* Some deliveries delayed by as much as 10 months
* Oil-for-loan deals hamper ability to sell to other
* Products stuck at terminals due to dirty hulls, unpaid
By Marianna Parraga and Brian Ellsworth
HOUSTON/CARACAS, Feb 9 Venezuela's state-run oil
company, PDVSA, has fallen months behind on shipments of crude
and fuel under oil-for-loan deals with China and Russia,
according to internal company documents reviewed by Reuters.
The delayed shipments to such crucial political allies and
trading partners - which together have extended Venezuela at
least $55 billion in credit - provide new insight into PDVSA's
operational failures and their crippling impact on the country's
unraveling socialist economy.
Because oil accounts for almost all of Venezuela's export
revenue, PDVSA's crisis extends to a citizenry suffering through
triple-digit inflation and food shortages reminiscent of the
waning days of the Soviet Union.
The total worth of the late cargoes to state-run Chinese and
Russian firms is about $750 million, according to a Reuters
analysis of the PDVSA documents.
At the end of January, PDVSA was late on nearly 10 million
barrels of refined products that the company owes the firms -
with shipments delayed by as much as 10 months, according to the
documents. It also failed to make timely deliveries of another
3.2 million barrels of crude shipments to China's state-run
China National Petroleum Corporation (CNPC).
For a graphic detailing the delayed cargoes, see: tmsnrt.rs/2keq9Kr
Shipments to China and Russia are critical for PDVSA's
financial health because firms from the two countries purchase
about a third of the PDVSA's total oil and fuel exports. The
administration of Venezuela president Nicolas Maduro has for
years relied on credit from the two nations, particularly China,
to finance infrastructure and social investment in Venezuela.
PDVSA did not respond to requests for comment. Venezuela's
Petroleum Ministry declined to comment.
During the decade-long oil boom that ended in 2014,
Venezuela borrowed nearly $50 billion from China that it agreed
to pay back in crude and fuel deliveries to state-run Chinese
firms. Venezuela was the seventh largest crude supplier to China
in 2016 and the largest in Latin America.
Russia's state-run Rosneft lent at least $5
billion under similar arrangements, but the details of those
deals have not been disclosed.
Now, PDVSA is struggling to make good on those promises. A
total of 45 cargoes bound for Russian and Chinese companies are
late for a variety of reasons, according to internal operational
reports about shipments of crude and refined products.
The problems include operational mishaps, such as refining
outages and delayed cleaning of tanker hulls, and financial
disputes with service providers owed money by PDVSA.
The backlog of delayed or canceled fuel cargoes represents
about three months of the 88,000 barrels per day (bpd) of jet
fuel and diesel that PDVSA must deliver under financing deals to
Russia's Rosneft, China's PetroChina and
Rosneft, the Kremlin and the Russian Energy Ministry
declined to comment.
PetroChina did not respond to requests for comment, and
ChinaOil, a unit of PetroChina, declined to comment. The Chinese
foreign and commerce ministries did not respond to requests for
OPERATIONAL, FINANCIAL STRUGGLES
The delayed deliveries suggest that PDVSA will struggle this
year to meet a planned increase in shipments to China and other
countries, as laid out in a broad strategy document seen by
Reuters. That document said PDVSA aims to boost crude deliveries
to China by 55 percent in 2017, in part by reducing exports to
India by 15 percent.
Last year, the company produced about 2.5 million barrels a
day, lowest in 23 years, and this year's production projections
are virtually unchanged, according to the PDVSA strategy
An internal PDVSA email exchange from Nov. 21, between PDVSA
executives in charge of loading operations, details a myriad of
operational and financial problems that are delaying the cargoes
it owes Chinese and Russian customers.
In one of the emails, a company official said PDVSA was
unable to deliver a 1.8 million-barrel cargo of fuel oil to
PetroChina because Bahamas terminal Borco, where PDVSA rents
storage space, has intermittently prevented the firm from using
the tanks since 2016 due to lack of payment.
Another 2 million-barrel cargo of fuel oil bound for China
in November was postponed because of stained crude tankers,
which cannot navigate international waters due to environmental
The emails also discussed potential delays to a fuel oil
cargo for Rosneft, also because of dirty tankers and unpaid
Separately, four cargoes of Venezuelan Boscan crude owed to
China's CNPC have also been postponed this year.
FALLING OIL PRICES MEAN HEAVIER DEBTS
The fall in crude prices has made the oil-for-loan
agreements more onerous. Because loan payments were negotiated
when crude prices were higher, the agreements require PDVSA to
ship more oil in order to continue servicing the debts at the
That saps its ability to ship to other customers - such as
India, or customers in the United States - who would pay in
cash, which PDVSA desperately needs.
"PDVSA is taking a legal risk by postponing cargoes to key
customers and a financial risk if it also delays deliveries to
customers who pay by cash," said Francisco Monaldi, fellow in
Latin American energy policy at Baker Institute in Houston.
The top buyer of Venezuelan crude in India is Reliance
Industries, operator of the world's biggest refining
complex. The company imported 353,000 bpd of Venezuelan crude in
2016, 5 percent less than a year ago. To replenish its heavy
sour Venezuelan crude supplies, it has stepped up imports from
Mexico, Iraq and Saudi Arabia.
If PDVSA can't meet its obligations to Russia and China,
Monaldi said, the countries could recover money through projects
or assets outside the oil sector, he added.
The Chinese and Russian financing schemes, however, offer
Venezuela and PDVSA more repayment flexibility than they get
from the holders of $50 billion in bonds they have sold to
investors. Because of default concerns, yields on those bonds
are currently among the world's highest, paying an average of 21
percentage points more than benchmark U.S. Treasury bonds.
China and Russia, which have provided unwavering support for
Venezuela in diplomatic forums, have stayed quiet about any
misgivings with Caracas. The problem of delayed cargoes would
most likely be discussed discreetly through diplomatic channels,
An escalation into a commercial dispute, with Chinese or
Russian firms demanding prompt payments, could affect Venezuela
by triggering default clauses on bonds, or lead PDVSA to lose
control of U.S. subsidiary Citgo, almost half of which was
pledged to Russia as collateral.
While that scenario is unlikely, PDVSA clearly does not have
enough oil or money to satisfy its many creditors, said a trader
who works at a company that regularly buys Venezuelan oil.
"At this point, everybody is trying to collect pending debts
from PDVSA by receiving cargoes," said the trader, speaking on
condition of anonymity. "But production is not enough."
(Additional reporting by Ben Blanchard, Elias Glenn and Meng
Meng in Beijing, Florence Tan in Singapore, Nidhi Verma in New
Delhi, and Vladimir Soldatkin in Moscow; Editing by David Gaffen
and Brian Thevenot)