CORRUPTION IN PETROECUADOR AND PDVSA: THE MARC RICH CONNECTION

Corruption in PetroEcuador and PDVSA: The Marc Rich Connection.

Desde Washington.
In the Corruption Perception Index of Transparency International for 2006 Ecuador ranks 138 among 163 nations surveyed. This ties the country with Venezuela, very close to the bottom of the ladder. It might not be a simple coincidence that both countries have authoritarian, socialist oriented political regimes, a faltering oil industry and presidents who speak in strident and arrogant tones against citizens who oppose their governments. The political choreography being followed by President Rafael Correa in Ecuador (presidential language, attitudes against the press, Constituent Assembly, among other components) is a carbon copy of the one used by Venezuelan President Hugo Chavez to convert what was a democratic system into a dictatorial one, characterized by military controlled institutions, extreme abuse of power and increasing levels of government corruption.
A recent bidding process for the provision and storage of LPG, Liquefied Petroleum Gas, for PetroEcuador illustrates the numerous ethical cracks that exist today within the Ecuadorian government and oil industry and how similar these cracks are to those currently getting wider within the Venezuelan Hydrocarbons industry. It would seem that lack of transparency and disdain for good management of public funds are obligatory ingredients of authoritarian, socialist regimes.
Details of the PetroEcuador Bidding Process.
PetroEcuador has just reported the results of the bidding for the service mentioned above. A company called Trafigura, which has already been rendering these services under an agreement that will soon expire, has offered the low bid. Trafigura is a Dutch company accused a few years ago of dumping some 500 tons of toxic material off the shores of Ivory Coast, with reported loss of ten lives and thousands of intoxicated victims. In January of this year Trafigura was one of the strongest three candidates for “Most Irresponsible Corporation” out of a group of 400 companies identified by a civic organization called “Public Eye on Davos” that shadows the World Economic Forum at Davos. The company has also been also named in connection with the Iraqi Oil for Food scandal that rocked the United Nations. Up to 2004 Wilmer Ruperti, a prominent contractor for Petroleos de Venezuela, who has been investigated in Venezuela and the U.S for his business deals, represented the company in Venezuela. We do not know if Mr. Ruperti is associated with Trafigura for the purposes of this Ecuadorian venture. Trafigura was created by two associates of the notorious international, financial buccaneer, Marc Rich. The associates, Claude Dauphin and Eric de Turkheim, are the owners of Trafigura. It is important to mention that two of the four accepted bids for the Ecuadorian contract were presented by companies (Trafigura and Glencore) that still are associated or have been associated in the past with Marc Rich.
According to the reports form Ecuador Trafigura bid $79 per ton of gas. This was the low bid, as Glencore bid $85,76 per ton, Anglo Energy bid $89,9 per ton and FLOPEC $91,10 per ton. The first thing that seems noteworthy is that Trafigura has been charging the Ecuadorian government $116 per ton for this service, $27 more than the amount of their current bid. This strongly suggests that either Trafigura has been overcharging Ecuador or that they are underbidding now, in an effort to win the contract. In countries with a high level of corruption it is frequent to see winning bids that are far too low but, once the contract is awarded, costs are allowed to escalate by the company receiving the services.
And what about FLOPEC, another one of the bidders? This company started out as a mixed company between the Ecuadorian navy and a Japanese company called Kawasaki Kishen Kaisha.The navy acquired the Japanese shares and the company became fully state-owned. Its management is proud of the fact that the company has “never received money from the government”, although the company is a state monopoly which operates without competition,under the protection of national laws. This certainly represents another way of being financed. Only recently, in June of this year, the company received a government contract to construct a storage system of LPG and related infrastructure inland, although it has no experience in this kind of work and the award was done without a bid.
For the specific case of the contract we are discussing here FLOPEC was invited to participate without fulfilling the requirements asked from other bidders. This was probably one of the reasons why, of the 40 companies invited, only five agreed to participate. Serious companies possibly felt that the outcome of this bid had been pre-determined and did not wish to validate a farce.
Another company invited, Naftomar, did not have the documentation ready in time. Anglo Energy, another bidder, is a relatively little-known company and we have not been able to find much about it.
Glencore is another story. Marc Rich, the international buccaneer pardoned by U.S. President Clinton, founded this company. The company has been tied to the corrupt Saddam Hussein’s Oil for Food program and to business deals with most of the rogue governments in the planet: Cuba, Iraq, Sudan, Venezuela and Equatorial Guinea, among others.
The Marc Rich Boys have grown roots in Ecuador and other Andean countries.
When scanning the companies that presented bids or were invited to bid for the Ecuadorian LPG contract one can see that several of them have one common denominator: They belong to what Business Week called “the Rich Boys”, in a detailed investigative report published in July 18. 2005. Trafigura, Glencore and Taurus (did not present a bid, although it was invited) are companies controlled by Rich’s pupils and former associates, with which Rich has had or still has business connections. These companies have something else in common: they have been accused of irregular financial dealings or, even, open fraud in several of the countries where they operate. The Nigerian government accused Trafigura and Glencore in 2004 of inflating shipping costs and altering documents to cheat the country of some $100 million. Taurus was accused of dealing with Iraq’s Hussein on its own behalf and also on Marc Rich’s behalf. According to the report by Business Week these companies “do whatever it takes” to win a business deal, including the procurement of prostitutes for the petroleum managers of prospective clients. They feel free to bribe prospective clients. “Rich’s philosophy is that no law applies to him”, says a former U.S. prosecutor who indicted Rich in 1983.

