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Saturday's
Lagniappe
A Summary of the crime against PDVSA
By Gustavo
Coronel
The
first day in January 1976, when the Venezuelan petroleum industry
was effectively taken over by the state, the new managers of
Petroleos de Venezuela (PDVSA) had ample reasons to be worried.
They were receiving an industry in pronounced decline, due to
the decision of the government to end oil concessions by 1983.
Exploration drilling was at a standstill. Geologists and geophysicists
engaged in looking for new oil deposits had dwindled from 800
in the 1950’s to no more than 40 by 1975. Oil reserves
were still adequate, some 19 billion barrels, but an increasing
percentage of this oil was heavy or very heavy, therefore of
lower commercial value. Refineries were geared to the production
of fuel oils, the major product of export of the Venezuelan
industry, but world demand was changing to diesels and gasoline
due to environmental considerations. Marketing was done through
the offices of the multinational companies abroad. Plant and
equipment was in urgent need of upgrading. Oil production remained
high since the multinational petroleum companies had been anxious
to produce as much as they could, before concessions expired.
This was not necessarily good for the nation, as many reservoirs
were probably being exploited beyond optimum rates of production.
Performance of the nationalized petroleum industry.
In spite of initial worries, the performance of the nationalized
petroleum industry during the next twenty-five years, 1976 to
2000, was outstanding. The industry that was in full contraction
in 1976 started to turn into an energy corporation of great
international prestige, run by professional managers dedicated
to provide the nation with optimum economic returns. An early
emphasis in exploration activities generated new oil findings
that eventually increased the volume of proven conventional
oil reserves from 19 billion barrels in 1976 to 75 billion barrels
of oil by 2000. The less conventional but commercially producible
heavy oil resources of the Orinoco Basin, located in the southern
portions of the country, were studied. The plausible recoverable
reserves of this type of hydrocarbons were estimated at some
270 billion barrels, giving Venezuela the largest volume of
oil reserves in the world after those in the Middle East.
The refining sector was significantly upgraded. Refineries which
produced a 70% of fuel oils and only 30% of light products were
modified and modernized, to produce 70% or more of diesel and
gasoline, in order to respond to the change in the international
demand, particularly in the U.S., where environmental constraints
required cleaner fuels. Petroleos de Venezuela acquired important
refining assets in the U.S. and Europe that guaranteed outlets
for its heavier, less marketable crude oils.
A reliable performance helped Petroleos de Venezuela to become
one of the five most important petroleum companies in the world,
according the rankings of specialized international publications.
Progress was evident in the quality of management, in applied
research and in the capabilities to train technical and managerial
staff. For 25 years Petroleos de Venezuela was well managed
and enjoyed high credibility in the international petroleum
community, maintaining the necessary distinction between professional
management and political decision-making.
In 1999 this started to change.
In 1999 Hugo Chavez started his presidential term. Although
he had often mentioned Petroleos de Venezuela during his electoral
campaign, claiming that it had become “a state within
the state” and that it needed to be put under the control
of the government, he chose as President of the company a well-respected
professional petroleum manager, Roberto Mandini. This created
much optimism among managers and staff of the company, as Mandini
shared their professional attitudes and values.
The naming of Hector Ciavaldini as Vice-president for Planning,
however, was not equally well received, since he was perceived
as a political commissar, as Chavez’s eyes and ears in
the company. Ciavaldini did not possess the required credentials
for such a high-level position. In fact, he had been dismissed
from the industry in 1995 due to his mediocre performance. At
the time of his return to PDVSA he was actively involved in
a legal conflict with the company over that dismissal. This
was, at best, inelegant and, at worst, a blatant conflict of
interest: a top executive was the plaintiff in a legal conflict
with his company!
The presidency of Roberto Mandini lasted less than six months
since his technocratic approach clashed with the orientation
Chavez desired to give PDVSA.
This orientation required the purge of the professional managers
and their replacement by persons loyal to the so-called “bolivarian
revolution”. For proud and short-tempered Mandini, the
role of Ciavaldini as political commissar and Chavez’s
contact of choice became intolerable. He decided to force a
showdown and, predictably, he lost.
Hector Ciavaldini became the new president of PDVSA in mid-1999.
He immediately acted to expel managers who were believed to
be associated with the “anti-revolutionary”, professional
management approach. He brought in a group of military officers
loyal to Chavez who took control of the security and industrial
protection areas of the company and the monitoring all communications.
From that moment onwards the internal environment of PDVSA became
one of intrigue and increasing struggle between different groups
vying for control.
