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Rampant Corruption in Venezuela's PDVSA

By Aleksander Boyd

London 19.02.2004 – One of the favourite arguments of Chavez’ apologists is that he has regained control of Venezuela’s oil corporation [PDVSA] for the greater benefit of the nation. Allegedly, from a dispassionate and objective leftist perspective, former technocrats at the oil company did nothing but engage in rapacious practices over the years which in turn resulted in the generalised misery inflicted upon the nation’s poor. However new Bolivarian oil actors are as corrupt and noxious as previous were, if such supposition were to be true, moreover the president himself said recently that he created the oil crisis that cost the country between 12 and 15 $billion.

The first day of January of 2002 was set as the enablement day of a new piece of legislation called the Enforced Decree of the Organic Law of Hydrocarbons [LOH]. Said law was the amending end product of the previous one and came to fruition to bring transparency to the energetic sector of the Venezuelan government. It is worth noting that, for instance the Energy and Mines Ministry’s [MEM] role has been expanded to new areas such as crude oil and derivatives commercialisation [Art. 56]. Further ample powers have been ceded to the MEM in relation to creation, selection and appointment of companies acting on their behalf both internally and internationally [Art. 27 and 57]. The content of Art. 27 of this law merits especial attention for in rather clear terms it establishes that “the Executive shall, via decree passed by the Cabinet, create enterprises which shall have the State as its sole proprietor in order to engage in those activities established for by the LOH and also to assign said enterprises the judicial nature considered convenient, including that of public limited company with a sole partner i.e. the State.

Article 57 states that commercialisation activities can only be performed by enterprises that fit the criteria described in Art. 27.

Now PDVSA’s CEO Ali Rodriguez has assigned 55.000 BPD to the MEM or perhaps it was the other way around; Rafael Ramirez requested such amount as part of the royalties that PDVSA has to give to the Ministry. Given that the LOH allows for the Ministry to trade crude oil and derivatives in international markets Ramirez or Rodriguez got in touch with a company known as Free Market Petroleum. Said company appears to be a four man operation for the signatories of the contract between the MEM and Free Market are William Hickman [president], Adrian Nash [CEO], Jack Kemp [Chairman and Director] and local operator Arturo Sarmiento.

Jack Kemp is a former Vice-presidential candidate for the Republican Party in the US. Mr Hickman and Mr Nash, well to use a Venezuelan term that fits them, ‘los conoceran alla en su rancho’ meaning that they are obscure people that no one has ever heard of before; lastly Mr Sarmiento is a whisky distributor to the Venezuelan army. Sarmiento however seems to have friends in very high places, hence his contact with Ali Rodriguez and Rafael Ramirez.

These gentlemen’s intention was to sell 55.000 BPD to the Strategic Petroleum Reserve [SPR] of the USA profiting from its “Royalties in Kind” programme. It turned out that they could not forge the deal, despite of Mr Kemp’s good auspices, for the company is not registered in the Security and Exchange Commission; the company’s headquarters –meant to be in London, UK- are inexistent, as a matter of fact the company is not even registered in the England and Wales Companies House registry; they haven’t even got a website. So the first attempt to lure the SPR turned sour.

The Royalties in Kind [RIK] programme was announced by US Department of Interior on February 11, 1999. Since the transparent Free Market team did not manage to close the deal those companies that have been awarded new supply contracts by the SPR have been object of much lobbying and courting by Kemp and his friends. The idea to sell Venezuelan crude oil to these companies is to start building a trade record, which will work in Free Market's advantage in the future with the SPR. The rationale is quite simple, if providers of crude to the SPR can confide in Free Market so can the Reserve... Another interesting point is that the SPR, as a Federal entity, must consider business proposals from ethnic minorities and Latinos from Venezuela, or chavistas for that matter, definitely fit the profile. Sarmiento is seen constantly in the city of London, one can only wonder what he is after…

Another deterrent for Free Market success is that the company, being an empty shell, has not got trading history of any sort. Ergo it is incredibly difficult for them to enter into the oil market; notwithstanding the MEM is so willing to utilize that platform to sell its newly given oil that MEM personnel have taken the liberty of suggesting PDVSA as Free Market’s guarantor. It has to be borne in mind that without credit and trade record it would be impossible to sell the 55.000BPD no matter how cheaply, lest of course dodgier operators come into action and here is where Alfa Group fits.

So the liberated PDVSA is making use of extremely criticisable and turbid business practices, which by the way according to the LOH are illegal. Minister Rafael Ramirez has said that Free Market’s involvement is merely a test to sell Venezuelan oil at a higher price. Quite frankly it is difficult to see how these novice traders could sell crude at a higher price than PDVSA, that is Free market is nothing but a crew of middlemen, how can rationally be alleged that their trading actions will bring more income to Venezuela is something that only European and American chavistas can understand.

As customary, no self-respected lefty pays any attention to this. Chavez keeps accusing the US of this and that and although I am not a fan of America I would love to see Bush et al telling Chavez “all right boy, now you will sell your oil to Castro for we don’t want your stinking minions around here any more.” It is an incredibly naďve thought I must confess, money and oil are the best presentation cards nowadays, isn’t that right Mr Alvarez Herrera?

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