China Engages

a Venezuela in Transition

R Evan Ellis

Presentation to the

American Enterprise Institute

Washington DC

April 12 2012

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull PRC financial commercial and technical support as an

indirect enabler of Chavez regime

bull Both sides pursuing self-interest hoping to avoid pitfalls

bull Venezuela Meet revenue demands of electoral in

social spending + pay current bills + infrastructure amp

investment to bring future production on linehellipbefore

debt repayment becomes unsustainable

bull PRC Reap financial benefits of loans and

construction projects access to Venezuelan markets

and commodities without

bull Project failures Loan defaults ldquoLybia IIrdquo

bull Damage to strategic partnership with US

Overview

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

China Venezuela Trade Oil for Goods amp Services

430 agreements 200+ projects with PRC in last decade

$18B in 2011

Bilateral Trade

(13 of total for

Venezuela)

20B+ for 2012

11M bd oil to China by 2014 (PdVSA est)

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

PRC Loans to Venezuela

Significant confusion in media reporting and official

announcements about size of line of credit openrepaid versus

funds deliveredhellipmuch double counting

bull$38 billion in Loans to date 2B+ more in the works

bull$4B to Heavy Inv Fund (1) (CDB) ndash Delivered 2007

bull$4B to Heavy Investment Fund (2)(CDB) ndash Delivered 2009

bull$88B to Long-Range Fund (CDB) ndash Delivered 2010

bull$4B to Heavy Investment Fund (3)(CDB) ndash Delivered 2011

bull$12B to Long-Range Fund (CDB) ndash Earmarked for Projects

bull$4B to Heavy Investment Fund (4)(ICBC) ndash Agreed Feb 12

bull$15B for homebuilding by CITIC

bull$05B for oil drills (CDBICBC)

bull$2B for refineries oil projects w CITIC (ICBC) ndash To Come

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

CDB Loan Flows and Terms (Est)

$12B new funds Into

BNDES account ldquooff-budgetrdquo

Elections

2007 2008 2009 2010 2011 2012 2013 2014

$4B to Heavy Inv Fund

100k bd x 3 yrs $50bbl

$4B to Heavy Inv Fund

130k bd x 3 yrs $40bbl

$88B to Large Size Fund

200k bd x 10 yrs $40-$50bbl

$4B to Heavy Inv Fund

100+k bd x 3 yrs $40-$50bbl

$12B to Large Size Fund

200+k bd x 10 yrs

Obligation

5-600k bd =

$18Byr+ lost

oil revenue

Assumes $80bbl

average price for

Venezuelan crude

$4B to Heavy Inv Fund

70+k bd x 3 yrs (est)

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

PRC Non-Loan Investment Commitments to Venezuela

bullEstimated $41B+

bull$164B Junin-4 (CNPC) ndash 400k bd

bull$900M down (2010)

bull$23B more to develop

bullJunin 1 ndash Sinopec ndash 200k bd

bullJunin 8 ndash Sinopec -200k bd

bullMP3 (Sinovensa) ndash from 112k bd to 330000 bd in 2016

bullBoyaca 4

bullMariscal Sucre gas fields ndash CNOOC

bull$1B for CITIC acquisition of 10 stake in Petropiar from Chevron

bullFuture investments in mining sector following mineral survey

Loans + Promised Investments represent a $79 billion+

PRC contribution to the Chavez regime

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

Dimensions of Relationship (1)

Initially Liberating

bull Military sales at time when Chinese access to

USWestern technology was blocked

bull 18 K-8 aircraft 10 JYL-1 radars

bull C2 equipment training to DICOFAN (Huawei)

bull Interest in CH-3 UAVs L-15s IGLA missileshellip

bull 1st Heavy Investment Fund (2007) ndash w PdVSA liquidity crisis

bull PRC investment (with Russia others) as a substitute for Western

investors to develop the Orinoco tar sands

bull Investorssuppliers during nationalization of multiple sectors

bull Drilling rigs training for PdVSA personnel in PRC

bull Factories Huawei ZTE Chery etc

bull$300M for LABS regional airline ndashPurchase of Chinese Y-12 AC

bull ZTE

bull Space Telecom

bull Fiber-Optic infrastructure following nationalization ndash Work by

Huawei VENSAT-1 VRSS-1 (Oct 12) ground stations by GWIC

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull Second $4B to Heavy Investment Fund (2009)

