Rosneft has been secretly helping Maduro stay afloat in Venezuela

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Venezuela protests Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela rts1437v
A
primary-care response team huddles during clashes with security
forces at a rally against Venezuelan President Nicolas Maduro in
Caracas.

Reuters/Carlos Garcia
Rawlins


CARACAS/HOUSTON — Venezuela’s unraveling socialist government is
increasingly turning to ally Russia for the cash and credit it
needs to survive — and offering prized state-owned oil assets in
return, sources familiar with the negotiations told Reuters.

As Caracas struggles to contain an economic meltdown and violent
street protests, Moscow is using its position as Venezuela’s
lender of last resort to gain more control over the OPEC nation’s
crude reserves, the largest in the world.

Venezuela’s state-owned oil firm, Petroleos de Venezuela, or
PDVSA, has been secretly negotiating since at least early this
year with Russia’s biggest state-owned oil company, Rosneft —
offering ownership interests in up to nine of Venezuela’s most
productive petroleum projects, according to a top Venezuelan
government official and two industry sources familiar with the
talks.

Moscow has substantial leverage in the negotiations: Cash from
Russia and Rosneft has been crucial in helping the strapped
government of Venezuelan President Nicolas Maduro avoid a
sovereign-debt default or a political coup.

Rosneft delivered Venezuela’s state-owned firm more than $1
billion in April alone in exchange for a promise of oil shipments
later. On at least two occasions, the Venezuelan government has
used Russian cash to avoid imminent defaults on payments to
bondholders, a high-level PDVSA official told Reuters.

Rosneft has also positioned itself as a middleman in sales of
Venezuelan oil to customers worldwide. Much of it ends up at
refineries in the United States — despite US sanctions against
Russia — because it is sold through intermediaries such as
oil-trading firms, according to internal PDVSA trade reports seen
by Reuters and a source at the firm.

PDVSA and the government of Venezuela did not respond to requests
for comment.


putin rosneft oil Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela undefined
Russian
President Vladimir Putin visiting a Rosneft refinery in the Black
Sea town of Tuapse, in southern Russia.

Alexei Nikolskyi/RIA
Novosti/Kremlin/Reuters


The Russian government declined to comment and referred questions
to the foreign ministry and the ministries of finance and
defense, which did not respond to questions from Reuters. Rosneft
declined to comment.

Russia’s increasing control over Venezuelan crude gives it a
stronger foothold in energy markets across the Americas. Rosneft
now resells about 225,000 barrels per day of Venezuelan oil
— about 13% of the nation’s total exports, according to the PDVSA
trade reports. That’s about enough to satisfy the daily demand of
a country the size of Peru.

Venezuela gives Rosneft most of that oil as payment for billions
of dollars in cash loans that Maduro’s government has already spent. His administration needs
Russia’s money to finance everything from bond payments to
imports of food and medicine amid severe national shortages.

Venezuela’s opposition lawmakers say Russia is behaving more like
a predator than an ally.

“Rosneft is definitely taking advantage of the situation,” said
Elias Matta, vice president of the energy commission at
Venezuela’s elected National Assembly. “They know this is a weak
government; that it’s desperate for cash — and they’re sharks.”

Matta echoed many others in the opposition-majority congress who
have blasted corporate deals they say are underpinning Maduro’s
efforts to establish a dictatorship.

The Venezuelan government has said previously that Russia’s
investment in its oil industry shows confidence in PDVSA’s
financial stability and the nation’s business opportunities.

Maduro’s administration has become increasingly dependent on
Moscow in the past two years as China has curtailed credit to
Venezuela because of payment delays and the corruption and crime
faced by Chinese firms operating there, according to Venezuelan
debt analysts and two oil-industry sources.

Many multinational firms worldwide, meanwhile, have all but
written off their Venezuelan operations amid the nation’s tanking
economy and chronic shortages of raw materials.

Rosneft is making the opposite play — using Venezuela’s hard
times as a buying opportunity for oil assets with potentially
high long-term value.

“The Russians are catching Venezuela at rock bottom,” said one
Western diplomat who has worked on issues involving Venezuela’s
oil industry in recent years.


