PDVSA Profit Falls 67% on Price Drop, OPEC Targets

Petroleos de Venezuela SA, the state-owned oil company, said first-half profit fell 67 percent because of plunging oil prices and production cuts after the Organization of Petroleum Exporting Countries slashed targets.

Net income fell to $3.15 billion, the state-owned oil company known as PDVSA said today in a statement posted on its Web site. Crude exports fell 4.9 percent to 2.75 million barrels per day, while production of crude and natural gas liquids dropped 5.4 percent to 3.22 million barrels, the company said.

PDVSA froze workers’ wages and cut managers’ pay by 20 percent in April after oil prices plunged. The company has sold $6.3 billion in bonds this year to cover shortfalls and to pay down debts with service suppliers. Oil prices fell 50 percent at the end of the first half, compared with a year earlier.

“PDVSA’s numbers not only reflect a lower oil price in revenues compared to a year earlier, but most importantly reflect a company that is struggling with production,” Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York, said today in a phone interview.

Venezuela, one of OPEC’s 12 members, agreed to cut output by more than 350,000 barrels per day this year to stem price declines after the economic crisis curbed demand for oil.

Venezuela’s oil sector shrank 9.5 percent in the third quarter of this year, as part of a 4.5 percent contraction in the economy, dragging the country into its first recession since a two-month oil strike crippled the economy in 2003.

Venezuelan Economy

The economy may contract 2.2 percent this year and grow a “modest” 0.5 percent in 2010, Finance Minister Ali Rodriguez said on Nov. 17.

“This drop is mainly due to the fall of prices for Venezuelan oil exports and the production cuts in compliance with the decisions made by OPEC at the end of 2008,” PDVSA said about the profit declines in today’s earnings statement.

Revenue in the first half of the year fell 52 percent to $32.5 billion and cash transfers to the government dropped 65 percent to $7.07 billion, the company said.

The company’s contributions to government-run social programs including health clinics, subsidized grocery stores and public schools plunged 50 percent to $642 million, according to the statement.

PDVSA didn’t transfer any money to an off-budget development fund, known as Fonden, in the first half of the year after providing $5.85 billion a year earlier.

Total Assets

The oil company’s total assets rose 4 percent to $137.2 billion, mostly due to the nationalizations of oil services companies this year, according to the statement.

Debt to suppliers rose to $8.15 billion at the end of June, up 7.8 percent from the end of last year.

PDVSA President Rafael Ramirez said on Nov. 4 that the oil company plans to sell more dollar-denominated bonds before yearend. Ramirez is also the country’s oil minister.

The company’s debt to suppliers, declining output in conventional fields and a drop in active oil rigs highlight diminishing profits and a growing cash flow problem for the company, according to Esteruelas.

Venezuelan President Hugo Chavez, who replaced PDVSA’s board of directors and fired more than 18,000 workers after an oil strike in 2003, expropriated more than 70 oil service companies this year including assets of Houston-based Exterran Holdings Inc. and Tulsa, Oklahoma-based Williams Cos.

Helmerich & Payne

Helmerich & Payne Inc., a U.S. drilling company, said today in a statement that it has received $32 million in payments from PDVSA and that about $73 million remains outstanding. All 11 rigs that operated in the country are currently idle.

PDVSA´s total debt climbed 7.4 percent to $16.2 billion in the first half, or 12 percent of total assets. PDVSA sold $7.5 billion of bonds in 2007, the largest corporate bond sale ever in Latin America.

“PDVSA’s growing debt is a source of concern,” Esteruelas said. “As much as PDVSA still has a manageable debt load, the rate at which they’re increasing their exposure should begin to raise some concerns.”

Bloomberg - By Daniel Cancel
To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net.

Peru Port Operators May Invest $3 Billion in 4 Years

Peru’s port operators may invest $3 billion in expansion projects over the next four years as shipments of metals, natural gas and coffee rise, said Frank Boyle, president of the country’s port authority.

Companies including Dubai-based DP World Ltd., Brazil’s Vale SA and a unit of Porto, Portugal-based Mota-Engil SGPS SA are investing $1.45 billion to expand facilities in Callao, the Andean nation’s main port, and installations on the northern coast, Boyle said yesterday in an interview in Lima. An additional $1.55 billion in projects are planned, he said.

Port expansions are part of a government drive to line up $60 billion in infrastructure investments to modernize aging ports and cut shipping costs that are the highest in Latin America, according to exporter group Adex. Peru’s exports, which totaled $31 billion last year, have jumped fourfold since 2001.

“The government wants to turn Callao into a regional hub and take market share away from Chile and Ecuador,” Roberto Flores, an analyst at Lima-based brokerage Centura SAB, said in a telephone interview.

DP World will complete a $460 million upgrade of Callao’s Muelle Sur pier by April 2010 and proposed a $600 million expansion of the Muelle Norte pier at Callao, Boyle said.

Companies with mining, petrochemical and cement plant projects including Deerfield, Illinois-based CF Industries Holdings Inc., Aluminum Corp. of China and Cementos Pacasmayo SAA plan to invest $900 million to expand ports such as Marcona on the south coast and Bayovar to the north.

Bloomberg - By John Quigley and Alex Emery
To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net; Alex Emery in Lima at aemery1@bloomberg.net

Minera IRL to push ahead Ollachea Gold Project after encouraging scoping study result

South American focussed gold producer and mining developer Mineral IRL confirmed that it would be pushing forward with infill drilling at the Ollachea Gold Project in southern Peru after it released a scoping study considering the viability of the project as an underground mining operation.

The scoping study was based on a N143-101 compliant inferred resource containing 1.3 million ounces of gold (8.9 million tonnes @ 4.5 grams per tonne gold (g/t)) and mining inventory of 8.2 million tonnes grading 4 g/t (1.1 million ounces). The resource estimate used a cut-off grade of 2.5g/t gold.

