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Editorial Commentary
VenEconomy: The destruction of PDVSA
A major element in the destruction of PDVSA is based on dismantling its marketing structure.
The “old” PDVSA’s marketing policy was based, on one hand, on maintaining direct relations with consumers, the idea being to avoid the use of intermediaries. Only in very exceptional cases would the “old” PDVSA sell oil or derivatives via intermediaries or public auction.
Another key aspect of the “old” PDVSA’s marketing policy was the acquisition of markets downstream, which allowed it to secure buyers for its products.
This marketing policy led PDVSA to purchase refineries in the United States (Citgo) and Europe, and it also facilitated the signing of a long-term contract with Isla Refinery on Curacao. What is more, in the case of Citgo, it permitted PDVSA to place gasoline directly with the end consumer.
So, for years, the “old” PDVSA managed to guarantee the placement of its entire production, while cutting marketing costs as much as possible. The new “redder than red” PDVSA has gone, for worse rather than better, in precisely the opposite direction.
One of the contradictions of this “redder than red” state-owned oil company is its determination to get rid of its assets in the United States.
The first step was the sale of its 41% share in Chemical-Citgo’s Lyondell Refinery (Texas) in 2006 for $1.43 billion. What is worse, this money was not reinvested to maintain the proper operation of the company but was swallowed up by the stratospheric levels of public spending.
Now the government has announced the sale of other assets. Two weeks ago it gave notification of the sale of four of Citgo’s terminals in Ohio and Citgo’s share in Inland Pipeline. And this week, it sold Citgo Asphalt’s refineries in Paulsboro (New Jersey) and Savannah (Georgia) with capacity for processing 114,000 b/d of heavy crude.
The “new” PDVSA’s sale of these assets is particularly surprising given that the crude used to produce asphalt is of low quality and, therefore, difficult to place.
Another aspect worthy of note is that, according to PDVSA’s president, Rafael Ramírez, the money from this sale will go directly to Fonden (National Development Fund), when the sensible thing would have been for it to have been reinvested in the business.
With these sales, Venezuela loses out on all fronts. It even loses the guaranteed long-term placement of some 225,000 b/d of oil.The justification for taking this type of decision, which has no economic foundation, is political, and it is based on Hugo Chávez’ irrational desire to reduce the sales of oil and its derivatives to the empire to the minimum.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's note: This commentary was originally published by VenEconomy, on 11/09/2007. Petroleumworld reprint this article in the interest of our readers. Petroleumworld does not necessarily share these views.
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Petroleumworld News 11/12/07
Copyright© 2007 VenEconomy. All rights reserved.
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