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Petroleos de Venezuela issues the 2003 report to the SEC

By Gustavo Coronel

17.10.05 | Almost two years late Petroleos de Venezuela, PDVSA, has presented its 2003 report to the Security Exchange Commission of the United States. This has to be done every year since PDVSA maintains debt with international investors and has to account for its activities. However, the Venezuelan state owned Petroleum Company had failed to do so for many months, keeping international investors in the dark about its financial and managerial situation. The company also has kept the Venezuelan people in the dark since they have not issued reliable operational and financial information to the public for at least two years. In fact, the report to the U.S. agency is the one that Venezuelans will have to read if they want to know what is going on at PDVSA.

In the report to the Security Exchange Commission there are some big lies and admissions of lies. The first lie we have read is: “PDVSA is operated as an independent commercial entity”. Who can believe this statement? I find this assertion an insult to the intelligence of the members of the Security Exchange Commission who will have to read this report. Although very brief, the statement contains not one but two lies.

1. PDVSA is not an independent entity

First, PDVSA is not an independent entity. It is a political and financial appendix of the Hugo Chavez regime. Its president is the same person who doubles up as the Minister for the Petroleum sector. He supervises himself. No organization can be independent under these conditions. The president of PDVSA is a simple secretary of Chavez, ready to jump at his command and makes no attempt to disguise his sad role.

2. PDVSA is not a commercial but a politically oriented entity

A commercial entity would optimize the sale of its products. PDVSA is giving away thousands of barrels of oil per day to Cuba, losing millions of dollars every day as the result of this violation of its commercial mission. It is also donating money directly to Cuba, in open violation of its norms and procedures. It is handing to Chavez directly billions of dollars that do not go to the Venezuelan Central Bank, as the law dictates, in order for Chavez to finance wild schemes and propaganda, both inside and outside Venezuela, from samba schools to bankrupt airlines; from nuclear reactors to guns.

PDVSA has now been ordered to distribute “cheap” oil among some poor U.S. minorities, from Chicago to New Orleans, doing so at a loss for the company and in open violation of the rules and norms that regulate a commercial enterprise. This distribution is also an invitation to corruption since it might involve third parties (Jesse Jackson’s and other organizations) that have had a poor record of transparency in their activities.

The report is also forced to admit that Chavez and the PDVSA management have been lying systematically when they claim that PDVSA (including the production from contractors) is producing 3.2 million barrels per day. In the report to the Security Exchange Commission they state that the crude oil production for 2003 (including the production from contractors) averaged 2,451,000 barrels per day and that, when the gas liquids are added, the resulting average production was of 2,595,000 barrels per day. This is an average daily production 600,000 barrels per day lower than they have been stating. Why do they lie? What do they pretend to gain by lying? Obviously, they cannot deceive oil experts and investors who know the truth. They lie to the largely ignorant millions of Venezuelans and Latin Americans who are led to believe that all is well with the “revolution”. The petroleum production lies are part of the web of lies the Chavez regime is being built on. It is the same type of lie that Chavez utters when confronted with the disasters in housing, agriculture, crime control and education. He claims his ministers and his policemen are an incompetent bunch and that “he is very upset about the situation”. By saying this he pretends us to believe that he is competent while his collaborators are not. This is, of course, a stupidity. He names all his collaborators and they do nothing without his approval. He is the main culprit of the Venezuelan multiple social disasters.

PDVSA is a company in rapid decline

The report describes a company in rapid decline in all aspects of its operations:

• From 14 exploration wells drilled in 2000 it has gone down to only 7 exploration wells in 2003;

• From 474 development wells in 2000 PDVSA is down to 206 wells in 2003;

• From 3,252,000 barrels per day in 2000, production is down to 2,595,000 barrels per day in 2003;

• Total costs and expenses were $26.6 billion in 1999 and $41.4 billion in 2003, close to double;

• Net income in 1999 was $2.8 billion but $2.7 billion in 2003;

• Production costs per barrel were $2.72 in 2000 and $3.85 in 2003, considerably higher. Even this figure for 2003 is suspected to be too low since production is way down and total costs and expenses are way up.

• Investments in 2004, says the report for 2003 (?) were 42% lower than budgeted. This points to a total collapse of their capability for execution;

• In 2004 PDVSA diverted to social programs $4,355,000,000 while investing only half of that amount to maintain their production and maintaining their plants and equipment. Since social programs are improvised and inefficient, this diversion represents a considerable waste of financial resources.

But statistics do not tell the whole story of this collapse. The training center of PDVSA, CIED, that had become the most prestigious managerial and technical training center in Latin America in the petroleum sector, has been dismantled. When this move is combined with the dismissal, in 2002, of almost 20,000 of the best managers and technicians PDVSA had and their replacement by political appointees and ideological fanatics, it will be easy to conclude that PDVSA is bound for mediocrity. In fact, operations already show a pronounced increment in industrial accidents and oil spills, while international marketing is increasingly in the hands of brokers and traders of doubtful reputation.

While the report to the Security Exchange Commission cannot obscure these disastrous facts it can and does blame them on the “sabotage” that took place in 2002. What they call “sabotage” was really the product of their own incompetence, after they had to handle operations without the people who had been doing the job well and who they fired in mid-2002. As far as we know, the history of petroleum state owned petroleum companies has never recorded a case such as this, the case of a solid and competent petroleum company hacked to pieces and destroyed, in a few years, by a group of inept and irresponsible fanatics. They will have to respond to the Venezuelan nation for their crimes.

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