Sep
20
2012
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Can PDVSA Survive Chávez?

jose r cardenas Can PDVSA Survive Chávez?

José R. Cárdenas

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff. He is a consultant with Vision Americas in Washington, DC.

The recent explosions at the Amuay oil refinery in Punto Fijo that killed some 41 people could not have come at a worse time for Hugo Chávez, as it has drawn intense scrutiny on what has become of the state oil company PDVSA since Chávez imposed total state control over its operations in 2002.

It is not a pretty sight. In fact, the company stands at the center of a cautionary tale about the destructive impact of Chávez’s politically-motivated policies. For today, PDVSA represents less a modern oil company than it does a political operation designed only to boot the political fortunes of the President.

One would think that a company sitting atop what is believed to be the world’s largest oil reserves at a time of record prices could absorb some measure of short-sighted policies and still function ably. That PDVSA is not is a measure of how disastrously Chávez has ignored critical re-investments in maintenance, safety, and the development of new means of production.

Instead, the company’s last ten years have been marked by decreasing production, safety mishaps, politicization of management, inflated payrolls, and corruption. All the while, Chávez has directed PDVSA to take an ever-larger role in activities that have little or nothing to do with extracting and refining oil.

First, production. The government claims it is producing 2.9 million barrels per day (b/d), but experts claim that with refineries today operating at 69 percent capacity the actual output is more like 2.4 million b/d. In 1997, the year before Chávez was first elected, output was around 3.6 million b/d, one-third more than today. Experts say that given Venezuela’s prospects, it should be producing 5 million b/d. So far, high international prices have masked the impact of the declining cash flow, but that mirage will not last forever.

Secondly, those with knowledge of the Venezuelan oil industry say there has been a critical lack of re-investment into maintenance and production. They say investment in oil related activities has averaged $9 to $10 billion per year over the last four years — half of what is necessary to maintain production and just one quarter of what PDVSA needs to expand production and build new facilities.

So where is the money going? Into an account controlled directly by Hugo Chávez, bypassing the Central Bank and the National Assembly, meaning there is no accountability and no transparency of how the funds are dispersed. We do know, however, that earlier this year Finance Minister Jorge Giordani said that the government had invested more than $500 billion in social programs.

Now, there is certainly nothing wrong in using oil revenues to boost the social sector; the critical question is whether those revenues are being used efficiently and with an eye towards the long-term health of PDVSA and Venezuela. But it seems all that is lost on Hugo Chávez. The political goal of – getting re-elected – is all encompassing and trumps concerns of productivity and safety.

Today, PDVSA is involved in activities wholly outside its competence: including managing food imports and distribution, building houses, mining, agriculture, and meat production. Indeed, the list is being constantly expanded according to Chávez’s whims. As such, the number of PDVSA employees has expanded from some 40,000 in 2002 to around 115,000 today. The results have been predictably slap-dash.

Clearly, poor re-investment, declining production, diversion to non-oil related activities, bloated payroll, and skyrocketing debt are taking their toll on PDVSA. With no indication Chávez has any intention to change his policies, it’s an open question how long the company can maintain its present course. But PDVSA’s fate is intricately linked to Chávez’s populist political project. He came to power claiming to the masses that for decades “others” (elites, foreign interests) had plundered Venezuela’s national patrimony at their expense. He was to be their avenger, making up for years of neglect by squeezing every last ounce of Venezuelan crude out of the ground for the people’s benefit — even if he effectively kills Venezuela’s ability to secure oil revenues in the process. Populism may have been a great way to get elected, but it is a terrible way to govern.

 
Jun
22
2012
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In Case You Missed It… Articles Roundup Week of 6/22/12

This week Hugo Chávez announced another expropriation, as he approved funds to take over Sidetur, a steel products company. As the presidential campaign heats up and Chávez continues his cancer battle, speculation on Chávez’s possible successor continues; Chávez has refused to debate his opponent, Henrique Capriles, instead lobbing insults at the opposition candidate; new polls give Chávez a lead over Capriles, but high numbers of undecided voters have the opposition hopeful that they can swing the vote over the next four months. Meanwhile, officials admit that Venezuela has one of the highest murder rates in the world; a former defense minister accuses Chávez of a “psychological war” for the recent broadcast of a military meeting; the value of Venezuela’s oil exports continue to fall; and Moody’s warns investors about the increasing risk of investing in the country.

Venezuela Approves Sidetur Expropriation Funds, Chavez Says, Bloomberg Businessweek

Venezuelan President Hugo Chavez approved funds to finalize the expropriation of Siderurgica del Turbio SA, a steel products company known as Sidetur.

Venezuelans wonder who would replace Chavez, Washington Post

As President Hugo Chavez battles a cancer that has sidelined him for much of the past year, a group of loyal associates has stepped into the spotlight, sparking speculation across a polarized political landscape over who could replace the fiery leader should his condition force him from office With Chavez running for reelection in October, public talk of relinquishing power is unthinkable in his inner sanctum, where the mantra is “with Chavez everything, without Chavez nothing.”

Venezuela’s Chavez rejects poll debate, irking rival, Reuters

Venezuela’s President Hugo Chavez ruled out on Monday holding a pre-election debate with opponent Henrique Capriles, saying he would be “ashamed” to measure himself against such a “non-entity.”

Despite polls, Venezuela opposition sees Chavez upset, Chicago Tribune

Venezuela’s opposition shrugged off opinion polls showing President Hugo Chavez in the lead before October’s election and said on Wednesday its candidate Henrique Capriles would win thanks to a tireless “house-by-house” campaign.

Chavez predicts big win in Venezuela election, Chicago Tribune

Venezuelan President Hugo Chavez forecast he would win October’s election with more than 60 percent of the vote after a new poll showed on Tuesday he held a large lead over his opposition rival.

Launching anti-crime plan, Venezuelan official says country had about 14,000 homicides in 2011, The Washington Post

Venezuela’s top security official said Thursday that more than 14,000 people were slain in the country last year and that a new anti-crime plan aims to address the problem.

Ex Defense Minister: The ring of democracy is not the rifle but vote El Universal

Former Minister of Defense Raúl Salazar labeled as “psychological war” a meeting on obligatory simultaneous TV and radio broadcast between Venezuela’s President Hugo Chávez and the high military command.

Venezuela Oil Basket Drops To Lowest Price In 16 Months, The Wall Street Journal

The price of Venezuela’s basket of crude oil and refined products continued falling in the week ending Friday, losing $1.99 to settle at $92.06 per barrel, its lowest level in nearly 16 months.

Moody’s warns against increasing vulnerability of Venezuela, El Universal

Moody’s, one of the major credit risk and risk analysis firms in the world, has kept “stable” the forecast of the Venezuelan debt, currently at “B2,” a “speculative” step under the agency method.