According to a proactiveinvestors.co.uk report, the study considered an underground mine, accessed via a 1.3 kilometre tunnel treating 1 million tonnes per annum to produce approximately 117,000 ounces per annum over a 9 year mine life.

Capital costs were estimated to be in the region of US$157 million, including a 20% contingency, with cash operating costs below US$400/ounce. Based on a gold price of US$850/ounce, the mine generated a pre-tax internal rate of return (IRR) of 22.4%, 17.4% post-tax.

Clearly the scoping study generated strong enough preliminary figures to justify further development of the project.

It is also worth noting that the current study is only based on 26,000 meters of drilling, of which 15,400 meters was focussed on the Minapampa Zone, which is still open along strike and down dip, suggesting plenty of scope for Minera IRL to expand the size of the resource.

"Another particularly encouraging aspect is the upside potential. The gold mineralization has not been closed off either along strike nor down dip,” stated Executive Chairman Courtney Chamberlain.

We continue to obtain good gold intersections beyond the confines of the Minapampa zone. For example, drill hole DDH09-67, approximately 160 meters beyond the eastern boundary of the currently estimated resource, intersected 45 meters grading 2.81g/t including 6 meters of 10.1g/t gold. Hole DDH09-64 returned 16 meters grading 2.92g/t including 5 meters of 5.83 g/t gold."

Metallurgical test work carried out on 5 samples has estimated 91% gold recovery can be achieved by conventional gravity and leaching methods.

"This gives us every confidence to progress immediately to the infill drilling required to raise the resource confidence to the Measured and Indicated categories and, simultaneously, commence the pre-feasibility study,” added Chamberlain.

“All indications are that Ollachea will make a very successful mine. The geometry of the gold zones is particularly well suited to easy access and mechanized underground mining. This has the added benefit of having minimal environmental impact.”

Chamberlain added that the local community would hold a 5% interest in any future operation.

Last week Mineral IRL reported third quarter results, which showed revenues of US$7.8 million on gold production of 7,850 ounces at a cash cost of US$361 per ounce. At the end of September, the company had $18 million in cash on its balance sheet.

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Repsol to Invest Up to $15 Billion in Brazil by 2020

Repsol YPF SA, Spain’s largest oil company, plans to invest as much as $15 billion in Brazil by 2020, the company said.

“The company’s plan is to invest between $10 billion and $15 billion in Brazil, until 2020,” Claudia Dantas, a spokeswoman for Repsol in Brazil said in a telephone interview with Bloomberg News.

Madrid-based Repsol is increasing exploration investment in Brazil’s offshore Santos Basin to reverse four years of declining production and improve profitability. Like other oil companies, its refining and marketing businesses are suffering from a decline in demand amid the global economic slump.

Chief Executive Officer Antonio Brufau told reporters today in Rio de Janeiro that Repsol’s Brazilian investment over the next 10 or 12 years “may be $10 billion, $12 billion, $14 billion, it’s too premature to say.”

Repsol has holdings in Brazil’s offshore Santos, Campos and Espirito Santo oil basins. Repsol and partners BG Group Plc and Petroleo Brasileiro SA have made the offshore Carioca, Guara and Iguacu finds in the BM-S-9 block of Santos Basin. The ultra-deep deposits are located under a salt layer beneath the seabed.

“In 2010, I believe we will invest in Brazil $380, $400 million,” Brufau said. “The investments Repsol will make in Brazil in the next three or four years are basically in exploration.”

Brufau met today in Rio de Janeiro with Jose Sergio Gabrielli, chief executive officer of Petroleo Brasileiro SA, Brazil’s state-controlled oil company. “We plan to extend our partnership with Petrobras,” the CEO of Repsol said without elaborating.

Bloomberg - Helder Marinho
To contact the reporter on this story: Helder Marinho in Rio de Janeiro hmarinho@bloomberg.net.

Argentina Wheat Harvest to Plunge on Drought, Locust

Wheat output in Argentina’s biggest producing region will plunge 70 percent in the current harvest because of dry weather and locust swarms, an analyst at a local cereals exchange said.

The south of Buenos Aires province, which produced about 30 percent of the country’s wheat in past years, will supply less than 10 percent of the grain in the current harvest, Beatriz Allan, an analyst at the Bahia Blanca Cereals Exchange said.

Argentine farmers pared wheat sowing this year to 2.8 million hectares (6.9 million acres), the smallest crop on record, after the outlook for drought and government export curbs discouraged planting. The Buenos Aires government on Nov. 12 released an alert for wheat farmers to prepare to fight off locust attacks as the insect thrives in dry weather.

“We didn’t expect weather to be this dry,” Allan said. “The water shortage is killing the plants at a key time before the harvest.”

Most of Argentina’s wheat crops lie south of the main soy- producing region, which has received above-average rains. Wheat harvesting started in October and runs through January. Argentina is the world’s third-largest soybean producer and eighth-largest wheat exporter.

Bloomberg - Rodrigo Orihuela
To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net.

Brazil Agency Says Power Grid Vulnerable to Outages

Brazil’s integrated electricity grid leaves it vulnerable to the types of outages that occurred this week, when 40 percent of the country was plunged into darkness, according to a government energy research agency.

“Brazil has the largest integrated power grid in the world; it’s fantastic because it facilitates electricity transmission between regions, but the domino effect that happens when we have a problem is a major inconvenience,” said Mauricio Tolmasquim, president of Brazil’s Energy Research Agency.

As many as 70 million people lost power on the night of Nov. 10. Energy Minister Edison Lobao said wind, rain and lightning strikes on transmission lines connected to the 14,000-megawatt Itaipu hydroelectric dam probably caused the failure, which affected 18 of 26 states for as long as 3 1/2 hours. Companies including Vale SA, Gerdau SA and Petroleo Brasileiro SA reduced output because of the lack of electricity.

