Exclusive-Venezuela swapped PDVSA oil for food, then punished the dealmakers

Exclusive-Venezuela swapped PDVSA oil for food, then punished the dealmakers

By Luc Cohen and Marianna Parraga

CARACAS – With U.S. sanctions spooking key oil buyers and depriving its government of cash, Venezuela last year inked a deal with a little-known local company to swap crude for food, Reuters has learned.

That agreement saw state oil company PDVSA, beginning in December 2020, deliver more than 6 million barrels of crude worth nearly $260 million to a company named Supraquimic C.A., which was to supply food for a government program. But the arrangement collapsed when PDVSA accused two executives linked to Supraquimic with embezzling the proceeds, according to criminal charges filed by Venezuelan prosecutors in late March.

This account of the deal and its demise is based on dozens of pages of internal PDVSA documents viewed by Reuters, court filings by prosecutors, and interviews with three people familiar with the situation. It offers a rare glimpse inside one of the maneuvers that Venezuela’s socialist government devised to continue exporting crude – the lifeblood of its beleaguered economy – despite U.S. sanctions.

Neither PDVSA nor Venezuela’s oil or information ministries or chief prosecutor’s office responded to requests for comment. President Nicolas Maduro has called U.S. sanctions illegal and blames Washington and his domestic political opponents for the country’s woes.

The Supraquimic deal is also the latest example of how Venezuela, cut off from the global financial system and short of hard currency after years of economic decline, has turned to bartering its crude. It has previously used oil to pay down debts https://www.reuters.com/article/us-venezuela-china-exclusive/exclusive-venezuela-wins-grace-period-on-china-oil-for-loan-deals-sources-say-idUSKCN2581UN, buy gasoline and diesel https://www.reuters.com/article/us-venezuela-diesel-agriculture-feature-idAFKCN2D0188, and purchase water trucks https://www.reuters.com/article/us-venezuela-mexico-trucks/second-cargo-of-water-trucks-from-mexico-arrives-in-venezuela-under-oil-swap-idUSKBN22D63P. Maduro has even proposed using oil to buy coronavirus vaccines https://www.reuters.com/article/us-health-coronavirus-venezuela-oil/venezuelas-maduro-proposes-paying-for-coronavirus-vaccines-with-oil-idUSKBN2BK0SR.

Just as important, the Supraquimic deal provided PDVSA with a new customer. Since the United States blacklisted PDVSA in early 2019, many major clients have stopped buying. In their place, a series of mysterious, recently-formed companies https://www.reuters.com/article/us-venezuela-oil-exports-special-report-idINKBN27Q295 with no previous oil experience have materialized to buy PDVSA‘s oil, including previously-unknown Mexican and Russian firms.

Purchases by these new players have allowed Venezuela’s crude exports to climb sharply this year https://graphics.reuters.com/VENEZUELAOIL/EXPORTS/xegpbqdzjvq, internal PDVSA shipping documents and Refinitiv Eikon vessel tracking data show.

“It is amazing how Venezuela has mutated to overcome difficulties coming from sanctions, which is making Venezuela’s oil trade increasingly opaque,” said Francisco Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute.

It’s all part of a cat-and-mouse game that Caracas is playing with U.S. authorities to keep selling its most important commodity. Washington has barred American companies from purchasing Venezuelan oil and has threatened to punish firms based anywhere in the world that do business with PDVSA.

Neither the U.S. State Department nor the Treasury Department, which enforces U.S. sanctions, responded to requests for comment.

The Supraquimic deal also demonstrates potential perils for companies doing business with Venezuela’s government, which has sparred repeatedly with the private sector even as the Socialist Party has courted their investment https://www.reuters.com/world/americas/maduro-ally-makes-rare-appearance-venezuela-business-group-assembly-2021-07-20 to boost the economy.

In 2015, for example, with Venezuela rocked by shortages of consumer goods, authorities detained executives of a pharmacy chain https://www.reuters.com/article/us-venezuela-pharmacy/venezuela-arrests-pharmacy-chain-owners-in-economic-war-idUSKBN0L91JN20150205 and workers at a leading food company https://www.reuters.com/article/cbusiness-us-venezuela-polar-idCAKBN0U302520151220 on accusations of hoarding supply to destabilize the economy, which they denied. Venezuela’s industrialists have blamed Maduro’s socialist economic policies for the nation’s woes.

“The main risk to doing business with the government is not that you’re going to lose money or that your assets are going to be expropriated. It’s that you’re going to end up in jail,” said Jose Ignacio Hernandez, a specialist in Venezuelan administrative law and economic regulation at the Harvard Kennedy School and the former legal representative for Venezuela’s opposition.

Venezuela’s Information Ministry did not reply to a request for a response to Hernandez’s assertions.

Such tensions were on display again on March 30, when Venezuelan authorities issued arrest warrants for Supraquimic President Oscar Garcia as well as Jose Llamozas, who owns firms that sold food to Supraquimic. Both were charged with embezzlement, collusion between a public official and a contractor, and illicit association, according to the prosecutor’s request to a judge for the warrant.

