www.alertnet.org 28 Jan 2003 20:40

By Tom Ashby

CARACAS, Venezuela, Jan 28 (Reuters) - Venezuela faces an uphill task to free up strike-hit oil tankers, ports and trading to restore output to two-thirds of pre-strike levels within three months, a strike leader said on Tuesday.

Luis Vielma, former exploration and production director for state oil giant Petroleos de Venezuela (PDVSA), told Reuters current output of 1.05 million barrels per day (bpd) could double in 90 days only if the government succeeds in freeing bottlenecks in key areas of shipping and trade.

Restarting Venezuela's refineries, which process 1.3 million bpd, would take longer because of the lack of skilled staff, and Vielma saw this continuing to restrain crude flows.

"If they solve the problem of exports, they can easily pump two million barrels per day. If they fail to solve that problem, they won't," Vielma said in an interview. Vielma was among 3,000 managers fired for their part in the 58-day-old shutdown.

President Hugo Chavez said earlier this week Venezuela could reach 2.6 million bpd output within six weeks using replacement crews and troops to break the strike.

"What is limiting oil production is export capacity and refining," Vielma said.

The opposition says output had recovered to 1.05 million bpd on Tuesday, one third of pre-strike levels, while the government pegs crude flows at 1.3 million.

POLITICAL DEAL?

Vielma has previously said he does not expect the government to restore more than half of normal output levels without a political deal on early elections under which thousands of strikers would return to their jobs.

The strike in the fifth largest oil exporter has hit every aspect of the industry, from wellhead, to tankers, refining and ports. But it has been strongest among skilled workers, managers and traders, who are key to getting oil to market.

Vielma said current export levels of about 500,000 bpd were going to Cuba, a key Chavez ally, and Venezuelan-owned subsidiaries in the United States, Citgo and Lyondell Citgo.

"Oil is a very special commodity which has special contracts for special clients, which have been filled by Mexico and Arab producers," Vielma said.

"Getting that market back will not be easy, but if the export problem is solved they could get back to two million," Vielma said.

Even if strikers went back to work tomorrow, Vielma said it would take PDVSA six months to recover previous output levels fully.

Ignacio Layrisse, who as PDVSA technical director of exploration and production was Vielma's deputy, said he thought that Venezuela had lost 400,000 bpd of production capacity due to the accelerated decline in some wells and lack of drilling activity in almost two months of strike.

However, this capacity could be replaced if PDVSA was allowed to invest in new drilling, Layrisse added.

www.upi.com By Bradley Brooks UPI Business Correspondent From the Business & Economics Desk Published 1/28/2003 3:46 PM

RIO DE JANEIRO, Brazil, Jan. 28 (UPI) -- Bradesco, Brazil's biggest private bank, said Tuesday it is buying the Brazilian asset management arm of J.P. Morgan Chase & Co., which oversees some $1.94 billion in funds.

It is the latest aggressive move by Bradesco in buying out a foreign competitor in what analysts say is shaping up to be another dismal year for Latin America's financial services sector.

The transfer of funds from JP Morgan Fleming Asset Management to Bradesco will take place within 60 days and will bring the total amount managed by Bradesco Asset Management -- or BRAM -- to $16.6 billion.

Bradesco didn't say how much it paid for JP Morgan Fleming, nor did it indicate if it would unveil the numbers in the future. But local analysts have said the deal is likely worth about $70 million, or between 3.5 percent and 4 percent of total assets Bradesco will take over.

Government statistics indicate that BRAM is Brazil's second-largest asset manager, but the Rio de Janeiro-based investment bank Pactual reports this move puts Bradesco ahead of the state-owned Banco do Brasil as the country's leader in the business.

"This is another step in the consolidation process observed in the asset management industry, and BRAM has been the most active player so far," Pactual economist Gustavo Hungria wrote in a Tuesday report.

Despite the announcement, JP Morgan underscored that it is not planning an exit of Brazil, saying it remains confident in the country.

But Tuesday's action is the latest in a series of moves by foreign banks to reduce exposure in Latin America, especially, of late, in Brazil.

Although a disastrous economic year has been seen across the region, Ursula Wilhelm, director of Latin American bank credit ratings at Standard & Poor's in Mexico City, said in Brazil's case the recent moves aren't just based on fears the economy will tank further.

"A lot of the acquisitions have been related to improving scale," Wilhelm said. "The ones that have exited -- it is because they didn't have the scale to service that business profitably."

"It's not because they think Brazil is a good or bad opportunity, it is more related to what the business requires in terms of investments."

As an example, Wilhelm cited Spain's No. 2 bank BBVA, which two weeks ago retreated from Brazil by selling its subsidiary there to Bradesco.