As Brazil’s economic growth quickens and officials prepare to host the 2014 World Cup and 2016 Olympics, concern is mounting that its aging electricity grid can’t keep up, said Adriano Pires, head of the Brazilian Center for Infrastructure.

Lobao said the Brazilian energy system is solid, adding it only took a few hours for power to be restored, whereas other countries took “days” to do so after an outage.

“One of the most perfect machines invented by humanity was the airplane, and the airplane sometimes falls,” Lobao told reporters late yesterday. “So, we can consider that what happened was an accident. It happens, all over the world.”

U.S. Comparison

A storm first knocked out two transmission lines in Sao Paulo state. When an overloaded third line collapsed almost immediately after the first two, a cascading effect crippled about 15 transmission lines in southern Brazil, causing Itaipu to automatically shut down as a safety measure, Lobao told reporters yesterday in Brasilia.

Unlike in the U.S., which has three main regional power grids, almost all of Brazil’s electricity runs through an interconnected network. The blackout occurred because the system couldn’t cope with the three transmission lines failing at about the same time, Tolmasquim said.

It was the first time that transmission from the world’s largest dam by output was forced to shut down since power began to flow from Itaipu in 1983, he added. Preferred stock in state- run Centrais Eletricas Brasileiras SA, which owns the Brazilian stake in Itaipu, was little changed yesterday in Sao Paulo to end the day at 24.70 reais.

Inefficient Management

Ildo Sauer, an energy professor at the University of Sao Paulo and former executive director of gas and energy at state- controlled Petrobras, said the blackout reflects a lack of monitoring and inefficient management of the system.

“The system should have kept working and the blackout shouldn’t have been so spread out,” Sauer said in a phone interview from Sao Paulo.

President Luiz Inacio Lula da Silva said the blackout shouldn’t spark fears of another energy crisis like the drought- induced shortages of 2001 that led to power rationing and slower growth. He said Brazil has invested more in its power system since 2003 than in the 120 years before that.

Investments in the power industry have totaled about $10 billion since 2003, according to Tolmasquim. He said investment will rise over the next five years as the government seeks to promote annual economic growth of about 5 percent.

‘Not Acceptable’

“The government will have to look into the question of how to restore electricity more quickly,” Tolmasquim said. “Allowing major urban centers like Rio and Sao Paulo to be without power for more than 3 hours is not acceptable.”

Itaipu, which meets 20 percent of Brazil’s energy needs, said operations were back to normal at 6 a.m. local time yesterday.

Rio de Janeiro was the only state left completely in the dark, according to the Mines and Energy Ministry. Rio-based Vale, the world’s largest iron ore producer, said the outage affected its southern system, where half of its mines are located, and it is assessing its losses.

Thieves carried out muggings on city streets around the Maracana soccer stadium, where some World Cup games will be held, and Governor Sergio Cabral deployed 300 extra policemen to maintain calm in Rio. Rio’s international airport and the subway systems in Sao Paulo and Rio were shut.

“We can’t discuss growth plans if we’re facing electricity disruptions,” Vanderlei Macris, a lawmaker from the opposition Social Democracy Party, said in a phone interview. “Brazil has announced huge investments like building a bullet train and hosting the World Cup and Olympics. It seems the country isn’t prepared enough for investments of this magnitude.”

Water Shortage

About 2 million people remain without water in the state of Sao Paulo after the outage caused Cia. de Saneamento Basico do Estado de Sao Paulo’s water-treatment centers to shut down. Sabesp, as the company is known, expects supplies will return to normal today as its systems replenish with water.

Petroleo Brasileiro said the blackout temporarily reduced output at its refineries. The company said in a statement that the impact wasn’t significant and its distribution network wasn’t affected. Gerdau SA, based in Porto Alegre, said its industrial units were affected.

Bloomberg - Adriana Brasileiro
To contact the reporters on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net Andre Soliani Costa in Brasilia at asoliani@bloomberg.net

Photo: Itaipu hydroelectric dam

Brazil Iron Ore Miner Seeks $2.7 Billion in Debt, Share Sale

Ferrous Resources do Brasil Ltda., a mining company seeking to fund an iron ore complex, wants to raise $2.7 billion through a combination of debt, an initial public offering and investment from a strategic partner.

Ferrous intends to borrow about $1.3 billion, Bob Graham, a director of the closely held, Belo Horizonte, Brazil-based company, said in an interview. Ferrous is talking to companies about investment in the Viga and Serrinha projects in Minas Gerais state in return for iron ore supplies, he said.

“We’re talking to a number of potential strategic investors and we’re looking at coming to the public market at some point,” Graham said.

Ferrous plans to join Rio de Janeiro-based Vale SA, the world’s largest iron ore supplier, in mining the steelmaking material from Brazil as prices climb. London-based Anglo American Plc is trying to develop the $3.6 billion Minas-Rio project in Minas Gerais.

Ferrous will use some of the funds it plans to raise to build a port and a 400-kilometer (249-mile) pipeline, which will carry raw material contained in a slurry from the mining complex to the coast, Graham said Nov. 9 by telephone from his home in Yorkshire, England. Graham was previously head of Rio Tinto Group’s Brazilian unit.

Ferrous planned an IPO in London last year, Graham said, before commodity prices slumped amid the global economic slowdown. The company has retained JPMorgan Cazenove Ltd. as an adviser, he said.

Private Placements

“It’s likely to be a mix of 50:50 debt and equity, but how much of the equity comes from the IPO and how much from the strategic investor is still being decided,” Graham said. He said no schedule has been set for the IPO and declined to identify the companies Ferrous is talking to.

