www.planetark.org

VIENNA - Venezuelan oil officials said on Sunday that sabotage at oilfields, refineries and computer systems was causing pollution and preventing a swift recovery in the industry, crippled by a six-week-old strike.

Arriving at an emergency OPEC meeting in Vienna called to deal with the extended Venezuelan stoppage, state oil company chief Ali Rodriguez said the South American country was aiming to supply its minimum supply obligations by the end of January.

Striking executives at Petroleos de Venezuela, many of whom have now been sacked by Rodriguez, say incompetence by replacement workers is to blame for the accidents.

"There has been electronic sabotage and sabotage on valves, because the (strike) campaign has been aimed at causing accidents, and we have to take anti-sabotage measures to start up safely," he told reporters on arrival in the Austrian capital.

Rodriguez, a former secretary-general of OPEC, said the country still aimed to meet its minimum contractual supply obligations by the end of January, but declined to provide any figures on output in the world's fifth largest exporter. Venezuela previously supplied 13 percent of U.S. oil imports.

A full recovery in ouput by the end of February, a previous target, would not be achieved because of the extensive sabotage, he said.

Striking oil company executives, demanding the government's resignation, said crude flows dropped below half a million barrels per day last week, from more than three million in November.

The country's main oil refineries have ground to a virtual halt, export terminals have closed or drastically reduced loadings and long lines have formed at gasoline stations, while Venezuela resorts to importing fuel.

"Internal market distribution is being normalised, we have managed to free up port operations and we have drawn down stocks whose build-up had blocked production," Rodriguez said.

"This has helped a sustained rise in output, so this month we should achieve our objectives," he said without providing details.

"Our objective is to reestablish basic production this month and restart the refineries to satisfy the internal market because we are importing gasoline at prices far above what we sell it at, which is creating losses for the company," Rodriguez said.

In Lake Maracaibo, where Venezuela pumps about half its crude oil, Rodriguez blamed a recent oil spill on sabotage. In the country's largest refinery, Amuay-Cardon, he said striking workers had shut the plant incorrectly, leaving deposits of asphalt and sulphur in some units.

In the smaller El Palito refinery, Rodriguez said a fire last week was caused by a faulty seal which has now been corrected and output there was restarting.

Asked whether oil production would be fully restored by the end of February, Rodriguez said, "Not totally because damage has been very great and we don't know if there has been sabotage in some wells, so we have to be very careful."

Story Date: 14/1/2003

www.themoscowtimes.com Tuesday, January 14, 2003 By Pyotr Aven and Christopher Weafer

This year will be one of the most decisive years in Russia's relatively short and turbulent economic history. If the government's objectives are achieved, then at the end of the next 12 months the economy will finally start to develop away from crisis recovery and toward sustainable growth.

Superficially, 2003 looks set to be a relatively uneventful year for the economy, with modest macroeconomic targets written into the budget that should be achieved even with wide fluctuations in the oil price. However, 2003 is much more important, and therefore potentially much more hazardous, than these modest budget targets suggest: This year should be the last year of transition from the old economic structure to a new one that will see increased foreign direct investment, faster sustainable growth and diversification of the economy away from its dependence on commodities. If, by the end of 2003, we do not see a basic financial infrastructure in place, then the investment case for Russia will be thrown into serious doubt, if not lost.

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Email the Opinion Page EditorWhen the current government took office in May 2000, it set two main economic objectives, one medium-term and the other long-term. The medium-term objective was to reduce the economy's exposure to world oil prices and to use the period of resulting relative stability to push through changes seen as a necessary precondition for sustainable high rates of growth.

This reduction in exposure was achieved by encouraging oil companies to increase production and exports, so that while the federal budget's dependence on oil revenues persists, a much lower average oil price is needed to balance the budget than was the case in 1998. In 1998, an average price of $26.50 per barrel (Urals) would have been necessary to balance the budget -- instead it was a little more than $11 per barrel. In 2003, the key macroeconomic targets will be achieved as long as the average oil price remains at or above $16 per barrel.

Many changes have occurred in the past three years, and attitudes now are certainly much more positive vis-a-vis future growth. Yet, much of the relative prosperity that has been achieved can be linked, directly or indirectly, to the flow of petrodollars into the economy. Even in the gray economy, which accounts for a significant share of GDP, much of the money can be traced back to oil.

For the economy to grow at 6 percent plus per year -- the target set by President Vladimir Putin in his state of the nation address last April -- and to achieve greater diversification, Russia will have to attract significantly larger capital inflows, either in the form of repatriated Russian capital or FDI. This is the government's long-term economic objective, and if it is not realized by 2004, rather than catching up with Portugal, Russia will be keeping company with Venezuela and Nigeria, experiencing boom-and-bust oil cycles.

Achieving this long-term objective will require putting into place the financial infrastructure for facilitating capital inflows and enabling their deployment in the economy. Despite a significantly improved image, Russia is still struggling with the same issues of credibility that have dogged it for the past decade. Investors are still convinced that one of the biggest risks they face in Russia is the expropriation of their assets by business partners or government agencies. To overcome this, the government will have to push ahead with structural reforms. Put simply, investors will have to be convinced that they can make money in Russia and that their investments are safe from expropriation.