"They only sold the institution they had in Brazil, they haven't announced any intentions to sell any of the other investments in Peru, Colombia, Venezuela, Mexico or Argentina," Wilhelm said.

"BBVA's bank (in Brazil) was in the middle -- it wasn't a large or small bank. To compete with large banks, they would have had to make a significant investment."

Which is where the real problem lies: foreign banks have zero appetite to dump any more cash into Latin America, and instead of stagnating in the middle of the sector they are opting to cut their losses and run.

BBVA, for instance, had invested some $10 billion in Latin America in the past decade before deciding it couldn't stomach any more of Brazil's volatility.

How much longer will it be, some analysts ask, before the bank decides to exit other countries in the region?

In the last decade foreign banks' market share in Latin America has grown from 10 percent to 50 percent. Yet as the economic woes of the past few years begin to drive them out of the region, domestic institutions have seemed willing to pick up their assets.

The latest Bradesco deal comes one year after it took over Deutsche Bank's asset management arm and its $600 million in funds.

Banks such as Bradesco -- with its 14.5 million clients -- and Banco Itau are far more widespread across Brazil than their foreign competitors, the latter of whom rarely penetrate beyond the country's most populated and richest areas.

The economic situation in Brazil -- while improving -- is unlikely to tempt any foreign banks to make the investments needed to catch up with domestic institutions, analysts say.

The local currency -- the real -- shed about 35 percent of its value in the past year as the election of the leftist Lula rattled markets. The main stock index lost some 18 percent in 2002.

Both have rebounded somewhat, but with the continuing political standoff in oil-rich Venezuela, and the threat of war in Iraq, nobody is ready to crown Brazil with emerging-market darling status just yet.

Wilhelm said that it is too early to tell how the banking sector will fare under Lula.

"I was just in Brazil last week and I heard everybody saying that 'he had a good beginning, but the big issues are yet to come,'" she said.

Brazil's banks, like many in Latin America, are extremely susceptible to shifts in governmental policy, largely because of significant holdings in sovereign securities.

This becomes a problem, analysts say, when banks have only one entity -- Brazil's government, for instance -- as a main debtor.

"This poses significant risks in terms of what's going to be the government's intention regarding domestic debt, whether they plan to reschedule it or change the terms and conditions," Wilhelm said.

Which is a main concern for those watching the progression of Brazil's new government -- whether it will stick to fiscal austerity and moderate policies unveiled in the first month of Lula's rule, or if some regression on economic reforms awaits investors.

As for what the Latin American banking sector can expect in 2003 following the brutal year it just came through, Wilhelm was decidedly pessimistic.

"In Venezuela -- the economy is completely paralyzed. You now have foreign exchange controls that are harming banks. If you look at Argentina there are still unresolved issues -- the banking system has completely lost creditability with the population," she said.

Everybody remains cautious on Brazil, Wilhelm said, while Mexico and Chile are the most stable -- though not particularly attractive -- destinations for foreign capital in the region.

"The scenario is not really bright," Wilhelm concluded.

www.islandpacket.com By FABIOLA SANCHEZ, Associated Press Published Tuesday, January 28th, 2003

CARACAS, Venezuela (AP) - Striking Venezuelan oil executives acknowledged Tuesday that daily production surpassed 1 million barrels, signaling that President Hugo Chavez may be regaining control of the nation's key industry.

The statement by dissident executives at the state monopoly Petroleos de Venezuela S.A., or PDVSA, came as opposition leaders debated whether to ease the 57-day-old strike against Chavez. Some fear Venezuelans' discontent with strike-induced food and fuel shortages could undermine their objective of removing Chavez from office.

Negotiations, mediated by the Organization of American States, have focused on whether to hold early presidential elections.

Also Tuesday, the Finance Ministry extended a freeze on foreign currency sales until Feb. 5. The suspension is designed to give the government more time to stem the slide of Venezuela's bolivar currency, which has lost a quarter of its value this year.

Dissident PDVSA executives said Tuesday that output by the world's fifth-largest exporter was 1.05 million barrels. Chavez claimed last week that daily production topped 1 million barrels.

That remains well below pre-strike levels of 3.2 million barrels per day, but well above the 150,000 barrels per day produced during the strike's early days.

The oil industry provides half of government income and 70 percent of export revenue.

The government has fired more than 5,000 PDVSA workers, corporation president Ali Rodriguez told state news agency Venpres on Tuesday.

Rodriguez, a Chavez ally, said more dismissals are forthcoming as the government takes advantage of the strike to downsize the company and eliminate dissent. PDVSA had almost 40,000 employees and the government claims most have returned to work.

Strike leaders deny this, saying the government has increased output by focusing on new oil wells, where it is easier to extract crude oil. They insist the strike, called Dec. 2, will continue in the oil industry despite the government's progress on bringing operations back online.