The company was established in 2007 and raised $1.26 billion via private placements between June 2007 and August 2008, according to its Web site. The largest investor in Ferrous is Harbinger Capital Partners, the New York-based hedge fund firm run by Philip Falcone, Graham said. Ferrous has enough funds for feasibility and engineering studies, he added.

Viga and Serrinha will produce 25 million metric tons a year of iron ore. Construction of phase one of the complex is scheduled to begin in 2011 with first production due before the end of 2013, Graham said. The location of the port has space for an iron-ore pellet plant and steel mill, for which permits are being sought, he added. A second phase could double output to 50 million tons.

Ferrous is seeking government approval for its infrastructure projects, Graham said.

Bloomberg - Brett Foley
To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net

Chavez Orders Venezuela to Ready for War as Colombia Urges Calm

Venezuelan President Hugo Chavez told his military and civil militias to prepare for a possible war with Colombia as tensions mount over an agreement giving U.S. troops access to Colombian military bases.

“Generals of the armed forces, the best way to avoid a war is to prepare for one,” Chavez said yesterday on state television as he accused Colombia of handing over its sovereignty to the U.S. “Don’t make the mistake of attacking: Venezuela is willing to do anything.”

Colombia, which says the accord will help combat drug trafficking, said it will raise Chavez’s threats with the Organization of American States and the United Nations Security Council.

Ties between Venezuela and Colombia have deteriorated this year after President Alvaro Uribe accused Chavez of financing leftist Colombian rebels. Brazilian President Luiz Inacio Lula da Silva said last week that he would try to bring Chavez and Uribe together later this month to defuse the tensions.

Colombia called for a “frank” dialogue with Venezuela.

“Colombia hasn’t and won’t make a single gesture of war to the international community, and even less so to a brother country,” Uribe’s office said in a statement on the Foreign Ministry’s Web site. “The only thing we are interested in is overcoming the narco-terrorism” that has affected Colombians for so many years.

U.S. Embassy

The U.S. agreement with Colombia is part of an effort to “strengthen and increase ties with countries in the region,” Robin Holzhauer, spokeswoman for the U.S. Embassy in Caracas, said by telephone yesterday.

Chavez ordered an increase of troops along the more than 2,000-kilometer border between Venezuela and Colombia last week and said he may declare a state of emergency after two officials from the National Guard were shot and killed by supposed Colombian rebels.

He sent 10 tank battalions to the border with Colombia last year after the Colombian military attacked leftist rebels in Ecuadorian territory, killing Raul Reyes, a leader of the Revolutionary Armed Forces of Colombia.

Chavez later called the tanks back from the border and helped dissipate tensions between Uribe and Ecuadorian President Rafael Correa.

Weapons Purchases

Venezuela has purchased billions of dollars of weapons, tanks, fighter jets and helicopters from Russia since 2003. Chavez says the purchases are necessary to modernize the Armed Forces and to protect the country’s natural resources from a possible invasion from the U.S.

Venezuela, a founding member of the Organization of Petroleum Exporting Countries, is the largest oil producer in Latin America.

Venezuelan Interior and Justice Minister Tarek El-Aissami said last month officers from Colombia’s domestic intelligence agency are operating clandestinely in his country to destabilize the government.

Venezuela is holding three Colombian citizens accused of spying and says they are agents of the Colombian intelligence agency, Departamento Administrativo de Seguridad. Colombia says two of the individuals don’t belong to the agency, and that the other was on vacation in Venezuela when arrested.

Drug Trafficking

Colombian Foreign Minister Jaime Bermudez said that the military deal with the U.S. will help “end drug-trafficking and terrorism in Colombia” during the signing ceremony in Bogota on Oct. 30.

Colombia is the source of 80 percent of the cocaine sold in the U.S., according to the U.S. Department of Justice.

Chavez, a self-proclaimed socialist revolutionary, said he would stop importing goods from Colombia due to the U.S. military pact. The two countries are each other’s second-largest trading partners after the U.S.

Colombian exports to Venezuela plunged 45.7 percent in August from a year earlier, according to data from the Colombian statistics institute.

Former Cuban president Fidel Castro said Nov. 6 the presence of U.S. troops in Colombia is a “shameless foreign intervention in their internal affairs.”

The agreement amounts to the U.S.’s “annexation” of the South American country, he wrote on the Cubadebate.cu Web site.

A military attack on Venezuela would spread to other countries in the region because Venezuela has “friends” from Mexico to Argentina, Chavez told state television during his weekly “Alo Presidente” program.

“If the Yankee empire tries to use Colombia to attack Venezuela, the war of 100 years would begin,” he said.

Bloomberg - Daniel Cancel
To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net

Petrobras Makes ‘Large’ Gas Find in Peruvian Jungle

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, may have discovered at least 1 trillion cubic feet of natural gas in Peru’s southern Amazon jungle, Peruvian President Alan Garcia said. The shares surged.

The block may hold as much as 5 trillion cubic feet, Garcia told reporters today in Lima. The Rio de Janeiro-based company is drilling next to the Camisea gas fields, Peru’s biggest.

“This morning, we received information directly from the jungle that a large quantity of gas has been found,” Garcia said today in televised remarks. “If this is confirmed, we can say we’ve made a leap forward in energy security.”

Peru is counting on companies such as Rio de Janeiro-based Petrobras and Spain’s Repsol YPF SA to develop natural-gas reserves and help supply Hunt Oil Co.’s Peru LNG project, which aims to export 600 million cubic feet a day of gas to Mexico by 2011. Camisea, operated by a Pluspetrol SA-led group, is struggling to meet gas-supply commitments after domestic demand jumped 20 percent last year, partly because of gas-fired power plants built by GDF Suez SA, Endesa SA and Duke Energy Corp.

