Doubts surround Venezuela refinery project

Monday, September 1, 2014

Shaky finances and a criminal investigation have created doubts as to whether Venezuela's Puerto La Cruz deep conversion oil refinery project will be completed.

The upgrade project aims to grant the Puerto La Cruz refinery the ability to process heavy and extra-heavy crude from Venezuela's Orinoco oil belt.

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Late last year state oil firm PDVSA awarded Chinese firm Wison Engineering Services an US$834mn site preparation contract for the project.

At the same time Wison's controlling shareholder Hua Bangsong was detained by Chinese police in a crackdown on oil industry corruption. Hua is cooperating with authorities but the arrest casts doubt of the firm's ability to stay in business, a Wall Street Journal report quoted Wison as saying.

Wison said its work on the project has been subcontracted out to Chinese state firms and that the construction phase began in July. The company has previously said the project would be completed 12 months after the start of construction.

The Puerto La Cruz conversion project was originally financed by Portuguese bank Banco Espírito Santo. The troubled bank received US$835mn of financing from Goldman Sachs before being bailed out and broken up by Portugal's central bank.

In the aftermath, Goldman Sachs sold a slug of Banco Espírito Santo debt at a loss and continues to hold some more. Despite the bank's collapse the liability was transferred to Novo Banco, a new lender formed out of Banco Espírito Santo, and is supposed to be repaid.

What this means for continued financing of the Puerto La Cruz project remains unclear.

BNamericas will host its second LatAm Oil & Gas Summit in Houston, Texas, on September 10-11. Click here to download the agenda.