And Then They Came For The Beer
Forget the food riots. Forget the blackouts. Forget the 2 day work week and lack of medical care and medicines. This is serious.
Venezuela is running out of beer.
Venezuela Is Running Out Of Beer Amid Severe Economic Crisis
May 31, 20163:35 PM ET
Heard on All Things Considered
Mendoza is the chief executive of Venezuelan food giant Empresas Polar, which was founded in 1941 and is now the largest private company in this socialist country.
But Polar has come upon tough times. Many of its processing plants are running at half-speed, and thousands of employees have been furloughed since April, when all four of the company’s breweries were shut down by a barley shortage.
The government controls access to foreign currency, and Mendoza says it has refused to provide the dollars Polar needs to import barley, which doesn’t grow in Venezuela’s tropical climate.
You can make hooch, but not beer, without barley. No barley, no hops, no beer.
The Government controls the access to foreign exchange with which to buy the barley. It says “no”. So no beer. Who’s fault is that?
But in a bizarre twist, President Nicolás Maduro is trying to pin the crisis on Polar. Government TV spots claim — without evidence — that the company is deliberately scaling back food production and hiding inventories to sabotage the economy.
In a February speech, Maduro called Polar’s Mendoza “a thief and a traitor,” saying, “If you can’t run your company, turn it over to the people and they will run it.”
Oh, that’s right, in a Socialist Workers Paradise, it is never the Benevolent Dictator that is at fault… it simply must be the business manager. Never mind that the Government Workers who must hand out the foreign exchange and vet your need for it have been put on a 2 day work week to save electricity demand. Never mind that over the top borrowing has caused Venezuela to need almost all of their present foreign reserve earnings to be dedicated to debt service. No, it simply can’t be those bad decisions by government.
Venezuela also likes to blame the USA. Nevermind that they own Citgo and through it sell boatloads of refined products into the USA. That flood of “foreign exchange” back to Venezuela is just what the Government and Empresas Polar are arguing over. (At this point I would promise myself I would stop buying Citgo gas, except I already don’t and there are no stations near me… Oh Well, it’s the thought that counts ;-)
In a rational market based world, US Drivers would by tanker loads of Venezuelan gasoline, that money would go to Venezuela, where the oil company employees would spend it on beer, and Polar would use some of it buy American barley. We get gas, they get beer, we all get jobs. But no. In Socialism, The Government has to be smack dab in the middle of everything “making decisions”. Which is fine, I suppose, right up until the people making the decisions are told to work only 2/5 of the week and go home the rest. It is hard to have a Central Planning Economy when the Central isn’t functioning.
In general, government workers make much worse decisions about economics than do folks with “skin in the game”. So it ought to come as no surprise (yet somehow it does) that they can’t even do things like supply their major export (oil) to a facility that they half own (a refinery) in the USA. Hey, they stole their oil industry fair and square via nationalizing, you’d think they would want to make a profit from it… especially when desperate for foreign exchange.
Venezuela loses US refinery as ConocoPhillips ICC award enforced in US court
NEW YORK — A U.S. Federal Court has upheld U.S. enforcement of an International Chamber of Commerce (ICC) arbitration agreeing that U.S. oil giant ConocoPhillips has the right to take Venezuela state oil company PDVSA’s 50% stake in a delayed coking unit at the Sweeny refinery in Old Ocean, Texas.
The 70,000 barrel-per-day coking unit was originally owned by Merey Sweeny LP, a joint venture between PDVSA and Phillips. When Venezuela failed to supply its contractually agreed amount of crude, ConocoPhillips announced it was exercising its right to buy out its deficient partner.
After four years of arbitration, an International Chamber of Commerce (ICC) arbitration panel ruled in April 2014 that Phillips 66 could exercise its right to acquire PDVSA’s 50%, since PDVSA had indeed violated the supply and investment contribution agreements.
“Because Venezuela had breached the contract by not supplying crude and also not contributing further investment to the venture, ConocoPhillips was able to take PDVSA’s share of the refinery for literally zero — free — as a result of the way the contract was written,” says Russ Dallen, an international lawyer who follows Venezuela’s cases as head of investment bank Caracas Capital Markets. “Venezuela’s 50% stake in Sweeney had been valued at between $352 million and $540 million.”