A Petrobras spokesman, who declined to be identified citing company policy, declined to comment on Garcia’s remarks.

Petrobras rose 2 percent to 36.40 reais at 6:09 p.m. in Sao Paulo trading. The stock has risen 59 percent this year, less than the 73 percent gain for Brazil’s benchmark Bovespa index.

Peruvian Exploration

Petrobras’ Block 58, one of four areas it is exploring in the Peruvian jungle, is part of $10 billion in energy investments expected by Peru’s Energy Ministry in the next six years. Peru aims to double oil and gas output by 2015 to fuel petrochemical plants to be built by CF Industries Holdings Inc., Braskem SA and Sigdo Koppers SA.

Peru, which currently produces 375 million cubic feet a day has also pledged to supply 800 million cubic feet a day to a $1.35 billion natural-gas pipeline to be built in the southern Andes by New York-based Conduit Capital Partners LLC.

“Current reserves can barely cover demand for the next 20 years,” Cesar Gutierrez, an oil analyst and former chief executive officer of state oil company Petroperu SA, said today in a telephone interview. “The government needs companies to keep finding more gas.”

Bloomberg - Alex Emery
To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net

Chavez Orders Troops to Colombia’s Border as Crossing Reopens Share Business

Venezuelan President Hugo Chavez ordered an increase in troops along the Colombia-Venezuela border as three crossings reopened following two days’ closure.

The crossings into Venezuela’s Tachira state reopened today, said Colombian regional customs director Edgar Alvarado in a phone interview from the northeastern border city of Cucuta. The entry points, which Alvarado said were closed on Nov. 2, were the entryway for $4.8 billion of Colombia’s $6.1 billion in exports to Venezuela last year.

Diplomatic relations and trade between the South American neighbors deteriorated this year after Colombian President Alvaro Uribe said a leftist guerrilla group had obtained weapons originally sold to Venezuela, and Venezuela criticized Colombia’s plan to let the U.S. military use seven of its military bases. Chavez pledged to end imports from Colombia.

“We’re taking all the necessary measures, the increase of units along the border area,” Chavez said late last night on state television. Venezuelan Vice President Ramon Carrizalez said yesterday that the border crossings were never closed.

Colombian exports to Venezuela, its second-biggest trading partner, fell 50 percent in September from the same month in 2008, Colombia’s statistics agency said last week.

Tensions also increased after a group of 11 soccer players, including nine Colombians, was found killed in Tachira last month. Colombian officials have called for the public release of results of the investigation. Venezuelan officials say the men may have belonged to right-wing groups operating in the area.

This month, two Venezuelan national guardsmen were shot and killed while patrolling near a border post. Authorities arrested one man and identified three others in the attack.

Public Order

Colombian Foreign Minister Jaime Bermudez said in a statement today that public order in Venezuela is “critical” for Colombian citizens who cross the border and that accusations of the soccer players’ links to paramilitaries don’t justify the slayings.

Colombia and the U.S. signed an accord Oct. 30 to allow U.S. troops access to bases for anti-drug operations. Chavez says the deal allows the Pentagon to make final decisions and is a threat to Venezuela.

“The Yankees use that as an excuse, they practically took over Colombia, which today isn’t a sovereign nation,” he said. “They converted Colombia, with this deal especially, into a kind of colony.”

Venezuelan Interior and Justice Minister Tarek El-Aissami on Oct. 29 presented documents to the National Assembly that he said were from Colombia’s intelligence agency, known as DAS, which showed that Colombian agents spy in Venezuela. Venezuela arrested three individuals last week they said were DAS agents and has held a Colombian on spying charges since September.

Bloomberg - By Alexander Cuadros and Daniel Cancel
To contact the reporters on this story: Alexander Cuadros in Bogota at acuadros@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net

Peru regarded as Latin American star country due to its economic growth

Peru is regarded as a star country in South America as it has fallen behind its neighbors in terms of economic growth, due to its friendly investment policy, said Tuesday the president of the Council of the Americas, Susan Segal.

Peru's GDP increased 9.8 percent in 2008, and this year, due to the global downturn, is expected to grow 2 percent, which is higher than other neighboring nations.

"Peru is a good example of growth, the star country of the region. It is likely to register higher rates of growth this year due to its policy of attracting investments," she said.

During the opening ceremony of the Fourth International Conference of the Council of the Americas, Segal stressed that Peru's economy is growing rapidly.

She also highlighted the "aggressive" implementation of trade agreements with various regional blocs and other countries in order to open market economy.

Furthermore, over the last years, poverty had fallen from 48 to 36 per cent, which means million Peruvians had been able to move out of poverty.

“It is possible to say that Peru enjoys a positive and optimistic future," she stated.

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Photo: President and CEO of the Americas Society and Council of the Americas, Susan Segal, at Peru's Foreign MInistry facilities. Photo: ANDINA/Jack Ramón

Argentine Restructuring May Pave Way for Bond Sales

Argentina probably will retire enough of its $20 billion of defaulted debt in a restructuring offer to gain access to international capital markets for the first time since 2001, said former Finance Secretary Miguel Kiguel.

Lawsuits in the U.S. and Europe from bondholders such as billionaire Kenneth Dart are preventing the government from selling securities overseas. Argentina will persuade as much as 70 percent of holdout investors to accept the proposal, a level that likely is high enough to prompt courts to throw out cases from creditors, Kiguel said.

“A judge could say that Argentina has finally made a reasonable effort and those who didn’t accept the offer are basically vulture funds and are being unreasonable,” said Kiguel, who served as finance secretary in the 1990s and now heads Buenos Aires-based research company Econviews.

