central issues. There is no mention of fossil fuels in either the new draft text on the global stocktake — which follows up the outcome of Cop 28 last year, including "transitioning away" from fossil fuels — or in the new draft for the climate finance goal. Developed countries wanted a reference to moving away from fossil fuels included, indicating that not having one would be a red line. The new draft text on the climate finance goal would mark a substantial compromise for developing countries, with non-profit WRI noting that this is "the bridging text". Parties are negotiating the next iteration of the $100bn/yr that developed countries agreed to deliver to developing nations over 2020-25 — known as the new collective quantified goal (NCQG). The new draft sets out a figure of $250bn/yr by 2035, "from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources". It also notes that developed countries will "take the lead". It sets out that the finance could come from multilateral development banks (MDBs) too. "It has been a significant lift over the past decade to meet the prior, smaller goal... $250bn will require even more ambition and extraordinary reach," a US official said. "This goal will need to be supported by ambitious bilateral action, MDB contributions and efforts to better mobilise private finance, among other critical factors," the official added. India had indicated earlier this week that the country was seeking around $600bn/yr for a public finance layer from developed countries. Developing countries had been asking for $1.3 trillion/yr in climate finance from developed countries, a sum which the new text instead calls for "all actors" to work toward. The draft text acknowledges the need to "enable the scaling up of financing… from all public and private sources" to that figure. On the contributor base — which developed countries have long pushed to expand — the text indicates that climate finance contributions from developing countries could supplement the finance goal. It is unclear how this language will land with developing nations. China yesterday reiterated that "the voluntary support" of the global south is not part of the goal. The global stocktake draft largely focuses on the initiatives set out by the Cop 29 presidency, on enhancing power grids and energy storage, though it does stress the "urgent need for accelerated implementation of domestic mitigation measures". It dropped a previous option, opposed by Saudi Arabia, that mentioned actions aimed at "transitioning away from fossil fuels". Mitigation, or cutting emissions, and climate finance have been the overriding issues at Cop 29. Developing countries have long said they cannot decarbonise or implement an energy transition without adequate finance. Developed countries are calling for substantially stronger global action on emissions reduction. By Georgia Gratton and Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan’s Taketoyo to resume biomass co-firing in 2027

22/11/24

Japan’s Taketoyo to resume biomass co-firing in 2027

Tokyo, 22 November (Argus) — Japan's largest electricity producer Jera aims to resume coal and biomass co-firing at the 1.1GW Taketoyo plant in 2027's first quarter, after a fire halted plant operations in January. Jera announced on 22 November that the thermal power plant in central Japan's Aichi prefecture would resume co-firing wood pellets with coal at a rate of 8pc, around the end of the 2026-27 fiscal year ending in March. This will come after its safety measures are completed. The plant's co-firing rate was 17pc before the serious fire, which was caused by an explosion of dust from wood pellets. The company will consider increasing the co-firing rate again in the future, provided safety can be ensured. But the plant will restart coal-only combustion in early January 2025, operating mainly during the summer and winter seasons, when electricity demand is high. Jera will keep operation rates low at Taketoyo and other coal-fired plants when electricity demand is low and rely more on gas-fired generation, to achieve its initial plan to cut CO2 emissions through co-firing at Taketoyo. Taketoyo started co-firing operations in August 2022 and burned around 500,000 t/yr of wood pellets imported from the US and Vietnam. It will burn 200,000 t/yr after it resumes co-firing at 8pc. The plant will slow down the speed of wood pellet conveyors to reduce friction as a part of safety measures, which means it must also reduce its coal and biomass co-firing rate. It is also currently working on other safety measures, such as installing air pressure conveying facilities dedicated to wood pellets and explosion suppressor systems to inject fire extinguishing agents. The outage at Taketoyo has encouraged Jera to boost replacement gas-fired generation, with the extra gas-fired costs accounting for most of the estimated cost resulting from the shutdown, which could be tens of billion yen in the 2024-25 fiscal year ending in March. By Takeshi Maeda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more