Why Oil Rich Venezuela Rations Oil

The Socialist Dictator Chavez
From the Editors of VenEconomy

It is nearly seven years since the general-oil strike. December 2002 sadly marked the beginning of the end of Petróleos de Venezuela.

The collapse of Venezuela’s state-owned oil company was not only sealed by the depletion of its excellent human resources following the unjustified (albeit politically justified) dismissal of more than 20,000 trained professionals and technicians with experience in the field, but also by the fact that most of these highly trained, specialized professionals and technicians were replaced by people whose best qualification was that they held a government party card or had a letter of recommendation from one of Chavismo’s privileged sons. But above and beyond all that, the destruction of PDVSA was marked by a shift in its corporate purpose, when it ceased to be purely an oil company that produces and exports crude and became a subsidiary of the Chavista revolution and the benefactor of whatever proselytizing program Chávez dreamed up.

Seven years after the start of PDVSA’s collapse, the consequences are there for all to see. Today, according to OPEC, PDVSA is apparently producing only 2.15 million b/d of crude.

Things would be very different if the PDVSA directed by Rafael Ramírez, following the President’s orders, had set maintaining at least 1998 production levels (3.5 million b/d) as its goal for the past few years. And things would have been even better, if account is taken of the additional production from the service contractors and strategic alliances in the Orinoco Oil Belt, which would have brought total production to 4.5 million b/d, more than twice the volume certified by OPEC. But that is not the worst of it.

What is even more serious is that they have turned PDVSA into a black box that is politicized, inefficient, and corrupt and that is no longer capable of covering its operating costs, much less honoring its commitments to suppliers and contractors.

The financial statements (both audited and not) published by PDVSA reveal that the corporation is facing a cash flow crisis. According to analysts, this has had a knock-on effect in other areas. For example, it is said that this could explain, among other things, the takeover of PDVSA’s 96 contractors on the Eastern Shore of Lake Maracaibo and in the eastern part of the country in May this year. There are reports that what sparked off the takeover was $5 billion that PDVSA owed these contractors. According to “revolutionary” logic, once these companies were turned over to PDVSA, the debt would simply disappear.

These analysts maintain that this “brilliant” strategy has been repeated this month with the intervention of four banks belonging to Grupo Financiero Bolívar owned by Ricardo Fernández Barrueco, a member of the “Boli-bourgeoisie.” According to them, PDVSA owed different companies belonging to Fernández Barrueco a total of Bs.F.1.6 billion and had no way of paying them. So, the easiest solution was to intervene his banks and, thanks to a ricochet effect, expropriate his companies to make the debts go away.

It would seem that it never occurred to the government’s “brilliant” strategists that there might be “collateral” damage, such as the possibility of a detrimental loss of confidence in the banking system or the despair of savers.

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