Recent fiscal changes in Venezuela could help state oil company PDVSA significantly cut its $16.4 billion debt to service providers this year, according to some economists and analysts.
The changes, mainly to Venezuela's complicated currency system, are effectively moving toward a "dollarization" that will "have a positive effect on the finances of PDVSA," Venezuelan economist Angel Garcia Banchs said from Caracas.
Oil minister and PDVSA President Rafael Ramirez Friday said PDVSA's debt to oil company service providers grew 35% to $16.4 billion from $12.3 billion in 2012. Ramirez, however, said the debt level is not a problem.
"If you have more oil activity ... it is logical that you will have a bigger need for providers," he said.
Other sources, however, have previously said PDVSA's debt in this area includes many bill that are far overdue.
Ramirez said the company increased its capital spending in 2012 to $24.579 billion, up 36.5% from $18.080 billion in 2011. Net income after taxes was $4.215 billion in 2012, down from $4.49 billion in 2011, Ramirez said.
But the company's goal to increase production by 250,000 b/d from the current level claimed by the government of 3 million b/d -- closer to 2.3 million b/d according to some analysts -- will leave it short of trying to reach its still official goal of 4 million b/d by 2014.
Venezuelan officials on March 19 said importers, including PDVSA, would now gain access to US dollars needed via an auction system meant to cut down on the black market for dollars. Black market rates for US dollars are as much as four times the official exchange rate, devalued in February, of 6.3 Bolivares/US dollar.
The auction system will essentially be a type of competition for the black market.
"We are going to twist the arm of the parallel dollar, with all our might, we have no fear of these mafias," acting President Nicolas Maduro said last week. He is also running in elections set for April 14 to replace President Hugo Chavez, who died March 5.
Companies registered in a special system will be able to bid on the dollars in Venezuelan currency with private or public banks. Winners will receive letters of credit in dollars which they then can use to import goods.
Related to this, PDVSA, its affiliates and its joint venture partnerships can now maintain bank accounts in dollars and pay service providers and contracts with dollars in Venezuela, according to details of the new system published Friday in the official gazette.
Banchs thinks this will help push down PDVSA's cost in terms of dollars, and its debt.
"When a provider or contractor gives an estimate to PDVSA, they are doing it in Bolivares, but calculating the exchanges rate in the parallel [black] market," he said. "To get Bolivares, PDVSA has to sell the dollars it gets for crude exports to the Central Bank at the official exchange rate of 6.3 Bolivares per dollars and pay its providers in [Bolivares], therefore quadrupling its costs in dollars.
"If PDVSA pay directly in dollars, setting a specific exchange rate with its providers and contractors, it will save an important amount in dollars and help its cash flow," he said.
With contractors also receiving more dollars to then circulate via the auction system, he thinks that the country "could soon see an important drop in the price of the dollar on the black market," Banchs said.
Venezuelan economist Alexander Guerrero added that the auction system would essentially provide some artificial life support to the state oil company, which has suffered from declining production of higher-quality conventional oil and a lack of investment.
"What PDVSA has lost in royalties and oil production and gasoline subsides, it will seek to 'recover' in the auctions through the devaluation of the Bolivar," Guerrero said.
He said he believes companies that use the new currency auction could get two times as many Bolivares for their dollar as in the regular official exchange system -- closer to 12 instead of 6.3.
Venezuela launched the first such auction Monday of $200 million.
