PDVSA's corruption leads to the collapse of the political regime

The house is crumbling down

Petroleos de Venezuela, the state-owned oil company of Venezuela is a very corrupt company. This is proving fatal for Venezuela since oil is the only source of income for the country, apart from drug trafficking. Both activities are being executed with characteristic inefficiency.

Corruption is manifest both in the anatomy and physiology of the company.

ANATOMY

1.      The president of the company is also the minister of Energy and Petroleum. This duality eliminates all possibilities of checks and balances. The same person should not be the supervisor and the supervised.  As it is, the minister and PDVSA’s President Ramirez  is one of the  members of the Gang of Four (Maduro, Giordani, Merentes and Ramirez) that control and dispose of national income. The management of the company is not autonomous but a simple extension of the Executive Power. The money is going to parallel funds such as  FONDEN, a development fund that is controlled by the gang.  

2.       The company has no less than 20 affiliates that do work totally unrelated to its core activities: social work, food imports and distribution, housing, community developments, agricultural and livestock activities. The corporation has lost its focus and has been  converted into a “socialist enterprise”. Pig raising farms, chicken imports and oil production are not compatible. As a result significant corruption has taken place, as it happened in the case of PDVAL’s imports of some 180,000 tons of semi-rotten food, a $ 2 billion fraud that remains unpunished.

3.      The company has signed contracts with more than 15 foreign partners to produce and upgrade the Orinoco heavy oil deposits but these partners have been selected on the basis of political and ideological reasons. They are largely inefficient and ignorant of the ways to develop this heavy oil. So far they have been simple by-standers,  reluctant to invest billions of dollars in an operation controlled by a discredited company such as PDVSA. As a result the immense Orinoco heavy oil resources remain essentially untapped after 15 long years of PDVSA’s mismanagement.  

 

PHYSIOLOGY

1.      Many company contracts are being awarded without a bidding process and, in several instances, to friends or relatives of PDVSA’s managers. This has been the case with huge contracts given to companies like Petro Marine (renting of drilling barge Aban Pearl),  to Derwick and Associates or to shipping contractor Wilmer Ruperti. It has also been the case with the renting of drilling rigs from ghost companies or a no-bid contract given to ECOINCA, a company owned by a relative of a PDVSA manager.

2.      Since the company does not have money since all income is being diverted to political uses, it has been incurring in significant debt, now of the order of $80 billion. This level of debt is combined with unpaid financial obligations to expropriated companies and dismissed employees. For all practical purposes PDVSA is bankrupt

3.      The company is politicized to the core. Employees are obliged to attend military drills in preparation for a U.S. invasion that exists only in the imagination of the government. They are ideologically indoctrinated. Political dissenters have been expelled from the company and/or defined as infiltrators.

4.       PDVSA is giving about 300,000 barrels per day of free or strongly subsidized oil   to countries that are political satellites of the Venezuelan regime: Cuba, Nicaragua, Bolivia, Ecuador and several small countries in the Caribbean. It also has to send about 300,000 barrels per day to China in payment of loans that are already being spent by the government without any accountability.    

Since the country depends on oil income this situation has generated national economic and social chaos and a political crisis that grows daily by leaps and bounds.

It is my considered opinion that the government of Nicolas Maduro could fall at any moment. However, the level of corruption is so high in government that such a change might not be able to take place peacefully. There are too many criminals in power who will not accept an electoral defeat. The two other ways a change in government might take place are: (a), a military coup; and (b), a popular rebellion, Arab-spring type. In Venezuela traditional military coups have been the predominant mechanism. This time, however, the mood of the country seems to be ripe for an all-out popular protest, similar to the one that already took place in 2002 and led to Chavez’s brief ousting from power. Venezuelans are rapidly getting to the point of saturation and disgust with the political situation.

 Any seemingly unimportant incident can trigger a major social and political upheaval.  We are walking on eggs.