Venezuelan Petroleum, Inc. [PDVSA] stopped transferring to the Treasury 2.5 billion dollars in royalty payments during 2008 and 2009. Thereby, it partially offset the money that it did not earn for the export of crude and fuel to China, which was sent to amortize the loan granted by that country and which on average reached 230,000 barrels per day (bpd).

Forty per cent of the royalties were due to provincial governments and towns, by constitutional prescription, which go directly into their accounts, and for special financial allocations, which are currently being deposited in the Inter-Territorial Compensation Fund.

The figures used indicate, however, that the regions in these two years ceased to receive nearly 1.3 billion dollars because PDVSA paid no royalties. This amount also includes discounts of up to 44 per cent in the price of crude oil sold to the Asian nation.

Most of these resources - about 993 million dollars - correspond to 2008, due to the price differential that was recorded that year, when the average price of Venezuelan oil basket stood at 90 dollars a barrel.

"It was an illegal handling of budget matters not to give money to the provinces and towns," complained Moraima Padron, the former director of the Central Budget Office and the secretary of planning, budget, and management control of the government of Carabobo.

"The Hydrocarbons Law does not allow PDVSA to make compensations in the payment of royalties and so what was done with the China Fund is illegal," she said.

The executive is defending the use of this financial instrument because public works are being executed with agility and administrative procedures are being simplified, but the hint of illegality was one of the reasons that led the Ministry of Planning and Finance to instruct PDVSA that after 2010 it must not avoid paying the royalties as a compensatory mechanism.

The Development Bank Speaks

The resources provided by the China Development Bank to the executive between 2007 and 2010 total 20.8 billion dollars for financing infrastructure projects. They are administered by the Bank of Economic and Social Development of Venezuela [Bandes].

The president of Bandes, Edmee Betancourt, defended the legality of the financing fund agreed to by both nations at the opening of an exhibition of Chinese enterprises in the Military Circle of Caracas. In a Bandes statement, the official highlighted the fund as an example of "the depth of the strategic partnership between China and Venezuela." Next week, they are planning to review the progress and implementation of the resources of this fund in the 10th bilateral Joint Commission.

Source: El Nacional website, Caracas, in Spanish 17 Nov 11