Garcia, whose whereabouts are unknown, did not respond to phone calls, emails and messages to social media profiles seeking comment. Reuters could not determine whether Garcia was ever arrested or if he has legal representation.

Llamozas, who was jailed for three months before being released on July 2 pending a possible trial, did not respond to messages sent to phone numbers and email addresses listed for his companies. Llamozas’ defense counsel did not respond to requests for comment.

In Venezuela, prosecutors first charge a suspect and then investigate further before deciding whether or not to recommend to a judge that the case go forward, according to Jose Vicente Haro, a law professor at the Central University of Venezuela.

‘STRATEGIC ALLIANCE

The arrangement between PDVSA and Supraquimic began with a request from Venezuela’s Food Ministry to ensure supply for its CLAP boxes, a food handout program that many families depend on to survive, according to a copy of a contract between the two companies and the ministry which was viewed by Reuters.

That contract, dated April 2020 and described as a “strategic alliance,” stipulated that Supraquimic would receive up to 5 million barrels of crude per month from PDVSA in exchange for supplying food products of equal value to the Food Ministry. Supraquimic, in turn, would be responsible for selling the oil.

Supraquimic was founded by Garcia in Caracas in 2015, according to government commercial registry records. In total, the company received from PDVSA six cargoes between Dec. 28, 2020 and Feb. 10, 2021, totaling 6.2 million barrels valued at $257.8 million, according to internal oil company invoices viewed by Reuters. That was in line with market prices at the time. All the shipments set sail in tankers bound for Asia, according to the PDVSA invoices and shipping documents, and Refinitiv Eikon data.

Reuters could not determine how much food, if any, Supraquimic delivered to the CLAP program. But according to a March 4 letter written to company officials by Antonio Perez Suarez, PDVSA‘s vice president for supply and trading, it was not enough to satisfy the agreement.

“You have not honored your payment commitments according to the contractual terms established and accepted by your company,” Perez Suarez wrote in that letter, viewed by Reuters.

Supraquimic does not appear to be a food manufacturer. It purchased products from Venezuelan companies including Alimentos Santa Lucia and Agroinsumos El Granero, both owned by Llamozas, according to a person familiar with the deal.

Llamozas’ companies agreed to sell food items totaling $80 million to Supraquimic in installments, the person said. But after receiving payment for delivery of an initial $8 million worth of products, Llamozas’ firms stopped shipping because they received no further funds, leaving Supraquimic unable to meet its obligations to the government, the person said.

On March 30, Llamozas was summoned to PDVSA‘s offices, according to the person. He was arrested in the oil company’s parking lot, according to the police arrest report.

While Llamozas was in jail, Maduro found another source of help to feed some of the estimated 7 million Venezuelans experiencing food insecurity in what was once one of Latin America’s wealthiest nations. The U.N. World Food Programme in April reached a deal https://www.reuters.com/world/americas/un-agency-says-it-will-supply-food-venezuelan-schools-2021-04-19 with his administration to deliver monthly rations to school children.

Internet Explorer Channel Network
News Related

OTHER NEWS

Sensor maker Velodyne's founder calls for chairman's resignation

– Velodyne Lidar Inc’s founder David Hall on Monday called on Chairman Michael Dee to resign from the sensor maker’s board, blaming him for a steep fall in the company’s ... Read more »

ISS backs Box directors in proxy fight with Starboard

By Svea Herbst-Bayliss BOSTON – Proxy advisory firm Institutional Shareholder Services on Monday backed cloud storage vendor Box Inc in its fight with activist investor Starboard Value by recommending that ... Read more »

Crypto platform Poly Network says hacked funds returned

HONGKONG – Cryptocurrency platform Poly Network said on Monday that almost all of the $610 million stolen this month in one of the biggest crypto heists had now been returned ... Read more »

Fed chief Powell's record 'mixed,' think tank says

By Ann Saphir – A think tank highly critical of Federal Reserve Chair Jerome Powell’s record on banking regulation released an assessment of his four-year tenure on Monday that is ... Read more »

Branson's Virgin Orbit to list through SPAC merger at $3.2 billion valuation

– Virgin Orbit, the small satellite launch service which is a part of billionaire Richard Branson’s conglomerate, said on Monday it is going public through a merger with a blank-check ... Read more »

AB Volvo buys Chinese vehicles business for about SEK 1.1 billion

STOCKHOLM – Swedish truck maker AB Volvo said on Monday it had struck a deal to by Chinese JMC Heavy Duty Vehicle Co. Ltd., a subsidiary of Jiangling Motors Co. ... Read more »

Euro zone bond yields higher on risk sentiment, flash PMIs

By Dhara Ranasinghe LONDON – Euro zone bond yields rose on Monday as world stocks rebounded from last week’s sell off and a closely watched gauge of business activity suggested ... Read more »

Ethiopia to build local rival to Facebook, other platforms

ADDISABABA – Ethiopia has begun developing its own social media platform to rival Facebook, Twitter and Whatsapp, though it does not plan to block the global services, the state communications ... Read more »

