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Venezuela: Two items worth noting

By Veneconomy

21.01.05 | Today, VenEconomy takes a look of two items of relevance. The first is the reclassification of $83 million of Venezuelan debt by Standard and Poor’s on January 18. The risk rating firm dropped the rating for this debt to “selective default.” The decision took the Ministry of Finance by surprise. Apparently, it had not made provision for payment of these bonds issued as part of the restructuring plan signed in 1990. While this could be merely an oversight or an error owing to “operational problems,” as ministerial sources claim, it is also the first public sign of the loss of managerial efficiency since the change in minister last month.

The second is the announcement by the oil company Harvest Natural Resources that its Venezuelan affiliate Harvest Vinccler is to suspend drilling operations at seven oil wells scheduled for this year in the Uracao-Bombal field in southern Monagas. This operating company maintains production levels of 29 thousand b/d of oil and 80 million cubic feet of gas in Venezuela.

The decision was taken after the Venezuelan government failed to approve Harvest’s investment plan for 2005 and because the company considered the unilateral order issued by the Corporación Venezolana de Petróleo (CVP), without prior consultation, to reduce the oil drilling and production budget below the established goal to be unacceptable. As a result of this suspension, Harvest’s production would be 24,000 b/d instead of the scheduled 32,000 b/d. This is just one of 32 similar orders that CVP has given the companies handling the marginal oil fields, fully aware of the negative impact that this will have on the country’s already shrunken production levels. It is not clear what the government’s intention is. Some suggest that it is seeking to bring the contracts signed by PDVSA in the nineties into line with the new legal framework established in the 2001 Hydrocarbons Law, which increases the Venezuelan State’s shareholding to 51%.

These events undoubtedly impair Venezuela’s investment climate and do damage to its image.

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