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Open Letter to President Chavez Concerning Venezuela's Oil Company

By Gustavo Coronel*

May 11, 2005 | Mr. President, You would probably agree with me, that in principle, without a properly managed and well financed oil industry, there are no guarantees that our country will ever attain economic development and prosperity. As you celebrate over six years in office, I would like to assess the situation of Venezuela’s most important state-owned corporation and principal source of revenue, the Venezuelan Oil Company (PDVSA).

The current situation of PDVSA can be described as disastrous, as result of the destructive manner in which you and your henchmen have managed it. You have used oil as a political instrument to buy support, in the Western Hemisphere, for your revolution. You have also used the oil company to finance social programs destined to alleviate, only temporarily, the suffering of the poor; instead of developing and implementing long lasting solutions to the problems that afflict the country.

The downfall of the Venezuelan Oil Company began with the appointment of incompetent accomplices to top managerial positions. Action perpetrated to obtain total control of the Venezuelan Oil Company.

You Mr. President, replaced Roberto Mandidi, after a brief but excellent performance as President of PDVSA, by Hector Ciavaldini -- a former PDVSA employee who had filed a legal suit against the corporation for disagreements on compensation matters. The appointment of Mr. Ciavaldini was completely inappropriate and his lack of expertise and managerial skills resulted in serious problems with the oil unions.

Then you appointed General Guaicaipuro Lameda, who was apparently a loyal supporter of your regime. Lameda, however, after assessing the chaos reigning in the corporation, decided to rebuild PDVSA and ignore your orders. Lameda’s honesty cost him is job.

You proceeded to appoint Gaston Parra as the new president, action taken as an insult by PDVSA managers and oil workers.

You Mr. President, precipitated the April 2002 crisis. During a speech you made before the National Assembly and foreign diplomats, you admitted that appointing Gaston Parra was a premeditated action aimed to provoke PDVSA managers and oil workers and then to use their insubordination as an excuse to consolidate the political and financial take over of the Venezuelan oil industry.

What you did not foresee, was the magnitude of the popular rejection to Parra’s appointment and the imminent strike of the oil workers being supported by a massive civilian protest on April 11, 2002. The subsequent chain of events and your unconstitutional order to use heavy military equipment against unarmed civilians propelled top ranking military officials into demanding your resignation, which you accepted. The announcement was made by General Lucas Rincon Romero on national television during the early hours of April 12. Despite your return to the Presidency, to this day, neither the nation nor you have recuperated from the tragic events that unfolded as a consequence of the overwhelming popular rejection of your presidential actions.

Well, needless to say, Parra had to go (he is now in the Central Bank) and you searched for a more reconciliatory personage to fill the important position, Mr. Alí Rodríguez Araque. Rodríguez, an individual with a questionable past, a former guerilla specialist in explosives, was now somewhat civilized thanks to years in congress and to his experience as an OPEP executive in Vienna. However, it soon became apparent that Rodriguez was not the right person to manage a rapidly declining corporation. Rodriguez’s knowledge of the oil industry was definitely exiguous.

Under Rodriguez, the struggle for power inside the oil company continued to increase, as at least three groups disputed and still dispute control of the corporation: military officials, the ultra-radicals and Rodriguez’s partisans. As the struggle for power increased, the corporation’s gradual deterioration accelerated: production declined, the amount of oil spills increased dramatically, the refineries showed evidence of under-yield related problems, oil tankers began to corrode, the centers of research and training disappeared – at least as we knew them, PDVSA managers and oil workers were fired arbitrarily on national TV and replaced by friends of the regime. PDVSA consistently failed to report the financial statements to the Security Exchange Commission and stopped conducting the annual shareholders meetings.

You, Mr. President thought you could resolve the chaos you created by brainwashing Venezuelans with a new marketing campaign, the message: “Now PDVSA belongs to the people”. Nothing further from the truth, the Venezuelan Oil Company is now a Pandora ’s Box that will have to wait to be opened by those who replace your regime, some day.

Rodriguez was fired and the Secretary of the Department of Energy, Mr. Ramírez, was appointed as the new President. That decision definitively sealed the destruction of PDVSA and your absolute political control of the corporation. Prior administrations had always avoided giving the Department of Energy direct control over PDVSA’s operations to ensure certain independence from the executive. Now, PDVSA is totally under the control of your administration.

Under Ramirez, PDVSA’s path towards destruction is glimpsed with inexorable certainty: Production continues to decline rapidly, the refineries are experiencing serious operating problems, corruption has spread internally and has defined the business practices of the corporation. The financial statements are conspicuous in their absence, deals and contracts with third parties are subjected to unilateral modification by PDVSA officials who then charged the companies with tax evasion and other irregularities.

No corporation can succeed in the market place when the top management is changed as frequently as you put on a new suit, Mr. President. Didn’t you know that a corporation like the Venezuelan Oil Company, which competes with powerful multinational corporations, needs to have a solid strategic planning to succeed in the international market place? What possibilities of success does PDVSA have if the corporation’s strategies change every ten months when a new Board of Directors takes over? Not even a cafeteria in the army could feed satisfactorily the brave Venezuelan soldiers under this kind of uncertainty and mismanagement.

You may think that oil can be found without exploration, that it can be produced without implementing methods of secondary recuperation, that it can be refined without maintaining the industrial processing plants. You are too busy militarizing the country, purchasing armament from Russia and training Venezuelans to use rifles. You do not seem to care that the reputation of the Venezuelan Oil Company has suffered considerably, probably to the extent that it may no longer be considered a reliable oil supplier in the international markets. You are not concerned because you do have a strategy. Your strategy is to enjoy the oil high prices while the free ride lasts, cripple the industry’s infrastructure, sell our most valuable nonrenewable natural resource through intermediaries -- diminishing PDVSA’s profitability levels -- and give away the Venezuelan oil as a present to your personal friends.

We, the Venezuelan people cannot demand from our President to become an oil expert; but we do have the right to demand that Venezuelan oil is not used as a political weapon for personal agendas and that knowledgeable and honest people take the reigns of the the Venezuelan Oil Industry without interference from the executive.

There is more to being a President than to give interminable speeches. One of your responsibilities Mr. President should be to ensure that state-owned corporations are run by capable and honest professionals without government interference and that those people are held accountable for their actions. During the six years of your regime some $120,000 million in oil revenues have entered the country. Where is that money? When are you planning to inform the Venezuelan people how you have spent all that money?

I truly believe that you are unaware of the enormous damage you have done to our country by crippling the Venezuelan Oil Company, damage that is about to reach a point of no return.

As long as PDVSA is under incompetent hands and oil is used to gain political leverage in the international arena, there will be no hope, not for the Venezuelan Oil Company, not for Venezuela.

Translated and edited by Maritza Agena

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