New corporations herald the end of CVG - Venezuela

Published: Monday, March 23, 2009 17:44 (GMT-0400)

The latest reports by Venezuela's government announcing plans to form the national aluminum corporation CVA, and state steel and iron company CSV mark the beginning of the end for state heavy industry holding CVG.

A sector executive recently said the new CVA would displace CVG, the state organization that currently manages aluminum companies Alcasa, Venalum, Bauxilum and Carbonorca, along with Costa Rican aluminum plant Alunasa and aluminum processors Alucasa and Cabelum.

Meanwhile, formation of CSV would transfer control of companies like iron ore and pellet producer Ferrominera Orinoco (FMO) and the majority stake of steelmaker Sidor.

Besides losing control of several companies, CVG will take a hit to its budget considering that its revenues from subsidiaries amount to some US$400mn/y and roughly US$232mn/y from FMO and Sidor. Losing those would cause the corporation's profits to fall by more than 58%.

A recent report by Guayana region's business chamber said the debt that CVG's subsidiaries hold with providers amounts to US$465mn and has been the cause of layoffs and shutdowns at several companies.

If the situation is not addressed, creditors expect to place a class action lawsuit against CVG.

Sector executives have explained that with the loss of its financial heavyweights, CVG's survival will depend on the national budget, which is not a positive prospect in their eyes.

In addition to seeing reduced profits, CVG will also have a smaller area of influence and will not be able to develop projects, which will invalidate the company's existence, according to a union leader.

"It has become an entity that is unable to operate and has an uncertain future," the union official said.

For now, the largest company that will stay under CVG's control is gold miner Minerven. Others include logging company Proforca; consultancy firm Tecmin, which focuses on geology, mining and environmental issues; and construction firm Ferrocasa.

Or at least it will be that way until the government follows through with its plans to create the state gold corporation.

CVG has been the driver of Guayana region's economy for years - roughly 80% of Venezuela's economy is focused in the region. The company currently manages activities on 554,101km2 - over half of the country's territory.

Although the scenario has generated a lot of emotion among CVG employees, so far the government has given no sign on the company's immediate future.

All eyes are on the new crown jewels: CVA and CSV.