Who Would Invest In Venezuela?
Oct18

Who Would Invest In Venezuela?

I have a funny feeling that somewhere a Koch family funded printing press is churning out a Spanish translation of A Business Man Looks At Communism. The Marxist president of Venezuela, Hugo Chavez, has “authorized the expropriation” of FertiNitro, a urea fertilizer firm owned by Koch (35%), Italy’s Eni (20%), and Pequiven (25%), the state-owned chemical company. The company, according Fitch Ratings, makes about 4,400 metric tons of urea every day. Its plant is in Jose and is downstream from a natural gas processing plant run by Venezuela’s state oil firm PDVSA. The government is also nationalizing Venoco, a local automotive lubricants firm, which also gets feedstocks from PDVSA. One commenter on Chavez blog, José Hernandez, wrote “Excellent decision, president; to release the mother country from the yoke of Capitalism; to assure strategic zones for the nation, means of production for the town; to do justice.” Oh, you are just sucking up, José. To be fair, nationalization doesn’t necessarily mean that Chavez will steal these assets. As this Reuters Factbox points out, there have been many nationalizations in Venezuela in recent years. Some companies have been “fairly” compensated, whatever that really implies, and others are seeking arbitration. Nationalization does mean that the companies are being forced into a negotiation process with the Venezuelan government that has to conclude in a sale to the Venezuelan government. And, incidentally, this Venezuelan government supplies feedstocks to these companies. Is that a negotiation that is likely to result in the same sort of deal that Koch or Venoco would get selling to a private company? No, definitely not. And what is the point of Venezuela doing such a thing? Whatever capital Koch and Eni get from the government will most certainly flee the country at the first opportunity. If fertilizers are set below market prices, there will be shortages that could disrupt Venezuela’s agricultural output and its food supply. If Venezuela continues selling the fertilizers at market prices, the government will likely use the profits to fund government coffers, not reinvest in the company. This spells long term shortages. What’s the point? Punishing “capitalists” only? A chemical company would have to be insane to invest in an environment this arbitrary. That said, some companies have been doing just that. In August, METOR, a methanol joint venture between Mitsubishi Gas Chemical, Mitsubishi Corp., and Pequiven, completed a $136 million expansion that more than doubled production capacity at its Jose complex to 1.6 million metric tons. Braskem and Pequiven are planning $3.5 billion in petrochemical projects together. Granted, these have been scaled down. Original plans called for a propane dehydrogenation plant to be built in...

Read More