Towards the end of Venezuela state oil industry: PDVSA to sink further and faster

[Last paragraph updated]

There has been a new speedy development that has caught me off guard: within a very few days the Nazional Assembly has passed a new law that simply allows Chavez to seize and "nationalize" any oil industry provider, from the one providing lunches to the oil rig workers, to the companies designing complex technological aspects of off shore drilling. In other words, even if the oil industry in Venezuela has been nationalized since 1974 (and not 2003 as the pro Chavez camp would like us to believe in their re-writing of history) there was still a large chunk of the business left open.

In what was a rather wise decision then, the state reserved for itself the bulk of oil exploitation, processing and trade, but left a lot of the "miscellaneous" to private contractor. That allowed PDVSA to focus on the oil business, on what it should really do, and do it the best possible way, while the private sector was left to do what it does best, namely developing new technologies and providing services heavy on logistics and depending on quick response and competition for their effectiveness. Even chavismo kept that structure at first since it allowed additional graft opportunities once PDVSA under the guidance of Ramirez became a den of thugs.

But something happened on the way to the forum: as PDVSA became the personal checking account of Chavez ambitions, it started getting involved in all sorts of business it had no business doing (tautology intended) while it lost focus of the needs of its main business. As such oil production is down just as the debt accrued to its private contractors has started ballooning to levels that are simply not manageable anymore. For example we have seen suggestions by PDVSA to pay their contractors only if they accepted substantial discounts on the money owed them.

So chavismo did what comes naturally to regimes based on populism of the left: they are taking over the private contractors they cannot pay anymore. That is, they will be paying them for their business a fraction of their value since their business have become nonviable due to the deadbeat of a state they had as client. Assuming that they will pay them, of course, since it is in the "state interests" and thus payment is at best an option. Not to mention that the debt will be given now as part of purchase payment. Since there will be no judicial recourse, the owners will need to accept whatever is given them. Plain robbery.

But as is always the case in Venezuela the devil is in the details. There is of course the fact that chavismo has simply come up with a way to avoid paying debts it cannot pay, and thus demonstrating once again that the financial situation of the country is much worse than what it wants us to believe.

[updated] But there is another thing that so far seems to be flying low on radars: the bulk of the companies to be taken over are in Zulia. As such the government is simply trying to use the nationalization of these suppliers to increase its political control over Zulia, the state where it has consistently failed politically. That is, if you are a worker in one of these companies and want to get what is due to you, amen of keeping your job, you need to vote for Chavez (and rat on those who do not vote for the Supremo, which is where fascism and left based populism meet). It is not idle to note that we are talking of thousands of workers directly affected, as well as their dependents and the people that live off their business. A rough calculation could imply as much as 5 to 10% of the population of Zulia affected directly or indirectly. Some municipalities income will also be affected as the companies taken over by PDVSA might not pay anymore municipal revenue. Considering that many of these companies have their seat in Maracaibo, it is Maracaibo who is punished as its income is certain to dwindle, and way more than a mere 10%.

PS: I put most references separate here. In English an ill translated title which does not suggest what I am writing about even though the body of the article more or less spells it. And also from El Universal a better article in Spanish, where the direct immediate implications are underlined.

There is also an example of the official propaganda, where all is fine and dandy, promising among other things that the workers to be going under state control will be favored by the same PDVSA contracts. Which is funny because there are increasing complaints that PDVSA is not fulfilling its contractual duties to its workers... We are also announced quite a show for the "take over" this week end as Chavez gloriously will be presiding personally over the now legal robbery.

No wonder they need Globovision closed ASAP: they do not want the people to see how fast is PDVSA going to sink now that the only sector of the oil industry that sort of worked is not going to work anymore.


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