Thursday, 15 January 2009

Another Setback for PDVSA: Refinery Fire Halts Operations. Why Does This Company Have Continuing Facility Accidents?

Reuters reported last night (click here to read the original story) that the flexi-coke unit of Amuay refinery, Venezuela's largest, reduced its input as a result of a fire and defective operations. Last August, PDVSA had to disable the same unit at Amuay for maintenance, according to Reuters. the unit had resumed operations in December.

The question that many readers are asking themselves is, Why is this happening to a country that raised $200 billion from oil sales in the past three or four years? The answer lies on the fact that, because of President Hugo Chavez's ideological and geopolitical agenda, the state oil company has had to spend twice as much on social programs than on its oil and natural-gas business. The first time such an business focus ''imbalance´´ took place, in 2006, it signaled to Venezuelan watchers that PDVSA was braced for growing challenges in the years ahead.

Well, those ''challenges´´ have turned into ''real problems.´´ We insist again that PDVSA bondholders must remain attentive to these type of developments. In the face of OPEC-mandated output cuts (the Venezuelan company has already implemented a reduction of 166,000 barrels per day of a total of 190,000,) 17 Chinese-made oil drills were stopped and some unions said that 5,000 workers were fired. the company denies it. certainly, there are increasing rumours about the health of PDVSA operations, and whether the company is able or well prepared to face a dearth of funding for the coming months.

  • First, our sources don't expect a default on bondholders, but cash problems will be frequent. The company has been denied access to funds in international markets -- and conditions for refinancing of about $5 billion in loans may get tougher.

  • In April PDVSA has to pay interest on $7.5 billion of bonds. Around the same month the company has to pay taxes to the central government (tax expenses rose more than 90 percent in the first nine months of 2008.)

  • PDVSA says in its Sept. financial report that the company has trimmed debt by over $1 billion by carrying out a series of debt renegotiationa agreements. We wonder how they managed to do that if, when markets were liquid and almost anyone had access to wholesale lending, BNP Paribas SA and partners decided to charge PDVSA a higher interest rate for $1.125 billion in loans because of ''political uncertainty´´?

  • Check the following table with PDVSA's maturities calendar between 2009 and 2013. The calendar is heavy for this year

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