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China’s Unfulfilled Promise to Develop Venezuela’s Mines

Mine El Cerrejón in Venezuela - Credit: Tanenhaus, wikipedia
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Alessandra Soler | Global Voices

At the turn of the century, China and Venezuela signed several agreements worth millions of dollars for the development of the Venezuelan mining sector, which both countries promoted as an alternative to Caracas’ over-reliance on oil. Expectations were high. Yet years later, investments have not come to fruition and the mining sector is mired in lawlessness, sanctioned by the U.S., and subjected to widespread criticism.

China’s bet on mining

According to a report by the Venezuelan Chapter of Transparency International, between 2000 and 2020 Venezuela and China signed over 470 agreements for bilateral cooperation. Venezuela became the main recipient of Chinese financing in Latin America by receiving 45 percent of the total funds destined to the region, which amounts to more than $68 billion. Ninety-one percent of the funds were delivered in the form of loans.

Venezuela had become one of China’s closest partners in the region. The strategic partnership was founded on ideological similarities, such as the goal of contesting U.S. power by promoting a multi-polar world order, as well as a rigid interpretation of the principle of non-intervention — as long as it worked in their favor.

It was also founded on mutual economic interests. China was on the lookout for commodities to sustain its economic boom, new markets for its products, and a door to Latin America and the Caribbean; Venezuela desired to break away from its traditional main trade partner, the U.S. Although the oil industry took the front seat for years, according to Transparency’s report, there were at least 17 agreements pertaining to the mining sector for the exploitation of iron ore, steel, coal, gold, and coltan.

In 2012 the late President Hugo Chávez signed an agreement with China to prospect, explore and map out Venezuela’s mining resources, which received criticism from experts and the opposition for willfully delivering critical information on strategic resources, ignoring local expertise, and for its lack of transparency. That same year, Venezuela handed the Chinese CITIC Group the concession to operate in Las Cristinas, home to one of the largest gold reserves in the world.

Doubling down on mining

When the collapse of oil prices between 2014 and 2016 accelerated an economic crisis that was already brewing in the country, Maduro put the mining sector at the forefront of his strategy to diversify and transform the economy. In need of foreign investment to carry out this enterprise, government officials have sought to promote it as a strategy that emulates the development model that ultimately made China a booming economy. Chinese investment and participation in the projects are also constantly lauded as a sign of their future success.

In February 2016, Maduro decreed the creation of the Orinoco Mining Arc (OMA), an area that spans 12 percent of the national territory destined for the exploitation of mineral resources for Venezuela’s strategic development. That same day, Maduro announced that 150 mining companies from 35 different countries had expressed their interest in operating in the OMA. Among them were large Chinese companies interested in exploiting gold, coltan, and other minerals.

Public outcry

The ambitious mining project received widespread condemnation from several sectors of society, from Indigenous and environmental organizations to scholars, experts, and political leaders, who would rather see it taken down and who have taken mostly to social media to express their discontent.

The main reasons cited by critics to reverse the OMA are environmental degradation, including of areas protected for their biodiversity and of water sources critical to the country; impact on the health, livelihoods, and even physical security of Indigenous communities; proliferation of illegal mining operations; and lack of public consultations and of approval by the National Assembly, as mandated by the Constitution.

Of the supposedly 35 countries interested in the OMA, the participation of Chinese companies has been singled out by some critics as being particularly damaging to the environment. China’s hunger for gold is perceived as predatory of Venezuela and its resources, but also as an important element that helps sustain Maduro’s government in power by providing it with more resources. Others, however, note that government corruption is to blame for the failures of the OMA and not the ambitions of China’s global infrastructure project known as the Belt and Road Initiative, contrasting the former with other successful projects funded by China in other parts of the world.

Case of Port of Palua

In 2017, Venezuelan President Nicolás Maduro broadcasted the inauguration ceremony of the expansion of the Port of Palua on the Orinoco River in southern Venezuela during his weekly TV show. The project aimed to increase the “mobilization capacity” (particularly the export capacity) of iron ore, a raw material used to make steel.

The use of the expansion of the Port of Palua by Venezuela’s and China’s propaganda apparatus to promote the success of their strategic cooperation, even though it did not achieve its goal of increasing exports of iron ore, helps to tell a larger story about big promises and big investments with no accountability and little to show.

According to the Venezuelan Ministry for Industries and National Production, the expansion is “the first national project completed with financing from the China-Venezuela Large Volume Long Term Fund,” one of the two funds that channeled the majority of the Chinese loans to Venezuela.

The robust Venezuelan state-affiliated media reported on the completion of the project as a great success that would help the country generate income by increasing exports. Echoing the Venezuelan government, Chinese state-run media also touted the project as a successful outcome of the “Comprehensive Strategic Partnership between China and Venezuela.

In broader terms, both governments sought to portray the expansion of the port as an example of China’s contribution to the economic and social development of Venezuela and to the ever-elusive diversification of its oil-based economy.

Although public official information on bilateral agreements between China and Venezuela is scarce, independent journalists and non-governmental organizations have pieced together the puzzle of this and previous deals in an effort to increase accountability of public-funded projects. Their findings paint a different picture. To begin with, the Port of Palua was delivered four years behind schedule. It was set to be finished by the end of 2012, but it was inaugurated in 2017.

It was also the only project to be completed out of an agreement signed between the Venezuelan state-owned iron company Ferrominera and three large Chinese state-owned construction companies that outlined two other projects to improve the infrastructure of the iron industry. Amid the crumbling of its production capacity, Ferrominera desperately needed the investment in infrastructure to be able to comply with another agreement signed with China in 2009.

Following the same cash-for-commodities scheme of the oil sector, Venezuela received at least 1 billion USD from China to invest in mining infrastructure, payable with iron ore shipments to China that, considering international prices at the time, implied a large discount.         

Ferrominera’s production capacity did not increase. On the contrary, it kept contracting and is nowadays only a fraction of what it was when the 2009 agreement was signed. Yet even by Venezuela’s standards of today, Ferrominera seems to be faring better than other heavy industries.

Cooling down of expectations

Four years after the Port of Palua project was inaugurated, most of the large mining projects funded with foreign investment that the government envisioned have not materialized. The lucrative business of gold and minerals exploitation in southern Venezuela is controlled by — and disputed between — local criminal armed gangs, armed paramilitary groups, and powerful factions within the military. Violence has erupted in the region, and the government’s control over the territory has been put into question. Moreover, in 2019 the U.S. government sanctioned the Venezuelan state-owned gold company Minerven for backing the Maduro government.

Recently, a guide to investors published by the Chinese embassy to Venezuela warned Chinese companies about the many challenges of Venezuela’s mining sector: sanctions, political instability, financial hardships. In contrast with the initial optimism expressed in previous years, lately Chinese media has also caught up with Venezuela’s shortcomings, including challenges to Maduro’s legitimacy.

Maduro, however, has not acknowledged this reality. Faced with a protracted economic and financial crisis, government officials still promote mining as an investment opportunity — one that was successful in the past, in China.

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