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From Refinery Explosions to Corruption. The new look of Venezuela's Oil Industry.

By Gustavo Coronel

07.04.05 | At 6:00 AM Sunday morning, April 3rd, a potent explosion shook the refinery of Amuay, in the Venezuelan Paraguana peninsula. The explosion occurred in an electrical substation of the refinery and took no lives. This was, in itself, a miracle, as street vendors who try to sell food and all other kinds of goods to the workers of the refinery now closely surround the installations. Fortunately it was still too early for them to be around. Venezuelan friends tell me that, today, the areas near the entrances to this refinery look like a Persian market of the old tales, full of street vendors of every conceivable item. It was not like this before the "revolution."

The newspapers talk about a failure of the electrical system that feeds the steam boilers in a section of the refinery. This failure, in turn, affected all the industrial services to the refinery: steam production, water, and electric energy, leading to an interruption of the whole complex. The brief official statement by the management of the refinery claims that an emergency plan was immediately activated that led to the re-establishment of the operations but  observers say installations are not back to normal. Staff from a contractor firm doing work nearby said that the accident took place while the major maintenance of the flexi Coker (reduces viscosity and metal content of heavy oils) was in progress. Instantly the refinery area filled with smoke, adding to the sensation of great danger among the population living nearby.

The rumors started to fly, in absence of a detailed explanation from the company. The Chávez controlled, local newspaper Nuevo Día, spoke of an explosion due to sabotage by the opposition. The blame started to be placed, as always, on the contractors and/or the former managers of the refinery. The truth is that this mishap is not the first one in Venezuelan refineries after the Chávez takeover: The El Palito refinery has had major problems in the recent past with loss of human lives. Only two weeks ago another fire broke out in the Amuay refinery. The deterioration in the quality of the managerial and the technical staff due to the politicization of the company has taken the company to very low levels of maintenance and operational reliability.

An interruption of operations in such a major refinery complex, no matter how brief, translates in global losses of millions of dollars.

An electrical failure in a refinery is usually an event of very short duration. Electricians live in a world of nanoseconds. If something happens to an electrical system in a refinery and it is not properly controlled within seconds, it tends to generate a domino effect involving all the systems. Once the complex comes to a halt it might take days to restart. As a former General Manager of the Cardon Refinery, next door to Amuay, I thought of fire or an explosion as my worst nightmare. The Amuay and Cardon refineries are a complex with 84 plants and a refining capacity of one million barrels per day. Having to stop a substantial portion of this complex, especially in these days of high oil prices and very nervous clients, represents a major catastrophe for the Venezuelan oil industry and has a very damaging impact on the world economy. Because of this accident the worldwide oil prices jumped almost two dollars per barrel overnight, causing the global financial markets to suffer losses of millions of dollars. Of course, if this would have been an act of God, nobody could be blamed. But much more probably, this type of accident, which is becoming more frequent in Venezuela, is the result of poor maintenance efforts, due to the mediocrity of management and the loss of morale among the employees. It would seem that an employee of a large oil refinery, with a bad hangover or an irresponsible attitude, could precipitate nowadays a major global financial crisis, just by pulling the wrong switch.

A former colleague, who managed several refineries in Venezuela and abroad, tells me that most of the problems faced by Venezuelan refineries today, have to do more with problems of "software" (meaning people) than with problems of hardware (equipment). The type of problem that took place in Amuay, he says, should only happen once every ten years. He adds that the increasing frequency of accidents in the refineries is due to the lack of values and motivation among the personnel rather than to lack of material resources. Lack of accountability and political activity within the work place are promoting increasing neglect in the operations of the Venezuelan oil industry.

The tragedy is that this  deterioration of our Venezuelan petroleum installations and organizations come at a time in which the world needs more oil and more efficient handling of that oil.

In parallel with these operational problems, new instances of corruption are being reported (Notitarde, Valencia, Venezuela newspaper, April 6, 2005). In an audit of CITGO it is revealed how Venezuelan congress members Nicolás Maduro, Cilia Flores and Calixto Ortega received money from CITGO while in New York, at a time in which the Venezuelan congress was in recess. The money, $6,000, was authorized by Luis Marin and Antonio Rivero, top Venezuelan managers of CITGO at the time and defined as "petty cash." Whatever the amount received by the members of congress, this is corruption and suggests only the tip of the iceberg.

Some CITGO and PDVSA Services employees were, at the same time, Venezuelan public employees. A company called Adolur International, owned by a Mr. Enrique Zuleta, received $100,000 from CITGO after predicting the victory of Hugo Chávez during the presidential referendum. CITGO also donated $6.4 million to the "Barrio Adentro" mission, a Venezuelan, government financed social program.

The audit also revealed the use of company aircraft to transport third persons from the U.S. to Venezuela. Actor and activist Danny Glover arrived in Venezuela on a CITGO jet and traveled August 15, 2004, the day of the Venezuelan presidential recall referendum, from Nassau to Barcelona on a CITGO jet. As far as I know, Glover knows about oil what I know of Sanskrit. The vice president of CITGO also used a company jet to travel to Europe with the family.

The audit also mentions the acquisition of great amounts of materials without a bidding process, materials which were acquired at high prices and "which are wasting away in ports."
The corruption in CITGO extends, apparently, to the very top levels of the company. The member of the Venezuelan congress denouncing this situation, Mr. Cesar Rincones, claims that the projected sale of CITGO's assets is not being promoted for legitimate business reasons, but to earn the substantial commissions that will accompany these transactions



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