COLUMN | Venezuela’s tanker woes, the Gabonese registry’s quality problems and Belarus’ bad debt [Offshore Accounts]

Sometimes you wonder whether a country that has hit rock-bottom can fall any further. In the case of Venezuela, it seems there is always worse to come.

The death of the incompetent populist paratrooper Hugo Chávez has been followed by a decade of misrule by his incompetent successor, the bus-driver turned president Nicolás Maduro, who has ruthlessly suppressed the opposition in the oil-producing state. Twenty years of Bolivarian revolution have succeeded in driving away foreign investors, driving down oil production to less than a million barrels a day, whilst state oil company PDVSA has been plundered by the president and his cronies. Last year, Maduro fired both the oil minister Tareck El Aissami and PDVSA’s CEO over “irregularities” at the oil company, but the damage has already been done.

New evidence has emerged to show how far Venezuela has plunged, from South America’s largest oil producer in the 1990s, to a nation where most of PDVSA’s crude tankers are unseaworthy, where its autocratic and internationally pariah customers “forget” to pay the Venezuelan company millions of dollars for their crude, and where middlemen are accused of skimming off massive margins on sales of PDVSA crude to trading houses, and funneling back the proceeds to well-placed regime insiders, as Bloomberg has reported in detail last month.

You already knew that Venezuela was a wreck of a country, and that American sanctions made it risky to do business there and get paid, but had you any idea how bad things really were?

PDVSA’s fleet trashed

Last week, Reuters published a scoop: an internal PDVSA report showing that over half of the 22 tankers operated by its PDV Marina subsidiary were in need of immediate repair and needed to be taken out of service after years of neglect. Many were out of class and lacked flag state certification. Five of the vessels were over thirty years old. Unfortunately, shortage of funds meant that the company was unable to drydock the broken-down vessels or pay service providers. The report recommended that five ships be taken out of service permanently, and another seven immediately drydocked.

As recently as 2019, at least thirteen tankers in PDVSA’s fleet were managed by capable international ship managers. We know this because that was the year when Bernhard Schulte Shipmanagement withdrew its crew from the vessels, redelivered them to PDVSA, and sued its Venezuelan customer for non-payment of US$15 million, seeking to arrest the Aframax Arita to enforce its claims in Singapore.

With the departure of Bernhard Schulte’s crew, the loss of international technical management, and the squeeze on hard currency caused by sanctions, PDVSA’s fleet standards have collapsed.

Chartering in to fill the gap

Constant breakdowns and reliability problems mean that PDV Marina has had to charter in tankers from third parties, resulting in 41 such vessels in 2022. Due to the restrictions imposed by sanctions, few reputable tanker owners want to do business with Caracas, so the report found that the company was forced to pay double the market rate to obtain tonnage.

That’s a charitable interpretation: those familiar with the US$200 million “charter/recharter” scandal in the 1990s in Kuwait Oil Tanker Company (KOTC), which saw its chairman jailed and other managers convicted in absentia for arranging to charter/recharter tankers for their employer through entities they controlled, at great personal profit, might suspect that perhaps not all the PDVSA charter hire went to the owners of the vessels. But who knows?

KOTC was successful in winning US$137 million in damages in London in 1995 against the foreigner managers who had fled the country. We doubt anyone in PDVSA under the current regime has any desire or capability to investigate further.

Newbuild delays in Argentina

In order to modernise its ageing tanker fleet, PDV Marina has an orderbook of newbuild tankers. Despite the regime’s close ties to China, PDVSA did not opt to build in a capable and experienced Chinese yard, instead choosing to build in those little-known centres of shipbuilding excellence, Iran and Argentina. The Iranian shipyard SADRA, also subject to American sanctions, has at least managed to deliver two of the four vessels the Venezuelans ordered, albeit late. The report found that PDVSA had paid US$173 million equivalent in euros of the US$272 million value contracts with the Iranians, and had two vessels to show for its efforts.

