Fin de la fiesta

 

As Venezuela’s economic and political mood turns ugly, shipping interests must keep a sharp eye on the nationalisation threat to their assets. Michele Labrut reports

Venezuelans have officially begun to tighten their belts. Their half-decade, crude-fuelled spending splurge is over.

The International Monetary Fund now predicts that Venezuela’s GDP will fall 2.2% this year; other forecasters believe the IMF is too optimistic. Container imports began a precipitous slide in the second quarter and many believe tanker exports are imperilled by the shaky finances of state oil company PDVSA.

Not coincidentally, the squeeze has led to wave after wave of business nationalisations by Venezuela’s mercurial president, Hugo Chavez.

The fear is that Chavez will become ever more dictatorial. “We believe that Chavez knows he cannot continue with an open democratic regime. Consequently, he must restrict liberties, repress the opposition and dictate tough laws,” Julio Borges, leader of opposition party Primero Justica, told Fairplay.

Chavez’s tactics are “to leave behind the electoral game and divide us again,” claimed Borges, warning: “We are heading directly to a confrontation.”

The mood is sombre in Venezuela’s business sector – particularly in shipping circles – after last month’s nationalisation of 70 local and foreign oil service firms in Lake Maracaibo. Some 350 vessels, 30 barges, 61 diver boats, five shipyards and 39 terminals and docks were seized and transferred to PDVSA.

The Venezuelan government claimed these contractors were inflating prices, but the consensus belief is that the seizures were spurred by PDVSA’s inability to pay its bills. Many of the service contracts allow for international arbitration, so it’s going to be a lawyer’s dream, according to one industry source.

“It was a mistake on the part of the government,” argued Clyde & Co partner Aurelio Fernandez-Concheso, who represents some of the domestic and foreign companies that were hit.

“Many of those vessels require special care and PDVSA is not prepared to operate them,” he told Fairplay.

According to one estimate, 8,000 employees who worked for the private firms will be absorbed by PDVSA. However, it is unlikely that all of them will make the payroll, because many of their names are on the blacklist of workers fired by PDVSA after the 2002 strike.

Fernandez-Concheso noted that a large number of the affected vessels are double-flagged and cannot be expropriated without further complications.

The action may create a legal nightmare, since some vessels were on charter and others had mortgages. The takeover “is without precedent in the history of the maritime industry worldwide and maritime law,” emphasised Fernandez-Concheso.

Under the new law that underpins the nationalisations, the government will pay book value for the seized assets, but can give bonds in lieu of cash for compensation. Affected companies have scant options, an executive from one of the seized firms told Fairplay.

“Either the takeover is 100% and we lose everything, or PDVSA accepts it must become a partner, with its debt used as a capital swap and PDVSA controlling the company and tariffs – or nothing will happen [ie PDVSA doesn’t move forward with takeovers],” he said.

The executive also fears that “it [the Maracaibo seizures] might serve as a test trial to extend [nationalisations] to the eastern region, where foreign and local companies operate”. As Fairplay went to press, reports were surfacing that cargo terminal operators may be the next target for expropriations. Earlier this month, the Lloyd’s Market Association Joint War Committee placed Venezuela on its high risk list, due to the rising threat of asset expropriations. This advisory could potentially hike premiums for owners with vessels serving Venezuela.

Even before that warning, Chavez’s nationalisation spree had raised alarms within the country’s prodigious tanker chartering community. Charterers and brokers speaking to Fairplay expressed distress at the recent oil services nationalisation, on the concern that this could curb production.

“If there is less oil to transport, there are fewer charters,” said Alireza Etessami, director of brokering firm Lake Huron.

Indeed, the International Energy Agency warned this month that the nationalisations would “have a detrimental impact on output in the near term” and “the disruption to field work, coupled with an acute financial shortfall, may limit PDVSA’s resources to manage the takeover”.

Another ominous question being voiced by brokers is: Will the recent nationalisations create a confidence crisis among shipowners to the point where they’re reluctant to charter vessels to Venezuela?

This is not the first time the government has nationalised oil sector property. In 2007, it took over four heavy crude joint ventures in the Orinoco Belt, forcing the private partners to take minority stakes. Two US companies, ExxonMobil and ConocoPhillips, bowed out instead. There have also been similar nationalisations in other sectors, including electricity, telecommunications, cement, steel, iron, agriculture and food distribution.  

(Source: Fairplay)