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The bells toll for PDVSA

By Gustavo Coronel

November 24, 2004 | As I predicted in my previous posting to, the Venezuelan ruler decided to name Energy Minister Rafael Ramírez as President of Petroleos de Venezuela. Now Mr. Ramírez, a lackluster, inexperienced bureaucrat and political appointee, has the two jobs. This is a decision that twists the dagger that Chávez put into PDVSA's heart several years ago. By unifying the two positions under the State bureaucrat, Chávez has killed the last remnants of corporate independence that PDVSA might have had. The tragedy of State owned companies is that they often are under the political control of State bureaucrats. This has certainly been the case all over Latin America: in Argentina, Peru, Paraguay, Mexico, Bolivia and, now, is also true in Venezuela. Political control brings several important limitations and distortions to a commercial enterprise: management becomes politicized; financial requirements become subject to political maneuvering and pork barrel tactics; transparency disappears; selection of staff does no longer depends on merit but on political affiliation; the business oriented perspective becomes less important than the political, populist perspective; the profit motive yields to "social" considerations; income becomes fair game for demagogic use; planning disappears in favor of improvisation. I could go on and on.

In summary: political control of PDVSA is rapidly killing the company that belongs to all Venezuelans, and there is very little that we can do to stop this crime because the regime is all-powerful and ruthless.

The increasing politicization of PDVSA under Chávez started in early 2002, when Chávez named an ignorant in oil industry matters, Gastón Parra, as president of the company. Parra's ignorance was not the main problem. He had been a life-long enemy of the professional managers of the oil industry since he considered them traitors and stooges of the multinational oil companies. Placing a person who hates professional management at the helm of a company that should be professionally managed was bound to provoke reactions. The managers of PDVSA went on strike and this strike became so powerful that it ended up with the brief ousting of Chávez from the presidency and his return, hours later, under the protection of the Armed Force. Parra had fulfilled his mission and was, therefore, replaced by Ali Rodríguez. During the presidency of Rodríguez PDVSA became a third rate oil company, losing much production and being robbed of the necessary funds for re-investment. Under Rodríguez PDVSA lost its financial self sufficiency since the income derived from oil exports started to be diverted directly to the Executive power, to be used without accountability. Still, the fact that PDVSA's president and the Minister of Energy were different persons gave the company a certain degree of independence. Now, this is no longer the case. The political figurehead and the "manager" are now the same person. This is, of course, a cardinal error. PDVSA has become an appendix of the State bureaucracy and its activities will be driven by totally different considerations than those that apply to commercial enterprises.

1. Now PDVSA becomes the main motor of the populist, paternalistic State, no longer profit oriented. Whereas the original objective of PDVSA was to generate optimum income for the nation, so that the nation would use this income in an efficient, honest and transparent manner, the objective of the "new" PDVSA is to be the cash register of the executive power, to allow the political sector to use the money for political means, without the accountability or transparence required by the laws of the country. Today the concept of a Venezuelan national budget, of a lawful and transparent financial management of public resources has essentially disappeared. The money comes into PDVSA in unknown amounts for the shareholders, all Venezuelans, and is given over to the executive for unsupervised expenditures. The shareholders are left in the dark. The officers of PDVSA now say that the money generated by the sale of oil should be "given over to the poor." This is not correct: the money should be utilized in the integral upgrading of the nation, not as handouts. What this regime is doing is using the money indiscriminately to buy consciences and loyalties, both in Venezuela and abroad; to come up with short-term solutions to structural problems and to keep the Armed Force commanders under control.

2. Now PDVSA becomes an internal political battleground for the different groups of greedy politicians. There are several groups struggling for power within PDVSA: the military, the radicals, the Chávez followers, the Rodríguez followers, and the Ramírez followers. They all strive continuously for positions, to grab a bigger quota of power within the company. What is involved here is the control of areas where money can be made such as sales, the contracting of production activities or the transport of products across national borders. Bidding processes are no longer followed as a matter of policy but are dispensed with, if the personal interests of the bureaucrats demand it. The essential difference between political officers and managers is that the first tend to behave to attain power and to enrich themselves while the latter act in the interests of the company and its shareholders. In PDVSA the managers are long gone.

3. Now PDVSA will become a company run by political appointees, by cronies. This has been largely the case for some time but now this characteristic will become more pronounced. In an activity where the margins of profitability are so great, with production costs at $6 a barrel and oil prices at $38 a barrel, it would seem that "anyone" could "manage" the company without problems. Although the assassination of PDVSA is going on today this will only be apparent in the medium term. This was the way YPF was liquidated in Argentina, YPFB in Bolivia, Pertamina in Indonesia or, even, ENI in Italy.

4. Now PDVSA will experience greater levels of corruption. This is already a major problem within the company, as controls and procedures have increasingly disappeared. With the company becoming a mere appendix of the Ministry, where efficiency and transparency are unknown, PDVSA will be an ideal ground for hyper corruption, since it will combine maximum opportunity with maximum impunity. The opportunity exists due to the great amounts of money in the system. Impunity is derived from the disorganization, the absence of controls and the existence of a political environment in which there are "only buddies."

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