President Cristina Fernandez de Kirchner, 56, is trying to regain investors’ confidence and enable the government to return to foreign debt markets after the global recession curbed tax revenue from Argentina’s soybean and wheat exports. The government’s borrowing requirements rose this year to $10.7 billion from $5.9 billion in 2008, according to Credit Suisse Group AG.

Nestor Kirchner

Fernandez is reversing the stance of her husband Nestor Kirchner, 59, who as president in 2005 pushed a bill through congress that forbid the government from making a new offer to investors who refused to exchange defaulted bonds for new securities worth about 30 cents on the dollar. About 75 percent of debt holders accepted that restructuring offer in 2005, four years after the South American country halted payments on $95 billion of bonds.

Acceptance of the new offer by 70 percent of remaining creditors would reduce the holdouts to below 10 percent.

Economy Minister Amado Boudou, 46, said when announcing the debt swap plan on Oct. 22 that the government was seeking to get at least 60 percent to participate in the exchange. He said creditors would have to put up cash worth 10 percent of their holdings to buy new bonds as part of the proposal. The government submitted a bill to congress last week seeking to overturn the 2005 law.

The defaulted bonds traded today at about 40 cents on the dollar, up from 15 cents in June, according to Exotix Ltd., a London-based brokerage that specializes in distressed assets.

Argentina’s performing dollar bonds have also rallied this year as the global credit crisis eased. The yield premium investors demand to own Argentine bonds instead of U.S. Treasuries has narrowed to 7.1 percentage points from 17.04 points at the end of last year, according to JPMorgan Chase & Co.’s EMBI+ index.

Judges’ ‘Dismay’

Arturo Porzecanski, a professor of international finance at American University in Washington who says the 2005 restructuring offer was the harshest by a government since World War II, expects courts to continue to side with creditors.

Judges “express dismay that Argentina doesn’t pay,” Porzecanski said. “The problem has been finding attachable assets” to collect, he said.

Payments on any new bonds Argentina would issue in international markets could be seized, a reason why the government hasn’t sold debt abroad since the default, Porzecanski said.

Assets that creditors have tried to take over include a liquid natural gas shipment and diplomatic accounts in Belgium and France, according to a Securities and Exchange Commission filing.

Griesa

Argentina faces lawsuits from the holders of "$3 billion to $4 billion” of defaulted debt, Finance Secretary Hernan Lorenzino, 37, said Oct. 28 when asked by lawmakers. Creditors have filed about 135 individual and 18 class action lawsuits in the U.S., 550 cases in Germany and 13 in Italy, Argentina said in the SEC filing on Oct. 27.

Dart’s EM Ltd. investment fund and New York-based hedge- fund firm Elliott Management Corp.’s NML Capital are among the plaintiffs. John Missing, a legal representative for EM Ltd. at Debevoise & Plimpton LLP in Washington, declined to comment on whether the company will abandon its lawsuit and participate in a restructuring. Scott Tagliarino, a spokesman for Elliott, declined to comment.

U.S. District Judge Thomas Griesa in Manhattan -- whose caricature is routinely splashed in Buenos Aires newspapers, often with a vulture perched on his shoulder -- rules on all the cases in the U.S. He declined to comment on how the restructuring would affect his decisions.

Until now, “Griesa has had no other option than to say that Argentina hasn’t negotiated in good faith,” Kiguel said. “Argentina will have a much stronger case” after the restructuring, he said.

Markets Last Week

The yield on Argentina’s benchmark 8.28 percent dollar bonds due in 2033 rose 25 basis points to 12.02 percent, while the peso climbed 0.1 percent to 3.8185 per U.S. dollar from 3.8208 on Oct. 23. The Merval stock index slid 7.9 percent to 2,115.76 points.

The following is a list of events in Argentina this week:

Event
Vehicle Sales (October) Nov. 4
Tax Revenue (October) Nov. 2-9
Market Holiday Nov. 6

Bloomberg - Drew Benson
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net

Brazil Coffee Flowering Worst in 26 Years on Rain

Brazilian coffee farmers are facing the worst flowering season in more than two decades as above- average rainfall threatens bean quality, said the nation’s biggest coffee grower’s cooperative.

In Guaxupe, Minas Gerais state, 262.8 millimeters (10.3 inches) of rain fell in October, a 17-year high, according to Cooxupe, as the cooperative is known. In September, the region got 215.8 millimeters, the most since records began in 1960.

“Quality of the beans will be hurt because flowering is a mess,” Joaquim Goulart de Andrade, a manager at the cooperative, said in a telephone interview today from Guaxupe. “Non-stop rainfall is preventing the crop from maturing evenly.”

Coffee trees in Brazil, the world’s largest producer, flower in September and October. Beans won’t develop properly until the flowers fall from the trees during a period of drier weather, Andrade said. Flowering this year is the worst since 1983, he said.

Output and Exports

Cooxupe’s 11,500 growers, which account for 13 percent of Brazil’s arabica output, will harvest 4 percent less next year than in 2008, the last time coffee trees in Brazil were at the higher-yielding end of a two-year cycle, the cooperative said Sept. 23.

World coffee exports were 6.92 million bags in September, down from 8.09 million bags a year earlier, the International Coffee Organization said in a report on its Web site today. Total coffee exports from Brazil fell 12 percent in September from a year ago, the coffee exporters’ council, known as CeCafe, said Oct. 6.

Arabica-coffee futures for December delivery fell 1.25 cents, or 0.9 percent, to $1.354 a pound on ICE Futures U.S. in New York. Prices fell 1.2 percent this week, after dropping 4 percent last week.

Before today, coffee jumped 22 percent this year amid tight supplies from Central America and Colombia, the world’s largest producer after Brazil and Vietnam.

Bloomberg - Lucia Kassai and Helder Marinho
To contact the reporters responsible for this story: Lucia Kassai at lkassai@bloomberg.netHelder Marinho in Rio de Janeiro hmarinho@bloomberg.net.