The owners and several of the top managers of these companies that are getting a strong foothold on Ecuador’s hydrocarbons industry are graduates of what Business Week calls the “University of Marc Rich”.



The Rich Boys are also in Venezuela.
Glencore has also been active in Venezuela for a long time and Wilmer Ruperti represented Trafigura in the country, at least until 2004. Ruperti is one of the most controversial of PDVSA’s contractors and has been in the public eye for some time now. In 2005 the U.S. authorities closed down one of his bank accounts with Citibank, due to non-described irregularities. When the closing down of this bank account took place Ruperti was being investigated by the Security Exchange Commission for shady business deals with Citgo during the Venezuelan petroleum crisis of 2002. Recently Venezuelan priest José Palmar and newspaper investigative reporter Leocenio Garcia, from the Caracas daily “Reporte de la Economia”, have accused Ruperti of fraudulent activities and of being in league with some of PDVSA top managers.
Glencore has been especially active in the Venezuelan aluminum sector for many years, coordinating the activities of related companies such as JB Commodities and Gerald Metals. The main representative of the company, Roberto Wellisch, is said to have close relations with the brothers of Hugo Chavez and has kept excellent relations with former vice-president Jose Vicente Rangel. An aluminum trading company, Beftcom, is reported to be owned jointly by Glencore and a former, high-level executive of the Venezuelan Guayana Corporation, CVG. A report by Comunidad El Comercio, published in February 2007 in www.elcomerciodigital.com, mentions the close relation of Wellisch with current CVG managers. The company seems to have its tentacles firmly placed inside Alcasa and Venalum, the two state-owned aluminum producers.
In the recent past Trafigura was represented in Venezuela by Wilmer Ruperti but their current association, if any, is unknown. Ruperti could be said to be a relatively new addition to the Marc Rich clan and it cannot be excluded that he could have acted as a political catalyst on behalf of Trafigura, in Ecuador, although there is no evidence of this. He has recently opened up new offices in Quito and in Guayaquil.

Are the Marc Rich boys taking control of Venezuela and Ecuador’ commodities?
In countries like Venezuela and Ecuador, where government accountability is low and authoritarian regimes are in place, conditions are especially favorable for the existence of high levels of government corruption. Both in Ecuador and in Venezuela corruption is flourishing in the hydrocarbons and other mineral industries since transactions involve great amounts of money while public opinion remains largely ignorant of what takes place inside the state-owned companies. Petroleos de Venezuela has become one of the most corrupt companies in the hemisphere due to a combination of poor management, mediocre technical capabilities and a political leadership that has decided to milk the company in the short-term without considering the medium-term, lethal effects of their actions. Greed is rampant among the bureaucracies of these companies and this is the environment where the members of the Marc Rich clan work to best advantage. If the recent bid process for the provision and storage of LPG in Ecuador is any indication, the members of the graduate class of the Marc Rich University are rapidly and effectively taking control of much of the energy resources in these two countries. In this assault they are favored by the passivity of the political regimes in these countries, intent on harrassing big petroleum multinationals while tolerating and, even, promoting the presence of the Rich Boys.