In addition to the recent “sale” of Rosneft’s assets in Venezuela to the newly formed Roszarubezhneft, we have been working to dispel the veil of false news surrounding this movement. Since Petromonagas, Petroperija, Boquerón, Petromiranda, and Petrovictoria are joint ventures between Rosneft and PDVSA governed by Venezuela’s Hydrocarbons Law, we can confidently state that the divestment of these assets, as publicized in the press, is entirely illegal. The National Assembly of Venezuela, dominated by opposition parties to Nicolás Maduro, has not discussed, let alone approved, any of this. The legal requirements of the existing legislation governing such ventures have not been met. It is quite reasonable to expect, from two rogue players like Putin and Maduro, a transfer of just over $4 billion in state assets without much difficulty. Nevertheless, appropriate reports on the matter are in order.
On March 28, Rosneft announced that it would exit Venezuela and sell its assets. The news followed an earlier announcement in February about the transfer of Rosneft’s exports from Venezuela to TNK Trading International. It took the Treasury about two weeks to add TNK to its SND list. In this cat-and-mouse game between Putin/Sechin and Donald Trump’s anti-Maduro policies executed by the Treasury Department, Rosneft must have thought that the asset transfer among its subsidiaries would be a way to sidestep scrutiny.
After sanctions related to Venezuela were imposed, Rosneft essentially became the only entity willing to give Uncle Sam the finger. Reliance withdrew. Repsol (for a time) and ENI stepped back. Even CNPC pulled out, leaving the field to Rosneft, its alter egos, and dubious small operators lacking the means to efficiently and consistently evade the Treasury, whose sanctions forced Maduro to rely more heavily on Rosneft, which generously benefited and turned crude oil and gasoline imports from Venezuela into a debt liquidation exercise. In its 2018 report, Rosneft claimed to have $2.3 billion outstanding. Then, in November 2019, it stated that only $800 million was due. However, its 2019 report offers no clear indication of the exact amount. In any case, all announcements from Russia or Venezuela should be questioned.
The recent divestment was carried out through a transfer of 9.6% of Rosneft’s shares to the new structure of Roszarubezhneft, which valued Venezuela’s assets at around 310 billion rubles (~$4.2 billion). It is unclear how Rosneft assigned such value to its assets in Venezuela, although it is evident that Putin continues to do as he pleases with his interests in Venezuela.
There are no official announcements regarding the agreement from either Maduro or the “interim president” Juan Guaidó. The Treasury is also silent at this moment. We have become accustomed to seeing Russia scoff at any attempts to restrict its international activities. However, backing all of this is the recent “agreement” announced by Trump, whereby Saudi Arabia, Russia, Mexico, and the U.S. agreed to cut production by up to 20 million barrels. Before the agreement was reached, sources reported that Caracas had agreed to it. In such a context, parking shares of five producing companies in a dubious shell that could be reversed with a snap of the fingers seems almost like a stroke of genius. But then, there’s the Chinese virus and its economic impact yet to be determined. So, what are the chances for Roszarubezhneft to recover that “investment,” or for the Chavistas to maintain/increase production?
An article by Konstantin Sonin criticizing Sechin’s antics was published in Vedemosti, supposedly Russia’s most important and serious financial publication. Sonin questioned Rosneft’s activities in Venezuela and specifically the recent divestment, adding that Russia’s public funds (“several billion”) invested in that country are unlikely to ever be recovered. It is hard to imagine a Russian entity shelling out billions of dollars to another, for some assets in a country isolated from the rest of the world, where investing or partnering with the ruling regime is essentially forbidden. Especially if such a transfer is illegal under existing laws, which leads us to agree with Sonin’s opinion. However, the siloviki disagreed and ordered the immediate removal of Sonin’s article.
The seriousness of Venezuela in the oil world – once a very influential OPEC member – has faded; its future is tied to decisions beyond its control. While it is exempt from the announced production cuts and could do practically what it decides, it is impossible to expect a challenge to Rosneft’s decision to “exit.” Worse yet from a Venezuelan perspective, there is no indication of whom Roszarubezhneft will appoint to continue operations in the five joint production companies that Rosneft supposedly abandoned. Should we then believe that Rosneft’s involvement in Venezuela has simply been canceled?