"The protest by oil workers will continue because this is the path we are taking to find a solution to the crisis," dissident oil executive Juan Fernandez said.

But several business leaders said schools, restaurants and malls should reopen amid concern that discontent with food and fuel shortages and financial losses caused by the strike could undermine the objective of removing Chavez.

Julio Brazon, president of the Consecomercio business chamber, which represents about 450,000 stores and retailers, said businesses need "to recover earnings and avoid labor problems." He said shopping malls and franchises may be permitted to open part-time next week.

Carlos Avila, executive president of Subway de Venezuela, said fast-food franchises were considering opening four days a week. Each of Subway's 76 branches in Venezuela have lost an average of $30,000 during the strike.

The National Association of Private Education, which represents 911 private schools, convoked assemblies this week to decide whether schools should open Feb. 3.

Strike organizers, who accuse Chavez of dragging this South American country into political and economic chaos, warned that easing the work stoppage would be counterproductive.

"If some sectors of the opposition, business sectors or political sectors, think they can save themselves from this regime by easing the strike, they are totally mistaken," said Carlos Ortega, president of the Venezuelan Workers Confederation, the country's largest labor union with 1 million members.

The government is struggling with the strike's impact on the economy. The strike has cost Venezuela at least $4 billion so far and the Santander Central Hispano investment bank has warned that the economy could shrink by as much as 40 percent in the first quarter of 2003.

The Finance Ministry's extended freeze on foreign currency sales is meant to give the government more time to implement a new policy of foreign exchange controls, which will limit the amount of dollars and other foreign currencies Venezuela can buy.

The exchange controls would stem the slide of Venezuela's bolivar currency but hurt businesses dependent on dollars to buy imported goods.

The strike was called to pressure Chavez to accept a referendum on his rule. The opposition hoped a referendum, though nonbinding, would embarrass Chavez into leaving office.

But Venezuela's Supreme Court ruled last week balloting must be postponed indefinitely, prompting opposition parties to organize a massive signature collection campaign on Feb. 2.

Government adversaries hope to amend the constitution to allow early elections.

Chavez, a former paratrooper, was elected in 1998 and re-elected two years later. His term in office ends in 2007.

news.bbc.co.uk Tuesday, 28 January, 2003, 19:43 GMT

South Africa warns of economic mayhem from costly oil imports

South Africa's President Thabo Mbeki fears that rocketing oil prices brought on by a Middle East war could condemn Africa to deep economic crisis, his spokesman has told BBC World Service Radio.

The impact could be severe enough to undo any benefits from a 2002 agreement for leading industrial countries to expand aid to Africa, said presidential spokesman Bheki Khumalo.

Worries about the impact of a conflict on oil supplies have kept prices in sight of $30 a barrel in recent weeks. Most analysts expect the outbreak of war would push prices sharply higher, but differ on for how long.

War with Iraq is would bring "devastating economic consequences" for Africa, playing havoc with inflation and causing budget problems for poor countries, said Mr Khumalo.

'Poorer and poorer'

For this reason, President Mbeki believes war is "not in the best interests of the peoples of Africa", he said.

Thabo Mbeki pushed hard for Nepad but the outcome fell short of pleas

Last year the G8 grouping of industrial nations agreed to step up aid, trade and debt relief to Africa in an anti-poverty pact known as Nepad, the New Partnership for African Development.

War "would put paid to all the high hopes raised by...Nepad...and therefore ensure that the people of Africa would continue to confront the reality of even further impoverishment," the president's spokesman said.

"What it does really is to move Africa off the radar screen of the entire world," he added.

South Africa's ambassador to the United Nations is leading a team of Non-Aligned Movement counties calling for more negotiations, he said.

South Africa wants Iraq to comply with UN resolutions demanding it disarm, he said.

Seeking new supplies

African oil importers such as South Africa, Kenya and Ghana would be vulnerable to any increase in prices, though oil exporting countries like Nigeria could benefit.

Oil exploration in Africa is expanding

International oil firms have stepped up exploration for oil in Africa in recent years, particuarly offshore from Nigeria and Angola.

So far they have not found any deposits big enough to alter global dependence on Middle East oil, a spokesman for Anglo-Dutch oil giant Shell said.

"The major resource holders...in the Middle East will still have the dominance in terms of their reserves," Shell spokesman James Harding told World Business Report.

'Short term problem'

But some oil executives think the oil prices are unlikely to remain at current levels for much longer.

TotalFinaElf chief executive Thierry said prices are likely to fall by mid-2003, as they have partly been driven up by a mass strike halting supplies from Venezuela, the world's fifth biggest exporter.

As long as any war in Iraq was brief, he said, "I don't think there would be too huge (an) impact on the oil price".