Venezuela's President Nicolas Maduro gestures as he speaks during a session of the National Constituent Assembly at Palacio Federal Legislativo in Caracas, Venezuela August 10, 2017. REUTERS/Ueslei Marcelino  Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela venezuelas maduro affirms new legislative body as all powerful 2017 8
Maduro
at a session of the National Constituent Assembly at Palacio
Federal Legislativo in Caracas.

Thomson Reuters

As other companies shutter operations here, Rosneft has expanded
to an additional floor of its office tower and added staff. The
Russian firm has poached PDVSA professionals and brought in more
Russian executives, two sources close to Rosneft told Reuters.

The corporate expansion provides a striking contrast to the scene
on the streets below these days, in the once thriving business
district of Caracas.

As Rosneft staffers work in swanky offices alongside posters of
Russian President Vladimir Putin and a bust of Hugo Chavez, the
late Venezuelan leader and socialist icon, crowds of young men
outside often throw rocks and Molotov cocktails in escalating
protests of Chavez’s successor.

Rosneft owns substantial portions of five major Venezuelan oil
projects. The additional projects PDVSA is now offering the
Russian firm include five in the Orinoco — Venezuela’s largest
oil-producing region — along with three in Maracaibo Lake, its
second-largest and oldest producing area, and a shallow-water oil
project in the Paria Gulf, the two industry sources told Reuters.

In a separate proposal first reported by Reuters last month,
Rosneft would swap its collateral on 49.9% of Citgo — the
Venezuela-owned, US-based refiner — for stakes in three
additional PDVSA oil fields, two natural-gas fields, and a
lucrative fuel-supply contract, according to two sources with
knowledge of the negotiations.

Under the proposal, Rosneft would also take increased management
control over all the joint oil projects between the two firms.

Rosneft secured the collateral late last year on a loan of $1.5
billion to PDVSA.

The negotiations over a collateral swap are driven in part by a
recent threat from US President Donald Trump to sanction
Venezuela’s oil sector as punishment for Maduro’s efforts to
undermine the nation’s elected congress.

Rosneft has already been sanctioned by the United States over
Russia’s annexation of Crimea from Ukraine in 2014. Such actions
require US firms to end business relations with sanctioned
entities.


Venezuela protests Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela rtx35pnb
Demonstrators
next to a burning bus near a protest against Maduro’s government
in Caracas.

Reuters/Christian
Veron


Russian oil deals undermine democracy

Maduro’s need for Russian cash played a key role in a move by his
political allies earlier this year that destabilized Venezuela’s
already teetering democracy, the top Venezuelan government
official told Reuters.

In March, the nation’s Supreme Court — whose members are loyal to
Maduro — took over the powers of the opposition-controlled
National Assembly. A majority of elected Assembly members opposed
any new oil deals with Russia and insisted on retaining
the power to veto them.

Days later, after fierce national protests against the action,
the court returned most powers to the national legislature at
Maduro’s public urging. But the court allowed the president to
keep the legal authority to cut fresh oil deals with Russia
without legislative approval.

The episode was pivotal in escalating daily street protests and
clashes with authorities that have since caused more than 120
deaths.

Maduro needed sole authority to cut new oil deals to clear the
way for Rosneft’s expansion, the top Venezuelan government
official told Reuters.

“Pressure from Russia has played an important role in Nicolas
Maduro’s decisions,” the official said, speaking on condition of
anonymity because he was not authorized to make public comments.

Rosneft said this month that it had lent a total of $6 billion to
PDVSA. In total, Russia and Rosneft have delivered Venezuela at
least $17 billion in loans and credit lines since 2006, according
to Reuters calculations based on loans and credit lines announced
by the government.

Venezuela does not publish the full details of the debts it owes
Russia.


venezuela protest Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela ap17208679262820
Maduro
supporters cheer during a rally in Caracas in
July.

Associated Press/Ariana
Cubillos


Maduro has sought to limit the power of congress since the
opposition won a majority in 2015.

