July 30th., 2007

The Collapse Of State Oil Business

PDVSA currently finds itself in a state of operational emergency. This announcement was front page news since it was made by this company’s Vice-President of Exploration and Production, thus confirming what has been long affirmed by national and international analysts. He attributed the problems to difficulties in acquiring drills. He acknowledged it would be impossible to meet with the goal of producing more than 3 million barrels this year, since of the 191 required active drills, it is forecasted that the year will end with only 120, as long as the 5 selected companies install the 27 which were requested. On the following day, Rafael Ramírez, the President of PDVSA also made the front pages, confirming that there is an international drill shortage and that the solution to this was given by the President, who instructed him to build the drills in the country. Ramírez, who became famous last November when declaring that the company was “red, red”, was emphatic in affirming that “the united socialist party of the revolution must be strengthened within the core of PDVSA.”

This issue with the drills has made it clear that in order to produce oil, transparent policies, good management and qualified human resources are required, principles which were applied when the oil was nationalized in the 70s. PDVSA, managed by Venezuelans, acquired high level recognition in the industry’s management, assumed as a business which was to produce maximum benefits for public finance. Achieving this was not so complicated. The nationalized industry assumed as its own the personnel, technologies and experiences of the transnational companies. Top executives were selected by the government, professional credentials bearing more weight than political tendencies. Internal and external control mechanisms functioned, among others National Congress, where all political sectors had representation and were heard. In consequence, the media and public opinion were always kept informed and were vigilant of oil policies.

This transparency has disappeared. There is no reliable information regarding production and sales. In the current scandal, caused by internal conflict, it has been revealed that corruption, thanks to which many top public officers have obtained extraordinary illicit enrichments, has been a determining factor in this company’s falling apart. With regards to management and human resources, Ramírez explains: PDVSA is red, red, and its function is to strengthen Chávez’ party. This operational emergency shows us that this year’s production and income is very much so below the government announcements. The Mining Ex-Minister, Calderón Berti, estimates the current production to be at 2,380,000 barrels, including transnational companies. The business lead by transnationals has also come in descent since the migration of operational agreements to mixed companies managed by PDVSA. The company has been forced to issue debt bonds in order to attend to cash problems and purchase gasoline to satisfy supply commitments. Respectable experts affirm that if during the course of the year, sales prices are not substantially raised (currently US $69) the balance sheet will reflect net losses. The presumed collapse of PDVSA is being followed attentively, within and outside the country, since the oil dollars are the support of the XXI century socialism Chávez is implementing internally and trying to export.

 THE DEVIATION OF OIL RESOURCES

“It is impossible to conceive XXI century socialism without the Venezuelan energetic potential. When many countries are left without oil, the reserves will be in Russia, the Middle East and Venezuela, us being in the first place because in the Orinoco Belt we have the largest reserve in the planet”, declared Chávez in his latest Aló, Presidente, in which he dedicated over three hours to this subject. He declared that PDVSA is one of the most efficient companies of the world, and is exporting knowledge and technology, helping Latin American countries and soon Africa. He affirmed that the transnationals which left due to the fact that they did not accept the new conditions, granted PDVSA the chance to prove that it can extract and improve extra heavy oil from the Belt, produce sufficient gas for national consumption and export, and that additionally the success of national technology for foreign coasts exploitation is being proven.

It was very clear that he made an effort to detract attention from all declarations of state oil business collapse, which was revealed by his collaborators. Experts rushed to point out that in fact in the Belt there is an immense reserve of extra heavy oil, susceptible of being transformed into light oil through warming and hydrogen injection, in upgraders such as the Jose complex, established by the transnationals. In order to produce 600,000 barrels per day, during the “apertura petrolera” (opening up the oil sector to private investors) the investment was of US $17.600 million. Daily production has fallen to 400,000 barrels, under the new administration, managed by PDVSA. The company does not have, nor will it admit it due to political reasons, technicians with the necessary capabilities and experience and lacks financing to quadruple current production in the Belt, as was announced by Chávez. He declared that for the year 2010, total production will be of 5 million daily. The countries of the Persian Gulf which belong to the OPEC, countries which have light oils and whose oil wells on average have high production, are carrying out a similar project, for which they have foreseen an investment of one hundred thousand million dollars. An investigative reporter specialized in the oil issue, José Suárez Nuńez, has just revealed (inner sources of PDVSA), that the company keeps as confidential a consolidated budget of currency income summing up to the amount of US $25.8 thousand million in order to pay indemnifications to transnational companies which used to operate in the Belt and to cover presidential promises of foreign aid, which according to his own announcements are circa US $100,000 million. The amount revealed by the journalist represents half the official estimate of oil income for this year and is greater than intentional reserves. The financing issue is made worse due to the fact that PDVSA transfers to the public treasury US $23 per exported barrel, in accordance with the Budget Law. The differential is transferred to a rotating fund which is administered freely by Chávez (FONDEN, National Development Fund) for social programs and foreign cooperation. Investors mistrust is worsened by the climate of insecurity created by declarations in which the government states its intentions to nationalize all strategic areas, such as has been done with telecommunications and electricity.

