PDVSA CASH FLOW PROBLEMS

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 002346 SIPDIS SENSITIVE SIPDIS ENERGY FOR CDAY AND ALOCKWOOD NSC FOR JCARDENAS AND JSHRIER E.O. 12958: DECL: 10/02/2017 TAGS: EPET ENRG EINV ECON VE SUBJECT: PDVSA CASH FLOW PROBLEMS REF: A. CARACAS 183 ¶B. CARACAS 2330 CARACAS 00002346 001.10 OF 002 Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) ¶1. (C) SUMMARY: Multiple oil sector contacts have stated that PDVSA is not paying service companies and has told a number of them that they will not be paid until mid-January or even February. A local analyst also stated that PDVSA had not paid the missions prior to the December 2 constitutional referendum. It is not clear where Venezuela's oil revenues are going or why PDVSA thinks that it will have funds in late January or February. END SUMMARY -------------- SHOW ME THE MONEY -------------- ¶2. (C) As reported in Reftel A, rumors have been swirling since the summer of 2006 that PDVSA has been suffering from severe cash flow problems due to social development expenditures. However, multiple oil sector contacts have stated that beginning in early December PDVSA has told service companies that it will not be able to pay them until mid-January or even February. A senior executive at Williams, (strictly protect throughout) told Petroleum Attache (Petatt) on December 13 that his contacts in Anaco, Zulia, and Maturin were all reporting that PDVSA was not paying any bills until mid-January on instructions from PDVSA headquarters. According to the executive, all vendors and contractors have been cut off, including Chavista contractors. ¶3. (C) The Williams executive stated that a senior executive at Wood Group (strictly protect) also complained that his company is no longer being paid. The Williams executive added PDVSA has also canceled its employee's Christmas parties this year. The executive admitted that it was not clear if the cancellations were due to cash flow problems or were punishment for not voting in sufficient numbers in the constitutional referendum. The president of a Venezuelan hydrocarbon consulting firm also told Petatt on December 12 that PDVSA was only paying small bills. ¶4. (C) We note that two major service companies, Schlumberger and Baker Hughes (strictly protect throughout), have not reported a cessation of payments. However, both complained that payments are frequently delayed. Schlumberger officials told Petatt on December 6 that their company's waiting period for payment is over 100 days but that the company is willing to accept the situation in order to maintain market share. They also added that Schlumberger's operations in Venezuela have the lowest return on equity in Latin America. ¶5. (C) A senior Baker Hughes executive told Petatt on December 6 that his company was still suffering from payment delays. However, he stated that Baker Hughes was more concerned about PDVSA's attempts to change the dollar/bolivar split in payments. He said PDVSA has recently begun to insist that Baker Hughes accept more bolivars in its payments. The executive noted that recent problems at CADIVI, the foreign exchange agency (Reftel B),made it extremely difficult to repatriate bolivar profits. -------------- WHERE IS THE MONEY? -------------- ¶6. (C) The standard explanation for PDVSA's cash flow problems is the BRV's insistence that it fund a wide variety of social missions. However, a local analyst told Petatt on December 12 that PDVSA did not pay the BRV's missions CARACAS 00002346 002 OF 002 immediately prior to the December 2 constitutional referendum. Analysts had expected the BRV to significantly increase missions spending in the weeks leading up to the referendum. A conservative estimate of Venezuela's gross oil revenues is 150 million USD per day. If PDVSA is not paying the service companies or the missions, the obvious question is where is all of the money going? ¶7. (C) In addition, it is not clear why PDVSA officials believe that they will have sufficient funds to pay contractors in late January or mid-February. The only plausible explanation that we can think of is that PDVSA intends to secure external financing in the next sixty days. DUDDY