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Veneconomy: King Midas, but in reverse
The Venezuelan President is like King Midas, but in reverse. Just as the mythological king of Frigia turned everything he touched into gold, Hugo Chávez turns everything to dust.
Chávez’s power of destruction is marked by four ills. The first two are his anxiety to impose a political-economic system that, historically, has failed and brought with it abject poverty in countries where it has been attempted and his insistence on giving priority to political allegiance over experience and technical know-how in his management team. After nearly eleven years in office, the lack of professionalism and the bad management of Chávez’s second-rate deputies are more than confirmed. This leads us to the third and fourth ills, which are the lack of maintenance and the absence of investment in new technologies and equipment.
The cemetery of state-own companies with declining operations or that have been put out of circulation altogether is already legendary.
Everyone knows that production at the state-owned steel mill, Siderúrgica del Orinoco (SIDOR), has fallen by 27% in the two years the company has been in government hands.
Possibly less well known, but no less serious, is the situation of the four crude upgraders in the Orinoco Oil Belt that, two years ago, were forced to change their status as strategic alliances managed jointly by PDVSA and their foreign majority shareholders to become “mixed enterprises” in which PDVSA, as the majority shareholder, has total control of operations, while the “partners,” now minority shareholders, assume a merely decorative role.
After nearly two years of “socialism,” bad administration, lack of maintenance, and absence of investment, the four upgraders are in a very bad way.
This weekend, Reuters published an article on Venezuela’s oil revenues in which it highlights, among other things, the International Energy Agency’s report that production from the Belt was only 460,000 b/d in October, down 4.1% from September and 160,000 b/d less than what was previously considered normal.
At today’s prices, we would be talking of some $11 million a day in lost sales or more than $4 billion a year.
Reuters also comments on the increase in work accidents, operating problems, and forced plant shutdowns.
All these problems being experienced by the upgraders in the Belt are in addition to the general decline of the oil industry, which means that Venezuela is not capable of generating the fiscal revenues the government needs for its political project. Right now, not even a hike in oil prices could bridge the fiscal gap.
Given this situation, it is difficult to understand how or why the government thinks that there are multinational companies that are prepared to submit bids for the right to develop the extra-heavy oil fields in the Belt’s Carabobo Block. While it is true that the government has cut the royalty from 30% to 20%, it is still insisting on PDVSA, with 60-70% of the shares, having control of operations, with the minority shareholder putting up as much as 100% of the financing.
Chance would be a fine thing! Running true to his anti-Midas form, Chávez is destroying the country’s future.
VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. 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 VeneEconomy on 12/15/2009. Petroleumworld reprint this article in the interest of our readers .
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Petroleumworld News 12/ 16/09
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