[4/19/17] ZEROHEDGE– Despite having made its bond payment due last week, Venezuela’s state oil company, PDVSA, remains in fire financial straits, with virtually no funds or liquidity, and regardless of the close Russia-Venezuela ties, a Russian state-run shipping company has taken a tanker of PDVSA crude “hostage” in the Caribbean over $30 million worth of unpaid shipping fees.
Russia’s shipper Sovcomflot sued PDVSA in the Dutch island St. Maarten in the Caribbean and “imposed garnishment on the aforementioned oil cargo,” Reuters reported on Tuesday, citing a St. Maarten court decision. PDVSA had sent the oil cargo to the Caribbean in October last year, hoping it could net around $20 million from the sale of the crude, but Sovcomflot claims the cash-strapped state-run Venezuelan company owes $30 million in unpaid shipping fees.
Nearly half a year after crossing the Caribbean, the NS Columbus has transfered its cargo of crude to a storage terminal on St. Eustatius, an island just south of St. Maarten, under the court court. Another tribunal in England will decide if Sovcomflot will ultimately take the oil. Reuters adds that the dispute, which is being heard by the United Kingdom Admiralty Court, highlights how shipping companies are becoming increasingly aggressive in pursuing PDVSA’s debts.
It also shows that political allies such as Russia are losing patience with delinquent payments from Venezuela, whose obsolete tankers are struggling to export oil and even to supply fuel to the domestic market.
Making matters even more complicated, PDVSA owes not only shipping fees to the Russian company, but also millions of U.S. dollars to terminals around the Caribbean, including the St. Eustatius terminal – where the oil is currently held – owned by U.S. company NuStar Energy, Reuters reported citing a PDVSA executive and an employee at one of the terminals. Furthermore, PDVSA’s “tangled web of payment disputes” now spans the entire world, from unpaid shipyards in Portugal and half-built tankers in Iran and Brazil to the seized cargo in tiny St. Eustatius, whose strategic location in the Caribbean made it an 18th century colonial-era trading hub.
That’s not all: as a result of the recent liquidity crunch at PDVSA, the oil company also finds itself months behind on shipping crude oil and fuel to China and Russia under oil-for-loan agreements with its two key political allies. The shipments that PDVSA has failed to deliver to Chinese and Russian state-held companies were worth around $750 million, a Reuters analysis showed back in February.
Will the issue be resolved amicably?
On one hand, Russia has consistently supported President Nicolas Maduro with financing arrangements and oilfield investments. State-run oil firm Rosneft has lent money to PDVSA since 2016 and last month was in talks to help PDVSA make a hefty bond payment. However, problems had been brewing for months between Venezuela and Sovcomflot, which provides about 15% of vessels that PDVSA charters to ship crude to its clients amid a steady deterioration of its own fleet, according to a captain and two shipbrokers working with PDVSA.
Debts to Sovcomflot had by 2016 swelled enough that company’s top brass complained in person to PDVSA President Eulogio Del Pino in the Russian city of Sochi, according to source from PDVSA’s trade department with knowledge of the meeting.
Del Pino agreed to a payment schedule proposed by his trade and fleet executives and accepted by Sovcomflot, the source said. But PDVSA – saddled with heavy bond payments and billions of dollars in unpaid bills to oilfield services providers – was unable to make sufficient payments to avoid Sovcomflot’s unusually public debt-collection gambit.
“Hostage” situations such as this one are rare: detentions of oil cargoes have been unusual because creditors rarely have sufficiently detailed information on tanker movements to obtain timely court orders.
Furthermore, since Venezuela also tends to ensure that any cargoes that leave its ports legally belong to the clients rather than to PDVSA – meaning they are rarely in a position to be seized – suggests that either the company made a rookie contractual error or it can’t even afford to buy insurance on its cargo. Additionally, the Sovcomflot dispute was unique in that the creditors are the tanker owners. Although the crude onboard the NS Columbus had already been sold to Norway’s Statoil, the cargo was being carried in a tanker navigating with a bill of lading under PDVSA’s name, according to two inspectors and a representative of one of the companies involved.
Meanwhile, the liquidity crisis at PDVSA, not to mention the economic crisis in Venezuela, has spiraling so far out of control, that the nation with the world’s largest oil reserves recently raged after a gasoline shortage developed in its capital of Caracas.