The performance of Ciavaldini was so poor that, although a Chavez’s
man, he lasted less than one year in his job. He was replaced
by an active military officer, Guaicaipuro Lameda, who quickly
became identified with the professional managers and technocrats
of the company. Because of this, Chavez angrily and summarily
dismissed him in 2002. To replace him, Hugo Chavez made his
worst possible choice.
He named Gaston Parra, a Marxist professor at the University
of Zulia, a man largely ignorant of how the industry works,
parochial in outlook and full of resentment against the petroleum
industry managers. He was the least logical choice for president
of PDVSA if an efficient, international business was the objective
(but an excellent choice if what was wanted was the conversion
of PDVSA into a political tool).
The reaction against Parra as new president of PDVSA ousted
Chavez…. briefly.
The naming of Gaston Parra as new president of PDVSA produced
an intense reaction from the managers, technical staff and workers
of the company. They actively protested the naming of a person
who could not be effective in the job.
This protest sparked a spontaneous popular rebellion, joined
by labor unions, civil society, opposition political parties
and business associations. In April 11, 2002 a gigantic march
of some 700,000 people, the largest ever in Venezuela, took
to the streets of Caracas. In Puente Llaguno Chavez’s
snipers gunned down innocent protesters. When Chavez ordered
the military to crush the march by putting tanks and armed forces
on the street, the top military brass refused. Not only they
refused but also asked Chavez to step down. The top military
officer, Lucas Rincon, announced over national TV, in the early
morning of April 12, that Chavez had resigned. Although Chavez
was brought back to power two days later by military officers
having more firing power at their disposal than the ones who
ousted him, this episode illustrates how strong was the reaction
of the country against the high-handed actions of Hugo Chavez.
The new reality of PDVSA under the regime of Hugo Chavez.
The almost eight years of Chavez increasingly authoritarian
rule over Venezuelan society has already produced highly negative
results. Hugo Chavez has already abandoned all pretenses of
leading a democratic government and has adopted a style of ruling
without transparency, accountability or respect for political
dissidents, the essential ingredients of democracy. In taking
over political control of PDVSA, Hugo Chavez has:
•
Dismissed close to 20,000 managers and technicians who were
the key of PDVSA’s success as a world class company;
• Installed top managers dedicated to promote and finance
with oil money the Hugo Chavez “revolution”;
• Named six different presidents and boards of PDVSA in
the last seven years. For a company that markets its products
internationally and in competition with international companies,
this organizational instability has proven suicidal. Strategic
planning has been essentially abandoned. The current plan of
PDVSA is the same one prepared during the presidency of Luis
Giusti in 1998. It has not been changed but is not being followed.
The existing reality of the company bears little resemblance
to the plan. According to the original 1998 plan, PDVSA should
be producing close to 5 million barrels per day by 2006. However,
the real production today is 2.7 million barrels per day, half
the original objective.
• Named president of PDVSA the Minister of Energy and
Petroleum. In doing this, he has eliminated the autonomy of
action that PDVSA always had as a commercial enterprise, converting
the company into a political appendix of the government. The
original concept of a company dedicated to give optimum economic
yields to the nation has been replaced by that of a company
at the service of the personal agenda of an authoritarian political
leader.
• Practically closed down the Research and the Training
Centers that had become world-class institutions for applied
research and for the formation of the new generations of professional
managers required by the industry.
• Weakened the commercial divisions of PDVSA, to the extent
that today most of the Venezuelan oil exports are handled by
traders and brokers outside the company or depend on politically
generated decisions in which commercial considerations play
a secondary role.
• Eliminated the production and marketing of Orimulsion,
a relatively low cost fuel that competed with coal in the world
markets. This decision has been highly controversial, as clients
in Canada, South Korea and Italy, among other countries, feel
that PDVSA is failing to honor contracts that were in advanced
stages of negotiation. The licenses for the production and marketing
of Orimulsion are being given over to China by the Venezuelan
government, under unknown terms and without national approval.
• Taken over the direct control of PDVSA’s income,
to the extent that the money required for maintenance and investments
has largely been deviated to the financing of ill-planned social
programs and political propaganda, bypassing normal budgetary
procedures dictated by law. No less than $8 billion of PDVSA’s
money is being transferred to a Chavez’s controlled fund
in the last two years, to be used as he wishes, with no accountability
or transparency. About $16 billion of petroleum income have
been promised or delivered by Chavez to Fidel Castro, to Evo
Morales, to Nestor Kirchner, to Ollanta Humala, or sunk into
the buying of war equipment, in one of the most despicable acts
of national treason ever committed by a Venezuelan dictator
against a country where 80% remain poor and ignorant.
The tragic results of the new reality.
The inevitable result of this new reality is illustrated by
the negative performance of Petroleos de Venezuela during the
last six years. Although very scanty information is now provided
by the company on its operations and finances, they were finally
forced to submit to the U.S. Security Exchange Commission their
results for 2003, a report that reveals its tragic decline.