In particular, this means that by the end of 2003 or beginning of 2004 we will have to see the following reforms:

Bank reform. This is essential to building the financial infrastructure. There should be fewer, but better regulated and capitalized banks in order to help build confidence in the system. The proposed deposit insurance scheme, put forward by the government, will have to be passed by the State Duma and signed into law.

Pension reform. This is necessary in order to make a domestic source of investment capital available, which is important for stable investment growth. We will need to see all the relevant legislation in place, including regulations governing the award of management mandates and supervision of the industry.

Judicial reform. Investors will have to see improvement in legal protection and a transparent system for handling commercial disputes. What constitutes adequate protection is difficult to define precisely. At this stage, it is important that we see progress on new shareholder protection legislation and an end to the abuse of minority shareholders.

Other reforms. Natural monopoly reforms, etc. will continue through 2003, but the main efforts to conclude these will not come until after the election period is over, i.e. after March 2004. The fact that the government will then be faced with several major reform issues, all of which will encounter active opposition from lobbying groups -- including negotiating WTO entry and tackling Russia's vast bureaucracy -- makes it all the more important that financial infrastructure reforms are concluded satisfactorily by early 2004. Otherwise, the necessary investment flows will fail to materialize and the investment case for Russia will at best be delayed and perhaps even lost.

While these basic reforms are a precondition for FDI flows into sectors apart from energy and commodities, the other important trends to watch for this year are:

Monetary policy. The ruble exchange rate needs to remain virtually unchanged in real terms or see a real depreciation. The strong ruble in 2001 and 2002 has gone some way toward reversing the economic benefits of the 1998 devaluation and is hurting the development of the manufacturing sector. This means that by the end of 2003 the exchange rate should be between 35 and 36 rubles to the dollar (although the manufacturing sector would probably prefer to see it closer to 40 rubles to the dollar).

Inflation. The real cost of doing business in Russia is higher than even the high inflation figures show. In 2002, real wage growth was more than 15 percent, and combined with other cost increases this represents a considerable narrowing of margins and loss of competitiveness.

Trade balance. The current year trade balance has remained positive only because of the recovery of the oil price and growth in export volumes. Imports, particularly of consumer and manufactured goods, are rising fast. Imported consumer goods are again taking market share away from domestic producers, when the trend clearly should be the other way around.

Industrial growth. Without growth outside of the energy and commodities sectors, the economy will remain particularly exposed to the world oil market.

Consumers. This year, we are looking for evidence of the breadth and depth of consumption in Russia. There is plenty of visible evidence of consumption in large cities, but a packed IKEA and a multitude of expensive stores in Moscow does not constitute a sustainable pattern of consumption. This may well be merely a byproduct of circulating commodity cash. This year, analysts will need to scrutinize all consumer-related numbers to find evidence one way or the other.

2003 can be regarded as a "safe" year in terms of budget objectives (all else being equal vis-a-vis external factors), and we can be reasonably certain of an "adequate" return on debt instruments and equities over the next 12 months. However, the really crucial issue is preparation for the inward investment flows that are a necessary pre-condition for high rates of growth. This involves ensuring that financial infrastructure reforms are in place and that the basis for future growth is not destroyed or severely delayed because of a failure to maintain the basic integrity of the economy.

In many ways, this is the critical transition year for Russia after more than 70 years of communism and a decade of restructuring and confusion. While this coming year may look somewhat bland, the objectives that need to be achieved over the next 12 months are absolutely critical for Russia's investment case in 2004 and beyond.

Pyotr Aven, president of Alfa Bank, and Christopher Weafer, chief strategist of Alfa Bank, contributed this comment to The Moscow Times.

abcnews.go.com Some in Venezuela's Opposition Reviewing Strike Strategy; Moves Could Affect Education, Hospitals The Associated Press Venezuela Jan. 13 —

Venezuelan opposition leaders said Monday they were considering asking doctors, teachers and small business owners to return to work, saying aspects of the 43-day-old walkout could become "counterproductive."

But the strike will continue where it matters most, in the key oil industry, said Enrique Naime, a leader of the opposition political movement Democratic Coordinator. The industry provides half of government revenue and 80 percent of export earnings.

"The oil people are insisting they aren't going to cede," Naime said. "The strike will continue but it's important to continue without kicking goals into our own net."

The opposition is worried that suffering caused by the strike could lead to a popular backlash, even though it says it has taken measures to ensure there are no acute shortages of essential goods.

Most private schools and some public schools have been closed since the strike began Dec. 2. Hospital workers supporting the strike are only attending emergencies. Many small businesses complain they can't sustain losses much longer. Gasoline and bank lines are long; gas shortages have disrupted commerce. Many Caracas supermarkets have run out of fresh milk and are running low on basics such as flour and drinking water. Many medicines no longer are available at pharmacies.

