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Who Owns Venezuelan Oil and Debt?

The importance of the unanswered question became even clearer last month, when Guaido, the 35-year-old National Assembly President, failed to convince the military to abandon Maduro. Now there is an international financial chess fight, between the United States and more than 50 countries that support Guaido as the country's legitimate interim president, and those nations are tailored to Maduro.

To support Guaido, the United States has initiated a series of sanctions to prevent Maduro's oil sales from the state-run company PDVSA (Petróleos de Venezuela, S.A) and to direct money into accounts controlled by Guaido.

Meanwhile, Venezuela supports two largest creditors, China and Russia Maduro and keeps an eye on what they owe. Cuba has also strengthened the regime by sending thousands of security forces in exchange for free oil.

Venezuela has the largest oil reserves in the world. It also has a tremendous debt and creditors' encryption to get paid is an important factor in the global split over Venezuela.

Rampant inflation has made Venezuelan currency almost useless and oil is the main way to repay creditors. The problem is that its oil supply is only valuable when it can be extracted and processed, and its tiny infrastructure can simply not produce enough oil to serve as security against the entire debt book.

  Venezuela Fast Facts
Thanks to lack of management and nationwide electricity outages, oil production has decreased from just over 3.5 million barrels per day in 1998 – the year before Chavez took power – to 750,000 barrels per day in March 2019, according to field level data from Rystad Energy. Between it and the hard sanctions, Venezuela's current oil company nowhere near enough money to meet the country's currency requirements or credit obligations. More than half of the current production is already intended to pay off debts and therefore cannot be sold for cash in the open world.

"The total debt is more than six times the annual export. In fact, the ratio is getting much worse this year with the export decline. No one expects Venezuela to pay its debts and the situation is very poor compared to the number of barrels that actually generate cash flow. "Francisco J. Monaldi, the Latin American energy fellow at Rice University's Baker Institute in Houston, Texas, tells me.

  In this handout photo, the center was released by Miraflores Press Office, Venezuelan President Nicolas Maduro.

Monaldi notes that even economically affected southern Sudan has a much better debt-to-export ratio.

Those who end up in the Venezuelan Presidency will face large sums of debt that will be difficult to repay, even if oil production ramps rapidly. "The problem of reporting the Venezuelan debt is that there are very different estimates. It is at least 130-100 billion dollars, but it can be up to $ 160 billion depending on how you add all the arbitration, decisions against Venezuela, the money that Venezuela is guilty of airlines and others, "says Monaldi.

"Mortgaged to the Hilt"

US President Donald Trump, a veteran of several bankruptcies, points to Russia and China as significant contributors to Venezuela's financial debacle. On May 1, he told Fox Business: "The advantage (Venezuela) is that they have oil. It is pledged to the edge between China and Russia. They have just sucked money out of everyone. (Venezuela) has pledged their oil almost to maximum … When you think about it, what has to be done, it is essentially called a country foreclosure. "

Overall, Venezuela can owe China more than $ 55 billion and Russia at least $ 17 billion, Moises Rendon estimates, former Venezuelan banking analyst who is now Associate Director of the Americas program at the Center for Strategic & International Studies in Washington, DC

China has lent more than $ 60 billion to Venezuela since 2007, mostly in exchange for promises of repayment in oil. Russia has also made significant loans to Venezuela and sells weapons on credit. Both countries are slowly lowering their debts by taking oil deliveries.

And the Maduro regime has not considered how to raise foreign currency by pumping more oil for sale for dollars on the open market without triggering cling from its creditors owed to even more oil.

Before US sanctions, PDVSA raised dollars for Venezuela by selling nearly 500,000 barrels of oil a day to its subsidiary, Citgo, the US refinery headquartered in Houston, Texas, and incorporated into Delaware. Citgo has been so crucial for Venezuela that its bonds are the only debt issue that has been kept up-to-date with creditors by the government. But US sanctions have put Citgo's board under the control of Guaido supporters and segregated their bank accounts to interrupt Maduro's access.
  Tankers are seen in Maracaibo, Venezuela on March 15, 2019.
The Citgo share is also covered with offers made by creditors. To guarantee repayment to investors who bought $ 7.1 billion in Citgo bonds, which are expected to pay in February 2020, investors received a 50.1 percent priority premium on Citgo's stock. The remaining 49.9 percent of the Citgo share is pledged to Rosneft, the Russian oil company, in exchange for a loan of $ 1.5 billion.

