Venezuela requires prepayment for Oil in cash
2023.01.30 09:16
Venezuela requires prepayment for Oil in cash
By Tiffany Smith
Budrigannews.com – After a month-long halt to the majority of crude and fuel exports, Venezuela’s state oil company PDVSA is demanding prepayment in cash, goods, or services prior to loadings, according to company documents.
This month, the change was made by Pedro Tellechea, the new CEO of PDVSA. It adds to the measures taken last year after a number of buyers failed to make payments for oil, which accounts for the majority of the country’s income in South America.
According to a written order to PDVSA, Tellechea began a comprehensive supply contract audit shortly after taking over.
According to internal documents and three people with knowledge of the situation, his order froze loadings and even diverted some vessels that had begun receiving oil until the review was complete and sale contracts could be modified or ratified.
A total of 28 vessels, including 21 supertankers, were awaiting to load 45 million barrels of crude and fuel for export near PDVSA’s ports on January 27. According to the vessel monitoring service TankerTrackers.com, four additional ships had loaded but were awaiting departure authorizations.
According to the documents, the new terms limit a wide range of contract modalities to a few that require cash-only prepayment of cargoes or allow payment via goods and services to Venezuela. However, these payments must be received before Venezuela will release the oil.
Reuters obtained a copy of a contract from PDVSA, which stated that the company is “in a favorable business position” due to the fact that cash prepayment “would secure income for the country that is essential to solve its economic situation.”
Bank transfers or settling outstanding debt balances must be completed within less than 30 days according to the new models.
One of the documents revealed that before the state will assign the subsequent cargo, Venezuela must receive any outstanding balance in kind in swaps in which the related oil sale exceeds the value of the goods or services.
The new rules, which require cash payment in full prior to each oil delivery, must be adhered to by all buyers, including long-term ones.
Only a few swap contracts with Iran’s state-owned Naftiran Intertrade Co (NICO) and Cuba’s Cubametales are still in effect this month.
A deal with Chevron Corporation (NYSE:) for paying back debt did not change. PDVSA has continued to discharge Chevron-chartered imports and load Chevron-chartered vessels.
According to shipping documents and Refinitiv Eikon data, the customer has experienced loading delays of more than 30 days, but a similar contract to repay debt to China with oil has continued.
According to the documents and one of the sources, only Hangzhou Energy, one of PDVSA’s list of new clients and intermediaries, has been authorized to resume loading since the suspension was imposed at the beginning of January. This is because a 12-month contract extension was agreed upon this week.
Another source stated that additional contracts are undergoing final review and should be authorized soon.
PDVSA used to receive letters of credit as guarantees prior to U.S. sanctions if buyers were approved to become established customers and payments were made within 90 days. Around two years ago, audit mechanisms were put on hold because the sanctions drove out traditional clients and replaced them with obscure intermediaries with no oil sales history.
Corruption and embezzlement allegations have led to lawsuits against some of these new intermediaries.
Last year, in response to an increase in the number of oil cargo departures without PDVSA receiving adequate compensation, the company demanded at least partial prepayment in cash or goods. However, the measure had not completely halted the evasive cargoes.
Now, the majority of the proposed contracts imply some kind of swap, wherein PDVSA pays the government with oil in exchange for food, medicine, or services like home reconstruction and telecommunications equipment.
Even PDVSA employees have been caught off guard by the suspension.
A company employee stated, “While contracts remain suspended, we have been told to register all exports in Excel sheets” rather than using PDVSA’s contract administration system.