In late July, he created a legislative superbody called the
Constituent Assembly in an election that was widely criticized as
a sham. Allies of the Socialist Party won all 545 seats in the
new assembly, which has the power to rewrite the nation’s
constitution, dissolve state institutions — such as the
opposition-run Congress — and fire dissident state officials.

Spiral of debt and dependence

Venezuela’s oil-based economy has collapsed since international
prices crashed to a low of $24 a barrel in early 2016 from
more than $100 in 2014. Prices now hover at about $50, which
hasn’t proven high enough to pull Venezuela out of its tailspin.

Nearly all of the nation’s export revenue comes from oil, so
income has fallen sharply and a shortage of petrodollars has left
Maduro’s government unable to finance the generous subsidies of
food, medicines, fuels, power, and other public services
instituted by his predecessor, Chavez.

The erosion of subsidies has contributed to rapid inflation,
which the International Monetary Fund forecasts will top 700%
this year. Venezuela’s currency, the bolivar, has become nearly
worthless.

Government spending cuts have also slashed budgets for
maintaining the nation’s oil fields, refineries, ports, and
tankers, causing Venezuela’s oil output in the first half of 2017
to fall to near its lowest level in 27 years.


People attend a rally where opposition supporters pay tribute to victims of violence in protests against Venezuelan President Nicolas Maduro's government, in Caracas, Venezuela July 31, 2017. REUTERS/Ueslei Marcelino Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela venezuela braces for fresh marches against new socialist led superbody 2017 8
People
at a rally in Caracas where opposition supporters are paying
tribute to victims of violence in protests against Maduro’s
government.

Thomson
Reuters


PDVSA is repaying an increasing portion of its mounting debts to
Russia with oil, according to internal PDVSA trade data reviewed
by Reuters. The oil payments are choking off the cash flow from
its petroleum business — thereby creating the need for more
loans.

Circling oil assets

The nation’s downward spiral has put Rosneft in a position to
acquire Venezuelan oil assets on the cheap.

Of the package of stakes PDVSA has offered to Rosneft, the most
valuable is a 10% stake in Petropiar, a multibillion-dollar
project to produce and upgrade extra heavy crude in the Orinoco
Belt.

The value of the stake is likely between $600 million and $800
million, based on the valuations of similar deals.

The rising volumes of Venezuelan crude that Rosneft receives have
made the Russian firm a middleman in sales to refiners that once
bought directly from PDVSA. The oil payments have also helped
Rosneft grow a major oil trading business to complement its
massive production apparatus.

In the process, the Russian firm has appropriated some of PDVSA’s
hard-won international supply deals and valuable trading
relationships with refiners as far afield as China, the PDVSA
documents show.

At today’s prices, the Venezuelan oil exports that flow to
Rosneft would be worth about $3.6 billion annually. And the flow
of PDVSA crude to Rosneft is expected to keep increasing,
according to the internal PDVSA documents.


Venezuela Colombia deportations protests Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela venezuela colombia deportations protests 1
Venezuelan
authorities at a demonstration in Caracas in February
2015.

Fernando
Llano/AP


Most of it is sold into the United States, according to the
documents.

Rosneft also will soon start selling Venezuelan crude to India’s
refiner Essar, taking PDVSA’s second largest customer in the
Asian country.

“Russia is taking everything they have,” said an oil trader who
regularly deals with PDVSA.

A dicey investment

The Russian strategy has its risks. Many of the world’s top
energy firms took a hit when Chavez nationalized their assets,
and an opposition-led government could later reverse or revise
any deals Maduro cuts without their blessing.

Venezuela’s bond yields are among the highest in the world
because of the nation’s high default risk. The bonds pay nearly
30 percentage points more than benchmark U.S. treasuries.

PDVSA’s many connections to the United States oil industry also
raise the specter that the deals now under negotiation could run
afoul of U.S. economic sanctions already in place against Russia
and threatened against Venezuela.

The Petropiar project, for instance, is 30 percent owned by U.S.
oil major Chevron Corp.