“Two things happened: once Venezuela had breached its obligation to supply crude and/or pay the penalty, ConocoPhillips had the option to buy them out and chose to exercise that option. According to the contract, there were 2 ways to value the breaching party’s half of the business,” Dallen explained. “ConocoPhillips elected to buy the PDVSA share of the joint venture according to the second contractual formula, which required ConocoPhillips to pay 80% of PDVSA’s capital contributions MINUS ALL CAPITAL DISTRIBUTIONS to them. Since PDVSA had already received dividends totaling over $1.1 billion — far in excess of their capital contribution of just $270 million — the formula yielded a purchase price of zero.”
After losing at the ICC, Venezuela took the matter to the U.S. Federal Court in New York to try to block enforcement of the arbitration award, while ConocoPhillips counter-claimed for enforcement of the arbitral award. Venezuela argued that it was against “public policy” to penalize it to such an extent.
“The Award validates the forfeiture of Petitioners’ entire joint venture interest, conceded by Respondents to be worth hundreds of millions of dollars, as the remedy for a delay in the payment of a liquidated sum of just over $6.9 million,” Venezuela wrote in its July 2014 petition to the US Federal court. “That result violates the public policy of New York, the governing law of the contract,” Venezuela claimed.
U.S. Federal District Judge Alison J. Nathan did not agree with Venezuela’s lawyers and decided for ConocoPhillips.
So the Government in Venezuela couldn’t be bothered with getting the required crude to their own joint venture, then screws up the process so much that they lose a $ 1/3 to $ 1/2 Billion over a $6 Million payment. Nice that… Then again, since PDVSA was made via expropriation and nationalization of other companies and their assets in Venezuela, it isn’t like they lost anything they had actually made…
Oh, and they get to blow off the future dividends of $Billion or so (based on passed dividends)… But hey, it isn’t like they need the money… /sarc;
Then there is this gem:
Venezuela has more oil than any other country on the planet.
But it just bought a bunch of American crude.
A ship carrying half a million barrels of oil that was pumped in the U.S. docked at a terminal owned by Venezuela last week, according to oil data research firm ClipperData. The shipment was sent to a facility located on the Dutch island of Curacao in the Caribbean.
The fact that Venezuela is importing American oil is raising eyebrows because Venezuela has 298 billion barrels of proven oil reserves, according to the Energy Information Administration. That’s more than Saudi Arabia, Russia or Iran and eight times the reserves of the United States.
But the oil extracted in Venezuela is very heavy and hard to refine and then sell to other countries. Venezuela needs to first mix its heavy oil with lighter types of crude to balance out the quality, according to Nilofar Saidi, an oil market analyst at ClipperData.
Saidi said Venezuela had already been importing lighter types of crude oil from Russia, Angola and Nigeria.
Well, in reality you can make refineries that refine heavy oil directly. Valero was growing like crazy for a bunch of years due to having done that before other refiners, so getting to use cheaper feedstock. BUT, it is hard to upgrade your refinery and add advanced equipment when you have nationalized prior investments, and your own government is on 2 hour work weeks so can’t do the work either. As it stands, they must import oil to make gas from their own oil. Oooops!
Back At Beer
But, in the end, it is the end of that first article that is, IMHO, critical:
For Venezuelans who want to unplug from all these problems by popping open a beer, that’s no longer possible. Polar used to produce 80 percent of Venezuela’s beer, and now the supply is rapidly drying up.
As he fills a refrigerator with beer at his bodega in downtown Caracas, Leonardo Cordero says he has placed a purchase limit of three 9-ounce bottles per customer.
“I still have 50 cases. But that’s nothing,” he says. “That will be gone in two weeks.”
So in two weeks the beer runs dry. Last time the USA was dry, we had a world war…
I’m figuring it will take a week after that for folks to get Royally Pissed. So I’m looking for a full on coup change of government about then.
Maybe they could do it on July 4th… that has a nice ring to it ;-)