The main Chinese contractor in Venezuela canceled the agreements for non-payment

[Inkriql]

China's main oil contractor in Venezuela terminated agreements with local suppliers on oil projects due to the lack of payment from the state oil company. But leaving has been a challenge for both parties.

China Huanqiu Contracting and Engineering, known as HQC, a subsidiary of China's largest energy company, China National Petroleum (CNPC), informed local suppliers that their contracts would be terminated, citing "the extremely difficult situation of this project", according to a document seen by Bloomberg.

Local oil service companies were invited to negotiate terms of departure and payments due with HQC officials. The measure follows HQC's decision in early September to stop work at the largest China-Venezuela joint venture, due to lack of payment by PDVSA.

The further decline of the Chinese firm threatens to slow down production further, which has plummeted amid a lack of investment, aggravated by US sanctions that have reduced revenues from oil sales and equipment imports and necessary chemicals. China's companies with PDVSA accounted for about 13% of the country's total production in August, before the new US sanctions, according to PDVSA internal data obtained by Bloomberg.

A CNPC spokesman declined to comment. Multiple calls and emails to HQC and its parent had no response.

The negotiations have not yielded results. HQC asked Venezuelan service providers to open accounts in China to receive payments in yuan, amid concerns that if they paid contractors locally, HQC accounts in the US financial system could be frozen for violating sanctions against PDVSA, according to people with knowledge of the situation.

Venezuelan companies see the proposal as impractical and expensive, since their financial resources are in the Western Hemisphere. Beijing bank rules for opening accounts are cumbersome, and other options, such as banks in Hong Kong, were discarded by the CNPC affiliate, sources said.

Several companies are pressuring the Chinese embassy in Caracas, in an effort to find a mediated solution, according to those consulted. They are owed more than US $ 30 million, said a person with knowledge of the situation.

HQC reported last month that it would stop the expansion work at the 130,000 barrel per day co-managed jointly, alleging non-payment by PDVSA. Only two months earlier, Nicolás Maduro's regime went to state television with CNPC officials to launch the expansion.

(With information from Bloomberg / Fabiola Zerpa)