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Venezuela’s PDVSA on its Way to Inevitable Disaster

By Roberto Giusti | El Universal

Caracas, 15 May 2005 | The pace of the industrial firm’s disintegration quickens. Submitted to unprecedented galloping corruption, trembling from internal struggle among groups vying for power, its productive volume reduced by the operative disaster, PDVSA (Petróleos de Venezuela) is living its worst hour.

“Disaster" is the term employed by Gustavo Coronel, a member of PDVSA’s first board of directors, in judging the situation in the industrial firm in an open letter to President Chávez. In his protracted missive, Coronel attributes the almost irreversible disaster to “the suicidal manner in which you and your followers have managed this company, converting it into a political instrument in order to win over continental supporters for your revolution, and into a kind of private bank for your regime’s programs, some well-intentioned, others not.”

After placing responsibility on the President for the crisis of April of 2002, Coronel states that, with Alí Rodríguez in office as president of the company, the struggle intensified among the military, the ultra-radicals and the Pepetistas (members of the Patria Para Todos party). Consequently, the company began to sink, production diminished, oil spills reached levels never seen before, output declined at the refineries, tanker ships began to rust, research centers disappeared, and fired technical experts and managers were replaced by friends of the regime. PDVSA stopped delivering its financial statements to the US Securities and Exchange Commission and turned into a black box.

But with Rafael Ramírez, minister and president of the company, its fate was sealed, writes Coronel, who assures that the process of disintegration quickened, production kept dropping, the refineries began to have operational problems, corruption increased and financial statements failed to appear.

The grievous scenery depicted by Coronel ends with a gem of a question about the $120 billion that have come in from oil sales over the last six years: "Where is that money, what have you done with it, when are you going to render accounts?"

Commissions Galore

Next week Ramírez is expected to appear before the National Assembly's Committee on Energy and Mines, whose vice chairman, Julio Montoya, says he has discovered 226 cases of violations of the Corruption Law.

Montoya has been accumulating a dossier which implicates people ranging from the president to managers at different levels in the company. In February of this year, for example, he denounced in El Universal that three companies, Concarbi, Alloys, and Moalca, manage almost 100% of the personnel hiring conducted by PDVSA, while before it was done by some 50 companies. According to Montoya the phantom payrolls at the company’s Western Division encompass 30% of the total amount of employees hired by the holding company through third parties and the commissions amounted to Bs 800 million monthly*. In his judgment, the recent firing of workers has something to do with the intention of "hiding the phantom payrolls that have been discovered."

He is also investigating a series of phantom cooperatives to which Bs 2 billion had been allocated without proof of the existence of about 80% of them, as well as violations of the Law of Purchases and Hiring without Bidding Processes.

But the denouncements which sounded the alarms at the levels of High Government were those formulated by El Nuevo Herald (sister publication of The Miami Herald) concerning the payment of multimillion dollar commissions to a group of middlemen for the sale of crude and petroleum products. According to the daily, the distribution of commissions to natural persons for the marketing of crude and other products revealed the existence of a sophisticated network of political, financial and family connections that guaranteed payments into a dozen bank accounts in at least four countries.

Montoya finds a price difference of three dollars a barrel between what Venezuela sells it for and what the market price is and asks: "Could it be that those three dollars are ending up as commissions to those who are depositing them abroad?” He speaks of invoices which would prove how PDVSA has made advanced payments to two companies in the amount of Bs 22 billion and denounces the hiring of the law firm of a former magistrate of the Supreme Tribunal of Justice for Bs 290 million a month.

Ramírez said that he will sue The Miami Herald for defamation, an action he has not yet undertaken and likewise announced the suspension of some 40 employees and managers for "administrative deviations and acts of corruption which we are penalizing with the greatest rigor.” Ramírez forwarded the case to the Attorney General of the Republic.

Drop by Drop Lies

Present since the end of the 2002-2003 national strike, and under the debate concerning petroleum production, underlies the corporate philosophy of a company that fired an élite consisting of 20,000 managers, technical experts and skilled workers, whose departure not only meant the decline of basic activities (exploration, production, commercialization), but also a change in the concept of the industry, now assumed to be that of a geopolitical weapon and not what it always had been: a commercial activity. A business.

After two years of steadfastly adhering to production figures different from those shown by OPEC, the International Energy Agency and other sources, this month President Chávez recognized that “we are 100,000 BPD under production.” According to this affirmation, Venezuela produces 3.3 million BPD, since the set goal is 1.4 million, which apparently is over the OPEC quota, which sets a maximum of 3.164 million BPD.

Ramírez confirms the President's figures and both attribute the decrease to sabotage, miniscule compared to OPEC’s figures (2.717 million) or those of the International Energy Agency, US Government (2.5 million). A difference that varies between 600.000 and 800.000 BPD, which when multiplied by $39.33 (average price per Venezuelan barrel) will give us an idea of the difference between the dollars reportedly received and those actually received.

Black Accounts

From thence emerges all the confusion about the income the country receives and the transfer of resources from PDVSA over to the Central Bank, where the bank director, Domingo Felipe Maza Zavala, finds a shortfall of $20 million per day.

Calculations by former manager of Economic Research at the BCV (Banco Central de Venezuela), José Guerra, indicate that if domestic consumption is subtracted from the 3.3 million barrels declared by Ramírez, 2.8 million are left over for exportation, which when multiplied by $39.33 (average price) shows an income of $9.904 billion.

If from this one were to subtract $600 million for the PDVSA Revolving Fund, plus $480 million for the Special Fund for Economic and Social Development, one would conclude that the BCV should have received $8.824 billion. Only that, according to Ramírez, the sale of foreign currency was for $6.433 billion, which produces a differential of $2.931 billion. But Guerra goes further and says that the difference may go as high as $4.8 billion if one takes as a reference Maza Zavala's declaration, according to which PDVSA delivered to the BCV, in the first quarter, $4.8 billion. Then the breach would be $4.024 billion.

Where is the money? Or don’t the figures agree because production isn't what they say it is? In any case, the conclusion is found in Coronel's letter to Chávez: "As long as PDVSA continues to be in the hands of the incompetent people you placed there and is run on the basis of political rather than business motives, there will be no hope of a recovery, not for PDVSA, nor for Venezuela.

*The official exchange rate is currently Bs 2,145.92 (Venezuelan bolivars) to the US dollar in the regulated markets. Unofficial rates of exchange in parallel unregulated markets run as high as Bs 2711.16 to the US dollar.

Translation by W.K.

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