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Petroleos de Venezuela in New York

By Gustavo Coronel

May 24, 2004 - Last Wednesday May 19th, the President and Directors of Petroleos de Venezuela went to New York as guests of the Venezuelan American Association (VAAUS), an important organization which has been in existence for many decades, keeping Venezuelan and US business and cultural sectors in contact. The occasion was designed to present to the audience and the press the 2004-2009 Business Plan of the Corporation. Some details of this plan, not many, have been published by the government’s news agency, Venpres.

The premise of the new Business Plan, as suggested by the Finance Director of the Corporation, Mr. Jose Rojas, is that Petroleos de Venezuela (PDVSA), is in excellent financial and operational shape, with robust cash flows and low debts. These assertions are largely false and both the audience and the international financial community know it. In a letter addressed to the officers of VAAUS and to the members of the audience, four Venezuelan Engineering Associations (Petroleum Engineers, Geophysicists and Geodetic Engineers) presented the true situation of PDVSA. In this letter, the Venezuelan professional associations mention the following problems facing PDVSA: the loss of some 800,000 barrels per day (b/d) of production; the lack of transparency in the international marketing activities; the illegal dismissal of about 20,000 corporation employees; the attempts, as recent as two weeks ago, to ask international banks for loans of up to USD $10 billion; the very high level of oil spills and industrial accidents due to poor maintenance; the interruption of exploration efforts; the disbanding of the all-important Research and Training Centers and of Bitumenes Orinoco (BITOR), the company marketing ORIMULSION internationally, and the frequent reorganizations in a weakened corporation afflicted with poor and politicized leadership.

The new Business Plan calls for investments of $37 billion during the next five years, basically "to increase production levels to 5 million b/d." This is an unrealistic objective since production stands today at half that amount and there is little or no exploration going on. Exploration efforts have a long development period to give full fruit, usually 8 to 10 years. There is no way PDVSA, in its present situation, can double production in five years. The financial aspects of the plan are also unrealistic. PDVSA would "invest $26 billion of their own funds." Where is this money coming from? In a company being milked dry by the current government through dividends and "social" investment requirements, there is not enough money left for doing the things that really have to be done for the business. Investing $37 billion in five years amounts to capital expenditures of some $7 billion per year. Average yearly capital expenditures of PDVSA during the last four years have been little more than $3 billion per year. An organization cannot double capital expenditures from one year to the other without running the risks of extreme inefficiency and corruption. In a PDVSA without adequate technical and managerial talent this is an impossible and irresponsible task. But, even assuming that the 5 million b/d are obtained. What is PDVSA going to do with this volume, that almost doubles our OPEC quota? If the new production capacity were to be kept closed in, because of OPEC restrictions, the investment would be senseless. Unless, of course, the government has decided to abandon the ranks of OPEC. We find the Plan to be inconsistent with existing petroleum State policies. Another source of concern is the colliding references to indebtness. Only two weeks ago a PDVSA Director announced that the Corporation was looking for $10 billion in the international markets. This caused deep concern on Venezuelans who feel that government indebtness has already reached intolerably high and unproductive levels. In the New York meeting Mr. Rojas, the Finance Director, now says that all they need to borrow is some $2.5 billion, a considerable amount but, at least, not as scandalous as the $10 billion originally mentioned. What truly worries Venezuelans are the abrupt fluctuations in direction shown by PDVSA, a similar style to that of President Chávez. No corporation and no nation can be managed in this capricious fashion.

PDVSA went to New York to tell a story. A report on the meeting in El Universal, mentions that the meeting was well attended but that the audience was highly skeptical of the story presented by the current PDVSA management. One tragic result of the political intervention of PDVSA by the Chavez government has been the loss of credibility of the Corporation in the international financial and business community. The professional managers are gone from PDVSA and have been replaced by second-rate politicians.

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