ANÁLISIS QUINCENAL: Transparency and Extractives Update from Latin America
By Carlos Monge, RWI Latin America Regional Coordinator
With Claudia Viale and León Portocarrero
July 10th – 25th, 2009 |
Español |
The Ecuadorian Government intensifies oil sales through an advance to increase liquidity.
On July 13th, the Ecuadorian government announced it would receive a US$ 1 billion transfer as an advance for future oil sales to the Chinese company PetroChina. In exchange for these funds, Ecuador will send 96 billion barrels of crude oil to China over the next two years. Through this agreement, Ecuador can increase its liquidity, which was severely restricted, particularly given its recent announcement that it would give an extra US$ 618 million to the state-owned oil company Petroecuador to increase its investment plan. However, some information about the China transaction was not disclosed, leading analysts to caution that the financing could include interest rates that will be too high for the government to repay in the upcoming years.
It was President Rafael Correa himself who confirmed the China agreement, stating that the transaction was an "oil sale in advance, in which Petrochina will give us US$ 1 billion under very good terms and we will pay them back in oil, which we are already sending to China." This sale is the largest deal based on oil ever made by Ecuador, but, again, the exact details about the terms of the negotiation were not revealed. Press reports also noted that the contract meetings were held very quietly and that Petroecuador officials had no intention of disclosing certain data about the contract due to "commercial issues."
Therefore, it remains unclear what the real cost is of this cash advance, since neither the price fixed per barrel nor the interest rate were disclosed. This information is crucial to estimate the debt service the government will face in 2010 and 2011, which will limit their expenditure capacity for those years. Denying these details to independent analysts and to public scrutiny opinion would be a setback to the progress made in extractive sector transparency.
One additional criticism of the plan is that the contract allows PetroChina not only to use the Ecuadorian oil in its refineries, but also to re-sell the unprocessed oil in any world market except in Latin America. This goes against a government policy, established by the Petroecuador Board of Directors in March of 2007, stating that Petroecuador can only sell to end users.
But the government's pursuit of added oil income extends beyond the sale to China. Only two days after the PetroChina announcement, Chile's national oil company, Enap, announced it had signed a direct export agreement with Petroecuador. Through this deal, Petroecuador agreed to sell 10 million barrels a year to Enap, for which it will receive US$ 630 million a year at current market prices.
These two agreements indicate that the Ecuadorian Government is seeking to maintain its current expenditures until the end of the year, since their budget has faced liquidity problems due to lower tax revenues stemming from the economic crisis.
Hydrocarbon and copper exports fall in some Latin American countries.
The economic crisis and the fall in the demand for hydrocarbons and minerals from the main trading partners of Bolivia, Chile and Venezuela's have affected export volumes in these countries. In response, Bolivia has began considering alternatives, such as a contract with Argentina to guarantee a higher level of exports, as well as the production of alternative fuels, which have a higher demand in other countries.
After fluctuations in the levels of Bolivian natural gas exported to Brazil and Argentina, the level has remained low since May. Indeed, though in April exports to Brazil reached 30 million square meters a day (MMmcd), in June and July they were between 18 and 20 MMmcd. Similarly, exports to Argentina were 7 MMmcd in the last days of April, but fell to 5 and 6 MMmcd by July. In both cases, the reductions were due to a lower demand for fuel due to the economic crisis, and also to availability of alternative energy sources, such as hydroelectric power in Brazil, and diesel fuel, whose price has fallen with oil prices.
Since this lower demand will apparently continue through the end of the year, hydrocarbon companies announced they were considering two options. First, the Bolivian Government said it had developed a project to produce Liquefied Natural Gas (LNG) for export, which included the construction of a liquefaction plant. This possibility is being studied since Peru and Venezuela announced they have already developed plans to produce and export LNG to countries that now import Bolivian natural gas. Second, the Bolivian Hydrocarbon Chamber (BHC) raised the possibility of signing a contract between state-owned company YPFB and Argentina's state-owned Energía Argentina S.A (Enarsa) in which Argentina would guarantee a certain level of gas imports, while Bolivia would guarantee a set level of production. Magela Bernardez, president of the BHC, affirmed that the Bolivian supply of natural gas was assured by new drilling carried out by Petrobras-Bolivia, British Gas Bolivia, Pluspetrol, Gas To Liquid International (GTLI), Repsol, Andina, and others.
Meanwhile in Venezuela, the Ministry of Energy and Oil said that Venezuelan oil exports fell in more than 75,000 barrels per day (bpd) in June, from 2 million 570 thousand bpd to 2 million 495 thousand bpd due to lower production from the National Oil company PDVSA. The export data began to be published this year in response to estimates by independent analysts which showed even greater drops.
In the mining sector, Chilean copper exports fell significantly, both in value and in volume. Though the value of copper exports fell by 51% during the first quarter of 2009, compared to the same period of previous year, the volume of these exports was only 7.5% lower than in 2008. This means that falling prices remain the predominant factor in declining value of copper exports for the first trimester, although lower demand for copper in the main markets is also becoming a factor. Indeed, demand for Chilean exports in the European Union dropped by 37% over the same period, a decline of 18% in demand from North America and of 20% from the Andean community.
