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Editorial-Opinion

 

 

Oliver L Campbell : PDVSA is
not bankrupt but short of funds

 

 

The statement has been made by several commentators that PDVSA is bankrupt and that the cause is that the company has been badly managed. I aim to show that both statements are wrong. Firstly, PDVSA has a capital of some $74 billion and, secondly, though not the owner of the oil reserves which belong to the Nation, it can count on them to produce its income for many years to come. Financial analysts are more interested in the probable income stream of a company than any other factor to value it.

However, PDVSA is different from other companies because it is an arm of government and does what the government says. This was always the intention when the oil minister was made the president of PDVSA. The company may not like some of the orders it receives from government but it has to carry them out. I believe this may be the case with its having to finance social projects at the expense of retaining funds to invest in the oil industry.

Let us look at the figures for 2011 and 2010 (in US$ millions):

Total revenue

82,632

58,169

Total costs and expenses

28,806

29,973

Income before royalties, contributions for social development and income tax

 

$53,826

 

$28,196

This is basically the amount of income PDVSA has made for the Nation or, put in practical terms, for the government. Such results can hardly be attributed to a bankrupt company and it is the disposal of this income, over which the company has little say, that has caused PDVSA'S difficulties.

Total as above

53,826

28,196

Less: royalties

17,671

13,904

income tax

1,493

4,072

net income

4,583

3,202

Balance available to PDVSA but spent on contributions for social development

 

$30,079

 

$10,220

The oil minister has ordered PDVSA to allot its available income for contributions to social projects rather than investing in the oil industry. He has then ordered the company to obtain outside financing to cover its investment on sole account and also for its contribution to the capital of the joint ventures where it must hold a minimum of 60% of the shares. Government policy is quite clear--take all the money possible from PDVSA and let it obtain loans to meet its cash shortfall.

Thus the reason PDVSA is short of funds is not of its own making, but is caused by the political decision to use the company as a source for social development. Had the company kept all, or most of, the $30 billion it contributed for this purpose in 2011, it would have had enough funds for its investment and to pay its contractors, suppliers and other creditors.

Though the company is not bankrupt, it is in a poor financial state with cash-flow problems and long term loans of some $35 billion at the end of 2011. A company with the amount of cash PDVSA generates should never have got itself into this situation, but the cause is not that it is badly managed. It is that PDVSA, though nominally a separate entity, is effectively part of the government and has been milked by the latter for its political objectives.

It is not my intention to defend PDVSA but only to explain the situation. The commentators may be right when they assert the company is badly managed. Certainly the manpower growth to some 120,000 employees is open to criticism as is the delay in carrying out the "Plan Siembra Petrolera." However, I hope I have convinced the reader it is not being badly managed that has caused PDVSA'S financial difficulties. It is the way the government has deprived PDVSA of funds--hence its cash flow problems--by appropriating them for political purposes.

Of course, the government is entitled to ask PDVSA to pay a dividend which it then uses for social development, but it is short sighted to leave PDVSA with insufficient funds for investment. PDVSA is the goose that lays the golden eggs and the $11 billion spent in 2011 was certainly not enough. In comparison, ExxonMobil invested $33 billion, Royal Dutch Shell $31 billion and BP $26 billion.

Oliver L Campbell
31.05.11


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Oliver L Campbell MBA, DipM, FCCA, ACMA, CGMA, MCIM was born in 1931 in El Callao, Venezuela where his father worked in the gold mining industry. He spent the WWII years in England, then returned to Venezuela in 1953 and worked with Compañía Shell de Venezuela (CSV) where he became the Financial Controller. Upon nationalisation of the oil industry, he went to Petróleos de Venezuela (PDVSA) as its Head of Finance. In 1982 he returned to England and became the Finance Manager of the British National Oil Corporation prior to its privatisation. He then worked as an oil consultant and retired in 2002 after fifty years in the oil industry. Petroleumworld does not necessarily share these views.

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Petroleumworld News 06/17/2012

 

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