Exploration drilling in 2003 was half of what it was in 2000.
Oil production averaged 2.6 million barrels per day, while it
had been 3.2 million barrels per day in 2000, a decline of some
600,000 barrels per day, only partially compensated by the activity
of the international companies serving as contractors to PDVSA.
Investments in the company in 2003 were only $2.9 billion, half
of the budgeted amount, demonstrating that PDVSA does no longer
possess the required capacity to execute operations and financial
budgets. Oil income in 2003 was $44 billion, $5 billion less
than in 2000, in spite of much higher oil prices, obviously
a result of the drastic loss of production. The fact that we
have to rely on 2003 figures to evaluate PDVSA says it all.
We should be able to know the situation of a company in real
time.
The result of the oil policy Chavez has adopted in favor of
countries with which he is ideologically aligned is easy to
see. Cuba receives about 90,000 barrels per day of subsidized
Venezuelan oil. Subsidies to this country already amount to
some $1.3 billion per year. Chavez is largely utilizing the
money generated by PDVSA in consolidating his political power.
The report to the SEC mentions that $4.4 billion were taken
directly from the funds of PDVSA in 2003 and pumped into programs
not previously budgeted or approved by the Venezuelan legislative
body. All that it takes now for PDVSA’s money to be sent
to Chavez is a telephone call from the president to his Minister
of Energy and Petroleum, who is also president of PDVSA.
This mechanism lends itself to high levels of corruption since
there is no accountability.
Due to the increasing collapse of PDVSA Venezuela can no longer
produce its OPEC quota. This means that its share of the petroleum
world market has diminished. The combination of the loss of
production capacity and subsidized supplies to politically friendly
countries has brought PDVSA’s commercial exports down
to less than 2 million barrels of oil per day. At current prices,
this loss of commercial export capacity represents almost $5
billion per year in direct loss of revenues. If we add to this
decline the losses in the domestic market, where almost 500,000
barrels per day are sold below production costs, it is clear
that the current PDVSA is far from yielding optimum financial
benefits to the country.
Venezuelan Oil as a political weapon: does it have a future?
The use being made by Hugo Chavez of Venezuelan oil as a political
weapon to gain loyalties and to influence geopolitical developments
poses a triple threat to the welfare of the Venezuelan nation,
to Western Hemisphere political stability and to world peace.
In a planet where poverty and ideological fundamentalisms have
reached significant proportions Chavez’s populist rhetoric,
supported by the care free distribution of billions of dollars
to countries and groups willing to listen, is likely to have
an intense destabilizing effect. Chavez has already committed
close to $20 billion to the export of his so-called “bolivarian”
revolution and has aligned himself with the main rogue governments
of the world, including those of Cuba, North Korea and Iran
and with irregular and terrorist groups such as the Colombian
guerrillas. He is actively intervening in the internal political
processes of Bolivia, Peru, Nicaragua and other Latin American
countries. He is making global efforts to challenge the U.S
in all fronts. By abandoning democracy and by neglecting the
needs of the Venezuelan people, while exporting extremist ideologies,
he has become a negative force of change in the Latin American
region.
In spite of the increasing scarcity of petroleum in the world,
which will tend to add geopolitical power to oil rich countries
like Venezuela, the efforts of Chavez to gain followers are
weakening. He is no longer paying sufficient attention to Venezuelan
domestic problems and, as a result, his internal popularity
is decreasing quite rapidly. In addition, declining Venezuelan
oil production, combined with increasing financial commitments
abroad, is limiting the amounts of money at his disposal for
buying and maintaining political loyalties. Therefore, he will
not be able to honor his promises beyond the short to medium
term.
The democratic trend in Venezuela and Latin America is proving
to be a formidable obstacle to Chavez’s blend of Marxist
and Fascist ideology. Although several of the recent Latin American
elected presidents and presidential candidates in the region
can be defined as left leaning, only Fidel Castro and Hugo Chavez
have abandoned democracy and embraced authoritarianism. The
others, from Uribe in Colombia to Lula in Brazil and Michellet
in Chile are true and proven democrats. He recently “lost”
the elections in Peru and Ollanta Humala, his candidate, has
publicly mentioned Chavez’s intervention as the reason
for his defeat.
As Venezuelans increasingly reject Chavez, as oil money cannot
guarantee long-term loyalties and as democracy continues to
be the political system of choice in Latin America, the influence
of Hugo Chavez in the region and in the world is bound to decrease.
We need the cooperation of all democracy loving governments
and people of the hemisphere to check his dictatorship before
he ruins our country completely. The tragedy of Cuba should
not be repeated.
