Sunday, October 27, 2013

Latin America: Venezuela Drops Out of Petrobras Refinery JV When PDVSA Fails to Deliver

According to The Latin American Tribune, Brazil's Petrobras incorporated a new refinery into its corporate structure after Venezuela failed to come up with its share of the $17 billion joint-venture payment.

Brazilian state-controlled oil company Petrobras has confirmed that long-running negotiations to bring Venezuela on board as a joint-venture partner in the Abreu e Lima refinery have failed and that it will complete the project on its own.

Petrobras said Friday (October 25) in a regulatory filing that it had incorporated the company created to manage the refinery into its corporate structure after the talks with Venezuelan state-owned oil company PDVSA broke down.

Nearly $17 billion has already been invested in the refinery, which is being built in the northeastern Brazilian state of Pernambuco and has a projected processing capacity of 230,000 barrels per day.

COMMENT: The bi-lateral project was planned in 2005 by the then-presidents of Brazil and Venezuela, Luiz Inacio Lula da Silva and the late Hugo Chávez, but the proposed joint venture ran into trouble after Petrobras deemed the guarantees presented by PDVSA to be insufficient.

Petrobras began building the refinery on its own in 2007 and says it is now 80% complete.

The refinery is projected to begin operating in 2014 with an initial capacity to process 115,000 barrels per day.

Under the original agreement, Petrobras was to have had a 60% stake in the refinery and PDVSA the remaining 40% interest, although now the Brazil-based project will be financed 100% by Brasilia.

The Brazilian press had reported in recent weeks that the talks were headed for eventual failure, but Petrobras had not formally confirmed the breakdown of the joint venture until Friday.

Venezuela's backing out of the refinery project is yet another example as to why Venezuela's Socialist experiment germinated  by Chávez has failed miserably, leaving one of Latin America's former economic giants cash-strapped and crime-ridden.