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Chávez faces claims of oil revenue cover-up

By Andy Webb-Vidal | The Financial Times

Published: May 25 2005 19:51 | Last updated: May 25 2005 19:51 | Few subjects fail to tickle the interest of Hugo Chávez, Venezuela's voluble president, on Aló Presidente, his weekly television broadcast. The show, which melds game-show tomfoolery with the political jousting of a medieval court, shows Mr Chávez engaged in everything from cabinet reshuffles and baiting US President George W. Bush to playing with a tortoise and cuddling infants.

But there is one crucial issue that El Comandante Petrolero, as some of the militaristic leader's most radical followers fondly call him, is clearly avoiding: oil.

Hugo Chávez’s managers at Petróleos de Venezuela, or Pdvsa, are facing an avalanche of questions about the location of billions of dollars in unaccountable export revenue.

“Where's the money?” asks César Rincones, president of the congressional comptroller commission. “We could be on the brink of a financial crisis because of the mismanagement of the oil industry.”

Rafael Ramírez, who is both the energy minister and president of Pdvsa, says Venezuela is producing 3.25m barrels per day of oil, in line with its quota at the Organisation of the Petroleum Exporting Countries.

Since a debilitating strike by managers at Pdvsa slashed oil production from the world's fifth-largest oil exporter at the start of 2003, the government has claimed that output has recovered fully.

But today's official production figure contrasts with every other institution that measures oil market data. According to Opec, the Energy Information Administration and the International Energy Agency,Venezuela's output in April was about 2.6m b/d and falling.

Pdvsa's own output has dropped by more than 60 per cent since Mr Chávez came to power in 1998, a trend that analysts say has accelerated in the past year because of poor technical management of oil wells and refineries.

By contrast, for the first time since Venezuela's oil industry was nationalised in the mid 1970s, production from the private sector is rising and could soon surpass Pdvsa's. While officials such as Mr Ramírez and Mr Chávez insist that reports of a gap of 650,000 b/d are part of a media conspiracy, experts are pointing to figures that show a wide shortfall in the country's international accounts as proof of an official “cover-up” over a collapse in production.

José Guerra, economic research chief at the Central Bank of Venezuela until earlier this year, says that if the official oil output figures are correct, given that oil prices are known, Pdvsa is depositing only about 53 per cent of its revenue in the central bank.

In nominal terms, the figure is more dramatic.

Mr Guerra calculates that during all of 2004 and the first quarter of this year, data for which was released this week, Pdvsa has failed to hand over to the central bank $6.8bn from oil exports. Pdvsa is required by law to convert its hard currency earnings into bolivars, the local currency. “If you look at the evolution of the country's balance of payments, of course you have to ask where is the money?” said Mr Guerra. “It's clearly not going to pay off debt or to pay for imports and it's not being converted into bolivars. There is something very irregular going on.”

This month, Domingo Maza Zavala, a central bank director, said that $20m per day in oil export revenue was not being deposited.

While lower oil production levels explain in part why the central bank's cash flow figures challenge the official version, economists say there is also a financial shortfall because some money is being diverted elsewhere.

Venezuela's public accounts are not known among Wall Street analysts for their transparency. Pdvsa has failed to present its audited accounts to the US Securities and Exchange Commission since 2003.

A growing share of Venezuela's oil sales is also being allotted via companies that are well known in trading circles, such as Glencore, Trafigura and Arcadia.

But large volumes of oil are also being sold through obscure and unreported “back” channels, rather than through Pdvsa's own trading department, which is run by Asdrúbal Chávez, a cousin of the president.

This month, Pdvsa products were offered on several internet auction sites. Oil industry sources also say oil from Pdvsa is being offered through mechanisms such as parallel contracts.

One report this week suggested that private brokers, supposedly acting on behalf of Pdvsa, are trying to invest the money in instruments offered by US banks on Wall Street.

But analysts also say that an aspect of the financial mismatch is arising because Pdvsa, on orders from Mr Chávez, is diverting money into ad hoc funds that are being used to finance a parallel government budget.

The situation is likely to worsen in the months ahead as Mr Chávez seeks to push through legislation that will place a ceiling on the amount of international reserves that can be held by the central bank.

With a cap set at $20bn, as is expected, and reserves at $28bn, the central bank will have to hand over $8bn into a new fund.

“The amount of money being diverted will expand dramatically if this goes ahead,” said Orlando Ochoa, an independent economic consultant based in Caracas. “Chávez will effectively have at his disposal an enormous parallel budget and there will be no controls over its execution.”

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