The Petroleum Policy of the Hugo Chavez government

EL UNIVERSAL, ENGLISH ONLINE EDITION
FEBRUARY 22, 2011
http://english.eluniversal.com/2011/02/21/en_opi_esp_the-petroleum-policy_21A5198133.shtml

"By subordinating the petroleum activity to political and ideological considerations the Venezuelan petroleum industry has abandoned most international systems of accountability. No one knows how much oil the country really produces or exports"

OPINION

An open letter to Alí Rodríguez Araque:
Gustavo Coronel
Mr. Rodriguez:
You recently spoke in the National Assembly and challenged anyone who opposes the government's petroleum policy to speak openly.

I take this opportunity to do so. I feel qualified to do this because, when you were a member of the Venezuelan guerrillas during the 1960's, in charge of blowing up oil installations, I was active in building them. During much of my life I have produced oil while you have lived off the oil we have produced.

Let me; therefore, speak about the regime's petroleum policy. I believe that what you have done to this sector of our economy represents a great crime against the nation. Let me say why:

1. The essence of your petroleum policies has been to destroy what you found in 1998: the international nature of PDVSA, the meritocratic system of selecting and promoting personnel, the training and research centers, the cadre of professional managers and technicians and the association of the company with private, multinational companies, replacing them with state-owned petroleum companies from ideologically friendly countries;

2. During a first stage of involution, from 1999 to 2004, PDVSA had seven presidents and boards: Giusti, Mandini, Ciavaldini, Lameda, Parra, Rodriguez and Ramirez. This high rotation at the highest levels had a catastrophic impact on the capacity of the company to do proper strategic planning, to operate efficiently, to maintain its international marketing network and its plant and equipment and to conduct the required expansion of oil production. All of these components have suffered stagnation or, even, significant deterioration.

3. During a second stage, from 2004 up to now, the presidency of the company has been in the hands of Rafael Ramirez, who is also the Minister of Energy and Petroleum. This has destroyed the necessary duality between operational and political instances. The monitoring and monitored agents are now one and the same and this makes it difficult to evaluate properly the performance of the company. Still worse, the minister-president has become an office boy of President Chavez, putting oil money to irregular uses lacking all transparency. This has created enormous corruption in government and the waste of about one trillion dollars during the 12 years of the Chavez regime.

4. The dismissal of professional management and of thousands of competent technical staff due to the protests of 2002 and 2003 has turned PDVSA from being a world-class petroleum company into a third-world outfit with an inflated payroll of more than 100,000, three times more than 12 years ago. Hugo Chavez has "proudly" admitted in a speech to the National Assembly that the firing of capable personnel was the result of his plans to take over the political control of the company. As a result oil spills, refinery mishaps and accidents have multiplied to levels never seen before in Venezuelan oil industry activities.

5. PDVSA has become a "socialist" petroleum company. It has abandoned much of its specific tasks of exploring, producing, refining, transporting and marketing hydrocarbons in favor of activities such as importing and distributing food, building houses and, even, training athletes. We still remember the speech given by Ramirez to PDVSA managers, in which he said that the company was "at the service of Chavez" and that "anyone not in agreement with this would be expelled forcibly from the company". This criminal act was a coup de grace to the institution, converting it into a simple appendix of the executive.

6. This transformation has produced quantifiable damages to the petroleum industry. One of PDVSA's agencies, PDVAL, let 180,000 tons of imported food rot in ports and warehouses, at a cost of some $2 billion to the nation. No one has been punished.

7. The prostitution of management in Petroleos de Venezuela has produced a decline in the production and performance of the company. Production level is some 700,000 barrels per day lower than 12 years ago. The petroleum assets of Venezuela abroad are being sold to generate cash for political objectives. Up to now five refineries and terminals abroad have been sold. The level of oil exports to the U.S., the only place where clients pay regularly and in cash, has declined by about 300,000 barrels per day during the last five years.

8. About 500,000 barrels of oil per day are being delivered to ideologically friendly countries in non-commercial terms that represent subsidies of the order of $3-4 billion per year. In the domestic market about 700,000 barrels per day are consumed. At a subsidy of close to $10 billion per year. In particular the delivery or subsidized oil to Cuba, 100,000 barrels per day, represent an act of treason.

9. The lack of transparency and accountability within PDVSA has generated significant corruption. The oil income is not handled according to the laws of the nation. Contracts are assigned without bidding to ghost companies that have two or three employees, as confessed by former Director Luis Vierma before the National Assembly and to friends of the regime. The renting of offshore drilling barges, such as the Aban Pearl, which sank last year Venezuelan waters, has been full of irregularities that I have denounced in much detail without any action being taken, so far.

10. By subordinating the petroleum activity to political and ideological considerations the Venezuelan petroleum industry has abandoned most international systems of accountability. No one knows how much oil the country really produces or exports. The government lies often about proven reserves, active drilling rigs, levels of exports, delivery of oil to other countries, prices and other parameters. The so-called "certification of proven reserves in the Orinoco region" is a fraud. The so-called natural gas reserves in the Gulf of Venezuela, quoted officially as "15 trillion cubic feet certified proven" are nothing of the kind, as it is not technically acceptable to "certify" huge reserves on the basis of two or three wells with almost no production history.

11. The pension fund of the workers is in imminent danger, due to the illegal type of transactions being done with the money by PDVSA advisers with PDVSA's concurrence. Ramirez lied in the national Assembly when he said that PDVSA had no responsibility over this fund.

12. Management of the heavy oil deposits of the Orinoco region has been politicized. Private multinational oil companies have been harassed and Exxon Mobil, ConocoPhillips and BP have left the region after challenging the unilateral change in contracting terms by the regime. PDVSA has invited some 26 companies, many lacking technical know and managerial capability, from Cuba, Angola, Vietnam, China, Uruguay, Belarus, France, Spain, China and Russia, to operate in the region, creating a Babel Tower - like environment, in which all companies compete for limited resources. So far, production from this area is lower than a few years ago and PDVSA has no money for the levels of investment required. Projections of production levels of one million barrels per day within three years are totally illusory and demagogic.

13. The development of Orimulsion, a product that competes with coal on favorable terms, was cancelled mostly for political reasons, not as a result of an objective analysis. Proprietary information on Orimulsion was apparently delivered to the Chinese without proper compensation.

14. The expropriation and confiscation of oil contractors without proper and opportune compensation has created a swelling of labor in PDVSA and has significantly increased the debt and the number of legal problems facing the company.

15. By converting contractors into minority partners in the Orinoco region PDVSA has actually weakened the concept of nationalization in the industry, the total opposite of what the government claims. The government is doing this simply to obtain money from the partners, because PDVSA's funds are depleted and are promising to pay back in future oil production, a commitment that violates national laws.

What I have listed above is a summary of my differences with the so-called petroleum policy of the regime. We have lost 12 years and most of a trillion dollars due to this "policy", an immense crime against the nation. One of the cardinal sins of this policy has been to equate "national sovereignty" with the need for total control and ownership of operations. The most advanced nations have shown that there is no need for this. They allow private ownership and exercise the proper regulations. They are not obsessed about "national sovereignty", a concept that is mostly utilized by regimes possessing a deep inferiority complex.

I am at your service to debate this matter publicly, when and where you prefer,

Gustavo Coronel.
coronel.gustavo@gmail.com