Venezuela's National Assembly is starting debate Tuesday on reforming a financing deal with China that would make it more binding for Venezuela to ramp up its payments in the form of oil on financing from the Asian country.
The proposed change to the Joint China-Venezuela Financing Fund would require Venezuela to ship no less than 230,000 b/d of oil and fuels to China. That is more than double the current flow of about 91,000 b/d, below the level of 100,000 b/d level set up in the crude-for-cash loan agreement, worth some $12 billion.
This is one of three such agreements between China and Venezuela. China has loaned some $38.5 billion since 2005 to Venezuela, or some 52% of its total such loans to Latin American countries, according to a report in March from the Inter-American Dialogue.
China is becoming increasingly insistent that it start seeing a return on its money, one observer said, and wants signals such as the recently proposed law as assurances before it commits more funds.
"In the past year and more, Beijing has strongly insisted on more transparency and better accounting of their money, and that PDVSA become serious about increasing production," said Thomas O'Donnell, an energy researcher and professor at The New School of New York, who was also a Fulbright Scholar in Venezuela.
President Hugo Chavez has emphasized relations with China in order to diminish the country's reliance on the US, but these efforts have not been completely fulfilled, he said.
"PDVSA has been unable and often unwilling to make this a reality," he said. "First of all, because it never prioritized rebuilding the managerial and technical capabilities PDVSA lost in the 2002 strike. Secondly, although needing Chinese money very badly, many in new-PDVSA have not trusted China's abilities. As a result, after spending billions of dollars, China has felt very frustrated with the Bolivarian administration."
PDVSA's production growth has fallen short of its own projections, even by official government numbers which are widely regarded as inflated.
China's oil companies also participate in the Sinovensa joint venture with PDVSA that produces 107,000 b/d in the Junin 1, 4 and 8 blocks in the Orinoco heavy-crude oil belt, concessions in mature fields, and service and supply contracts.
O'Donnell said such cooperation will continue to grow if Chavez, who is undergoing treatment for cancer, wins reelection in October -- and even if he doesn't.
"If the opposition comes to power now, China will remain a very important part of Venezuela's oil strategy," he said. "Venezuela and China have little choice."
