PetroVietnam halts Venezuelan project as economy worsens

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An oil drilling rig in the Junin 10 field in the Orinoco Oil Belt, in Anzoategui, Venezuela on January 24, 2012. Photo: AFP

Vietnam Oil & Gas Group halted its $4 billion project in Venezuela's Orinoco Belt as the world's highest inflation rate and currency controls hinder investment.

A surging gap between Venezuela's official and black-market exchange rates is increasing the cost of importing components, while inflation is pushing up labor costs, Le Minh Hong, deputy chief executive officer of the crude producer known as PetroVietnam, said in a telephone interview.

"Venezuela's investment environment is not favorable at present," Hong said, adding the company continues negotiations with the Venezuelan government.

The bolivar's 73 percent slump on the black market in 2013 is causing shortages of everything from food to machinery parts in a country that needs to import most of its goods, while dollar purchases at a stronger official rate are restricted. The lack of supplies is stoking inflation that reached 56 percent last year, more than double the previous year's rate.

Crude producers have held back on investment in Venezuela amid deteriorating economic conditions and expropriations. Last year, Malaysia's Petroliam Nasional Bhd. left the Carabobo-1 block and Russia's OAO Lukoil exited Junin-6 in Orinoco.

Recent measures to allow foreign oil producers to receive more bolivars for their dollars are not sufficient to revive investment because many imported products are priced at the black market rate, said Pedro Bellorin, an energy contract lawyer at Bellorin, Guzman y Monna Abogados in Puerto La Cruz, a city where the Orinoco Belt oil is processed.

"˜More needed'

"Much more needs to be done to make investment more attractive," Bellorin said by telephone today.

PetroVietnam's Junin-2 venture with state-run Petroleos de Venezuela SA, or PDVSA, is not producing commercial oil quantities, Hong said. Venezuelan Oil Minister Rafael Ramirez, who's also the president of PDVSA, said in 2012 the project would reach output of 45,000 barrels a day by September 2013.

Reuters on Jan. 15 reported PetroVietnam is going ahead with Junin-2, citing the head of the company's exploration and production subsidiary, Do Van Khanh.

A PDVSA spokesman, who can't be named because of company policy, declined to comment on the status of Junin-2.

PDVSA had planned to invest $233 billion in developing the Orinoco Belt, which holds more crude reserves than Saudi Arabia, according to the U.S. Geological Survey.

In a bid to boost foreign investment, the government made the foreign projects eligible for a secondary exchange rate, which was 11.36 bolivars per dollar this week, compared with the fixed primary rate of 6.3 per dollar.

Black market

On the black market, the bolivar is trading at about 74 per dollar, according to data tracked at the Colombian border by website

Concern that a sudden weakening of the currency would fuel inflation further makes it difficult for the government of Hugo Chavez's successor, Nicolas Maduro, to bridge the widening gap between the exchange rates, Bellorin said.

"They can't raise the exchange rate drastically because of the inflationary pressures it would create," he said.

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