"At this moment, the doctors' strike could be counterproductive, just like the educational strike could be counterproductive," Naime said.

He said strike leaders were considering asking medical workers, teachers and small business owners to resume work.

William Davila, another Democratic Coordinator leader, said the food industry also should be given the freedom to ensure supply.

But Davila said any easing of the strike should depend on a pending decision by the Supreme Court on the legality of a nonbinding referendum of Chavez's rule. The National Elections Council has set the referendum for Feb. 2.

The strikers are trying to force Chavez to accept a nonbinding referendum on his rule. Chavez's presidency runs until January 2007, and Venezuela's constitution says a binding referendum may be held halfway into his six-year term, or August.

Chavez's opponents cite a clause in the constitution that allows citizens to petition for referendums on "matters of national importance" at any time. They delivered 2 million signatures asking for the vote.

The strike is strongest in the state oil monopoly, Petroleos de Venezuela S.A., where 30,000 of 40,000 workers are striking. The government fired at least 1,000 managers. Energy and Mines Minister Rafael Ramirez said the government will bring oil production back to 2.5 million barrels a day by mid-February.

Once the world's fifth largest oil exporter and No. 4 supplier to the United States, Venezuela now exports less than 300,000 barrels a day, according to striking executives. The government says exports are 800,000 a day.

According to the Lundberg Survey of 8,000 U.S. service stations, Venezuela's strike has helped raise U.S. gasoline prices by 5 cents per gallon in the past three weeks to an average $1.50 a gallon.

Citing scarce gasoline imports from Venezuela, the U.S. Energy Department said American motorists could pay up to $1.54 per gallon of gasoline this spring even if war is averted in Iraq.

"The market underestimated the tenacity of the Venezuelan strikers," said Phil Flynn, head of the energy trading desk at Alaron Trading Corp. on the Chicago Mercantile Exchange. "People are finally starting to wake up not just to the strike but also to Venezuela's importance as a U.S. supplier."

In Maracaibo, 340 miles west of Caracas, police used tear gas to keep pro- and anti-Chavez rallies apart. National Guard troops used tear gas to stop a small clash in Caracas.

Chavez who purged the military of dissidents after a brief April coup has sent troops to seize striking oil tankers, commandeer gasoline trucks and lock strikers out of oil installations. Last week, he threatened to send soldiers to seize food production plants participating in the strike and fire or jail striking teachers.

"We are spending millions of dollars to import food," Chavez said Friday. "I can't allow the people to be strangled by hunger. I can't allow children to die because there are no medicines, or no milk."

www.themoscowtimes.com Tuesday, Jan. 14, 2003. Page 5 Reuters

LUKoil, the largest oil producer in the world's second-biggest exporter, said Monday it would hike output again this year as crude prices hover near two-year highs.

In a statement after a meeting of its board of directors, LUKoil set a production target of 80 million metric tons of crude for 2003 after production grew 2.2 percent to 78.2 million tons last year.

LUKoil's expansion mirrors the resurgence of the energy industry as a whole after a long period of post-Soviet decline. Russia has said it could catch up and even overtake Saudi Arabia as the world's largest oil producer in a few years.

LUKoil is well placed to benefit from oil prices that have shot higher recently because of a long-running strike in Venezuela, fears of a war in Iraq and supply disruptions.

The company also said it aims to produce 5.7 billion cubic meters of gas this year, up from 5.1 bcm in 2002. It set a capital expenditure target of around $2.4 billion for this year.

Leonid Mirzoyan, an analyst at Deutsche Bank in Moscow, said LUKoil's targets were as expected.

"The company's strategy is deferred growth; major production projects will lead to strong growth in 2005 and thereafter," he said.

LUKoil shares were down 0.98 percent to close at $15.15 in Moscow.

LUKoil said exports rose 4.9 percent to 34.3 million tons in 2002 and that its resource replacement ratio was 2.5 times.

Throughput at its refineries rose 9.2 percent to 41.5 million tons while gas throughput increased by 2.2 percent to 2.4 million tons. Petrochemical output rose 34 percent to 1.6 million tons.

LUKoil's statement said it had found new fields in the Caspian Sea basin and Timan Pechora province in 2002.

Russia's oil output is growing for the fifth consecutive year and is set to rise by a further 10 percent in 2003 from the current 8 million barrels per day level.

LUKoil's rivals Yukos and Sibneft both raised oil production by

www.krnv.com

Caracas, Venezuela-AP -- Some Venezuelan opposition leaders are afraid of a public backlash from the general strike. And they may ask doctors, teachers and small business owners to go back to work. One opposition leader says strikes by doctors and educators could be counterproductive.

There's also concern that small businesses may go under if the strike strategy continues.

The opposition is trying to drive President Hugo Chavez from office -- but he's now taking steps of his own.

Last week he threatened to send soldiers to seize food production plants taking part in the strike. He also threatened to fire or jail striking teachers.

The opposition vows the strike that has crippled Venezuela's oil production will continue.

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