With regards to gas, Chevron and Statoil quantified the existence in the Orinoco Delta to be between 12 and 14 thousand million cubic feet, but a liquefying plant is required that would permit supplying the national market and exporting the product. The President has just announced a new filial of PDVSA, Petrogas. In the Petrocasa inaugural act (one of the eight filials which PDVSA will have), he said that the South gas main has “become cold”. He stated that selling gas to the USA would be a great business, “but we are Bolivarian and wish to share our riches with friend countries.” He claims not to understand that Evo sells to Brazil and Argentina at a much lower price that the one paid by the USA.

 XXI CENTURY SOCIALISM, OIL AND ARMED FORCES

Chávez, upon turning 43, notably extended the period in which he plans to govern. “Only God will separate me from this office, and while God wills it I will be here. The people are God’s voice, and they have the right to keep a President for as long as they like, may that be twelve or forty years.” Up until now, the maximum aspiration which he had expressed had been 2030, date upon which Venezuela celebrates 200 years since its separation from the Great Colombia, created by Bolivar. Immediately after these declarations, he claimed that a “chavismo (Chávez oriented governing) without Chávez is pretended, as an aspect of a destabilization attempt of the revolution.” “I am certain that I must continue for a few more years at the head of this boat, and will do so as long as you want it,” he declared, looking out towards the group of Ministers and top officers who surrounded him, whose smiling faces were captured by the cameras of the official TV, among others, the new sitting officer of Defense.

The martial subject has become a main part of the daily debate ever since the unforeseen speech of General Baduel, exiting Minister of Defense, upon rescinding his office. In this read speech, Baduel said to be a sympathizer of the XXI century socialism, so long as it is deeply democratic, with constitutional counterweights and division of powers. He highlighted the incompatibility of a modern socialism with autocratic forms of government. He dedicated a long while to deliberations regarding the need to create a productive economy, questioning the distributive model of uncreated wealth. “Instead of teaching Venezuelans how to generate wealth through work and effort, they were taught to request help from the government.” Analysts understand that although he was referring to previous governments, it is obvious that he was expressing his concern towards the current administration, which relies on a higher oil income, but whose social programs are not accompanied by efficient development policies. “When the oil boom was over, the State suddenly found itself without necessary funds to continue subsidizing the economy.” “Our socialist ideal should and must avoid these mistakes,” Baduel concluded before an awed audience. This speech has had special importance because it is known that within the core of the National Armed Forces it has been made clear that Baduel spoke in representation and with previous consultation of important groups of professional officers, who are dissatisfied with the autocratic neo-communism and populist turn which Chávez is taking within the administration.

In Latin American history it has been the armed forces who determine political changes, generally when they perceive that the fall or implosion of their own regime or of that which they support, is inevitable. Martial intervention in these crisis almost always derives towards new forms of tyranny, and in occasions leads the way to democratic paths, granting the civil sector participation or even leading roles. What will happen in Venezuela? In his Lessons on the Philosophy of History, Hegel declined from responding regarding the future of the USA, alleging that he was a philosopher and not a prophet. Weber, also, when interrogated regarding the future of Germany, said that teaching was not a prophet activity. And Norberto Bobbio, in the Future of Democracy, affirms that “to the question of whether democracy has a future, and which that may be, supposing there is one, I calmly answer that I don’t know.” However, Bobbio points out that a civilized system of coexistence requires tolerance, not violence, free debate of ideas and agreement with regards to a common destiny. In Venezuela Today, we supply information so that it may be analyzed and interpreted.