Economy
April 27

Ex Central Bank director believes that Venezuela may sell Citgo
Domingo Maza Zavala, the former director of the Central Bank of Venezuela, said on Monday, April 27 that Venezuela may ponder the possibility of selling Citgo, Pdvsa's oil refining branch in the United States, because of the decline of revenues.

Maza Zavala told Venezuelan radio station Unión Radio that the Venezuelan government would even negotiate the Orinoco Oil Belt and some state assets to get funds and survive another year.

He warned that the Venezuelan authorities are trying to eradicate trade unions and replace them with committees under the command of government officials. Further, badly needed investments in Pdvsa would be delayed.

Downsizing economy
Sinking oil prices unveiled that oil operations are going through a contractive stage, which has an impact on the rest of the economic sectors, particularly dependants on public investment.

Fewer output volumes, revision of costs and expenses, adjustments in investments and accounts payable to workers and service suppliers is the situation undergone by the oil business, whose exports yield over 90 percent of Venezuela's revenues.

In 2008, state-run oil holding Petróleos de Venezuela (Pdvsa) benefit from a barrel that went beyond USD 100 and oil sales surpassed USD 87 billion. However, even in the face of increasing funds, there were signs of alarm and the economic activity was not showing anymore the high growth rates of previous years.

Due to the collapse of oil prices in the last quarter of 2008 as a result of the global financial crisis, the economy in general slowed down. Such situation worsened in the first quarter of 2009. Based on preliminary estimates, numbers will be in the red, influenced by an untoward effect of the GDP in the oil sector and other sectors with a clout in the economy, such as manufacturing and trade.

Factors
Less production was the first issue that made an impact on pointers. The oil business, as agreed by the Organization of Petroleum Exporting Countries (OPEC), reduced oil volumes by 364,000 bpd. Therefore, output levels total three million bpd.

Pdvsa mostly offset the output with prices. However, the actions agreed upon were not echoed by oil quotations. For this reason, in March, the benchmark barrel to finance the central government expenditure and Pdvsa budget was adjusted from USD 60 to USD 40.

April 28

Pdvsa cuts expenses related to oil purchases and operations
The board of directors of state-run oil company Petróleos de Venezuela (Pdvsa) has decided to cut its huge cost and expenditure budget, which would require a review of operating expenses as well as the purchases of oil and byproducts and outlays related to royalties, oil extraction tax, among other activities, amidst a sharp drop in revenues due to low oil prices.

Rafael Ramírez, the Minister of Energy and Petroleum and Pdvsa President, announced last week a reduction of costs and expenditures to USD 6.07 billion, compared to USD 17 billion last year. This figure means a 64.7 percent cut compared to last year budget, due to the effects of the global financial crisis.

The senior official added that Pdvsa's budget for investments will amount to USD 14 billion. This figure is 41.6 percent below the USD 24 billion that the state-run oil company planned to invest this year, said Ramírez in a videoconference which was posted Monday on Pdvsa's website.

Wage cuts
Venezuela's Petroleum Minister also announced a 20 percent reduction of the executive payroll, which includes the salaries of senior managers such as Pdvsa's President, Vice Presidents, directors and managers. Ramírez stressed that there would be neither salary increases nor bonuses this year. He would not elaborate.

"We have to cut excess costs and spending; we have to seek a reduction of the rates charged by contractors, suppliers of goods and services; we have to slash expenditures related to the operation of the company. Otherwise, Pdvsa will not be economically viable," Ramírez said to the workers of the Venezuelan oil company.

Pdvsa plans USD 2.5 billion bond issue
State-run oil company Petróleos de Venezuela (Pdvsa) is planning a USD 2.5 billion zero-coupon bond issue denominated in US dollars but payable in Venezuelan bolivars to pay down growing debts with service suppliers.

"The initial idea is to issue the bonds at the end of May, but this still has to be approved by President (Hugo) Chávez," said a source of Pdvsa, which is burdened by cash flow problems due to the dramatic fall of the country's vital oil revenues.

The official said that according to the plan, the zero-coupon bonds will have a two-year maturity, Reuters reported.

In September 2008, Pdvsa said that its debt to contractors stood at USD 8 billion. A few weeks ago, the state-run oil company began to meet these payments, but the current debt is unknown, Reuters reported.

April 29

Pdvsa pays 20 percent of royalties to the Treasury with barrels of oil
State-owned oil company Petróleos de Venezuela (Pdvsa) decided to adjust the system of payment of royalties at a time when the Venezuelan Treasury needs more cash to meet its commitments.

The Organic Law on Hydrocarbons provides that the state-run oil industry can pay royalties in cash or in kind (oil barrels), and although the legal framework allows for both options, Pdvsa's contribution has been generally in cash.

In nearly four months, the Venezuelan oil industry has paid VEB 6.4 billion (USD 2.98 billion) in royalties, according to data provided by the Ministry of Finance. From this amount, VEB 4.97 billion (USD 2.31 billion) has been paid in cash and VEB 1.3 billion (USD 605 million) in kind. Therefore, 20 percent of the contribution to the Treasury has been paid with oil barrels.

April 30

Pdvsa seeks funds to mitigate decline in revenues
The board of directors of state-run oil company Petróleos de Venezuela (Pdvsa) has been under pressure as petrodollars continue to decline and financiers in the international markets refuse to fund companies in emerging countries. Therefore, the conglomerate has decided to include Venezuelan banks among its financing options.

Top executives of Venezuelan financial institutions have said that Pdvsa owes at least USD 3 billion to service providers working in Venezuela. In parallel, such Pdvsa's creditors are beginning to default, with banks no longer granting loans, thus forcing contractors to defer projects.

Four weeks ago, the board of directors of Pdvsa and a group of banks discussed a payment schedule, under which the financial institutions would pay Pdvsa's outstanding bills to suppliers and, in return, they would be given bond with a clause providing for compensation in the event of losses related to devaluation.

Another option Pdvsa has pondered for the last month is a syndicated loan, that is, a type of loan where a group of four banks join together to lend the money. However, the talks have failed to move forward.