Exclusive: Venezuela faces heavy bill as grace period expires on Chinese loans – sources

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CARACAS (Reuters) – A grace period on Chinese loans to Venezuela has expired, according to two Venezuelan sources familiar with the matter, potentially depriving the cash-strapped OPEC country of billions of dollars in oil revenue desperately needed this year.

A sculpture is seen outside a building of the Venezuelan state oil company PDVSA in Caracas, Venezuela on June 14, 2016. REUTERS / Ivan Alvarado

China eased payment terms two years ago for some $ 19 billion in oil-for-loan agreements, under which Venezuela sends shipments of crude oil and fuel to repay debt, allowing Venezuela to not pay that interest.

Favorable conditions in Beijing helped the socialist government of President Nicolas Maduro weather a collapse in the Venezuelan economy, which slipped into hyperinflation and a painful recession following falling oil prices.

But the grace period has expired without renewal in recent weeks, according to the sources, which were informed by Chinese and Venezuelan officials.

This could rob Venezuela of some $ 7 billion in annual revenue, according to a Reuters estimate based on current oil prices, a blow to a country that already struggles to import basic goods like food and vegetables. medications.

The sources, who asked not to be identified, said Venezuela continues to push for an extension but is responsible for making the full payments while talks continue.

The sharply increased payments would absorb an additional 305,000 barrels per day (bpd) of Venezuelan oil production, which fell to its lowest level in 33 years this year.

Deteriorating infrastructure and cash flow at national oil company Petroleos de Venezuela SA (PDVSA) caused oil production to drop 33 percent in one year, to 1.51 million barrels per day in March, data shows official reports to OPEC.

“China maintains its position not to increase its exposure to Venezuela and adjusts its conditions, as the price of oil is now $ 20 a barrel above its level when the (grace period) was created.” , said one of the sources.

Neither Venezuela’s Ministry of Information nor state oil company PDVSA responded to requests for comment.

The Development Bank of China, which underwrites most of the loans in Venezuela, did not respond to a request for comment.

China’s Foreign Ministry, when asked about the negotiations, said the cooperation was going smoothly and the loan contracts were in line with international standards.

Caracas could seek to preserve cash flow by sending those barrels to other customers who pay in cash, defaulting on its obligations to China in the process, and straining ties with a crucial political ally and its biggest financier.

Beijing would have little incentive to pursue an embarrassing trade dispute with a government it has supported for years and may simply turn a blind eye to a default.

Maduro, candidate for re-election on May 20, says his country is the victim of an “economic war” waged by its political opponents with the help of Washington.

Critics say the country’s plight is the result of a dysfunctional state-run economic model.

CHINA MORE PRAGMATIC

For a decade, China wooed the government of then-President Hugo Chavez with generous funding deals as it sought to secure the oil supply to its resource-hungry economy and cultivate an anti-Washington ally. in Latin America.

He has granted more than $ 50 billion in credit to Venezuela over 10 years.

However, Beijing stopped renewing its loans three years ago as the Venezuelan economy began to fall due to the collapse in oil prices.

Last year, Venezuela shipped some 700,000 bpd of crude and fuel to China under bilateral deals, according to a Reuters review of PDVSA’s trade documents.

But only about 70,000 bpd was applied to service the debt under the grace period, one of the sources said, with China paying the rest in cash.

Without a grace period, the amount applied to debt service stands at 375,000 bpd, the sources said.

Venezuela and PDVSA are in default on nearly $ 50 billion in international bonds because they haven’t paid more than $ 2 billion in interest.

The bondholders have yet to take legal action, in part because most believe Maduro is unwilling to make changes to jumpstart the economy, and because U.S. sanctions effectively prevent them from doing so. buy newly issued Venezuelan bonds, making restructuring virtually impossible.

PDVSA also has hundreds of millions of dollars in unpaid invoices to its suppliers and partners.

Italian energy company Eni ENI.MI PDVSA said on Friday that PDVSA’s debt had fallen from 600 million euros in February to 650 million euros (787 million euros) and that payments were “close to zero”.

($ 1 = 0.8262 euros)

Reporting by Corina Pons, additional reporting by Marianna Parraga in Houston, Ben Blanchard in Beijing and Engen Tham in Shanghai, written by Brian Ellsworth; Editing by Daniel Flynn and Rosalba O’Brien

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