PDVSA Woes Deepen as Caribbean Debt Soars

Unpaid debts and broken promises are making Venezuelan oil giant PDVSA an outcast in several Caribbean countries where it had been a guest of honor.

The state-run company's crumbling finances are causing operational disruptions across one of its most essential regions, according to internal company documents, six sources with knowledge of its operations, and Thomson Reuters vessel-tracking data.

Business partners in the island nations of Curacao, Bonaire, Jamaica and the Bahamas are turning away from the firm as debts pile up to tugboat operators, ship brokers, maritime agencies and terminal owners, the sources and documents show.

The company's problems include blocked loading operations in the Bahamas and threats from the governments of Curacao and Jamaica to replace PDVSA as a partner of refineries in both places. Many vessels are also anchored offshore, blocked from discharging cargoes at ports because PDVSA has not paid suppliers and business partners.

The mounting Caribbean problems are adding to a broader crisis for PDVSA, which is already reeling from declining production, low crude prices and an unprecedented economic downturn at home. The company saw operating cash flow plummet by 63 percent, to $2.1 billion, in the first quarter compared to the same period a year earlier, according to its most recent financial report.

PDVSA's Caribbean operations represent a quarter of its global refining capacity and serve as a loading hub for a third of its exports of crude and fuel oil.

For a graphic on PDVSA's facilities in the Caribbean, see: http://tmsnrt.rs/2dEYaRb

"PDVSA has absolutely lost ground in the Caribbean," said Lisa Viscidi, director of Energy, Climate Change and Extractive Industries at the Inter-American Dialogue in Washington, noting falling oil sales in the region for the past two years.

PDVSA did not respond to repeated requests for comment.

In the latest mishap, a PDVSA fuel-oil cargo bound for Asia has been trapped in the Caribbean sea for more than a month after a court ordered the detention of the tanker "Hero" in Curacao, according to sources with direct knowledge of the situation and Thomson Reuters vessel-tracking data.

Curacao's port authority barred the ship from leaving on Sept. 18 after a unit of Core Laboratories won the court order to force payment of delinquent debts, according to two people with direct knowledge of the matter. PDVSA had allegedly failed to pay the unit, Saybolt, several million dollars for months of oil testing services.

Mark Elvig, general counsel for Core Laboratories, declined to comment.

REVERSAL OF FORTUNE
The problems reflect a stark reversal for a company that has been a trusted partner of governments in the Caribbean.

About a decade ago, Caribbean countries laid out red carpets for PDVSA executives, who came offering cheap oil under the Petrocaribe program that leftist President Hugo Chavez launched to win allies as a bulwark against Washington.

Petrocaribe worked well for years, as poor islands curbed the impacts of rising global oil prices and Venezuela bartered oil for everything from medical services to black beans.

PDVSA had used Caribbean facilities to offset frequent outages and incidents plaguing its storage, refining and port networks in Venezuela. The region offers vast storage capacity, ample refineries and crude blending facilities, and deep water docks to load Very Large Crude Carriers (VLCC) for trips to Asia.

But the relationships of the past are now increasingly strained as suppliers and service providers go unpaid.

"PDVSA's cash flow problems are impacting routine operations," a trader at a private company that has worked with PDVSA in the Caribbean told Reuters on condition of anonymity. "You only accumulate several million dollars in debt for port services by not paying for months or even years."

The company has slashed its operating budget to $45 million monthly from $145 million monthly in 2015, the PDVSA trading team source said. That budget pays for all trade activities in Venezuela and overseas, the source said, including tanker cleaning, routine inspections, storage, brokerage, freight costs, port services and oil imports.

REFINERIES AT RISK
The tanker detention came days after Curacao's government signed a memorandum of understanding with Guangdong Zhenrong Energy, indicating the Chinese firm could soon replace PDVSA as the operator of the Isla refinery in 2019.

Officials in Curacao have said the move follows years of frustrated efforts to persuade PDVSA to invest $1.5 billion to upgrade Isla.

"We have decided not to wait any more and look for alternatives," said Ben Whiteman, the island's Prime Minister, in a broadcasted speech in September.

The island's government declined a Reuters request for comment, and the Chinese firm did not respond.

PDVSA said in a September news release that the renewal of its lease is not up for negotiation yet.

Isla is strategically important because its lease contract includes the Bullenbay terminal, with 17.75 million barrels of storage and blending capacity. Bullenbay is where PDVSA receives the imported light oil it mixes with its own extra heavy crude to create an exportable blend.

Also in September, Winston Watson, general manager of Petrojam - Jamaica's state company that owns the Kingston refinery - said he was fed up with PDVSA's foot-dragging on upgrading the plant.

"If they say no, then I guess we would have to go to the market and seek another investor," he said of PDVSA to lawmakers in parliament, according to a transcript.

Petrojam and the Jamaican government did not respond to requests for comment.

LATE RENT, STRANDED SHIPS
Another setback came in the Bahamas. For about a month starting in mid-September, PDVSA was blocked from loading cargoes at the massive BORCO terminal because of late rent payments for storage tanks, according to one of the PDVSA sources and a ship broker.

The BORCO standoff contributed to an ongoing decline in PDVSA's exports - and its ability to generate cash - just as payment delays snarled its imports.

In September, PDVSA's crude exports suffered an annual decline of 12 percent to 1.55 million barrels per day, according to Thomson Reuters Trade Flows data.

U.S.-based Buckeye Partners, which operates the terminal, did not respond to multiple requests for comment.

Near other Caribbean and Venezuelan ports, about a dozen tankers carrying around 2.5 million barrels of light crude and products - including two cargoes supplied by BP - have been stuck at sea for weeks at a time, waiting for payment from PDVSA before discharging, according to traders from private firms and vessel tracking data.

In May, Venezuelan President Nicolas Maduro made an official visit to Jamaica and sought to reassure Caribbean dignitaries of PDVSA's long-term health.

"Be confident," he said. "Venezuela has faced situations even more difficult than the one we are passing through."

Reporting by Marianna Parraga