Brazil’s Strong Currency May Drive Away Tourists

Further strengthening in Brazil’s real, which has rallied a world-beating 31 percent this year, may drive away foreign visitors before Rio de Janeiro hosts the 2016 Olympics, Tourism Minister Luiz Barretto said.

Barretto, speaking in a Bloomberg Television interview in Brasilia, said spending by foreign visitors to Brazil has dropped 9 percent during the global financial crisis. It could fall further if the real strengthens much beyond 1.80 per dollar, he said.

“Certainly spending by foreigners will fall if the dollar stays at a very low level,” said Barreto, 46, adding that Brazil’s domestic tourism market in a country of 192 million people might also begin to suffer. “It could also create another problem for me: too much of a stimulus for Brazilians to go abroad.”

Brazil’s real is the best-performer of the world’s 16 most- traded currencies in 2009, having soared as investors buy stocks and bonds in expectation that Latin America’s largest economy is among the countries emerging the strongest from the global financial crisis. The real today fell 2 percent to 1.7680 per dollar at 3:05 p.m. New York time from 1.7328 yesterday.

Jason Vieira, trader at international desk of Cruzeiro do Sul Corretora in Sao Paulo, said today that further appreciation of the real to as much as 1.65 per dollar is “inevitable” until the U.S. economic recovery is entrenched. The real is forecast to end the year at 1.7 per dollar, according to an Oct. 23 central bank survey of about 100 economists.

Rio was selected this month to host the 2016 Olympics over finalists Chicago, Tokyo and Madrid even as some observers expressed concern about high levels of violence. Last year, 4,453 people were killed in the Rio metropolitan area, according to government statistics.

Rio Violence

“Violence is a real problem,” said Barretto, who is a sociologist by training. “We’re not going to cover it up. We’re going to have to take a series of actions to confront it.”

To improve the country’s image ahead of the Games and the hosting of the 2014 World Cup, Barretto said he intends to double to 120 million reais ($68 million) the amount of money Brazil spends annually abroad to promote tourism.

Barretto said that the stronger currency, while favoring cheaper and better-known destinations like the Caribbean and Mexico, would not turn away the between 500,000 and 600,000 foreign visitors expected to attend the 2014 World Cup here.

“The world will sort itself out by then,” he said.

Barretto said state-development bank BNDES hoped to have ready by November a 1 billion-real credit line to finance the construction of hotels for the two major sporting events. Rio, as part of its winning bid, promised to double current hotel space to 50,000 rooms.

Bloomberg - Carla Simoes and Joshua Goodman
To contact the reporter on this story: Carla Simoes in Brasilia at csimoes1@bloomberg.net; Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net

World Bank May Fund Tri-Nation Pipeline, Uruguay Official Says

Uruguay, Paraguay and Bolivia are in talks with the World Bank for a loan to finance a natural-gas pipeline shared by the three countries, Uruguay’s deputy minister for industries, energy and mining said.

“The World Bank is committed to helping the three countries finance the project,” Minister Roberto Kreimerman, said in an interview in his Montevideo office on Oct. 26. “This is a solid project, not something that is in the air.”

Uruguay is a net natural-gas importer, while Bolivia holds South America’s second-largest reserves of the fossil fuel. Paraguay also imports gas. The three countries this year revived their decades-old integration union known as Urupabol.

Kreimerman, 51, declined to estimate the pipeline’s cost. ABC, Paraguay’s top-circulation newspaper, on Oct. 20 cited unnamed sources estimating the price tag at $3 billion.

The conduit would have to pass through Brazil or Argentina to connect with the three countries as Uruguay doesn’t share a border with Bolivia or Paraguay, Kreimerman said.

“We are also studying the possibility of using Argentine pipelines to transport natural gas from Bolivia to Uruguay and expect definitions on the matter before the end of the year,” said Kreimerman, who is a chemical engineer and holds a master’s degree in finance and international commerce.

“Uruguay has more than enough hydroelectric supplies of its own but is highly dependent on imports for hydrocarbons,” said Kreimerman. “Both the pipeline project and the possible use of Argentine gas pipelines are aimed at ensuring our gas supplies.”

Venezuela holds the continent’s largest gas reserves.

Bloomberg - Rodrigo Orihuela
To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net.

Brazil Soybean-Planting Forecast Raised by Safras

Brazil, the world’s second-largest producer of soybeans, will plant more of the oilseed than previously forecast, research company Safras & Mercados said.

Soybean growers will plant 22.8 million hectares (56.3 million acres) this year, up from a July estimate of 22.6 million hectares, said Flavio Franca Jr., an analyst at Safras. Farmers planted 21.7 million hectares last year.

“It is a last-minute switch from corn,” he said today in a telephone interview from Porto Alegre, Brazil. A recent soybean-price rally in Southern Brazil prompted more farmers to switch to the oilseed, he said.

Soybean output next year will rise to 64.8 million metric tons, up from a July forecast of 64.2 million tons, Franca Jr. said. Production will rise from 57.3 million this year. Soybean futures have surged 12 percent since Oct. 5.

Rains have allowed farmers to speed up planting in Brazil. Planting was 20 percent complete as of Oct. 25, compared with 16 percent a year earlier and an average of 11 percent in the past five years, Franca Jr. said.

Soybean futures for January delivery fell 19 cents, or 1.9 percent, to $9.885 a bushel at 10:46 a.m. on the Chicago Board of Trade.

Bloomberg - Lucia Kassai
To contact the reporter responsible for this story: Lucia Kassai at lkassai@bloomberg.net

Argentine Soy Farmers to Step Up Sales of Crop to Repay Loans

Soybean growers in Argentina, the world’s third biggest producer of the oilseed, will probably accelerate sales of their next crop as they seek cash to repay loans, a farm association officer said.

