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China gives Venezuela break on oil-for-loan repayment

Amendments eliminate the minimum export requirement and a payment period

China has agreed to ease some of the terms for Venezuela on more than $50 billion in oil-for-loan deals amid lower oil prices that would force Caracas to ramp up exports to keep up with its payments. New amendments to the oil-for-loans agreement have eliminated the minimum oil export requirement and also removed a three-year repayment period, China's Ministry of Commerce (Mofcom) said in a short statement on its website. 

Venezuela sends 230,000 barrels a day (b/d) of oil to China to repay parts A and B of the loan, and a further 100,000 b/d to pay part C of the agreement, Mofcom said. Venezuela's state oil company PdV said in its most recent annual report that it sent around 550,000 b/d of oil to China last year to repay its loans, up from 480,000 b/d in 2011. PdV sells oil and products to China at market prices to pay down its loans, so the recent collapse in crude prices would have required it to sharply increase exports to China to keep up its payments.

The price Venezuela gets for its relatively heavy mix crudes fell to $77.65 a barrel last week, down 21% from last year's average of $98.08/b, according to energy ministry figures. That implies a required 21% increase in oil shipments by Venezuela to honour its financial commitments with China, or an additional 115,000 b/d, which would raise total exports to 665,000 b/d. Those are barrels that Venezuela can't spare as it grapples with an economic crisis which will likely worsen should oil prices fall further. 

The country is pumping around 2.48 million b/d, according to the International Energy Agency. But PdV only sees market-rate revenues from about 0.8m b/d of that production. Around 0.8m b/d are sold into the domestic market, essentially for free, because of generous subsidies that the government has been unwilling to reform. 

About 100,000 b/d are sent to Cuba in exchange for doctors, teachers, social workers and other assistance. A further 180,000 b/d of heavily discounted crude is shipped throughout the Caribbean and Central America under the PetroCaribe programme. On top of this, 550,000 b/d goes to China to repay its loans. Having to increase that by more than 100,000 b/d would hit PdV's finances. 

As Mofcom noted in its release, Venezuela does not have the capacity to increase output in the short term to keep up with the original terms of the agreement. The setback will come as yet another frustration for China in its relations with Venezuela. 

China's state oil companies have invested heavily in a string of oilfields in Venezuela's Orinoco heavy oil belt, but so far has little to show for it as the projects struggle to make progress. Still, the Chinese government has nothing to gain from increasing the pressure on Venezuela's oil sector and broader economy. The two countries  have forged close ties in recent years, and China now has a major stake in the Latin American nation's economy. 

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