Special Report: In Venezuela’s murky oil industry, the deal that went too far

By on July 26, 2016

CARACAS/BOGOTA Even for Venezuela’s notoriously opaque FINANCIAL SYSTEM, it Used To Be a sweetheart deal that went too some distance.

Ultimate August, state oil company Petroleos de Venezuela SA issued one of its largest tenders in latest years: a multi-billion greenback venture In The Orinoco Belt, the sector’s biggest crude reserve. The project Was Once designed to shore up the OPEC usa’s stagnating oil production and ease an economic difficulty.

Then, abruptly, a tiny Colombian trucking and buying and selling agency and not using a related expertise beat World business leaders to win the contract, worth around $ Four.5 billion in keeping with one PDVSA [PDVSA.UL] record. Alarm bells rang Amongst PDVSA’s International partners, which embrace Chevron (CVX.N) and Rosneft (ROSN.MM).

Trenaco, headquartered in Switzerland However generally run out of Colombia, had edged out the world’s Prime service corporations — Halliburton (HAL.N), Schlumberger (SLB.N) and Weatherford (WFT.N) — after a sequence of CONFERENCES with Top-STAGE PDVSA executives In The six months ahead of the contract Was tendered.

Certain it will acquire the huge contract to drill 600 wells, Trenaco commenced hiring workforce and shopping for tools months sooner than profitable the smooth, in keeping with Four HIGH-rating sources from the now-liquidated firm, as well as WhatsApp text and audio messages between senior group of workers reviewed by using Reuters.

In an exceptional rebel, alternatively, Overseas oil corporations – which would have had to work with Trenaco as PDVSA’s joint venture partners – protested that The Company Was vastly underqualified and undercapitalized, in line with criticism letters sent to PDVSA Closing year, copies of which were viewed by Reuters. Executives at corporations that sent the letters confirmed them to Reuters on the condition that they not be recognized as sources.

The international firms also say they feared that getting fascinated with an immense public challenge anchored via a small and imprecise contractor would expose themselves to regulatory scrutiny again residence.

“There Were red flags in all places,” mentioned one International three way partnership companion in Caracas.

In A Single criticism letter reviewed by way of Reuters, a multinational oil company wrote that Trenaco Was Once “no longer certified technically or financially” to handle the project.

Regardless Of PDVSA’s attempts to persuade companions to simply accept the deal all over joint venture MEETINGS, the International companies refused to fold, and the settlement eventually collapsed between December and January, consistent with joint venture partners.

Venezuela’s Oil Ministry, Knowledge Ministry and PDVSA did not reply to specific questions in regards to the Trenaco undertaking.

Amongst PDVSA’s joint venture partners, the us’ Chevron, India’s ONGC Videsh (ONVI.BO), Russia’s Rosneft, Spain’s Repsol (REP.MC) and Japan’s Inpex (1605.T) declined to remark. Japan’s Mitsubishi Corp (8058.T) mentioned it “failed to complain about this deal,” and had no additional remark. Italy’s Eni (ENI.MI), China’s CNPC [CNPET.UL], India’s Reliance Industries (RELI.NS), India’s Oil India Ltd (OILI.NS) and Venezuela’s Suelopetrol SPTb.CR didn’t reply to requests for remark.

DYSFUNCTIONAL ECONOMY

The doomed Trenaco deal highlights the opacity and dysfunction at PDVSA and in Venezuela’s socialist-run ECONOMIC SYSTEM.

Money-strapped Venezuela, home to the sector’s greatest oil reserves, is heaving UNDERNEATH a third year of recession, acute food and drugs shortages, triple-digit inflation, and rampant violent crime. Looting and meals riots are proliferating, with hungry mobs chanting, “We Want food!” out of doors an increasing number of empty supermarkets.

