Seeking cash, Venezuela's Chavez looks to sell Citgo

[Zorro]

Another shrewd business move by Chavez may be in the offing.

<snip>

President Hugo Chavez is promising to build new public housing complexes, boost social programs and renovate the long-neglected Caracas subway — and he needs money.

The ambitious plans will squeeze Venezuela's coffers at a time when oil earnings have slipped and Chavez is sending his foreign allies generous amounts of crude on credit. So he has raised a possibility that once seemed remote: selling off Venezuela's U.S.-based oil company, Citgo Petroleum Corp.

For Chavez, it's an idea driven both by hard-money realities and by politics.

Getting rid of the company and its refineries in the U.S. would give Chavez billions of dollars for domestic spending as he approaches his 2012 re-election bid and seeks to remedy problems including an acute shortage of affordable housing. A sale would also fit with the leftist leader's interest in distancing Venezuela from the U.S. while building stronger ties with allies such as Russia, China and Iran.

<snip>

More at: http://www.chron.com/disp/story.mpl/business/7314650.html

[social_critic]

1. I suspect sale will be blocked

The arbitration cases for nationalizations are still going on, the companies involved will likely seek to block the sale so they can capture Citgo as compensation. This is going to get really interesting.

[CJvR]

2. Or at least delay it.

So they are certain they will get something of value rather than just an IOU note.

[social_critic]

3. Exactly

I suspect there may be a blocking action to stop CITGO from issuing more debt. Or maybe the arbitration is taking into account a handover of CITGO to plaintiffs, although I doubt it. The refining business doesn't have much of a future when the oil supply dries up. The CITGO refineries are worth less if Venezuela isn't linked as a supplier.

[CJvR]

4. Perhaps....

...but IIRC there is a shortage of refining capacity at the moment so there might be some value in them even without the Caracas connection.

[social_critic]

5. Where do they have a shortage of refining capacity?

I didn't know there was a shortage of refining capacity. If there is such a thing, then why are refinery margins down? The operable utilization rate in the USA is 86.5 %. This is quite low. Given the current tendencies in the world oil market, it seems we have already reached peak oil for light and medium grades, and growth will be mostly in the heavier oil, syncrudes and condensates in the future. But we also have to factor in the tremendous potential for fuel savings in the US as new fleet efficiency measures are introduced. My conclusion? The refining business is going to be competitive, relatively low margin, with more emphasis given to expanding capacity to process heavy crude.

But there's a shortage of heavy crude within easy distance of the Gulf Coast market, because Mexico's production is declining (PEMEX being a state oil company is having trouble finding new oil production sources), and Venezuela is either declining or flat (PDVSA being a state oil company is having similar problems finding cash to get things done, plus it lost a lot of workers who left the country in the last 7 years or so).

I suppose a buyer may be interested in purchasing CITGO if it comes with a supply contract for heavy crude out of Venezuela. But then there's the issue of trust. The Venezuelan government doesn't have a very good record regarding the way it meets its commitments. It recently walked out of the Pernambuco refinery agreement with Petrobras, to give you a simple example. And it has a tendency to make some really wild agreements, like the swap deal with Glencore to take Russian crude and send it to Belarus, which is offset by giving Glencore a replacement stream out of Venezuela. That deal amounts to giving Glencore the ability to arbitrage, and spitting in the Russians' backyard, for no real benefit, because Belarus is nothing, it exists only if the Russians say it does.

[naaman fletcher]

6. The selling of Venezuela

To buy cheap Chinese crap, and getting people into more consumer debt. As I have said, Chavez is getting to be more and more like W.

[social_critic]

7. Evil Chinese capitalist roaders

The funny thing is, the Chinese are implementing savage capitalism to the max - they are incredibly cynical, they run a "Communist Party" and are privatizing everything, and at the same time treat workers as in a scene from Sinclair's "The Jungle". If Marx and Engels were alive, they would be writing incendiary pamphlets about Chinese Capitalism and its evils.