In Argentina, a country where one UAE-based offshore owner had a horrible and loss-making experience with newbuild anchor handlers some years back, PDVSA has not had any joy. The company has paid out over US$120 million to Astilleros Rio Santiago in Argentina for two newbuild tankers tender, the report stated, but has not received the ships. Reuters found that the contract had been frozen pending further investigation at headquarters in Caracas.

Rio Santiago was on the brink of bankruptcy in the mid-2010s and experienced labour unrest under President Mauricio Macri whilst owned by the Buenos Aires provincial government. It delivered no vessels for nine years until 2021, when it completed a navy cadet instruction vessel. Rio Santiago told the newswire that it could not comment on specific contracts with customers. Hmm…

Bosch’s advice for young readers

If I had to give two pieces of advice for young people, they would be, “Don’t do drugs, and don’t try to build ships in Latin America”. In fact, a cocaine habit is probably much less expensive and painful than a habit of ordering vessels in South American shipyards, as numerous Norwegian owners who tried to order in Brazil in the late 2000s discovered.

As for drugs, in 2017, an American federal jury found two nephews of Venezuelan President Maduro guilty of trying to ship 800 kilograms of cocaine to the US and they were sentenced to 18 years in prison.

Risks, sanctions and sinkings

The explosion on board the Gabonese-registered Aframax tanker Pablo in ballast off southern Malaysia on May 1, which killed three sailors and led to the deck being blasted into the air, has highlighted the risk of substandard tankers operating in the “shadow fleet” of sanctioned states. Another four seafarers were seriously injured when Pablo blew up. The tanker had been through four different owners and four different flags in the last four years, according to Lloyds List, and had changed flag to Gabon just six days before the fatal accident.

Pablo had also been widely suspected of trading cargoes of Iranian crude. It is not clear what insurance the vessel had, or who exactly owned it.

With sanctions now in place against Iran, Venezuela, and Russia, the demand for those tankers willing and able to carry crude from these states is high, but the restrictions on insurers, dollar payments, and service providers mean that the usual safeguards do not apply. As recently as 2020, the US was investigating allegations that Russian state oil company Rosneft was buying Venezuelan crude covertly through front companies in Switzerland, and selling it to China to evade sanctions using a series of ship-to-ship transfers. The same nexus of sanctioned nations moving oil around the globe clandestinely repeats itself.

I don’t want to cast aspersion of Gabon as a flag state (Okay… I will), but the capabilities of the Gabonese registry to oversee crude carriers operating on the other side of the world must be questioned. Indeed, in March 2023, 37 passengers were dead or missing after the sinking of the domestic ferry Esther Miracle whilst sailing between the capital Libreville and Port Gentil, and transport minister Brice Paillat resigned.

It is not clear what efforts Gabon took to check the beneficial owners of the company behind Pablo, or what inspections and surveys it conducted prior to accepting the tanker into the registry, but as we have pointed out over and over, the international maritime regulatory regime is only as strong as the weakest flag states, and when those states include Venezuela and Gabon, we should be very afraid.

PDVSA’s fleet problems might be a sign that sanctions are biting, but if there is a major oil spill, then you can bet that there won’t be a major international insurer stepping in to pay for the clean-up. This weakness requires port states like Malaysia to be much more vigilant in policing vessels calling into their waters, especially if they are flagged to registries like Gabon. Had Pablo been laden, thousands of barrels of oil would likely have ended up on the shores of both Malaysia and Singapore after the fire.

There are at least twelve other unsafe PDVSA vessels out there, by the company’s own account, and dozens more serving Russian and Iranian crude. Reuters’ expose on PDV Marina and the Pablo explosion are a wake-up call for the entire marine industry.

Don’t trust Alexander Lukashenko

On top of my sage advice not to do drugs or order ships in Argentina, I would also counsel young people to avoid doing business with dictatorships, even if they happen to be dictators themselves. It rarely ends well. Again, Venezuela learned this the hard way.