Oil prices rose on Tuesday as traders waited the US president's annual State of the Union address, sure to be scoured for clues on US intentions.

Benchmark Brent crude was trading 22 cents higher at $30.08 a barrell at 1746 GMT in London on Tuesday.

In New York, US light crude was 16 cents higher at $32.45 a barrel.

www.arabnews.com By Ash Pulcifer

Most people are aware that oil will play a role in the Bush administration’s possible invasion of Iraq, but many do not quite understand how. The common assumption is that the US military will somehow "steal" Iraq’s oil. This is simply not the case.

The reason that oil plays a part in any future conflict with Iraq has to do with the amount of oil available on the free market. On the free market, whenever there is an increase in supply of a product, the price of that product generally decreases. Such is the hope of the Bush administration with regard to the price of oil should they remove Saddam Hussein from power.

Currently, Iraq is allowed to export some 2 million barrels of oil per day (bpd), which finds its way into the global marketplace; shortly after the Gulf War, Iraq’s oil exports were restricted as part of the United Nations oil-for-food program. Before the Gulf War began, Iraq was exporting 3.5 million bpd, meaning at least another 1.5 million barrels of oil were being released into the global marketplace each day as compared with 2 million bpd now. If Iraq were to once again rise to that level of exports, there would be more oil supply in the global market and this would cause a drop in oil prices.

The only way for Iraq to once again export 3.5 million bpd will be for the United Nations sanctions to end. Once the sanctions end, Iraq will be able to export oil at their full capacity as they did before the Gulf War. Because the United States and Britain believe strongly that the sanctions should remain in place until Saddam Hussein is removed from power, they have looked for other solutions to solve this problem of high oil prices. The Bush administration decided the sanctions were not succeeding in removing Hussein and it was time they just removed him themselves, putting their own friendly government into power and thus putting an end to the need for sanctions.

This is one of the central ideas behind the Bush administration’s wish for "regime change." High oil prices damage the economies of countries that are dependent on foreign oil, such as the United States. If oil prices were to dramatically drop, it would be as if a great weight had been lifted off the chest of the US economy, possibly leading to a global economic upturn. The positive result of "regime change" in Iraq to the US economy cannot be underestimated.

See, the Bush administration has far loftier goals in mind when it comes to Iraq. Maybe it’s because the central thinkers in the administration were at onetime involved in the oil industry: President Bush was a senior executive in Arbusto Energy/Bush Exploration oil company from 1978-1984, and the senior executive of the Harken oil company from 1986-1990; Vice President Cheney was the chief executive of the Halliburton oil company from 1995-2000; and National Security Adviser Rice was a senior executive with the Chevron oil company from 1991-2000. So this administration knows its oil. And because of that, they quite ambitiously say, "Why not increase Iraq’s oil capacity to a level higher than ever before, thus adding even more supply to the oil market?"

And that is what they intend to do. The new government that the US installs will want to increase production because that will result in more exports and thus more money for the Iraqi economy. But the only way to increase production is to incorporate Western technology into oil drilling practices. That’s where the American oil companies come in. The American oil companies will be needed to rebuild and update Iraq’s oil infrastructure in order to increase their oil output. This is why American oil companies are hoping that the war in Iraq will materialize. As we have seen, they have well placed friends in the administration and just might get what they want.

It is estimated by energy analysts that with the assistance of US oil technology, Iraq will be able to increase production to 5 million bpd. That is at least three million more barrels per day than they are exporting now. This will provide more supply to the oil market depressing oil prices, thus providing a relief to the US economy.

There’s no need to take my word for it. Bush’s former top economic adviser, Larry Lindsey, stated last fall: "When there is regime change in Iraq, you could add three million to five million barrels (per day) of production to world supply. The successful prosecution of the war would be good for the economy." Couldn’t be put simpler than that. Economists predict that after a successful Iraq invasion, the price of oil will drop from the current $30 — $34 a barrel to $15 to $20 a barrel; possibly a 50 percent decrease. The effects of this on the US economy, which is heavily dependent on oil, will be dramatic.

Of course, all of this will only become possible should the war in Iraq be a successful military and political operation. There are plenty of problems that can arise in the prosecution of the war that could cause an opposite effect, drastically increasing oil prices due to any instability in oil output from the Middle East. With the current crisis in Venezuela, a major exporter of oil to the United States, the Bush administration won’t have that much leeway in avoiding an economic disaster should their plans backfire.

Ash Pulcifer, a lifelong activist for international human rights, lives in the US. Ash finds it unacceptable that the world often turns its back to those less fortunate members of our species who are forced to endure poverty and civil strife. Ash Pulcifer encourages your comments: apulcifer@YellowTimes.org (YellowTimes.org)

Arab News Features 29 January 2003