April 18, 2019 / 7:59 PM / 4 months ago

CORRECTED-EXCLUSIVE-After U.S. sanctions, Venezuela seeks to collect some oil payments via Rosneft

 (Corrects April 18 story to make clear Reuters could not
determine payments were made under the proposed arrangement,
removes reference to Evrofinance Mosnarbank and clarifies that
experts see no violation of sanctions)
    By Marianna Parraga
    MEXICO CITY, April 18 (Reuters) - Venezuelan state oil
company PDVSA has asked at least two of its clients to make
payments for Venezuelan oil via Russian state energy giant
Rosneft, as it comes under pressure from U.S. sanctions,
according to a PDVSA source and documents reviewed by Reuters.
    The proposed payment mechanism is the latest sign of the
growing proximity of Venezuela's cash-strapped government to
Russia as the United States tightens a financial noose around
Venezuelan President Nicolas Maduro, who it describes as a
    Russia has publicly said the U.S. sanctions are illegal and
it would work with Venezuela to weather them.             
    In response to Reuters’ story, Rosneft has denied it has
acted as an intermediary for payments to PDVSA.
    Under the new approach described to Reuters, Venezuelan
state oil company PDVSA has at least twice asked its clients to
make payments to Rosneft for Venezuelan oil, according to the
    The PDVSA source said the company was proposing the new
arrangements – known as ‘factoring’ – to allow PDVSA clients to
receive oil without making direct payments to the Venezuelan
state oil company in the wake of January’s sanctions.
    The arrangement would also allow the cash-strapped
Venezuelan state company to receive faster payment, sometimes
avoiding the usual 30-to-90 day timeframe for completing oil
transactions. Rosneft would also make a profit by receiving an
intermediation fee, the source and an internal PDVSA document
    Rosneft, which has heavily invested in Venezuela under
President Vladimir Putin, did not respond to a request for a
comment before Reuters published its story on Thursday. After
the Reuters story ran, Rosneft strongly denied the report,
describing it as a ‘blatant lie’ and ‘a provocation against
    Venezuela's oil ministry, its information ministry - which
handles media for the government - and PDVSA did not respond to
    In one transaction, an executive from Rosneft's Geneva
trading unit said PDVSA had given its approval for Rosneft to
collect payment from trading firm BB Energy for the purchase of
525,000 barrels of fuel oil loaded on Jan. 3, according to an
offer letter.
    The offer letter, seen by Reuters with its date redacted,
said that Rosneft had agreed with PDVSA to pay BB Energy’s $26
million debt to the Venezuelan state oil company and then to
seek payment from BB Energy via a bank transfer or an equivalent
oil cargo.
    The PDVSA source said that Rosneft credited PDVSA the
amount, minus an undisclosed fee, and then started talks with BB
Energy to recover the sum it advanced PDVSA. Reuters could not
independently verify that Rosneft ever made the advance payment
    Asked about Rosneft’s offer and the fuel cargo payment, a
spokesman for BB Energy said the company had not completed the
transaction, under guidance from legal counsel.
    “The money is in our account and as yet we have not paid
anyone,” said the spokesman. He declined to provide further
    According to an undated internal PDVSA document, India's
Reliance Industries Ltd           - PDVSA's largest cash-paying
client – was also asked by PDVSA to pay Rosneft directly in
April for oil sales under a long-term supply contract with the
Venezuelan company.
    Reliance has said that in September 2012 it signed a 15-year
deal to purchase up to 400,000 barrels a day of heavy crude from
    The internal PDVSA document reviewed by Reuters showed the
Venezuelan state oil firm asked Reliance to pay for oil sales
under the long-term contract via Rosneft Trading SA, the
Geneva-based trading unit of the Russian oil giant.
    The document also said that the payment by Reliance to
Rosneft would also allow PDVSA to meet unspecified “contractual
obligations” to Rosneft.
    The internal PDVSA document said the sales “would allow the
partial completion of the financial scheme of advanced payments”
between PDVSA and Rosneft.
    The document showed that PDVSA and Reliance would pay
Rosneft a ‘marketing fee’ equivalent to around 3 percent of the
sale price, split between them.
    The PDVSA source said the agreement had received the consent
of all three parties and was being executed. However, Reuters
was unable to independently verify if the agreement was
implemented and remains in force.
    Responding to Reuters’ story, Reliance strongly denied
making any payments via third parties to PDVSA. It said it had
purchased Venezuelan oil from Rosneft that was provided by PDVSA
to the Russian company in repayment of past loans, so no money
was flowing back to Maduro’s government.             
    Regardless of whether payments flowed directly to PDVSA or
remained in Russia to pay down debt, the proposed approach
appears to present no violation of sanctions by any of the
entities because no U.S. citizens, currency, companies or
financial institutions seem to be involved, according to four
sanctions experts consulted by Reuters.
    Three of the four experts said the U.S. Treasury had the
latitude to act against companies or governments it deemed to be
providing ‘material support’ to a sanctioned entity, like PDVSA.
 Still, the Office of Foreign Assets Control (OFAC), which
enforces sanctions, has given no indications it would take that
    The U.S. Treasury Department declined to respond to a
request for comment. A State Department spokeswoman said: “We
encourage companies, banks, and other institutions to refrain
from providing services that support (Maduro’s) repressive
    With its economy reeling from years of recession and a sharp
decline in oil production, Venezuela was already struggling to
finance imports and government spending before Washington
imposed tough restrictions on PDVSA in January.
    Oil accounts for more than 90 percent of exports from the
OPEC nation and the lion's share of government revenues. Maduro
has accused U.S. President Donald Trump of waging economic war
against Venezuela.
    Russia has loaned Venezuela almost $16 billion since 2006,
which is being repaid in oil shipments, and has also taken
significant stakes in petroleum projects, meaning it already
controls a large slice of the South American country's
    PDVSA's contemplated payment agreement with Rosneft is part
of a series of methods used by Maduro's government to gain
access to cash, including selling Central Bank gold reserves.
    The methods have frustrated Washington officials, who have
in recent days questioned why sanctions have not had a more
dramatic impact on Venezuela's finances.
    Following the publication of Reuters' report on Thursday,
Reliance said in its statement that it had purchased Venezuelan
crude oil from Rosneft long before the imposition of U.S.
sanctions on PDVSA in January, as the Russian company received
oil in return for a reduction in Venezuela’s debt.
    “Since sanctions were imposed, Reliance has made such
purchases with the full knowledge and approval of the U.S.
Department of State (USDOS),” Reliance said. “Such transactions
do not lead to any consequent payment to PDVSA and do not
violate U.S. sanctions or policies.”
    After the report was published, Reliance did not respond to
further questions from Reuters about why the PDVSA internal
document proposed Reliance pay Rosneft a marketing fee related
to the supply of crude under the Indian firm’s long-term supply
contract with PDVSA.
    Reliance said in its statement its purchases of Venezuelan
oil from Rosneft “do not lead to” any payments to PDVSA. The
Venezuelan company’s shipping schedules showed that Reliance was
loading a cargo from PDVSA as recently as April 20.

 (Reporting by Marianna Parraga in Mexico City
Additional reporting by Luc Cohen in Caracas, Nidhi Verma in New
Delhi, Julia Payne in London 
Editing by Daniel Flynn, Simon Webb, David Gaffen and Marguerita
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