Photo by Siem Reap, not in Venezuela but in Cambodia.*** THE OIL IS OURS!!! WE ARE SOVEREIGN!!! WE DON'T NEED FOREIGN INVESTMENT!!! FOREIGNERS ARE THIEVES!!! WE CAN DO IT ALONE!!! THIS IS MY COCONUT!!
In the tropical forests of Venezuela there is a monkey who, when hungry, sticks his hand into a nut to get to its kernel. When he tries to get the kernel out, however, his fist and the kernel are too bulky. It is said that he starves to death trying to get his hand out but he does not drop the kernel. I am not a zoologist and, therefore, cannot say if this is true or no.
Being a petroleum geologist I can say that I have seen, if not identical, similar things happening in several of the oil industries of Latin America: in Venezuela today, in the Brazilian oil industry some 40 years ago, in Mexico, Ecuador, Bolivia, Peru and Argentina, among other countries.
Most Latin American governments, even those labeled as conservatives or "Rightist", have always identified the state with the good guys and the private sector, especially the foreign private sector, with the bad guys. It does not matter that state-owned companies or state agencies have proven to be, almost invariably, inept and corrupt. Governments and many of the people in our countries feel in their guts that the State will protect national resources and national welfare better than the private sector. This irrational, visceral belief, reminds me of a time in which I, still an adolescent, took a driving test to apply for a driver’s license. I did almost everything wrong: did not check the position of the mirrors, did not signal when taking turns, used the brakes in an irregular fashion. The instructor carefully noted all of this in the form. Surprisingly, at the bottom line, where the final question was: Is this person fit to drive? , he wrote a big YES. In the same style, Latin Americans keep almost a religious faith in the goodness of state-owned enterprises, against all evidence to the contrary. In the case of the oil industry, for example, many feel that the only way the oil can be “ours” is through state ownership of the companies exploiting the resource. The massive evidence that has proven this wrong does not make a dent in the unmovable belief of the people. As the industries deteriorate, as the state-owned companies show clear signs of corruption, inefficiency and under-investment, the cry continues to be: “The oil is ours!” It is almost the same cry of the starving monkey: “This kernel is mine!”
Dogmatism is leading down the drain several of the oil industries in Latin America. Take the Venezuelan oil industry, in the hands of Petroleos de Venezuela, PDVSA. Today, in spite of record high world oil prices, PDVSA posted a 2007 net income in that was 68.5% lower than in the preceding year (Total National Take would be a better performance indicator if we knew where this money is going). Net revenue was 16% lower than in 2006. Exploration expenditures were significantly lower than the minimum levels required to keep reserves from declining. Social expenditures increased almost 8%, to some $16 billion. While the Venezuelan government keeps insisting that production is of around 2.8 million barrels per day, Venezuelan, as well as international observers, place the production level at some 2.4 million barrels per day. The company is increasing its debt very rapidly, now close to $20 billion, mostly due to the capture of its operational income by the government. According to a ranking by Management&Excellence, a firm specializing in the analysis of energy companies, PDVSA had the lowest ranking in a group of international oil companies, only half as efficient as the company next to last. PDVSA is currently engaged in importing and distributing food in the country, forgetting its main objectives of producing and selling oil.
The Bolivian oil and gas company, YPFB, is another case in point. Every time the Bolivian hydrocarbons industry is opened to the participation of the private sector reserves increase and the industry gets a shot in the arm. Every time nationalism is reasserted and YPFB comes again into existence, the industry starts declining. Today, in less than two years, the company has had five presidents and is asking money from the government, instead of giving money to the government.
