PABLO BACHELET / JANE BUSSEY / TYLER BRIDGES
January 27, 2008
What happens to Venezuela's state oil company will ripple through Latin America and South Florida -- and could affect Hugo Chávez's hold on power.
The economic powerhouse that fuels the grand ambitions of President Hugo Chávez at home and abroad is Petroleos de Venezuela S.A., the state oil company.
CARACAS -- The economic powerhouse that fuels the grand ambitions of President Hugo Chávez at home and abroad is Petroleos de Venezuela S.A., the state oil company.
With oil prices at all-time highs, PDVSA's sales hit $101 billion in 2006 -- making it the biggest company in Latin America -- and Venezuela's economy grew by nearly 20 percent over the past two years.
The oil gusher has unleashed a consumption binge perhaps without parallel in the country's history. It has allowed Chávez to report that he has slashed the poverty rate by 25 percent and to pledge about $8 billion in foreign aid within the past year alone to export his vision of ''21st century socialism'' to other Latin American countries.
His petro-revolution has made him popular among the poor in Venezuela and intensely disliked by others -- and boosted his standing as the leader of the Latin American left from Bolivia to Nicaragua.
But PDVSA's good fortune belies profound problems within the company that could sink Chávez's goal to stay in power indefinitely and use his petro diplomacy to forge an ''anti-imperialist'' bloc of nations as a counter to U.S. influence in Latin America and the Caribbean.
Miami Herald interviews with dozens of Venezuelan and foreign oil experts, and reviews of scores of records, turned up a problematic picture:
Since Chávez took power in 1999, oil production in Venezuela has declined by 28 percent, the company's debt has soared, corruption has flourished, foreign oil partners have pulled out, PDVSA's payroll has skyrocketed, and the company has taken to hiring employees for their fealty to Chávez, not their expertise.
FOUNTAIN OF MONEY
PDVSA will continue to supply mountains of money to Chávez as long as oil prices remain high, said David Mares, a professor at the University of California at San Diego who co-authored an in-depth analysis of PDVSA last March.
''But PDVSA is not generating more money through better performance,'' Mares told The Miami Herald. ``PDVSA is generating this money in spite of its deteriorating performance. The threat to PDVSA will be when prices go down, and I don't mean collapse. When the oil market weakens, PDVSA won't be able to increase output to keep up income.''
What happens to PDVSA has enormous ramifications, from Caracas to South Florida and throughout the region:
• In 2006, the company generated at least 80 percent of Venezuela's export revenue, 50 percent of the government's estimated $52 billion budget, and one-third of the country's gross domestic product.
• PDVSA is the fourth-biggest supplier of oil to the United States, with a 10 percent market share, and controls CITGO, which owns several refineries and supplies about 8,000 franchised gas stations in the United States.
• Cuba gets two-thirds of its daily petroleum needs from PDVSA -- largely free of charge, according to most experts.
• The last time oil prices sagged, in the 1990s, the ensuing political and economic turmoil in Venezuela sent billions of dollars and thousands of people fleeing to South Florida.
Three times in the past 25 years, Venezuela has boomed and then busted along with oil prices.
Many foreign analysts believe that PDVSA was better managed before Chávez became president in 1999.
''PDVSA is becoming highly inefficient,'' said Roger Tissot, who tracks the company for PFC Energy, a Washington-based consulting firm.
Chávez and PDVSA executives -- none of them responded to Miami Herald interview requests -- have painted a glowing picture of the company today. They say PDVSA had focused too much on earning money and not enough on using oil wealth to serve the Venezuelan people.
''We are using our industry for the development of the country,'' Rafael Ramírez, PDVSA's president and Venezuela's energy minister, declared in Caracas in November.
Chávez has spent some of PDVSA's billions on highways, ports and other programs designed to foster long-term growth. But billions have gone to subsidize gasoline, import and distribute food staples, buy support for his policies abroad, and purchase Russian and Spanish weapons.
PDVSA retains enormous strengths today.
The company reported turning over $39.2 billion to the government in 2006, up from $25 billion in 2005. And its debt -- while it rose during 2007 from $2.25 billion to $16 billion -- remains small compared with that of other oil firms in the region, such as Mexico's Pemex. Venezuela now has $40 billion in foreign reserves and offshore accounts, according to government figures.
Every recent Venezuelan president has tried to wrest control of the company from its executives and make it better serve his policy efforts. But Chávez is the first to have virtually complete control over PDVSA. The way the company goes is the way Venezuela goes. And he who controls PDVSA controls Venezuela.
Even though the company reports that it is producing 3.27 million barrels per day, the OPEC oil-producers cartel, the U.S. Department of Energy and the Paris-based International Energy Agency report much lower estimates. The real number last year, they say, was about 2.4 million barrels per day -- 28 percent below the 3.35 million barrels per day it produced the year before Chávez took office.
''We all know that production is far below official figures,'' said Venezuelan economist Orlando Ochoa, who blamed the drop partly on PDVSA's loss of 19,500 experienced executives, geologists, engineers and others fired by Chávez in 2003 during a strike designed to force him out of power.
Under its 2006-12 strategic blueprint, PDVSA plans to boost production by reinvesting $76 billion of its income by 2012 in new exploration and maintenance of refineries and oil fields. But independent analysts believe that the company invested only $2 billion to $5 billion a year in recent years -- barely enough to maintain current production, much less increase it.
Ramírez, the company's president, said last week that PDVSA reinvested $10 billion last year -- although there has been no independent confirmation of his statement -- and will reinvest $15.6 billion this year.