Growers will sell most of their crop in May, compared with sales spread along the four months through August that was usual in past seasons, Julio Curras, vice-president of the Argentine Agrarian Federation, said yesterday in a telephone interview.

The worst drought in a century damaged Argentine soybean crops this year, paring output by almost a third and leaving growers needing funds. About 60 percent of small and medium- sized farmers took loans to fund sowing this year, compared with a usual rate of 40 percent, Curras said from Buenos Aires.

“Many growers are short of cash after having lost most of the 2009 crop to drought,” Curras said. “Farmers are taking credit this year to fund sowing and will be pressed to pay back loans as soon as they start harvesting.”

Next year, growers are set to reap a record crop of as much as 53 million metric tons as rains over drought-stressed soybean farms since early September restore moisture levels in time for planting, Rodolfo Rossi, president of Argentina’s soybean producers association, said Oct. 13.

Argentina soybean growers started sowing this month and will continue until mid-December. Harvesting begins in February, peaks in May and runs through June.

Bloomberg - Rodrigo Orihuela
To contact the reporter on this story: Rodrigo Orihuela in Buenos Aires at rorihuela@bloomberg.net.

Pacific Rubiales Says Output to Surge 70% on Colombia Fields

Pacific Rubiales Energy Corp., an oil producer operating in Colombia, said output will surge by about 70 percent by the end of next year as fields in the eastern part of the South American country ramp up production.

Output from fields operated by Rubiales will climb to about 170,000 barrels a day, said Federico Restrepo, vice president of corporate affairs. The Toronto-based company said yesterday in a statement that output surpassed 100,000 barrels a day.

Gains at the Rubiales and Quifa blocks, which are partly owned by state-run Ecopetrol SA, will fuel the increase, he said. Colombia probably will surpass Argentina this year to become the third-biggest oil producer in South America after Venezuela and Brazil, according to the state-run National Hydrocarbons Agency.

“Colombia has a lot of oil reserves still to be discovered,” Restrepo said yesterday in an interview in Bogota.

Overall output in Colombia will rise to 800,000 barrels of oil a day next year, Armando Zamora, director of the state-run National Hydrocarbons Agency, said this week. Output was 679,000 barrels in September.

President Alvaro Uribe has repelled rebel troops and improved infrastructure security since taking office in 2002, drawing investment to the country.

Crude oil futures have climbed 80 percent this year, the fourth-best performance among 19 raw materials tracked by the Reuters/Jefferies CRB Index. Crude for December delivery fell 1.4 percent to $80.05 a barrel at 11:23 a.m. on the New York Mercantile Exchange.

Ecopetrol owns 60 percent of the Rubiales field and 40 percent of Quifa, while Pacific Rubiales owns the remainder, according to data on the Canadian company’s Web site.

Production of natural gas also will rise at Pacific Rubiales’s wholly owned La Creciente field, Restrepo said.

Bloomberg - Heather Walsh
To contact the reporters on this story: Heather Walsh at hlwalsh@bloomberg.net

Garcia and Correa signed agreements to speed up projects and demine border

President Alan García and his Ecuadorian counterpart Rafael Correa have reached an agreement to speed up the Puyango-Tumbes project and to create a fund to finish the process of demining the border.

At the end of the III Binational Cabinet Meeting held in Piura, President Garcia highlighted that the result of this meeting is the creation of the “Ecuador-Peruvian” citizenship.

He stated new goals have been established in this meeting and highlighted that the Puyango-Tumbes project would finally come true, after having taking the decision to design definite studies.

This irrigation project would benefit 22,000 hectares and 20,000 in the other.

“History will remember this moment since decision has been taken after a 40-year wait”, he said.

Garcia noted this meeting allow both countries to “give a step ahead” to demine the border, creating the “fund to continue demining”.

Félix Paz
http://andina.com.pe
http://blogsouthamericanews.blogspot.com

Rio to Seek China Financing for Olympics, Levy Says

Rio de Janeiro state officials will meet with executives from China Development Bank Corp. to seek financing for infrastructure investments tied to the 2016 Olympics, said Joaquim Levy, the state’s finance secretary.

Levy said in an interview at a Latin American hedge fund conference in Miami that he hopes the Chinese bank will help finance part of the planned $11 billion in infrastructure projects before the Olympics.

He declined to give details on the negotiations with China Development, the country’s state-run bank for public works projects. The bank’s Vice President Li Jiping said on July 29 that it may open a Rio de Janeiro area office next year.

The Beijing-based lender agreed earlier this year to lend $10 billion to Petroleo Brasileiro SA, Brazil’s state-controlled oil company.

Rio was selected this month to host the 2016 Olympics and President Luiz Inacio Lula da Silva has vowed to use the international spotlight to improve security and conditions for millions of poor people living in favelas, the Portuguese term for slums, ringing the so-called “Marvelous City.”

Police in Rio de Janeiro killed four alleged criminals today, bringing to 29 the number of people killed in drug violence since Oct. 17.

Violence escalated after rival drug gangs shot down an armor-plated police helicopter during clashes for control of the drug trade in a hillside slum known as Monkey Hill, O Globo reported, citing police. Two officers died during the crash and a third died Oct. 19 from injuries.

Rio de Janeiro residents today awoke to the front page photograph in O Globo newspaper of children walking past a shirtless cadaver stuffed in a supermarket cart, underscoring the wave of recent killings.

Last year, 4,453 people were killed in the Rio metropolitan area of 12.1 million, according to government statistics, compared with 510 in Chicago, whose population is 2.8 million.

Bloomberg - By Alexander Ragir and Jonathan J. Levin
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Jonathan J. Levin in La Paz at Jlevin20@bloomberg.net