A dramatic example is that of PEMEX, the Mexican state-owned petroleum company. Ever since Lazaro Cardenas put the oil in the exclusive hands of the State, PEMEX has been a nest of inefficiency and corruption. There was a time in which job placement required a payment by the chosen employee, to be given to La Quina, the boss of the Labor Union. PEMEX became the symbol of the Mexican revolution. For many years PEMEX was used by the government as a vehicle for indebtness, a system being imitated now by the Venezuelan government. The Mexican company is still partly dominated by the Labor Union and no private participation is allowed, except in some fringe activities, not related to the core business. Today PEMEX is a highly deteriorated company and Mexico is already importing 40% of its gasoline requirements. The cries of help by the management of the company have been met with outrage by the political opposition led by Lopez Obrador. The problem is that PEMEX, like the starving monkey, has the kernel in its grip but cannot take it out. The deeper offshore oil and gas prospects that could exist in the Gulf of Mexico lie beyond the financial and technical capability of the company. A recent plea by the management of the company calls for more technological and operational support, for more autonomy to take decisions involving strategies of operation, for a more transparent, less corrupt utilization of the oil sector revenues, for a way to increase reserves in order to eliminate imports. PEMEX management claims that true sovereignty means to be self sufficient, rather than insisting in going at it alone. Lopez Obrador has met this plea by management with accusations of “treason” against the revolution. The Labor Union has been more “understanding, promising not to pressure PEMEX to “build the seven new children schools, the two clinics and the hospital of Paraiso, in Tabasco” that are overdue. Very generous, indeed.
The case of PETROBRAS is extremely revealing. Here is a state-owned company that flew over the cuckoo’s nest. 40 years ago or so it was in the same boat as the ones above mentioned are today. The prevailing chant of the Brazilian patriots was: “The oil is ours”. Oil reserves were scant, the company was politicized, and the monkey was starving. However, someone saw the light. The company was partly privatized, through the placing of shares in the open financial markets. Management became more professional, private ownership served as a welcome source of capital and as a check on performance. Today, PETROBRAS is probably the best managed state-owned oil company in the world, reserves are way up there and Brazil is practically self-sufficient in energy.
The case of the starving monkey is not limited to Latin America. It can also apply to, among others, PERTAMINA in Indonesia, to the Iranian petroleum company and, until not too long ago, to ENI, the Italian company.
George Bernard Shaw used to say “a second marriage is a triumph of hope over experience”. The manner in which Latin American governments and much of public opinion in our countries have dealt with the ownership of our natural resources is one of “hope over experience”, an example of how ideological stupidity can smother rational ways to use national resources efficiently, for the true benefit of our peoples.
In the tropical forests of Venezuela there is a monkey who, when hungry, sticks his hand into a nut to get to its kernel. When he tries to get the kernel out, however, his fist and the kernel are too bulky. It is said that he starves to death trying to get his hand out but he does not drop the kernel. I am not a zoologist and, therefore, cannot say if this is true or no.
Being a petroleum geologist I can say that I have seen, if not identical, similar things happening in several of the oil industries of Latin America: in Venezuela today, in the Brazilian oil industry some 40 years ago, in Mexico, Ecuador, Bolivia, Peru and Argentina, among other countries.
Most Latin American governments, even those labeled as conservatives or "Rightist", have always identified the state with the good guys and the private sector, especially the foreign private sector, with the bad guys. It does not matter that state-owned companies or state agencies have proven to be, almost invariably, inept and corrupt. Governments and many of the people in our countries feel in their guts that the State will protect national resources and national welfare better than the private sector. This irrational, visceral belief, reminds me of a time in which I, still an adolescent, took a driving test to apply for a driver’s license. I did almost everything wrong: did not check the position of the mirrors, did not signal when taking turns, used the brakes in an irregular fashion. The instructor carefully noted all of this in the form. Surprisingly, at the bottom line, where the final question was: Is this person fit to drive? , he wrote a big YES. In the same style, Latin Americans keep almost a religious faith in the goodness of state-owned enterprises, against all evidence to the contrary. In the case of the oil industry, for example, many feel that the only way the oil can be “ours” is through state ownership of the companies exploiting the resource. The massive evidence that has proven this wrong does not make a dent in the unmovable belief of the people. As the industries deteriorate, as the state-owned companies show clear signs of corruption, inefficiency and under-investment, the cry continues to be: “The oil is ours!” It is almost the same cry of the starving monkey: “This kernel is mine!”
Dogmatism is leading down the drain several of the oil industries in Latin America. Take the Venezuelan oil industry, in the hands of Petroleos de Venezuela, PDVSA. Today, in spite of record high world oil prices, PDVSA posted a 2007 net income in that was 68.5% lower than in the preceding year (Total National Take would be a better performance indicator if we knew where this money is going). Net revenue was 16% lower than in 2006. Exploration expenditures were significantly lower than the minimum levels required to keep reserves from declining. Social expenditures increased almost 8%, to some $16 billion. While the Venezuelan government keeps insisting that production is of around 2.8 million barrels per day, Venezuelan, as well as international observers, place the production level at some 2.4 million barrels per day. The company is increasing its debt very rapidly, now close to $20 billion, mostly due to the capture of its operational income by the government. According to a ranking by Management&Excellence, a firm specializing in the analysis of energy companies, PDVSA had the lowest ranking in a group of international oil companies, only half as efficient as the company next to last. PDVSA is currently engaged in importing and distributing food in the country, forgetting its main objectives of producing and selling oil.