Hugo Chávez was best mates with Belarus’ balding autocrat Alexander Lukashenko, and in 2010, when the moustachioed strongman from Minsk was suffering a few oil supply issues with his neighbours in Russia, he turned to Caracas for help. He struck a personal deal with President Chávez whereby PDVSA would ship up to 30 million tonnes of crude to Belarus from 2011 to 2012, with 80 per cent of the payment upon delivery and the remainder to be settled later, the Organised Crime and Corruption Reporting Project (OCCRP) reported. OCCRP’s investigative reporters found a memo in Minsk stating the details of how the balance would be paid will conveniently be decided at a later date in a separate agreement between the two states. The agreement was never signed.

The total amount left unpaid by Belarus totalled US$1.4 billion, according to PDVSA’s audited accounts from the time. Lukashenko attended Chávez’s state funeral in 2013, but by then, he had made up with Russia and secured oil supplies from his friends in Moscow again, so he left his chequebook at home. With the death of the president who had made the personal agreement with Lukashenko, Minsk abandoned any claims that it would repay the money owed to PDVSA.

“The idea was to charge that 20 per cent in goods and services,” Rafael Ramírez, Venezuela’s oil minister at the time, and then head of PDVSA, said. “At some point the Belarusians failed to comply with that. I believe that they took advantage of Chávez’s goodwill.”

In September last year the Venezuelan attorney general announced that Ramírez was also wanted on charges of embezzlement, accusing him of abusing the dual official and unofficial exchange rate system for the Venezuelan currency to enrich himself. Ramirez, of course, denied the accusations against him.

The greatest gift Minsk ever got, part of US$42 billion of loot

An internal Belarusian government note from 2015 stated that the debt should be treated as “assistance” from Venezuela to Minsk. One former adviser to President Lukashenko told OCCRP that the Belarusian government considered the US$1.4 billion debt as “a gift”, commenting “it was a pure scam”.

Whilst this amusing vignette raises smiles at Chávez’s naivety, once again the people of Venezuela come off as the losers. Once again, PDVSA’s oil revenues are treated as a piggy bank to be plundered at will. A 2022 report by Transparencia Venezuela revealed that during the two decades of rule by Chavez and Maduro, sixteen countries have conducted 127 PDVSA-related corruption investigations in connection with losses of over US$42 billion from Venezuelan coffers.

Just when you think things in Venezuela cannot get worse, they invariably do.

No good news from Nigeria for Heroic Idun crew… yet

Last week we looked at Nigeria, formerly Africa’s largest oil and gas producer, now a failed petro-state where the navy holds foreign seafarers hostage on trumped-up charges as an effort to claim cash from foreign shipowners. It is essentially a protection racket wrapped up in the national flag, conducted by men dressed in dazzling white uniforms and bedecked with medals for valour and good service.

Despite agreeing a plea bargain, the crew of the oil tanker Heroic Idun are still not home, and the tanker’s flag state, the Marshall Islands, is now reported to have taken the case to the International Tribunal for the Law of the Sea to force Nigeria to release the ship. This was the strategy successfully adopted by Switzerland, when the Swiss-flagged product tanker San Padre Pio was unlawfully detained by the Nigerian Navy on similarly spurious charges in 2018. Nigeria lost at the tribunal and was compelled to set the vessel free, eventually.

Background Reading

For more on how PDVSA’s oil sale auctions appear to have been systematically rigged for the benefit of government insiders and a trio of international oil trading houses read Bloomberg’s report from last month. Strange that Glencore’s name should come up in yet another investigation like this. Also mentioned was the name of Wilmer Ruperti, a former tanker captain who certainly knows his way around the intricacies of Venezuelan politics.

Spanish daily El País has excellent coverage of the history of the mismanagement of PDVSA and how the multiple corruption cases have set back Venezuela’s development here.

For the specific case of Alejandro Andrade, the former Chavez bodyguard who was appointed finance minister in 2007, and who pleaded guilty to corruption in 2017, see here. Did any Swiss bank ever decline to open an account for him?