The MasterBlog: Japan May End $1.5 Billion Venezuela Loan on Seizures (Update2) (Bloomberg
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Tuesday, June 23, 2009

Japan May End $1.5 Billion Venezuela Loan on Seizures (Update2) (Bloomberg

Japan May End $1.5 Billion Venezuela Loan on Seizures (Update2)

By Steven Bodzin and Shigeru Sato

June 23 (Bloomberg) -- Japan may cancel a planned $1.5 billion loan for Venezuela’s El Palito and Puerto La Cruz oil refineries after the South American nation seized Japanese company assets, said a person familiar with the situation.

The Japan Bank for International Cooperation, orJBIC, is reviewing loans for the upgrades after Venezuela took over Japanese iron and chemicals assets and fell behind on payments to oil-service contractors, according to the person, who declined to be identified because the review isn’t public. The refineries have a combined 327,000 barrels-a-day of capacity.

Venezuelan President Hugo Chavez is risking as much as $33.5 billion in Japanese investment as he takes over plants owned by companies such as Tokyo-basedMitsubishi Corp. Petroleos de Venezuela SA, the state-owned oil company, is also behind on payments to contractors including Japan’s Toyo Engineering Corp., according to the person.

“If that money were to dry out they’d be in a serious pinch,” said Roger Tissot, a consultant with Gas Energy Latin America in Vernon, British Columbia. “It doesn’t matter if you’re from China, Japan, Saudi Arabia or Wall Street, you want your money back and a little bit of return.”

Insurance Coverage

Nippon Export and Investment Insurance, or Nexi, is also considering ending coverage for projects in Venezuela, the person said. The agency insures most Japanese holdings in Venezuela. The company has been holding internal meetings to determine its insurance coverage policy for Japanese investments in Venezuela, Kyoichi Suzuki, the head of the agency’s country risk analysis group, said by phone June 19.

Rafael Ramirez, Venezuela’s oil and energy minister and president of PDVSA, as the state oil company is known, didn’t immediately respond to a request for comment sent to his communications office.

Hirofumi Kawagoshi, the head of investor relations at Toyo Engineering, confirmed that Venezuela has been behind in payments for a 60-billion-yen ($631 million) contract to build a fertilizer plant. The accord was signed in 2007, Kawagoshi said.

Planned Japanese investments in Venezuela include $10 billion in liquefied natural gas projects, $8 billion in petrochemicals and $1.5 billion for the refineries, Chavez saidwhile visiting Japanese Prime Minister Taro Aso in April.

‘Grave Concerns’

“We have grave concerns about Venezuela’s nationalization of the industries and need to continue internal discussions before determining our clear future policy,” Nexi’s Suzuki said.

Japanese companies may lose their appetite for investing in the South American country without Nexi coverage because they would be fully exposed to risks, said Hidetoshi Shioda, a senior energy analyst at Mizuho Securities Co. in Tokyo.

Mitsubishi has an agreement to finance upgrading the Puerto La Cruz refinery, according to a statement from Chavez’s office. A Mitsubishi spokesman, who can’t be named because of the company’s internal rules, declined to comment on the agreement or on future talks on the refinery project.

JBIC, through a spokesperson who wouldn’t be named because of bank policy, declined to comment on any review of the loan because negotiations are still ongoing. Venezuela’s Foreign Ministry didn’t immediately respond to a call and e-mailed questions from Bloomberg News seeking comment.

Exit From Venezuela

“Trading houses and other Japanese investors would get out of Venezuela if they don’t have the Japanese government’s strong financial backing,” said Yasuhiro Narita, an analyst specializing in trading houses at Nomura Securities Co. in Tokyo.

Mitsubishi, Mitsui & Co. and Itochu Corp. are among the partners designing two liquefied natural gas plants where Ramirez said Japanese investment may reach $10 billion.

Mitsui will look into the impact of Venezuela’s possible nationalization of industries and take appropriate action in consultation with its Japanese partners, said a spokesman, who declined to be named because of company policy. An Itochu spokesman, who also can’t be identified because of internal rules, declined to comment.

In 2007, JBIC led a group including Mitsui and Marubeni Corp. that loaned PDVSA $3.5 billion to be paid in cash, crude oil or petroleum products over 15 years, according to PDVSA’s annual report.

Venezuela has nationalized two industries with Japanese investment this year. Chavez took over the hot briquetted iron industry May 22, including Complejo Siderurgico de Guayana CA, or Comsigua, where shareholders include Kobe, Japan-based Kobe Steel Ltd. and Tokyo-based Marubeni.

The Latin American nation’s legislature passed a law June 16 to take over primary and intermediate chemicals plants, such as the Metor methanol plant where Mitsubishi Gas Chemical Co. and Mitsubishi, both of Tokyo, share a majority stake.

PDVSA is at least $5 billion behind on payments to contractors, with several complaining that they have received only token payments since August.

To contact the reporters on this story: Steven Bodzin in Caracas atsbodzin@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net.

Last Updated: June 23, 2009 02:29 EDT

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