Editorial / Commentary / Opinion
Gustavo Coronel :Pemex, Petrobras and PDVSA:
Prejudice, reason and hatred
The three largest hydrocarbons companies in Latin America are Pemex, in Mexico; Petrobras, in Brazil, and Petroleos de Venezuela, PDVSA in Venezuela.
In Mexico the labor union, led by Marxist Vicente Lombardo Toledano, pressured President Lazaro Cardenas to nationalize the oil industry, an event that took place in 1937 following a labor dispute between the union and the foreign oil companies. In 1938 Cardenas created Pemex as an integrated petroleum company. From the start the labor union wanted to control its management. In practice it did, since the Board of Directors was made up of 11 members, five of whom were named by the union and the rest by the president of Mexico, who was closely aligned with the workers.
Pemex problems grew rapidly due to “declining efficiency, labor absenteeism, lack of discipline and thefts” (W. Grayson, The Politics of Mexican Oil). From the start Pemex had social objectives rather than a dominant commercial orientation. Domestic prices were subsidized and management did not have authority to impose work discipline required to improve profitability. A minister headed the Board of Directors and the other five members named by the president were ministers or other state bureaucrats. The Director General was from the start a powerful political figure, very close to the president, rather than a technocrat. Director General Antonio Bermudez engaged in very heavy borrowing and Pemex’s debt increased from $76 million in 1952 to $311 million in 1958. Later on, the debt would become much greater, $26 billion in the 1980’s and about $50 billion at the end of 2008.
By the end of the 1950’s Pemex was already near bankruptcy and about 70 percent of its capital budget came from short-term loans. Between 1964 and 1976 the work force moved from 50,000 employees with a payroll of about billion pesos to almost 100,000 employees with a payroll of over 11 billion pesos and in the 1970’s the technical staff was forced to join the union. In 2008 employees numbered about 145,000.
During the presidency of Lopez Portillo Jorge Diaz Serrano became Director General and was later sentenced to 10 years in prison (1987) for corruption involving some $34 million.
Even today Pemex is perceived in Mexico as a symbol of economic independence and technical progress. The government sees it as a tool for national development. However, borrowing has often taken place for central government use although payments remain on the head of the company. There is a chronic excess of employees. The labor union bosses still have excessive control over who gets hired and over much of what happens within the company. Corruption has been rampant. Oil production is declining and investment has been insufficient to prevent the decline. As a result, in a few more years Mexico might become a net importer of hydrocarbons.
Pemex faces a classical ideological and false dilemma: control and national sovereignty vs. –growth and efficiency. Too many Mexicans still believe that a country is sovereign only when the State owns all of its sources of income. For these Mexicans, control equals ownership. This is prejudice. The nation can benefit from industries, which are not wholly or partially owned by the State, as long as it exercises proper control through regulations, and a well designed system of incentives and restrictions (hopefully, more of the former). The notion that sovereignty can only come through state control has been disproved by the success of the open economies of Europe, the U.S. and Asia, where national sovereignty coexist with private ownership of strategic industrial complexes. Mexican sentiment is largely based on a deep-seated complex of inferiority probably derived from being geographically too close to the U.S.
The Brazilian state-owned hydrocarbons company was created in 1954 inheriting the assets of the Conselho Nacional do Petroleo, CNP. At that time an evaluation of Brazilian oil prospects made by a team of U.S. and Brazilian geologists, concluded that Brazil had no major oil prospects. This report created a wave of nationalism in the country since people felt Brazil had immense oil resources. Brazilians considered the report a maneuver in order to take over national riches. Under the presidency of Joao Goulart this backlash prospered under the slogan of “el petroleo es nosso”, the oil is ours. The unions became powerful, supported by the radical left. The technocrats started to fight back and by the mid-seventies the main technical positions in Petrobras were held by professionals. Still, politicization was significant during much of the 1970’s and 1980’s due to the influence of the labor unions and the ultra nationalistic environment in which the company operated. Up to 15 years ago Petrobras was a failure. Brazil imported oil and the company was inefficient. Today Petrobras is an energy giant, poised to become a net exporter of hydrocarbons in the medium-term, even thinking (unwisely, in my view) of joining OPEC. Petrobras has become an international company, operating in more than 25 countries.
Petrobras has done it by behaving in a manner quite different from that of Pemex. Instead of keeping hostage to the labor union Petrobras undertook radical changes in its corporate structure. It became a partially public company selling shares in the international financial markets. Having private shareholders increased its transparency and introduced a formidable antidote against corruption. This was, of course, a political decision and it could not have been done without the resolve of President Cardoso and, later, Lula. Reason has prevailed over false emotions.
