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Free Market Petroleum II

By Veneconomy

13.04.05 | During the first semester of 2003, a tremendous scandal erupted in Venezuela when the Ministry of Energy and Mines signed a contract with the recently incorporated company Free Market Petroleum, which was supposedly going to sell oil to third parties and charge substantial commissions. The uproar was so great that the idea was abandoned. However, this episode brought to light an ugly side developing within the Bolivarian PDVSA. It became evident that the company was being managed in a way that was far from transparent and the suspicion of irregularities in the marketing of oil left a bad taste.

Today, history is repeating itself. This week, two articles by Casto Ocando in El Nuevo Herald revealed that PDVSA is apparently marketing crude and other products via an extensive network of intermediaries who have connections with banks in Caracas, Aruba, Panama, Miami, New York, Madeira, and Switzerland. Ocando backs his claims with a dossier of contracts and documents, in which he gives a list of “consultants” who, according to him, have ties with regional leaders of the government coalition parties that support President Hugo Chávez.

This time the scandal is even worse. Ocando cites a contract with Gulfstream Trading of Houston for 50,000 barrels a day of Mesa 30° (the prime steak of PDVSA’s production) under which several “consultants” are being paid “fees” of $2.70 per barrel. More astonishing still is a contract for 36,500 barrels a day of diesel D-2 under which $11.76 per barrel is being shared out among several “consultants.”

Ocando claims that several of the contracts are recent ones and that others could be in the pipeline.

The difference between these contracts and the contract with Free Market Petroleum is that these are irrevocable master fee protection agreements. Perhaps that is basis of the denial by Asdrúbal Chávez, PDVSA’s Marketing Manager, that PDVSA is authorizing the participation of “intermediaries” in the sale of crude to its international clients.

According to experts, the payment of commissions could constitute a violation of the 1999 Constitution and Venezuela’s Anticorruption Law. What is more, paying “intermediaries” is an absurd practice. Right from its early days, the “old” PDVSA sold directly to end-users without paying commissions or fees to any intermediary.

The most worrisome aspect of all this is that the country does not really know what is happening with its oil industry: there is a total lack of transparency in the management of PDVSA, the scant official information that is available is not reliable, and the company has not submitted accounts or had its operations audited since 2002. The idea that the black box of yesterday has today become a bottomless black barrel is difficult to shrug off.

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