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Latest Venezuela-China Deals: Orinoco Agriculture, Civil Aviation, Steel, and $5 Billion Credit Line

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Mérida, August 3rd 2010 (Venezuelanalysis.com) – Venezuela’s bilateral economic relations with China – a crucial part of Venezuela’s project for a “multi-polar world order” – took several steps forward recently as Venezuela tapped a $5 billion credit line from China and the two nations moved forward on deals in agriculture, civil aviation, and the steel industry.

A recent press release by the Venezuelan state oil company, PDVSA, said Venezuela will use the credit to finance 19 projects in Venezuelan infrastructure, electricity, and agricultural development. Principal among these projects will be three new gas-powered thermal electric plants, each with a 300 megawatt capacity, to be constructed between October 2010 and October 2012.  

Venezuela experienced nation-wide electricity shortages last year as demand grew rapidly and a drought weakened the country’s hydroelectric facilities. The government announced plans to decrease its dependence on hydroelectricity by making thermal electricity satisfy half of its national consumption by 2015.

The Chinese credit is the first installment of a total of $20 billion in credit the Chinese government offered to Venezuela in April of this year. Venezuela will re-pay the debt in part in the form of increased oil shipments to China, which are projected to reach 600,000 barrels per day this year, up from 200,000 per day in 2006.

Venezuelan Vice President Elias Jaua, who participated in the bilateral negotiations in the PDVSA headquarters in Caracas last Thursday, said the credit was significant “not only for its size, but for the conditions of respect for our sovereignty, institutions, and vision of development,” which he contrasted with the conditions imposed by the International Monetary Fund for financing in Venezuela in the past.

PDVSA also recently formed a joint venture with the Chinese state-owned company Heilongjiang Xinliang to increase agricultural development in the Orinoco Oil Belt, a zone in southeastern Venezuela that contains a vast oil reserve. PDVSA will own a 70% controlling share in the venture.

The U.S. Geological Survey estimated earlier this year that the Orinoco Oil Belt may contain 513 billion barrels of recoverable crude. President Hugo Chavez announced in July that Venezuela’s total proven reserves are expected to increase to 316 billion barrels by the end of this year – the largest proven reserves of any country in the world. The Chavez government has divided the Orinoco into blocs and signed joint ventures in which PDVSA retains at least a 60% controlling share and extracts the heavy crude in team with firms from Europe, the US, and Asia, including China.

Meanwhile, the Aviation Industry of China (AVIC) International Holding Company announced in July it will supply 25 Y-12 commercial aircraft and two helicopters to Venezuela’s National Foundation for Food and Industrial Agricultural Development (Fundagrial).

The aircraft will be used to transport agricultural goods and supplies and “to interconnect producers with the rest of the states and the capital of the country,” particularly across the vast central fertile plains, according to Fundagrial President Manuel García Moronta. The aircraft will be managed by a new “Bolivarian Socialist Airline” that was created in team with China in April and is expected to begin operating this year. The private Venezuelan engineering firm Sireca is also a partner in the project.

In another deal that grew from the accords signed in April, Venezuela’s state-owned mining holding company, CVG, made a deal in July to supply 40 million tons of iron ore over the next seven years to China’s third-largest steel and iron company, WISCO, at $20 less per metric ton than South American competitors such as Brazil’s Vale are charging Japanese and North Korean firms, according to Bloomberg News. WISCO celebrated the deal for undercutting raw material prices that are normally controlled by Vale and two other major companies.

Trade between Venezuela and China increased from less than $500 million when Chavez first took office in 1999 to an estimated $7.15 billion in 2009, making China Venezuela’s second largest trading partner after the US, according to the Venezuelan Trade Ministry.

The Venezuelan government hails its increased bilateral trade with China and an array of other Asian, European, Latin American and African countries as a crucial part of constructing a multipolar world and decreasing its dependence on oil exports to the United States. Venezuela has nationalized key strategic industries including oil and steel, re-distributed 2.5 million hectares of idle agricultural land to producers, increased the state’s share in the banking sector, and established investment mechanisms to promote national production by large, medium, and small private and state-owned enterprises.

Published on Aug 4th 2010 at 10.44am