CHINA LOANS VENEZUELA USD FOUR BILLION TO BE

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 002207

SIPDIS

SIPDIS

ENERGY FOR ALOCKWOOD AND CDAY, NSC FOR JSHRIER

E.O. 12958: DECL: 11/08/2017
TAGS: ECON EPET CH VE
SUBJECT: CHINA LOANS VENEZUELA USD FOUR BILLION TO BE
REPAID IN OIL

REF: A. CARACAS 448

B. CARACAS 2056

Classified By: ECONOMIC COUNSELOR ANDREW BOWEN, FOR REASON 1.4 (D)


1. (U) SUMMARY: BRV President Hugo Chavez and PRC Vice
Minister of the National Committee and Reform Zhang Xiaoqiamg
presided over a televised signing ceremony for energy,
financial and technology agreements on Tuesday, November 6,
2007 at the presidential palace. The main agreement
established a USD six billion joint fund for Venezuelan
economic development and cooperative relations. The BRV will
contribute USD two billion through the National Development
Fund (FONDEN) and the China Development Bank (CDB) will
provide the BRV a USD four billion loan. A fuel oil supply
contract will be used to repay the loan. END SUMMARY.

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INCREASING CHINESE PRESENCE IN VENEZUELA
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2. (C) Participants at the USD six billion joint fund
signing ceremony included representatives from the Social
Development Bank (Bandes),PDVSA, the Ministry of Popular
Power for Finance, FONDEN, and, on the Chinese side, the CDB
and the China National United Oil Corporation (CNUOC).
During the ceremony, President Chavez indicated the joint
fund will be reviewed and replenished every three years and,
that in the future it could grow to USD 10 billion with the
BRV contributing an additional USD four billion and the CDB
USD six billion. Vice Minister Xioqiamg noted that the USD
four billion loan was the largest the PRC had ever made in
Latin America. The CDB loaned the entire amount to Bandes.
Rafael Ramirez, BRV Minister of Popular Power for Energy and
Petroleum, and President of PDVSA signed a contract to supply
fuel oil to China. According to local analysts, PDVSA has
been instructed to pay its royalties in kind (fuel oil) to
the BRV which in turn will use the oil to repay the Bandes
loan. Local analysts added that it was not clear at this
time who would pay the transportation costs of shipping the
fuel oil to China. Bandes also signed an agreement with the
CDB to create a joint technical office with USD 4.5 million
of capital to oversee the development of the joint fund's
objectives.


3. (C) China National Petroleum Corporation (CNPC)
executives told Economic Counselor and Petroleum Attache on
November 15 that PDVSA would be shipping fuel oil in order to
cover the loan. The executives stated Venezuela is currently
shipping 300,000 barrels per day of oil, mainly fuel oil to
China. They added that they were not sure what China would
do with so much fuel oil. During the ceremony Chavez claimed
that Venezuela now supplied the PRC with 350 thousand barrels
of oil per day and that the BRV has committed to increase the
supply to 500 thousand barrels per day by 2008, and one
million barrels per day by 2010 or 2011. Industry sources
report current Venezuelan exports average 158 thousand
barrels of oil per day but the number continues to grow.
Local analysts believe that if exports to China increase to
500 thousand barrels per day some of this volume would
necessarily come from the current US share.


4. (U) Minister Ramirez also signed several other agreements
incluiding a memorandum of understanding between PDVSA and
CNUOC to "expand cooperation in the energy sector of both
countries" and an agreement with Sinopec a Chinese oil
company to conduct studies of the Junin Block #8 of crude oil
fields in the Faja heavy oil belt. This is the second
project signed between PDVSA and Sinopec, which also gained
minority participation (8 percent) in the Petrolera Paria
Joint Company. PDV Maritime also formed an "alliance" with
Petrochina International with the goal of creating a joint
company to transport oil and oil derivatives to Asia.


5. (U) Telecommunications of Venezuela S. A.(a joint company
created by presidential decree October 3, 2007) and the
Chinese telecommunications company, ZTE, signed a charter to
manufacture mobile phones and communications equipment in
Venezuela. Telecom Venezuela and Huawei, another Chinese
telecommunications company, signed a charter for a joint
company to build telecommunications equipment in Venezuela
for export to Latin America. (COMMENT: It appears
Telecommunications of Venezuela S. A. and Telecom Venezuela
are two separate companies. END COMMENT.) The Corporation

CARACAS 00002207 002 OF 002


of Intermediate Industries of Venezuela also signed an
agreement with the Haier Electrical Appliances Corporation
LTD of the PRC to create a joint domestic appliance company
in Venezuela.


6. (C) COMMENT: Economic ties continue to grow between
China and Venezuela. China appears committed to obtaining a
steady supply of oil from Venezuela and is willing to commit
the capital and follow-up necessary to finalize agreements.
This was underscored by the presence of the high-level
Chinese delegation at the ceremony and the fact that the
agreements were signed in Caracas. Venezuela has made other
recent similar deals. During an October courtesy call on the
US Ambassador, Japan's recently arrived Ambassador to
Venezuela stated that the Japanese Bank of International
Cooperation loaned Venezuela USD 3.5 billion to be repaid
with oil over a 15 year period (Reftel A). END COMMENT.

DUDDY