Foreign oil companies have been investing less than expected, said Carlos Rossi, an economist with the trade association that represents foreign oil companies here. He put the shortfall so far at $6 billion under the amount envisioned by the strategic blueprint.
The reason: Chávez's policies have steadily made Venezuela less friendly to foreign oil companies, and last year the government seized a 60 percent share in four oil fields that foreign companies had spent nearly $20 billion developing. Two U.S.-based companies -- ExxonMobil and ConocoPhillips -- packed up and left.
The three major U.S. bond-rating agencies all classify PDVSA as below investment grade. Latin America's two other state-owned oil companies, Petrobras in Brazil and Pemex in Mexico, enjoy investment-grade ratings.
DRILL RIG SHORTAGE
Meanwhile, PDVSA officials acknowledge that they lack enough of the drill rigs -- there's a worldwide shortage because of a boom in exploration -- needed to find more oil. Luis Vierma, PDVSA's vice president for production, said last July that the company's shortage of rigs represented ``a significant operational emergency.''
The country needed 191 rigs last year to meet its production goals, Vierma told the National Assembly. But Baker Hughes, the Houston-based firm that provides the world's standard count of rigs, said that only 71 rigs were active in Venezuela last month.
''Private companies . . . are not interested in leasing their rigs to Venezuela because since 2003, [Chávez and PDVSA] have consolidated global reputations as untrustworthy partners that routinely violate their contractual obligations,'' said the Caracas-based newsletter VenEconomía.
Another sign of PDVSA's problems: The number of oil wells, 19,583 in 2001, declined to 13,500 in 2005, Mares wrote in his report. More recent numbers are not available publicly.
Oil exports declined even further -- from 2.5 million barrels per day in 2000 to 1.5 million now -- because more of the production is fueling vehicles in Venezuela, said Ramón Espinasa, formerly PDVSA's chief economist.
Flush with 18.8 percent economic growth in 2006-07 alone, Venezuelans bought 491,899 new vehicles last year, compared with 128,000 in 2002. One measure of the boom: General Motors is planning to open six new Hummer dealerships this year.
Venezuelans pay about seven U.S. cents a gallon for regular gasoline -- a bottle of water costs about as much as filling the tank -- so the government is spending more than $2 billion a year to keep drivers rolling cheaply.
PDVSA is also subsidizing some of its exports, notably under the Petrocaribe accord, which alone calls for 99,000 barrels per day of gasoline and other products to be delivered to 16 countries in the Caribbean and Latin America.
Another reason for PDVSA's slip, many analysts say, is that the company is being stretched thin by non-oil activities. The company now has subsidiaries to distribute powdered milk, grow corn and build oil tankers. Its employees are also working to help the poor, often with Cuban teachers and doctors.
PDVSA also is diverting billions into Chávez's social programs. In 1997, the company spent $77.4 million on non-oil activities, the Mares report said. By 2006, social expenditures had exploded to $13.3 billion.
All of that extra work also means a lot more employees. The company had 48,000 workers when Chávez took office, according to PDVSA figures. Last October, Chávez declared that PDVSA had 74,918 employees and was shooting for 113,831 by the end of 2009.
Few outsiders believe that the new hires match the talents of those fired by Chávez. PDVSA requires new employees to take loyalty oaths and refuses to rehire the strikers fired in late 2002 and early 2003 -- or even make the separation payments they are owed, said Eddie Ramírez, a former senior PDVSA executive who now heads an association of ex-PDVSA employees. The company also blackballed those who signed a 2004 petition for a recall referendum against Chávez.
''PDVSA workers who were fired now work in 21 countries,'' said Juan Fernández, a senior manager handling international affairs when he was fired as part of the 2002-03 strike. ''We are everywhere now.'' Fernández now lives in Miami and is not employed.
OUT OF SPOTLIGHT
Meanwhile, PDVSA is operating more and more outside public scrutiny. The company paid off bonds registered with the U.S. Securities and Exchange Commission in 2005, so it no longer has to file financial statements to the SEC.
The Venezuelan government's Fund for National Development has received more than $30 billion from PDVSA since 2005 -- but operates off the official books.
Analysts believe that corruption is flourishing in the darkness. In a 2007 survey of public-sector corruption, Transparency International, a Germany-based watchdog group, ranked Venezuela 162nd out of 179 nations. Only Haiti scored lower in the hemisphere.
The group's 1999 list had ranked Venezuela 71st out of 90 countries.
Last August, three PDVSA officials were aboard a chartered jet that flew from Caracas to Buenos Aires with a briefcase packed with $800,000 in undeclared cash. The incident prompted the president of PDVSA's Argentine subsidiary to resign -- and later led to the arrests in Miami of three Venezuelans and one Uruguayan on charges of trying to cover up the scandal.
U.S. prosecutors alleged that they had offered $2 million of PDVSA's money to Guido Alejandro Antonini, a Miami resident, to keep him from talking to authorities about the $800,000.
One of the men, Venezuelan lawyer Moises Maionica, pleaded guilty Friday to conspiracy and acting as an unregistered agent for the Venezuelan government, and is cooperating with the federal investigation.
OIL PRICES ARE KEY
Analysts who have studied the company say almost uniformly that the reckoning for PDVSA -- and indeed Chávez -- will come if oil prices sag.
''His populist policies . . . imply ever greater Venezuelan expenditures,'' VenEconomía said in one report. ``The populist beast must be fed continuously, and never will be sated.''