"The Maduro government does not control Citgo anymore, so they will not pay," Monaldi predicts, referring to US compulsory takeover of the Citgo board by Guaido loyalists. "The Russians have a harder hand. They have to convince a (US) judge to let them sell the shares to get back." Citgo in Houston refused to return emails or phone calls requests.

PDVSA itself has more than $ 40 billion in outstanding debt, much of which is now in arrears. It is unlikely that a Maduro or Guaido government can or would repay PDVSA loans anytime soon to companies that support and supply oil drilling services, shipping and marketing.

Guaido's promises

Guaido's emissaries have tried to convince countries like Russia and China that a new regime would honor their claims – and that the argument is decisive. Frank A. Verrastro, a US oil director and government official in the United States now serving as senior vice president at the Center for Strategic & International Studies, says that Russia's and China's economic problems could potentially turn its support from Maduro.

"For the Chinese in particular, if you ever want to pay back the money that Venezuela owes you, would you not be better able to handle a new government that is solvent than the Maduro government?" says Verrastro.

Joel Guedes, an energy consultant with IPD Latin America who worked for PDVSA for more than two decades, tells me that one important issue is: "Can a Guaidó-controlled government offer China and Russia a better repayment plan?" 19659029] Venezuelan opposition leader and self-declared president Juan Guaido speaks at a meeting of the Caracas Chamber of Commerce. "data-src-mini =" // cdn.cnn.com/cnnnext/dam/assets/190516144329-guaido-celebra-cese-embajada-washington-venezuela-small-169.jpg "data-src-xsmall =" / /cdn.cnn.com/cnnnext/dam/assets/190516144329-guaido-celebra-cese-embajada-washington-venezuela-medium-plus-169.jpg "data-src-small =" http: //cdn.cnn. com / cnnnext / dam / assets / 190516144329-guaido-celebra-cum-embajada-washington-venezuela-large-169.jpg "data-src-medium =" // cdn.cnn.com/cnnnext/dam/assets/190516144329 -guaido-celebra-cese-embajada-washington-venezuela-exlarge-169.jpg "data-src-large =" // cdn.cnn.com/cnnnext/dam/assets/190516144329-guaido-celebra-cese-embajada– washington-venezuela-super-169.jpg "data-src-full16x9 =" // cdn.cnn.com/cnnnext/dam/assets/190516144329-guaido-celebra-cese-embajada-washington-venezuela-full-169.jpg "data-src-mini1x1 =" // cdn.cnn.com/cnnnext/dam/assets/190516144329-guaido-celebra-cese-embajada-washington-venezuela-small-11.jpg "data-demand-load =" not -loaded "data-eq-pts =" mini: 0, xsmall: 221, small: 308, medium: 461, large: 781 "src =" data: image / gif; base64, R0lGODlhEAAJAJEAAAAAAP /////// wAAACH5BAEAAAIALAAAAAAQAAkAAAIKlI + py + 0Po5yUFQA7 "/>

"The Chinese are reluctant to continue to expose themselves in providing additional financial assistance because Venezuela and PDVSA already owe them much money. The Russians are in the same situation, says Guedes.

"The Russians and the Chinese basically keep the Maduro regime alive. The opposition also understands that they want to honor financial obligations with any creditor. Of course, creditors should be part of the solution, not part of the problem."

But so far Guaido's parallel administration has not been able to win the trust of all creditors. It has said it will request a cancellation of a nearly $ 9 billion payment to Conoco-Phillips in March in a World Bank arbitration award.
Similarly, the Guaido law team has for federal and state judges in Pennsylvania and Delaware stated that it will attempt to stop Crystallex, a Canadian mining company from forcing a sale of Citgo shares to collect an arbitration worth $ 1.2. billion.

If Maduro is replaced by a new government, the legitimacy of many of the financial agreements negotiated over the past 20 years by Chavez and Maduro regimes can be challenged in international legal proceedings, Rendon points out, since the debt agreements were never approved by the Venezuelan the National Assembly, which is considered by Guaidos supporters to be the only legitimate government body-in the first place.

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