Reuters reviewed company documents and interviewed dozens of Overseas and local oil executives, current and former PDVSA employees, union leaders, attorneys and politicians. The sources described a tradition of corruption that levels from the trivial – giving a gift to a secretary to land a meeting with a Prime PDVSA Government – to the systemic, such as funneling kickbacks in return for big contracts.

The U.S. Justice Department has said there is a huge, ongoing investigation into bribery at PDVSA. In most likely essentially the most damning case thus far, U.S. authorities in December arrested two Venezuelan oil magnates, Roberto Rincon and Abraham Shiera, alleging they took phase in a thousand million-greenback conspiracy to pay bribes to secure PDVSA contracts. Each males have pleaded guilty.

Oil money owed for 94 p.c of Venezuela’s export revenues, and PDVSA is the financial motor of President Nicolas Maduro’s govt. The Company at first criticized the Rincon-Shiera case as a part of a much broader U.S.-led conspiracy and “smear campaign” in opposition to socialism.

But in its 2015 financial observation, revealed this month, PDVSA said an interior probe discovered it had been the “sufferer of fraud,” referring to the Rincon and Shiera case.

“PDVSA does now not tolerate acts of corruption and can proceed investigating and appearing with the purpose of determining obligations,” The Company mentioned.

It listed a sequence of moves UNDERNEATH solution to prevent corruption, from new fee tactics and controls to an improved inside ethics code.

Venezuela’s ECONOMY has ebbed and flowed with the cost of oil for a century, and allegations of corruption have been endemic Within The industry right here.

The us of a’s opposition says the problem has worsened BENEATH the populist socialist administrations of Maduro and his predecessor, the late Hugo Chavez. The opposition, now in regulate of the National Assembly, accuses authorities of stymieing probes into The Company.

EXCESSIVE-STAGE MEETINGS

The Trenaco deal commenced to take form in early 2015, when a handful of Prime Trenaco executives took weekly journeys with the aid of non-public jet to Caracas and have been whisked in a convoy of armored automobiles to a reserved ground In The metropolis’s Top Marriott lodge, said 4 senior Trenaco executives in Bogota. The guests were in Caracas for MEETINGS local at PDVSA’s headquarters and Trenaco’s local workplace.

The Four executives say a new boss had Simply taken the helm at Trenaco: Alex Saab, a 44-12 months-old businessman from Colombia’s coastal metropolis of Barranquilla.

Saab, they say, Was Once with reference to Top figures in Maduro’s govt and had achieved business with authorities UNDERNEATH Chavez. He additionally had connections with Top people at PDVSA, they say.

“Alex Saab had very good members of the family with the executives at PDVSA,” said one senior Trenaco Executive, who spoke on situation of anonymity.

In November 2011, Saab signed an agreement on behalf of some other of his ventures, a Bogota-primarily based development firm named Fondo World de Construccion, to build social housing for the Venezuelan government. He seemed on state television signing the deal alongside Chavez and Colombia’s president, Juan Manuel Santos.

Fondo World’s headquarters in Caracas are in the identical constructing as Trenaco’s, in step with Venezuela’s National Registry of Contractors database.

Saab denies having anything else to do with Trenaco. Neither Swiss corporate records nor lots of of pages of Colombian registry data received by means of Reuters specify who owned Trenaco.

“I’m Not and have by no means been an worker or shareholder Within The firm that you simply point out and for this reason I’ve nothing to say,” Saab advised Reuters in an exchange on the Whatsapp message provider. He did not reply to an in depth set of follow-up questions.

His legal professional, Colombian lawyer Abelardo de la Espriella, mentioned Trenaco executives had approached Saab to “talk about trade” However Saab had no involvement with The Company.

Interviews and other proof recommend in any other case. 4 senior executives of the now-defunct company advised Reuters that Saab Used To Be in full keep watch over of Trenaco. They confirmed Reuters inside Trenaco correspondence and audio recordsdata exchanged via WhatsApp in which Saab participated. Reuters authenticated Saab’s quantity with the aid of efficiently contacting him on the one used Within The WhatsApp dialog.

