Girish Gupta

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Chávez Looks to 2012 Elections With Fat Oil Revenues Looming
Mar. 17, 2011

Published by Minyanville

Figures are now emerging that cement last week’s predictions of a silver lining in the Middle East crisis, at least for Venezuela's economy. Oil prices in Venezuela broke $100 last week, hitting $101.26 from the previous week’s $97.51.

With oil making up 95% of Venezuela’s exports, President Hugo Chávez will be welcoming the news as he funds his "socialist" experiment with spare cash from state-owned oil company Petróleos de Venezuela (PDVSA). The money is likely to help to battle inflation by funding imports and so lowering supply problems.

However, one sure way to increase PDVSA income will continue to be ignored by the Chávez government. With its subsidy of 90% of the cost of petrol, government coffers are shy of up to $21 billion every year when opportunity cost is included, say analysts.

The oil company has finally signed a formal contract with its counterparts in Cuba and Angolas to form a joint oil-production venture. Venangocupet will combine Cuba’s Cupet, Angola’s Sonangol as well as PDVSA. The agreement was made seven months ago when a memorandum of understanding was written up.

The awkwardly-titled company is to begin work on the Migas and Melones oil fields in eastern Venezuela. Cuba and Angola’s oil companies will each own 20% of it with PDVSA holding on to 60%.

The government is attempting to cut domestic use but slashing the subsidy would cause political turmoil for Chávez; elections next year will be tightly fought.

Chávez is working hard to rebuild support by building up investment in housing and infrastructure, aimed at the hundreds of victims of floods in December. It's also hoped the $977 million investment will stimulate the economy. A further $605 million is to be invested in drinking water for the low-income communities of Miranda state in northern Venezuela, alongside $105 million set aside for rebuilding around Lake Maracaibo, deviated by the floods. The news was announced by Chávez as he drove a jeep through the slums of Caracas in front of photographers and reporters.

Suggesting that re-election thoughts are on his mind, the president announced a 124% wage increase for workers on the 24 farms that were nationalized after the storms, as well as forgiving the debt on state loans to hundreds of local farmers and communal councils. Chávez has pledged to build 2 million homes over the next six years, 150,000 of which are to be built this year.

However, promises are rarely realized in Venezuela. Housing construction has been hampered over recent years thanks to a shortage of cement, exacerbated by the nationalization of the cement industry in 2008.

“During the last presidential election campaign in 2006, spending grew by an obscene amount -- 32% in real terms,” Boris Segura, an analyst at Nomura, told Minyanville. “It was an explosion of public expenditure. I expect something similar to happen in 2012, possibly an increase of 37% in real terms.
“It is important for his political standing. He’s going to try and create a feel-good factor, despite all the signals otherwise: high inflation, very slow recovery, real wages dropping in real terms.”

Much of the money has been loaned from China, the second loan in less than 12 months. In August 2010, the state-owned China Development Bank granted a 10-year, $20 billlion loan to the country.

Venezuela will also begin importing equipment for a new agricultural machinery factory from China which will be built in the oil-rich state of Zuli. The Chinese energy industry, including companies like PetroChina (PTR), Sinopec (SHI) and Cnooc (CEO), has spent decades investing in politically volatile regions such as Venezuela.

However, the president did ensure bridges with much of the rest of the world were very much burned. Chávez said this week “The Yankee empire, the CIA and the States Department” are keen to divide his armed forces, in preparation for a Libya-like uprising in Venezuela following next year’s presidential election.

He also hastily announced plans to halt all peaceful nuclear power developments, given events in Japan where officials fear a nuclear meltdown following last week’s earthquake and tsunami.

"I do not have the least doubt that [the potential for a nuclear catastrophe in Japan] is going to alter in a very strong way the plans to develop nuclear energy in the world,” Chávez said.

The leftfield president however, then switched to Venezuela’s latest enemy: breast implants
. He described it as “monstrous” that women had been convinced that if they don’t have big bosoms, they should feel bad. The country is obsessed with beauty, having won more Miss Universe competitions than all others.




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© Girish Gupta