Chinese Contractor Ends Oil-Project Deals With Venezuelan Firms
Chinese Contractor Ends Oil-Project Deals With Venezuelan Firms
(Bloomberg) -- China’s leading oil contractor in Venezuela terminated deals with local providers at oil projects due to lack of payment from the state oil company. But exiting is proving a challenge to both sides.
China Huanqiu Contracting and Engineering Corp., known as HQC, an affiliate of China’s biggest energy company China National Petroleum Corp., told local providers that their contracts were being terminated, citing “the extremely difficult situation of this project,” according to a document seen by Bloomberg.
Local oil service companies were invited to negotiate exit terms and payments due with HQC officials. The move follows HQC’s decision in early September to halt work at the biggest China-Venezuela joint venture due to lack of payment on the part of Petroleos de Venezuela SA.
The additional pullback by the Chinese firm threatens to further slow production that has plunged amid a lack of investment, made worse by U.S. sanctions that have cut off income from oil sales and imports of needed equipment and chemicals. China’s ventures with PDVSA accounted for about 13% of the country’s total output in August, according to PDVSA internal data obtained by Bloomberg.
A CNPC spokesman declined to comment. Multiple calls and emails to HQC and its listed parent China Petroleum Engineering Corp. went unanswered.
Negotiations haven’t yielded results. HQC asked Venezuelan service providers to open accounts in China in order to receive payments in yuan, amid concern that if it paid contractors locally, HQC’s accounts in the U.S. financial system could be frozen for violating sanctions against PDVSA, according to people with knowledge of the situation.
Venezuelan companies view the proposal as impractical and costly, as their financial resources are located in the Western Hemisphere. Beijing banks’ rules for opening accounts are cumbersome and other options, such as banks in Hong Kong, were ruled out by CNPC’s affiliate, the people said.
Several companies are lobbying the Chinese embassy in Caracas in an effort to seek a mediated solution, the people said. They are owed over $30 million, according to a person with knowledge of the situation.
CHQ said last month it was halting expansion work at the jointly managed 130,000 barrel-a-day upgrader, alleging lack of payment by PDVSA. Just two months earlier, Nicolas Maduro‘s government went on state TV with CNPC officials to launch the expansion.
--With assistance from Jasmine Ng.
To contact the reporter on this story: Fabiola Zerpa in Caracas Office at fzerpa@bloomberg.net
To contact the editors responsible for this story: Patricia Laya at playa2@bloomberg.net, David Marino, Mike Jeffers
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