The Four Trenaco executives say The Company Was run by means of Saab and two different males: Carlos Gutierrez, the son of a Colombian agricultural baron, and fellow Colombian businessman Alvaro Pulido.

The trio took over the management of The Corporate between 2012 and 2014, when Trenaco Used To Be seeking capital, the sources stated. Details of the earlier and current ownership structure are imprecise.

Gutierrez didn’t reply to a request for comment. Reuters Used To Be unable to contact Pulido.

CASH-LAUNDERING PROBE

Separately, the U.S. Drug Enforcement Administration (DEA) has been investigating corporations owned via Saab and Pulido on suspicion of laundering CASH from unlawful drug trafficking operations, principally cocaine from Colombia, a U.S. legislation enforcement professional instructed Reuters. The standing of that investigation is unclear and it’s possible that no expenses will end result.

Saab failed to respond to a question concerning the DEA inquiry. Reuters Was unable to contact Pulido.

A PDVSA document from Last year put the Trenaco undertaking’s price ticket at some $ 4.5 billion, although individuals conversant in the subject stated the value Was Once later reduced.

Once the PDVSA gentle Used To Be printed in August, Schlumberger, Halliburton and Weatherford requested an extension to the roughly two weeks allowed for proposals, the PDVSA record displays. Of the three firms, simplest Schlumberger ultimately submitted an offer, and it Was disqualified with the aid of the delicate committee.

The Schlumberger suggestion Used To Be shot down as a result of it “didn’t settle for the stipulations and terms of the kind of contract,” the report notes, with out elaborating, and since Schlumberger’s proposed financing scheme, which looked as if it would involve paying off dividends that PDVSA owes to the joint ventures, Was deemed insufficient.

At a time of low oil costs, sources at Overseas firms mentioned, PDVSA Was Once keen that the contractor finance the project itself, as Trenaco had proposed.

Schlumberger declined to remark. Halliburton stated it had “no additional information to add.” Weatherford didn’t respond to a request for comment.

International executives mentioned they didn’t obtain an evidence from PDVSA as to why the Trenaco deal fell thru.

Whatever The case, it Used To Be a loss of life knell for the Colombian firm. Trenaco went into liquidation in March, in step with registry paperwork. The senior Trenaco executives attributed The Company’s shuttering to the give way of the PDVSA deal.

Even some government supporters are questioning the unpopular Maduro’s management of the important thing oil sector.

“We’re ‘Chavistas,’ we’re revolutionaries, But we’re now not idiots,” mentioned Johnny Jimenez, a PDVSA operator and union chief in Maracaibo. He mentioned PDVSA has omitted union requests for employee-led audits. “Why are they afraid of an audit?”

Involved about corruption and inefficiency, Overseas corporations in Venezuela say they are now vying for extra keep watch over over the contracts they strike with PDVSA, reducing the function of Bariven, PDVSA’s procurement arm. However as a result of PDVSA has a minimal 60 percent stake in joint ventures, the International companions usually can not take full rein.

Venezuela’s get to the bottom of to clean up the business may just quickly be put to a take a look at. Sources in Caracas and Bogota say PDVSA is now getting ready a brand new smooth to drill oil wells Within The Orinoco.

In The period in-between, Caracas-based International executives whinge that PDVSA has been signing sudden contracts with new, inexperienced corporations seen as with regards to the Venezuelan oil massive. In A Single case, a Supply at a Overseas firm said, employees had been renting lights from a contractor to light up oil fields – all the way through the daylight hours.

(Reporting by Alexandra Ulmer in Caracas and Girish Gupta in Bogota. Additional reporting by way of Mircely Guanipa in Punto Fijo, Marianna Parraga in Houston, Nelson Bocanegra in Bogota and John Walcott and Julia Harte in Washington, D.C. Editing by way of Brian Ellsworth, Andrew Cawthorne, Kieran Murray and Michael Williams.)


Reuters: Prime News

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