Today Petrobras is a formidable success story. It is well managed and is now finding the oil that the geological evaluation team of the 1950’s could not foresee. In those days the offshore, where most of the new oil and gas have now been found, was an almost inaccessible frontier. The negative evaluations were mostly about the Amazon basin and that essentially remains true. Brazil today is not only hydrocarbons giant but also a pioneer in the development and large-scale use of bio-fuels.
PETROLEOS DE VENEZUELA, PDVSA.
The Venezuelan state-owned petroleum company was created in 1976 as a result of the takeover by the state of the 16 private oil companies active in the country under the system of oil concessions. This number was reduced to four and, later, three state-owned, fully integrated operating companies, under the umbrella of a planning and financial holding company. This was an unprecedented model, different from the concept of a state-owned monopoly and served to retain within the industry a healthy level of competition among companies, making it possible for the holding company to compare performances: operating costs, quality of management, overall efficiency, etc, among the companies. The management of the companies was made up of the Venezuelan experienced staff that had been working for the private concessionaires. This made a difference with state-owned companies from other countries, where management was often politicized. The activities of the company were reported publicly and regularly. For about 23 years, 1976 to 1999, the company philosophy was based on the profit motive. The money generated by the oil industry went to the central government to feed the national budget through an exercise monitored by the national congress, a body where different political parties were represented. Its activity remained significantly transparent for years and the company enjoyed great international credibility. During those 23 years oil production remained steady, oil and gas reserves quadrupled, domestic and foreign refining capability doubled and, in general, all aspects of the business were professionally managed. During the 1990’s there were increasing signs of politicization within the ranks and the payroll had increased beyond reasonable limits. However, the company was still solid. This situation changed dramatically after Hugo Chavez came o power in 1999. He took political control of the company and turned it into a tool to serve his two main objectives: (1), establishing authoritarian control of the government and, (2), creating a hemispheric anti-U.S. alliance. Almost eleven years later Petroleos de Venezuela is a company maanaged by hatred. It has lost about 800,000 barrels per day of production capacity, its plant and equipment is significantly deteriorated and the professional management of the company no longer exists. The company is used to import and distribute food for the poor and for other activities that have little to do with its core business. Petroleos de Venezuela remains as an important source of money for the regime because of the high oil prices that have prevailed during the last six years, when about $650 billion have entered Chavez’s pockets.
A COMPARATIVE ANALYSIS.
It seems evident that the performance of these three companies is closely related to the role they play in their countries. In Brazil Petrobras is a commercial company, in Mexico Pemex is a symbol of nationalism and in Venezuela, PDVSA is a political tool at the service of a dictator. The results speak for themselves. Petrobras is successful, Pemex is eroding steadily, and PDVSA is in its way to collapse.
Two key ingredients represent most of the difference: one is autonomous, professional management. The other is the participation of the private sector as a financial and technical partner. Although no one of the three companies is free from political considerations Petrobras enjoys professional management practices and decision-making within the framework of a state energy policy and has openly invited the private sector as concessionaires. Pemex has more limited autonomy in managerial decisions and the state and national sentiment severely limits the participation of private operators in many aspects of the industry, notably in the upstream. Petroleos de Venezuela has been completely politicized and its activities are politically driven, not commercially driven. Its partners are chosen on the basis of political ideology: Russia, China, and Iran, even Vietnam! . In parallel international oil companies that possess the technology and the financial means are harassed and discouraged from participating in Venezuelan oil projects.
Obsolete socialist ideology and pseudo-patriotism die hard. It is unlikely that Pemex will open up any time soon. Petroleos de Venezuela will have to wait until a radical change in political regime takes place, in order to alter its course of destruction. Petrobras already knows the recipe for success, although we cannot underestimate the stupidity of politicians. Recent oil finds in offshore Brazil already has some of the political leadership talking the suicidal language of the petrostates.
Pemex is still dominated by prejudice. Petrobras has learned the benefits of reason. Petroleos de Venezuela is a agent of hatred.
Santayana : “Those who forget the past are condemned to repeat it”.
Einstein : “Madness is the incessant repetition of the same activity in the hope of obtaining a different result”.
Gustavo Coronel is a 28 years oil industry veteran, a member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), author of several books. At the present Coronel is Petroleumworld associate editor and advisor on the opinion and editorial content of the site. Petroleumworld does not necessarily share these views.
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Petroleumworld News 11/11/09
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