Raul Gallegos : Chavez's cash
PDVSA runs on empty
Hugo Chavez's cash pump, Petroleos de Venezuela, is running on empty. Venezuela's troubled state oil group may now pay its suppliers with IOUs instead of cash. That's hardly surprising given Chavez's systematic squeezing of PDVSA to finance social spending, particularly ahead of elections set for Oct. 7. Harder to imagine is what happens when oil prices decline from today's lofty heights.
PDVSA is a lesson in oil wealth mismanagement. Last year the company posted $125 billion in sales. More than 40 percent of that fed Chavez's spending machine. Roughly $24 billion fattened state coffers in the form of royalties, taxes and dividends. And $30 billion lined Chavez's discretionary spending funds. After covering production and financing costs, PDVSA had to borrow $9.5 billion and tap its $6 billion cash holdings to help fund investments. Despite generally rising crude prices, PDVSA has seen negative free cash flow for the last five years.
Worse still, Chavez appears to be letting PDVSA put too little back into the business. The company invested $17.5 billion last year, scarcely more than half what went to Chavez's social projects. But PDVSA's own plan requires it to invest nearly twice that much on average over the next six years to reach its goal of producing 4.2 million barrels a day by 2018. Venezuela is currently pumping 2.9 million barrels a day, according to the Organization of the Petroleum Exporting Countries, and it probably won't reach its goal of 3.5 million by year-end. Output is 17 percent less than when Chavez took office 13 years ago.
PDVSA's cash squeeze hurts the rest of the energy industry, too. Debts to suppliers stood at $12.4 billion in 2011, up 80 percent in two years. The fact that PDVSA may now pay part of what it owes contractors using bonds, even at a time when oil prices are high, suggests Chavez is squeezing the company dry ahead of the elections. PDVSA's joint-venture partners also face delays in their share of the oil pumped. And Chevron recently lent PDVSA $2 billion to cover investments.
The Venezuelan oil giant can still service its debts. But running the company into the ground, not to mention starving it of investment, is not sustainable under lower oil prices. Chavez's politics have turned PDVSA into a cocktail party joke. But its shaky financials are no laughing matter.
Follow us and post your comments: in Twitter Facebook
Raul Gallegos is the Latin America financial columnist for Reuters Breakingviews. Raul has more than a decade of experience covering the region's business, finance and economics. His work has appeared in the Wall Street Journal, the LA Times and Institutional Investor. From 2004 through 2009, Raul was the Venezuela-based oil correspondent for Dow Jones Newswires, and a member of the OPEC coverage team in Vienna. He holds a bachelor's degree in economics from the University of California at Berkeley and a master's degree in International Affairs from Columbia University. He was a 2010 Knight-Bagehot Fellow at the Columbia Business School (firstname.lastname@example.org).
Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by Reuters Breaking Views Blog , on Sep. 06, 2012 . Petroleumworld reprint this article in the interest of our readers.
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.
Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld News 09/07/2012
Follow us in Twitter
And post your comments in our Facebook site
Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!
We invite all our readers to share with us their views and
comments about this article, write to email@example.com
Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors
Send this story to a friend Any question or suggestions,
please write to: firstname.lastname@example.org
Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x600 pixels