What Is The Plan?
As we have seen in the past, the Chavistas are always telling us all the great things they are going to do without disclosing any details about how they will accomplish these great things. Before we head Down The Rabbit Hole to begin this week’s segment “Free Gas” let’s look at a couple of examples as well as some other news.
There is nothing more important to the Venezuelan government, at least as far as “legal revenue” (note I say LEGAL) goes, than oil production. We recently heard from the Oil Minister as well as other Chavista officials that they were going to increase oil production to 1 and 1/2 million barrels per day by the end of the year. The never told us exactly how they came up with that number nor how they would accomplish such a lofty goal. Did it just sound good? Was it just a nice round number? Who knows?
Interestingly enough, shortly thereafter BNN Bloomberg reported that major oil companies Total (France) and Equinor (Norway) were pulling out of a key joint venture they had with the Venezuelan government called Petrocedeno. This joint venture has been a top producer for Venezuela. The Oil Minister and Nicolas Maduro have said repeatedly they want more international companies to partner with them to help boost production. They have also hyped new laws they were enacting to guarantee the government’s cooperation in such ventures. It seems Total and Equinor didn’t get the memo. If they are going to triple/quadruple production they need all the help they can get from companies like Total and Equinor because as we saw in our “Killing The Goose That Laid The Golden Eggs” segment PDVSA is no longer capable of any significant oil production on it’s own. What is the plan to replace this key joint venture?
On the heels of this the Oil Minister came up with some very questionable positive spin or as we like to say “happy talk”. He announced that the PDVSA government entity that was the third part of Petrocedeno would now be ‘the sole proprietor’ of the joint venture (never mentioning it was because Total and Equinor pulled out) ……like this was a good thing. They overlooked the statement by a former PDVSA president that this is proof nobody wants to work with these guys. All the old pros are gone now so…what is the plan?
And speaking of not having a plan, Foreign Policy reports that the Venezuelan government is without a Vaccination Plan.Maduro tells us that Venezuela is now in phase two of the plan even though we don’t know what the plan entails. The Chavistas also told us the plan was rolling out in February but again nobody told us what the plan was. In a country of 28 and 1/2 million people 25 million have yet to be vaccinated. Maduro predicted 70% would be vaccinated by August. FYI, Chile and Uruguay have already achieved a 70% vaccination rate. The regime’s vaccination reports have been much like their roll out of their fraudulent cryptocurrency “el Petro” in short, they are all over the place and constantly changing. They’re using vaccines through COVAX…they’re using vaccines from China….they’re using vaccines from Russia… and the latest savior… they’re using vaccines from Cuba (uhhh are those the ones still in clinical trials?). They are using the ‘Carnet de la Patria’ (Homeland Card) system to coordinate distribution. Then when they came under fire because not all citizens are registered under that system they said they had a parallel system as well although nobody seems to know exactly what it is or how it works.
With Venezuela’s already collapsed healthcare system, collapsed economy, basically collapsed everything (including power and water) the odds aren’t good for success. The odds are good,however, that Maduro will blame this fiasco on everyone but himself.
On the lighter side, Alarabiya News reports that the Big Mac Index, a good natured measure if currencies are at their correct levels has rated Venezuela the most expensive (worst) in the world.
Before we move on it’s worth noting that Freddy Guevara is still incommunicado. I think it’s about three weeks now. Let’s head Down The Rabbit Hole…
I originally wrote “Free Gas” in 2019 when gasoline in Venezuela was more or less free.That is not the case now so stick with me and we’ll get to where we are today. Here we go…
As an investor I always thought it was a good idea to own some stock in a major integrated oil company.I call it my oil insurance ( a term I stole from Dan Ferris). Sometimes it’s a better investment than others but it’s kind of like owning gold. I sleep better knowing I have it.Since a large percentage of the world’s oil passes through the Strait Of Hormuz, which is controlled by those lunatic Iranians (a Maduro ally,by the way) they can cause the strait to be closed and the price of oil could skyrocket overnight. As such, I’ve followed the oil market for years. I thought I knew a little bit about it until I moved to Venezuela.
We already dealt with the macro situation ie; PDVSA. This is about the micro, the lunacy of free gasoline, and why it stayed free in Venezuela,and yes I said FREE, for so long.When I would travel to the US and tell people I was from Venezuela they would always mention either beauty queens or cheap gas. When I would tell them there are more beautiful women per capita in Venezuela than anywhere else in the world they were never surprised. When I would tell them that gas wasn’t cheap but free their response was always the same,”Come on..it can’t be free…can it?” Well, I don’t know about you but I consider one tenthousandth of a cent per liter free gas.
Gasoline wasn’t always free in Venezuela but it was exceptionally cheap.Politically it always made sense to mollify the population with cheap gas.Cars might be expensive but if you had one you never had to concern yourself with paying for gas.Until the big bang in prices about a year and a half ago tho only major price increase in recent years came in 2016.Maduro was already a de facto dictator so he didn’t care about the political consequences of a gasoline price hike. In one shot he bumped up the price of 91 octane by 3,000% and 95 octane (we don’t even have 95 octane in the US) by 6,000%.
Sounds like a big deal until you do the math.Let’s use 95 octane for example. Remember, in 2016 we were using the bsf, the bolivare fuerte, not the new bsS – bolivare Soberano, and certainly not the plain old bolivar. (confusing isn’t it?) Anyway, here’s how it breaks down :
one liter of 95 octane – 6 bsf
approximately 55 liters for a tankful in the trusty old Toyota
exchange rate at the time – approximately 1,200 bsf per dollar.
So you can see,even with the big bump in price I could still fill up my tank for a quarter! And that was when it was expensive. Maduro’s economic mismanagement would eventually make the price of that same liter of 95 octane $0.000001(6 bsf per liter with the exchange rate of the new bsS, the one that lopped five zeros from the bsf, at 6,000 bsS per dollar). The numbers were absolutely crazy. To leave the subsidized price so low must cost a fortune, right? Yes it does.
To be continued…..
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