The Bolivian oil and gas company, YPFB, is another case in point. Every time the Bolivian hydrocarbons industry is opened to the participation of the private sector reserves increase and the industry gets a shot in the arm. Every time nationalism is reasserted and YPFB comes again into existence, the industry starts declining. Today, in less than two years, the company has had five presidents and is asking money from the government, instead of giving money to the government.
A dramatic example is that of PEMEX, the Mexican state-owned petroleum company. Ever since Lazaro Cardenas put the oil in the exclusive hands of the State, PEMEX has been a nest of inefficiency and corruption. There was a time in which job placement required a payment by the chosen employee, to be given to La Quina, the boss of the Labor Union. PEMEX became the symbol of the Mexican revolution. For many years PEMEX was used by the government as a vehicle for indebtness, a system being imitated now by the Venezuelan government. The Mexican company is still partly dominated by the Labor Union and no private participation is allowed, except in some fringe activities, not related to the core business. Today PEMEX is a highly deteriorated company and Mexico is already importing 40% of its gasoline requirements. The cries of help by the management of the company have been met with outrage by the political opposition led by Lopez Obrador. The problem is that PEMEX, like the starving monkey, has the kernel in its grip but cannot take it out. The deeper offshore oil and gas prospects that could exist in the Gulf of Mexico lie beyond the financial and technical capability of the company. A recent plea by the management of the company calls for more technological and operational support, for more autonomy to take decisions involving strategies of operation, for a more transparent, less corrupt utilization of the oil sector revenues, for a way to increase reserves in order to eliminate imports. PEMEX management claims that true sovereignty means to be self sufficient, rather than insisting in going at it alone. Lopez Obrador has met this plea by management with accusations of “treason” against the revolution. The Labor Union has been more “understanding, promising not to pressure PEMEX to “build the seven new children schools, the two clinics and the hospital of Paraiso, in Tabasco” that are overdue. Very generous, indeed.
The case of PETROBRAS is extremely revealing. Here is a state-owned company that flew over the cuckoo’s nest. 40 years ago or so it was in the same boat as the ones above mentioned are today. The prevailing chant of the Brazilian patriots was: “The oil is ours”. Oil reserves were scant, the company was politicized, and the monkey was starving. However, someone saw the light. The company was partly privatized, through the placing of shares in the open financial markets. Management became more professional, private ownership served as a welcome source of capital and as a check on performance. Today, PETROBRAS is probably the best managed state-owned oil company in the world, reserves are way up there and Brazil is practically self-sufficient in energy.
The case of the starving monkey is not limited to Latin America. It can also apply to, among others, PERTAMINA in Indonesia, to the Iranian petroleum company and, until not too long ago, to ENI, the Italian company.
George Bernard Shaw used to say “a second marriage is a triumph of hope over experience”. The manner in which Latin American governments and much of public opinion in our countries have dealt with the ownership of our natural resources is one of “hope over experience”, an example of how ideological stupidity can smother rational ways to use national resources efficiently, for the true benefit of our peoples.
International experience shows that private companies are better performers than state owned in every sector. Many privatization critics allude to fringe examples as why privatization does not work, such as Telmex and highways concession in Mexico. "Now Mexicans pay more for their telephone service with lower service quality than similar companies elsewhere. Mexicans pay outrageous highway tolls, such as the Mexico City - Toluca highway", say the privatization critics. And they are right. But it was not the privatization that brought about the dismal results. IT WAS THE CORRUPTION. The way the phone company was privatized, giving Slim monopoly control over the whole country, has always been suspect. The criteria for granting the highway concessions was the highest payment to the treasury, attracting builders and speculators. The criteria should have been, who offers the lowest toll for a given standard of service, attracting highway operators. A good privatization is an honest one. But for that you require honorable public officers, which alas are scarce in Latin America.
ResponderEliminar