More state-owned oil companies in Latin America seek financing for their investment plans.
After the mid-summer announcement of bonds issued by Venezuela's state-owned oil company PDVSA for 37 million bolívares, news emerged about other state-owned companies in Latin America searching for new sources of financing. Although the public companies in Colombia also chose to issue bonds, in Brazil, national oil company Petrobras chose to seek a loan from the national development bank. In all these cases, it was specified that the resources obtained would be used to help finance investment plans, in contrast to the case of Venezuela, where the national company was trying to cover its debts.
In Brazil, Petrobras announced it was negotiating with the National Social and Economic development Bank (BNDES) to secure a loan for 25 million reales (approximately US$ 13.5 million). This loan was already budgeted for in the 2009-2013 business plan and would finance a portion of planned investment for that period, estimated at the extraordinary figure of US$ 174 billion. Company representatives said that the money would be given in the form of federal public securities and gave assurances that it would not affect their debt position: "[the financing] does not alter or affect the company's debt level nor the destiny of the resources, therefore it will not have an impact on the trading of the company's stocks."
Colombia's the state-owned oil company Ecopetrol embarked on a new bond issuance after a successful first round in September of last year. On July 14th 2009, the company announced its second bond issuance of US$ 1.5 billion with a 10-year maturity. It also confirmed the bonds were listed on the New York stock exchange and that the agents were Barclays Capital and JP Morgan Securities. Standard and Poor’s rated the bonds BB+ and Moody's rating was Baa2.
On July 16th, when the bonds became available on the market, the response exceeded all expectations: A demand of US$ 8 billion was registered, well above the amount offered by the company. Analysts such as Daniel Velandia from Untrabursátiles say this high demand was due mainly to the fact that international oil prices have remained above US$ 60 for the last few months, and to the source of the bonds being a state-owned company.
Choosing a different approach, the Refinery of Cartagena (Reficar), a property of Ecopetrol, announced on June 27th it would enter the Colombia Stock Exchange as soon as it concluded its modernization plan. Its sale of stock could reach 40% of the value of the company, which is now fully owned by Ecopetrol after it purchased Glencore’s shares for US$ 549 million on May 27th 2009. This sale would help finance the investments in modernization , which are estimated at around US$ 4 billion. However, the Ministry of Energy and Mines has said it disapproves of the stock plan.
The search for new sources of financing suggests that in the second half of 2009, with oil prices facing a different scenario compared to earlier in the year, Ecopetrol and Petrobras are moving forward more firmly with their investment plans. Furthermore, if prices continue to rise, both companies would receive more income and have more own resources available to finance their investments.
Sources: El Mercurio, El Universal, Elcomercio.com (Ecuador), El Universal, La Razón, La Republica.com.co (Columbia), Mercado Continuo, Folha Online
PREVIOUS ISSUES
U.S. Said to Allow Drilling Without Needed Permits - The New York Times
Australia Gas Deal Renews Tension - Financial Times
Charged With Fraud, Nigeria's Ruling Party Leader Resigns - Reuters
Western Senators Propose Ban on Pacific Drilling - The New York Times
To Limit Corruption around Mining in Africa, Follow the Money - The Globe and Mail
Court Backs Oil Project - The New York Times
Transparency Increases, But There Is Still a Long Way to Go - The Phnom Penh Post
IMF Develops Project to Help Africa Deal with Illicit Trade - African Manager
Three-day Conference on Africa's Natural Resources Starts in Tanzania - Standard Times Press
After Oil Rig Blast, BP Refused to Share Underwater Spill Footage - ABC News
Finger-Pointing, but Few Answers at Hearings on Drilling - The New York Times
Complaints Over U.N. Prize Sponsored by Equatorial Guinea's Obiang - Reuters
Guide: Community-Company Grievance Resolution for Australian Mining Industry - Oxfam Australia (pdf)
Cote D'Ivoire: President for Life, and Then Some - The New York Times
In Midst of Massive Spill, Oil Industry Fighting Transparency and Accountability - Oxfam America
Leaked Oil Contracts in DRC Threaten Resource Wars and $10 Billion Rip-Off by British Company - Carbon Web
Contracts Confidential: Ending Secret Deals in the Extractive Industries
Contract transparency is sorely needed to improve the management of natural resource wealth. In a new report from RWI, authors Peter Rosenblum and Susan Maples delve into government and private sector objections to contract disclosure and make conclusions about what information may legitimately and reasonably be kept confidential, and how civil society institutions can better confront the challenge of secret deals.
Learn more about the report ...
NEW TRANSLATION: Revenue Redistribution at the Local Level
Many resource-rich countries are attempting to compensate their producing regions through shares of resource revenues to be spent at the local level. In "Extractive Industries Revenues Distribution at the Sub-National Level," development economics consultant Matteo Morgandi presents a comparative analysis of international legislation for distribution of extractive revenues from across all levels of government. Prepared at the request of the Peruvian National Congress, the report studies the legislative practices of seven resource-rich countries to identify potential and address challenges. Please note that this report is now also available in Vietnamese.
Learn more ...