Chavez Runs Short of Cash

By Matthew Walter and Daniel Cancel March 19 (Bloomberg) -- Venezuela is holding up payments to contractors, oil services companies and targets of President Hugo Chavez’s nationalization drive, indicating the country is running short of cash after petroleum prices collapsed. Service providers to the state oil company are idling rigs for nonpayment, and Brazil’s Odebrecht SA said last week it’s slowing work on the Caracas metro because the government is past due on its bills. Chavez also owes $10.2 billion for companies he’s taken over, according to an estimate by Caracas-based economic consulting company Ecoanalitica. “The economic environment isn’t particularly conducive for any good deals for companies awaiting payment,” said Alvise Marino, an emerging markets economist at IDEAglobal in New York. “If I was one of the companies involved, I wouldn’t keep my hopes up.” The moves to conserve cash haven’t damped Chavez’s enthusiasm to expand state control of the economy as part of his “Bolivarian Revolution.” This month he seized a rice plant from Cargill Inc., the biggest U.S. agricultural company, a tree farm from Dublin-based Smurfit Kappa Group Plc, and threatened to expropriate the country’s biggest private company, Empresas Polar SA, and pay for it with “paper” instead of cash. “People have been operating under the misconception that, as much as Chavez has expropriated, he’s always paid,” said Patrick Esteruelas, a risk analyst at Eurasia Group in New York. “That’s not the case.” Shareholder Payments Chavez did pay shareholders of phone company Cia. Anonima Nacional Telefonos de Venezuela and utility CA La Electricidad de Caracas in those nationalizations in 2007. Now, Paris-based cement maker Lafarge SA says the government is past due on a $267 million payment for the takeover of its local unit last year. Switzerland-based Holcim Ltd., the world’s second biggest cement producer, is still waiting for $552 million, company spokesman Peter Gysel said on March 12. The government hasn’t reached a deal with Luxembourg-based Ternium SA since expropriating its Venezuelan steel mill last May. Cargill said it respects the government’s decision, and the agriculture minister said the company will be compensated. The government also will ultimately face judgments from arbitration initiated by Monterrey, Mexico-based Cemex SAB, Exxon Mobil Corp. and ConocoPhillips in their disputes with Chavez over compensation. Bank Takeover The only indication of a possible slowdown by Chavez involves plans announced in July to take over Banco de Venezuela, the country’s third-biggest bank and a unit of Spain’s Banco Santander SA. Finance Minister Ali Rodriguez, who declined to respond to questions sent via text message about delayed payments, said last month the government is reconsidering the idea. Including Banco de Venezuela, which has an estimated value of $890 million, the bill for unpaid nationalizations would rise to $11.09 billion, according to Asdrubal Oliveros, a director at Ecoanalitica. By January, Chavez already faced a cash crunch that forced him to take $12 billion of central bank reserves after bringing home $9.6 billion in government deposits held abroad in the fourth quarter, according to the central bank. Barclays Capital Plc economist Alejandro Grisanti predicts a $48 billion budget shortfall this year, barring a devaluation or tax increases. Oil Slump Venezuela, which depends on oil for 93 percent of export revenue and more than half of government spending, based its 2009 budget on expectations the Venezuelan basket, an index of the country’s crude oil exports, would average $60 a barrel. The average so far is $36.84. Rodriguez has said the government will cut unnecessary spending this year, even as Chavez pledges not to touch funding for popular social programs. Chavez’s threat to pay with “paper” if he seizes food processor Empresas Polar means uncompensated nationalizations are coming, said Miguel Carpio, an economist at Banco Federal CA in Caracas. “The message is that he’s going to pay with something that isn’t worth anything,” Carpio said. Chavez issued warnings about the company this month directly to its billionaire president, Lorenzo Mendoza, accusing Polar of evading requirements to produce rice at government-set prices. Cash Flow Problems Meanwhile, in another sign of cash flow problems, state oil company Petroleos de Venezuela SA has amassed at least $7.86 billion in back payments to oil service companies and suppliers, according to its third-quarter earnings statement. Dallas-based Ensco International Inc. and Helmerich & Payne Inc., headquartered in Tulsa, Oklahoma, idled rigs in Venezuela this year because of payment problems. Exterran Holdings Inc., a Houston-based services company, is “experiencing longer cycles of outstanding receivables,” and hasn’t gotten “meaningful” payment this year, Chief Executive Officer Stephen Snider said during a teleconference on Feb. 26. The company won’t pursue new Venezuelan projects until the situation improves, he said. Venezuela’s private sector growth, which has slowed annually from 17.4 percent in 2004, saw zero expansion last year while oil prices touched a record. The state-controlled sector grew 16 percent, according to the central bank. The recent focus on food producers is probably aimed at averting the shortage of staples that Venezuela experienced in 2007, said Carlos Caicedo, an analyst at Exclusive Analysis in London. Chavez lost a national referendum on a constitutional overhaul that year. “He wanted to send a message to food producers: Come into line, or you know what will happen,” Caicedo said.