bull Coincides with second in oil prices

bull $20B long-range fund at time of 2010 political crisis

bull Projects tied to covering electricity shortfalls

bull Hidroelectric PowerPlant - Sinohydro

bull 8 Thermoelectric plants ndash China Harbour others

bull Also covering impact of inflation associated with currency

re-evaluation

bull 300000 Haier appliances from loan funds (May 10)

bull $15B loans for CITIC-built housing (Feb 12) misiones

bull Covering PdVSA investment capital shortfalls

bull $15B in guarantees for PdVSA to get loan from

BNDES for Pernambuco refinery

Dimensions of Relationship (2)

Then Rescuing

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull Loaning $$ to build infrastructure to get the oil and minerals out

while keeping a collaborative Venezuelan government in power

bull Railroads connecting NW coast to interior (eg Tinaco-Anaco)

bull Port Expansion - Pto Cabello Palua

bull Refineries and Mixing Facilities (eg Cabruto)

bull Oil platforms $500M for CITIC project w ICBC funds-Feb 12

bull Aluminum Aid to ALCASA to pdn ndash Mar 12

bull Mining $300M to map area for later exploitation (Feb 12)

bull $500M in negotiation to develop Las Cristinas goldmine

bull Mgt of loans and projects through bi-national committee

bull Last at ministerial level 21-23 Nov 2011

bull Loans increasingly directly tied to projects

bull Project review and technical visits by CDB from April 2010 to

present (incl meetings with CDB head Chen Yuan)

Dimensions of Relationship (3)

Collaboration w Oversight

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull Critical Political Moment

bull Chavez-Capriles Even in some polls + health question

bull Election year spending 20 Jan-Feb + 3 new misiones funded

by debt (Saber y Trabajo Hijos de Venezuela Amor Mayorhellip)

bull Indirectly enabled by Chinese funds

bull Incentive not to undercut Chavez in election year

bull Questioning of constitutionality of debts incurred by Chavez to

PRChellip

bull ldquoPresident Caprilesrdquo ndash

bull Likely to proceed cautiously because of social risk

bull PRC companies less favored but hellip

bull Venezuela a more reliable partner

bull Mixed precedents Peru Libya

China and the Venezuelan Election

PRC posture toward Capriles not predetermined

Questions amp

Comments

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull Overlapping initiatives by PRC banks and construction cos

bull CITIC wants 900 MW plant in Junin with ICBC loanhellipbut

CMEC already plans to build it with CDB funds

bull Occasionally hurt frustrated by Chavez Government

bull 2005 CNPC tax dispute with SENIAT

bull 2006 - Stopped Ormulsion pdn after plant to use it built in PRC

bull Impact of currency controls on Chinese factories

bull CDB guarantees 75 of loan from BNDES for Abreu-e-Lima

Refinery ($15B)hellipbut PdVSA still canrsquot get loan (Feb 12)

bull Protection of Chinese nationals and operations

bull Eg Kidnappingmurders of Chinese railroad workers on

Tinaco-Anaco line

bull 2004 violence against Chinese Venezuelan community in

Valencia Maracay

Dilemmas for PRC

For more information contact Dr R Evan Ellis Tel 202-685-4195 Email ellisr9nduedu

bull Overlapping initiatives by PRC banks and construction cos

bull CITIC wants 900 MW plant in Junin with ICBC loanhellipbut

CMEC already plans to build it with CDB funds

bull Occasionally hurt frustrated by Chavez Government

bull 2005 CNPC tax dispute with SENIAT

bull 2006 - Stopped Ormulsion pdn after plant to use it built in PRC

bull Impact of currency controls on Chinese factories

bull CDB guarantees 75 of loan from BNDES for Abreu-e-Lima

Refinery ($15B)hellipbut PdVSA still canrsquot get loan (Feb 12)

bull Protection of Chinese nationals and operations

bull Eg Kidnappingmurders of Chinese railroad workers on

Tinaco-Anaco line

bull 2004 violence against Chinese Venezuelan community in

Valencia Maracay

Dilemmas for PRC