Finland's Nokia wins 5G order for three European markets

– Finnish telecom gear maker Nokia said on Monday it had won a 5G network order from A1 Telekom Austria Group for operations in Bulgaria, Serbia, and Slovenia. “The multi-country ... Read more »

China halts over 40 IPOs amid regulatory probe

SHANGHAI – Chinese bourses have halted more than 40 initial public offerings (IPOs) in Shanghai and Shenzhen amid a regulatory probe into several intermediaries in the deals, according to official ... Read more »

S.Korea's LG Chem shares dive on GM electric car recall

By Heekyong Yang SEOUL – LG Chem Ltd shares closed down 11.1% on Monday after General Motors Co said it would recall an extra 73,000 Chevrolet Bolt cars that use ... Read more »

Shares in UK chain Sainsbury's jump 11% on report of buyout interest

– Shares in Sainsbury’s jumped 11% to a three-year high on Monday after a report over the weekend said private equity firms could launch bids worth more than 7 billion ... Read more »

German private sector stays on growth path in August -PMI

BERLIN – Activity in Germany’s manufacturing and services sectors expanded in August, a survey showed on Monday, pointing to recovering employment levels, strong demand and a rosier business outlook even ... Read more »

European stocks climb after bruising week

– European stocks followed Asian markets higher on Monday after a bruising selloff last week on global growth worries, while investors awaited a raft of business activity data. The pan-European ... Read more »

UK sends cricket star Botham to bat for British exports

LONDON – Britain appointed former England cricket star Ian Botham as a trade ambassador to seek new deals for exporters in the country he most famously tangled with on the ... Read more »

Growth in French business activity eased in August -PMI

PARIS – Growth in French business activity eased in August compared to July, according to initial forecasts in a monthly survey, as problems with supplies of goods and COVID-19 health ... Read more »

China Telecom jumps 34% on Shanghai debut, defying weak market

(Repeats story from Friday) SHANGHAI -China Telecom Corp surged 34% on its Shanghai debut on Friday, defying a bearish market after raising $7.3 billion in the world’s biggest stock listing ... Read more »

Oil prices rebound from 7-day losing streak as investors snap up bargains

By Yuka Obayashi TOKYO – Oil prices reversed out of a seven-day losing stretch on Monday as investors punted on crude at bargain levels, though lingering fears over how a ... Read more »

Global dividends to near pre-pandemic levels in 2021 -report

By Stefano Rebaudo MILAN – Global dividends are forecast to rise to $1.39 trillion this year, up slightly from a previous estimate to reflect a stronger than expected recovery in ... Read more »

Germany's Merkel calls for Ukraine gas transit agreement

KYIV – German Chancellor Angela Merkel called on Sunday for an agreement to extend Russian gas transit through Ukraine, and said that Germany wanted to help Ukraine transition to renewable ... Read more »

Italy's Fincantieri talking to Leonardo over OTO Melara unit -source

MILAN – Italian shipbuilder Fincantieri is talking to Leonardo about a possible acquisition of the defence group’s OTO Melara unit, a source familiar with the matter said on Saturday. There ... Read more »

Legal & General plans to expand into China -Telegraph

– Legal & General (L&G) is planning to expand into China, the chief executive of the insurer and asset manager has told The Telegraph newspaper, it reported on Saturday. “We’ve ... Read more »

Taiwan says sees 'balance' in auto chip supplies by Q4

TAIPEI – Global supply and demand for auto chips should reach a “balance” by the fourth quarter of 2021, Taiwan’s government said on Saturday, reiterating its commitment to doing its ... Read more »

Large eurodollar futures contract trade signals year-end funding pressure

By Gertrude Chavez-Dreyfuss and Dhara Ranasinghe NEWYORK/LONDON – What appears to be a large bet placed this week in the eurodollar futures market that tracks short-term funding rate expectations over ... Read more »

Nvidia's $40 billion deal for ARM likely set for lengthy review

By Kate Holton LONDON -Nvidia Corp’s planned $40 billion acquisition of British chip designer ARM looks set to face a lengthy inquiry after a UK regulator found the purchase by ... Read more »

Russian watchdog tells Google, Apple to remove Navalny app - report

MOSCOW – Russian communications watchdog Roskomnadzor has demanded that Alphabet’s Google and Apple remove Kremlin critic Alexei Navalny’s app from their stores, Interfax news agency quoted the watchdog as saying ... Read more »

Factbox: Crisis pushes Afghanistan's economy closer to the brink

By Tom Arnold and Krisztian Sandor LONDON – The Taliban sweeping to power in Afghanistan has thrust one of the world’s poorest countries back into the limelight. The following charts ... Read more »

Elon Musk's satellites beam internet into a remote fishing hamlet in Chile but it's far from perfect

After half an hour’s windswept journey on foot and by boat through a craggy forested estuary to the school he attends in remote southern Chile, Diego Guerrero can finally access ... Read more »

Japan's consumer price falls narrow on global commodity inflation

By Leika Kihara and Kantaro Komiya TOKYO – Japan’s core consumer prices narrowed their annual pace of falls for three straight months in July, a sign global commodities inflation was ... Read more »