Shanghai-based Wison Engineering to carry out urgent repairs
Venezuela to pay for services with diesel fuel in barter deal
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A
Chinese contractor has agreed to shore up Venezuela’s derelict refining
network to ease fuel shortages, potentially complicating the Trump
administration’s push for regime change in the oil-rich country.
Wison Engineering Services Co.,
a Shanghai-based chemical engineering and construction company that is
using China’s ‘Belt and Road’ infrastructure program to expand overseas,
agreed last month to repair Venezuela’s main refineries in exchange for
oil products including diesel, according to people with knowledge of
the deal.
U.S. financial sanctions aimed at starving the current regime
of revenue contributed to the decision to revive a domestic refining
industry crippled by years of mismanagement and under-investment, said
one of the people, who asked not to be identified because the
information is confidential.
Venezuelan President Nicolas Maduro (2-R) shakes hands with China’s Xi Jinping (2-L) in Caracas
LEO RAMIREZ/AFP/Getty Images
The
deal mirrors the OPEC producer’s other arrangements with Russian and
Chinese oil majors, under which payments are made in crude by
Venezuela’s cash-strapped national oil company.
Wison’s repairs are expected to last six months to a year,
according to another person. The Nicolas Maduro administration was
having difficulties navigating the U.S. economic blockade even before
the U.S. announced additional restrictions on Aug. 5. Last month state-controlled Petroleos de Venezuela SA was importing Russian gasoline through Malta to relieve shortages, a slow and expensive route to the Caribbean nation.
Irregular Supply
Irregular
fuel supplies have crippled mobility in a country where shortages of
food and basic medical supplies have already caused a health crisis and
led to one of the largest mass migrations of recent times. PDVSA, as the
state producer is known, has been directing most available gasoline to
Caracas, where Maduro is most vulnerable to mass protests.
The
Trump administration was hoping to swiftly chase Maduro out of power
earlier this year, and has criticized China and Russia for supporting
what it considers a criminal and repressive regime.
Wison didn’t respond to an email or fax seeking comment on
the refinery contract. PDVSA didn’t respond to emails and calls seeking
comment.
The Chinese company hasn’t completed a contract it won in
2012 to overhaul the Puerto la Cruz refinery. Wison’s revenue from
Venezuela sank 72% last year as the nation’s economic crisis deepened,
according to it’s annual report.
China and Russia have an interest
in preventing the complete collapse of Venezuela’s oil industry because
it’s the only way to recoup the tens of billions of dollars in loans
and investments they have made in the past decade. Wison’s deal also
underscores how the oil-hungry Asian nation remains committed to
Venezuela as a strategic location for foreign investment.
Economic Blockade
Restoring
fuel production, if it happens fast enough, would weaken the U.S.
economic blockade and put Maduro in a stronger negotiating position as
talks with the opposition drag on without any visible progress.
Despite
Venezuelans’ widespread dissatisfaction with their government,
divisions within the opposition are complicating the push toward a
post-Maduro administration. While about 50 nations recognize National
Assembly President Juan Guaido as the country’s interim president, China
has declined to get involved in what it considers an internal conflict.
Venezuela’s
refining industry, once a major supplier to the U.S. with 1.3 million
barrels a day of capacity, has been in gradual decline due to theft,
inadequate maintenance and a brain drain of qualified staff, and was hit
by a series of major power outages this year. In recent years, PDVSA
hasn’t even been able to meet domestic gasoline demand that has
historically been about 250,000 barrels a day.
The U.S. has so far shied away from military intervention in
Venezuela and has instead imposed economic sanctions that target the oil
industry and key members of the government and the military. American
officials continue to project confidence about replacing Maduro with a
pro-business administration despite the lack of progress.
China
rejects “foreign interventions and unilateral sanctions” in Venezuela,
and supports dialogue between the government and the opposition, its
embassy in Caracas said in a statement on May 12. The embassy didn’t
immediately offer additional comments when contacted by Bloomberg.
China wants “to be identified with a friendly socialist
government, especially in the backyard of the U.S.,” said Schreiner
Parker, Rystad Energy’s vice president for Latin America. “They have no
guarantee that a regime change will necessarily mean that they’re going
to be repaid.” — With assistance by Lucia Kassai, and Alfred Cang
UP NEXT
China Yuan-Fixing Drama Fades as PBOC Seen Pursuing Stability
markets
China Sets Yuan Fixing Stronger Than Expected, Soothing Nerves
Tian Chen
Updated on
PBOC reinforcing message it is seeking stability, analyst says
Reference rate set weaker than 7 for the first time since 2008
Why the U.S. Calls China a Currency Manipulator
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The
yuan steadied on Thursday after China’s central bank set the daily
fixing stronger than analysts expected, providing some reassurance to
traders rattled by a tumultuous week in markets.
The
currency rose as much as 0.3% after the People’s Bank of China set its
daily reference rate at 7.0039 per dollar. While that was the first time
since 2008 that the fixing was weaker than 7, it tracked earlier moves
in the spot rate and was stronger than the 7.0156 average estimate of 21
analysts and traders surveyed by Bloomberg.
The fixing has become a closely-watched event after a weak
reference rate on Monday triggered the biggest loss in the yuan since
2015, sparking concern about a global currency war. The latest move
comes after the PBOC took steps to calm sentiment, including reassuring
foreign companies that the yuan won’t weaken significantly.
“China wants to prevent panic now,” said Gao Qi, a strategist
at Scotiabank. “The PBOC will continue to send signals to stabilize the
yuan in the near term.”
The yuan is down 3.7% in the past three months, and at its lowest since at least 2015 against a basket of 24 trading partners’ currencies.
Further depreciation is still on the cards. U.S. President
Donald Trump has threatened to impose more tariffs on Chinese goods and
the PBOC could loosen its monetary policy to aid growth. Central banks
in New Zealand, India and Thailand all made surprise interest-rate cuts
on Wednesday, stoking fears of a full-on currency war.
Yet China
will be keen to avoid the experiences of 2015-2016, when a one-off
devaluation spurred companies and individuals to yank money out of the
country.
“I suspect the authorities will want to gain more comfort
over the next few days and weeks that we’re not seeing a huge
intensification of capital outflow pressures, before they possibly allow
it to go a little weaker,” said Andrew Tilton, chief Asia Pacific
economist at Goldman Sachs Group Inc. “Right now I suspect they want to
desensitize the market to this magic number of 7, and make sure that
they are not going to have a capital outflow problem.”
The
risk is how the Trump administration responds to a weaker yuan. The
U.S. this week labeled China a currency manipulator, a formal
designation which China rejects. The yuan may tumble to as weak as 7.7
in the event of an intensification of trade tensions, according to
Societe Generale SA.
“The further it falls, the more likely the
Trump administration will respond with more tariffs and other policies
to target China,” said Ben Emons, managing director for global macro
strategy at Medley Global Advisors in New York. “All of which points to
even more downside in the RMB, which is then a problem for other
emerging countries that compete with China,” he said, using an
abbreviation of the yuan’s official name.
That means the PBOC’s reference rate is going to continue to be closely watched by traders and central bankers alike.
“The
fix is the number one game in town and will continue to dictate the
pace of play for risk assets over the near-term,” said Stephen Innes,
managing director for VM Markets Ltd. in Singapore. “Nothing else
matters at this stage.” — With assistance by Qizi Sun, Enda Curran, and Claire Che
(An earlier version of the story corrected a spelling error in the headline.)
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