Should Rosneft take a stake in the project, it could be
complicated for Chevron to ensure it is not violating U.S.
sanctions. In the meantime, Chevron has sent guidelines to
executives to ensure they comply with sanctions, an employee at
Chevron told Reuters.


Venezuela's President Nicolas Maduro speaks during his weekly broadcast  Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela us sanctions eight more venezuelan officials including chavez brother 2017 8
Maduro
speaking during his weekly broadcast.

Thomson Reuters

The guidelines advise staff, for instance, to avoid one-on-one
meetings with sanctioned entities or officials, the employee
said. In a statement, Chevron said it abides by “a stringent code
of business ethics” and complies with applicable laws.

For now, Russia’s status as chief lender to PDVSA has put Rosneft
in a position to supercharge its holdings and profits in the
region.

If Venezuela’s government defaults on its debt payments — an
increasingly likely scenario – Rosneft likely will be one of the
entities at the front of the queue as a creditor because of its
large collateral stake in U.S.-based Citgo, according to a
confidential independent analysis of its debt commissioned by an
investment fund and seen by Reuters.

Representatives of Citgo, PDVSA’S largest foreign asset, did not
respond to requests for comment.

Guns for oil

Rosneft’s involvement in Venezuela can be traced back to a $4
billion arms-for-oil deal in 2006 that cemented the bond between
the governments of Chavez and Putin. Chavez, a former military
officer, signed the deal himself in Moscow.

Shunned by the United States — which since 2006 has refused to
supply spare parts for Venezuela’s fleet of U.S.-built F-16
fighter jets — Chavez bought Russian Sukhoi fighter jets,
helicopters, tanks and guns from Putin.

Top executives from Rosneft and PDVSA were later involved in
negotiations related to the military purchases because Rosneft
was the Russian entity receiving the Venezuelan oil cargoes used
to pay for a portion of the weapons, the top Venezuelan
government official told Reuters.

They included Rosneft President Igor Sechin, a powerful long-time
advisor and deputy to Putin. Sechin is a trained linguist who
began his career as a military interpreter and has a passion for
the history of Latin America’s revolutionaries, according to two
people who worked with him.


Russian President Vladimir Putin (L) and Foreign Minister Sergey Lavrov stand while waiting for Turkish President Tayyip Erdogan prior to their talks at the G-20 summit in Hamburg, Germany July 8, 2017.  REUTERS/Alexander Zemlianichenko/Pool Rosneft has been secretly helping Maduro stay afloat in Venezuela Rosneft has been secretly helping Maduro stay afloat in Venezuela ussia ready to help mediate in qatar row if asked lavrov
Putin
and Russian Foreign Minister Sergey Lavrov.

Thomson Reuters

He had a direct line into Chavez until the former president’s
death in 2013, the Venezuelan official told Reuters. Sechin has
maintained close ties with Maduro and the two meet regularly, the
official said.

Speaking to reporters in at a hydroelectric plant in Russia last
week, Sechin called Rosneft’s growing investments in Venezuela an
obvious and essential play.

“This is a country with the world’s hydrocarbon reserves,” he
said, referring to a central component of oil and natural gas.
“Any energy company should aim to work in this country … No one
could force us from there.”

Russia was swift to defend Maduro’s government from international
criticism after the Supreme Court moved to nullify congress, with
Moscow issuing a statement saying foreign governments should not
meddle in Venezuelan domestic politics.

Sechin was Maduro’s guest of honor at a ceremony last October to
unveil a Russian-made granite statue of Chavez erected in the
late president’s hometown of Sabaneta.

In the sweltering heat, a Russian choir dressed in black sang the
Venezuelan anthem in heavily accented Spanish before Sechin
addressed the crowds of mostly red-shirted Socialist Party
supporters.

“Thank you for trusting us,” Sechin told the crowd in Spanish
during the speech, broadcast on Venezuelan state television.
“Russia and Venezuela, together forever!”

(Reporting by Marianna Parraga in Houston and Alexandra Ulmer in
Caracas; additional reporting by Polina Nikolskaya and Ekaterina
Golubkova in Moscow; editing by Simon Webb and Brian Thevenot)



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