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By Alexandra Ulmer, Marianna Parraga and Nidhi Verma
CARACAS/HOUSTON/NEW DELHI, March 8 Venezuela's
state-run oil company, PDVSA, has spent at least a decade trying
to build business ties and boost shipments to refineries in
India, where crowds once welcomed the late socialist leader Hugo
Chavez with cries of "Viva!"
Now, the ailing firm is being forced to slash sales to its
crucial trade partner.
Venezuela has given up the fight for coveted market share in
India because of a combination of declining crude production and
heavy obligations under oil-for-loan deals with China and
Russia, according to internal PDVSA data and two people familiar
with the company's strategy and operations.
Caracas needs the oil to pay debts to China and Russia, key
political allies that have together lent Venezuela at least $50
billion in exchange for promised crude and fuel deliveries.
PDVSA and the Venezuelan Oil Ministry did not respond to
requests for comment.
In 2013, when Venezuela exports and oil prices were high,
PDVSA raked in nearly $14 billion from India, the world's
fastest growing large economy. By last year, after an oil price
crash, that figure had plummeted to $2.7 billion, according to a
Reuters analysis of the PDVSA data.
That means less cash income for the isolated South American
economy, deepening a recession that has left many citizens
skipping meals amid food shortages and soaring inflation.
Oil accounts for almost all of Venezuela's export revenue,
and many of Venezuela's customers pay for oil in kind - with
food or medical supplies, for example. India is among the few
trading partners that buy large volumes of PDVSA oil with cash.
So lower sales to India's refineries are further eroding the
company's cash flow - and its ability to pay mounting debts to
suppliers and service providers, which have caused delivery
delays and cancellations around the globe.
The shift stems from a crude production decline of 10
percent last year, to 2.38 million barrels per day (bpd), due to
a lack of investment and payment delays to providers.
The falling output means PDVSA could increasingly lose
business in India to Iranian, Iraqi and Brazilian companies.
The internal PDVSA data also show that Venezuela - which
sits on the world's largest crude reserves - managed to maintain
its place as No. 3 crude supplier to India last year. It
delivered about 413,000 bpd, behind only Saudi Arabia and Iraq.
But PDVSA expects shipments to India to drop to
360,000 bpd this year, according to an internal PDVSA report
reviewed by Reuters.
Those cuts are already happening: Venezuelan crude exports
to India plunged 16 percent in January compared to a year
earlier, according to Thomson Reuters trade-flows data.
India has made up the gap with supplies from the Middle
East, including imports from Iran that have surged since the
lifting of U.S. sanctions last year.
Venezuelan crude is heavy and harder to refine. In a market
that is still oversupplied after a two-year glut, higher-quality
crude is plentiful and not much more expensive.
"The current quality of Venezuelan crude could incentivize
the partner to seek other providers," PDVSA said in an internal
report, in a section on India labeled "threats."
While India is tapping new sources of crude, the country
continues to view Venezuela as an important part of its
diversified supply, India's Oil Minister Dharmendra Pradhan told
"We are depending on Venezuela. We have some investments in
Venezuela's exploration and production," Pradhan said in an
interview. "They are going through a temporary crisis, but I'm
hopeful they will still be a good partner to our supply chain."
PASSAGE TO INDIA - VIA CHINA, RUSSIA
Venezuela still has some cards to play in India - the
world's fourth-largest refiner and a country that imports nearly
three quarters of its crude.
India wants to diversify oil imports to protect its economy
against external shocks, meaning South American shipments can
help mitigate the risk of supply disruption from Middle Eastern
But India doesn't necessarily have to buy the Venezuelan oil
it wants from PDVSA - it can buy it from Chinese and Russian
firms that receive Venezuelan crude as payment for loans.
That means China and Russia can use Venezuelan crude to
increase their market share in India at the expense of PDVSA's
Chinese firms are already taking some of the Venezuelan
crude and selling it to the same Indian refineries that were
previously buying the oil directly from PDVSA. Russia is poised
to start doing the same.
Such arrangements have been in place for some time but are
now accelerating as PDVSA's production falls. In 2014, for
instance, state-run China National Petroleum Corporation
started sending Venezuelan crude to India's Reliance
Industries, operator of the world's largest refinery,
according to the PDVSA data.
While CNPC gained a foothold in the Indian market by sending
more than 180,000 bpd of Venezuelan crude last year, PDVSA's
direct shipments to Reliance fell by 61 percent between 2013 and
Russia's Rosneft, which also receives Venezuelan
oil in return for loans, stands to gain, too. Rosneft last year
bought a 49 percent share of Indian refiner Essar Oil
and is set to replace PDVSA as a supplier of Venezuelan oil to
the Vadinar refinery.
VENEZUELA'S "UNION OF THE SOUTH" FALTERS
The loss of Indian sales is a bitter reversal for socialist
Venezuela, which pushed hard to open up the distant market as a
way to decrease trade ties with the United States - a closer
buyer but an ideological foe.
PDVSA's U.S. shipments have fallen but they remain the
biggest chunk of the company's exports, with the majority going
to its U.S. refining unit, Citgo Petroleum.
During his 2005 visit to India, late president Chavez said
Venezuela's oil had been flowing north for too long. Instead, he
promised a thriving exchange among developing nations.
"We must launch a new strategy to unite the South!" Chavez,
an Indian shawl draped over his shoulders, told cheering
university students in New Delhi in 2005.
It took at least two years of negotiations and frequent
trips to India by PDVSA's top executives, but state-run Indian
firms finally invested in oil fields and projects in Venezuela.
But Venezuela's downward spiral has hurt Indian oil
companies and frayed bilateral relations, along other PDVSA
business partners across the globe.
State-owned ONGC Videsh, for instance, is owed
about $600 million in late dividends for the joint crude project
San Cristobal with PDVSA.
Under pressure, Venezuela recently began settling those
debts by giving ONGC the money it collects from 17,000 barrels
per day of crude exports - meaning even more oil is being used
to finance debt payments.
But ONGC has also seen production at its San Cristobal field
cut in half amid an exodus of talent, shortage of equipment, and
theft in Venezuela's vast Orinoco Belt.
"We have accumulated a very large amount of dividends
pending," Narendra Verma, chief executive officer of ONGC
Videsh, told Reuters. "But we have been patiently negotiating
If all goes well, the company expects it can recoup the
delinquent payments in about three years, Verma said in an
Meanwhile, Venezuela's efforts to stop the bleeding at PDVSA
have yet to show results.
A recent PDVSA board shake-up ushered in political and
military figures; Venezuela's economy is entering its fourth
year of recession; and salaries are so low that some PDVSA
workers are even selling their uniforms to buy food.
"The relationship with India has hit a ceiling," said
Kenneth Ramirez, a geopolitical oil analyst in Caracas. "That
won't change unless Venezuela's oil industry undergoes big
(Writing by Alexandra Ulmer and Marianna Parraga; additional
reporting by Simon Webb in Houston; Editing by Simon Webb and