THE WILLFUL DESTRUCTION OF THE OIL INDUSTRY (PDVSA)
February 9, 2003

Chavez claims that he is “re-nationalizing” the oil industry (PDVSA) and bringing it “back to the people”. These claims seem very hollow. He is actually destroying an industry that although state owned functioned with a relative efficiency on the international market.

Briefly, Venezuelan oil is of a rather heavy quality and thus requires a more expensive refinery processing; unless of course it is to be burned at power plants. To secure a world market PDVSA over the year has created some outlets such as Citgo in the US whose refineries were designed for the use of Venezuelan crude oil. This is indeed capitalism since it does require significant investments and happens within the framework of globalization. A sector of the Venezuelan left finds this to be an abomination as some of the PDVSA earnings had to be invested overseas instead of being distributed in social programs. Chavez has embraced that view, and it is at the root of the problem between him and the industry. The first conflict in April ended up with Chavez brief ouster. When he came back, he had to reestablish PDVSA as before his ouster. But it was a lull in his control game.

PDVSA is actually a rather sophisticated corporation that has been left pretty much alone by the successive governments. If it shows problems in efficiency, due in part to excess personnel and a need to give as much revenue as possible to the government, it is still reasonably well managed and provides all of the countries energetic needs (including good gas quality, many petroleum derivatives). It has developed a series of side business such as INTEVEP which is PDVSA own research laboratories developing a decent number of patents. It has also developed the natural gas business, its own merchant navy, etc…

Obviously, the management of PDVSA is highly educated, with a vision of world markets and economy that were bound to collide with the more simplistic approach of Chavez to world affairs. This one trusts more the OPEC to increase the price of oil in order to garner revenue instead of producing more oil. More production might mean lower prices but it will mean also more jobs and the ability to secure more markets in search of reliable and reasonably priced providers. The supporters of this theory say that the more jobs PDVSA creates in Venezuela, the more of a development engine it becomes.

With the December 2 strike Chavez might have reached its opportunity to alter in a definitive way the oil industry. Below the numbers published today by the New York Times and [my comments]

The strike has reduced Venezuela's oil capabilities

THE COSTS
Venezuela's Oil Industry and the Strike.

Oil produced, total:

3.1 million barrels a day before the strike.
1.3 million now, say dissidents. The government says the figure is 1.9 million.
[With the militarized installations, it is impossible to verify who is telling the truth]

Oil exported:

2.7 million barrels a day before the strike, most to the U.S.
700,000 barrels now, according to Mines and Energy Ministry.
[it would be interesting to know where the 1.2 million difference goes. As far as I know it is not all used to burn electricity generation. Again, the NYT fails to ask the good questions. Not to mention that the NYT fails to wonder in what shape are the production facilities, or if the environmental controls are operating]

Work force:

33,000 full-time employees before the strike, and 37,000 contract workers, which fluctuated.
Unclear how many now, but 9,000 of the full-time workers have been fired.
[This seems to be true, and the numbers increasing. Chavez is truly decapitating the industry even firing secretaries. What the NYT does not say is that the government is replacing a lot of the fired workers by political personnel from the Energy Department and the political party PPT, to the point that wits call PDVSA PPTESA. One particular sad example is that half (!) of the personnel of INTEVEP has been fired probably dooming the research abilities of PDVSA forever].

Gasoline produced for home market:

250,000 barrels a day before strike.
150,000 barrels now, the Mines and Energy Ministry says.
[Yet the gas lines are almost as bad as in late December and imports keep arriving. This is noteworthy since a large part of the economical sector is stopped and thus not putting pressure on gasoline inventories. Again, it is impossible to verify the government figures. It should be said that since late December the government has been predicting “normalization” within a week and such normalization has not happened. Though it seems that some refineries might be experiencing a partial re-opening if anything for a political show. And forget about gasoline exports for a while!]

Gross oil revenues:

2002 (estimated) $22.2 billion.
2003 (forecast) $14.3 billion, according to UBS Warburg.
[Totally unpredictable]

However what the NYT cannot see at this point is the core damage to Venezuelan society that this “take over” is doing. The gravest action is the hiring of all sorts of foreigners to run things. For one thing, it is almost an unbelievable action for a nationalist and leftist president, to hire foreign scalawags. Even worse is that many of these people will gain insider knowledge of PDVSA and can transmit this to the competition. The long term damage is truly frightening! And one could go on an on, as to the transformation of PDVSA in just another patronage agency that slowly but surely will see its output decrease, but not as fast as its efficiency. Corruption also will take off as the military is heavily involved in gasoline and cooking gas schemes, contracts will be given according to party lines, etc, etc…

Conclusion?

You can draw your own conclusions as to the economical future of Venezuela. One thing is certain, if Chavez does not leave office soon, or backtracks in its PDVSA policies, the damage might become permanent. The best oil technicians in Venezuela will be slowly but surely hired elsewhere or leave the industry for good. The huge sums spent in personnel training will be lost.

Unfortunately what matters for Chavez is control of PDVSA. Why? Besides its authoritarian nature, he wants to control who does oil go to (Chavez is helping Cuba) and he wants a steady if low supply of money that is enough for his political process. Venezuelan people interests? The question is whether he had those interests at heart, ever.

PS: in another NYT article you can gather interesting descriptions as to the actual PDVSA CEO.

Venezuelan Oilman: Rebel With a New Cause
February 9, 2003 by JUAN FORERO

--the president of one of the largest, most complicated and, these days, most embattled companies in the world, Petróleos de Venezuela.

But make no mistake, Alí Rodríguez still sees himself as a revolutionary. His boss, after all, is President Hugo Chávez, whose sharp tongue and efforts to remake Venezuelan society have left the country deeply divided and on the edge of economic collapse.--

--Though his résumé makes no mention of it, Mr. Rodríguez has leftist, some would say radical, credentials. For 20 years, he was a clandestine agitator and a fighter in a Cuban-inspired rebel movement, where he specialized in political proselytizing and making bombs, according to former guerrilla comrades--

--To be sure, he does not seem entirely comfortable poring through planning documents, but though he does not carry a rifle anymore, he still says he is fighting to shake up the system for the betterment of the poor. --

--Still, the reality is that today's rebels are his former oil executives. For more than two months they have been out in the streets protesting against Mr. Chávez and, by extension, Mr. Rodríguez's management of Petróleos de Venezuela S.A.--

--He vows that the thousands of dissident workers who went on strike — and continue to strike — will never return to their jobs.--

--Petróleos de Venezuela, once valued at $110 billion, is producing just half what it did before the strike, which ended in the non-oil sector last week after 63 days. Moribund oil fields are sanding up, losing the ability to produce oil; the company's reputation is in shambles; and the 9,000 workers Mr. Rodríguez has fired represent a loss of experience and skill.--

--in 1979 Mr. Rodríguez was one of the last rebels to demobilize under a government amnesty. […]When Mr. Chávez was elected president in 1998, he became minister of mines and energy.

--"I have had the good fortune of being in different situations that have to do with petroleum," he said. "And now it is as an entrepreneur, a role I had never thought I would play in my life."—

{and one would add, a role that nothing prepared him to do}