<a href=www.vheadline.com>Venezuela's Electronic News Posted: Monday, April 28, 2003 By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: An explosion in the Jose Petrochemical complex in eastern Venezuela produced several deaths and injured ... as a result, the MTBE plant which supplies the US market is totally and indefinitely paralyzed.

Another explosion at the Amuay refinery, in western Venezuela, has paralyzed the operations at this refinery for one week.

Oil spills in the "new" PDVSA are 50 times the number of oil spills taking place before the December strike.

The government is no longer talking about sabotage since it is increasingly obvious that the accidents and damage suffered to PDVSA plants and equipment of are the result of the incompetence of the improvised staff.

After more than 18,000 managers and technicians were fired over the radio and their names published, like criminals, in newspaper lists, the doors of PDVSA were opened, to let "revolutionary" workers replace the professional staff.

It's truly a miracle that no more accidents have taken place since ideological affinities are, today, the main and only requisites to get a "technical" or "managerial" job in the "new" PDVSA.

This was to be expected in a company which has a former terrorist, the so called 'Comandante Fausto,' aka Ali Rodriguez Araque as its president.

In parallel with these accidents there's increasing anarchy within the organization. The Marketing Division, in charge of selling oil and products internationally, is in the hands of a group of youngsters of doubtful transparency and great indiscipline. They are in open rebellion against the new manager, Nelson Reyes ... a retired employee pressed back into service, who lacks the required "revolutionary" credentials. Although Reyes was not involved in the strike, he does not have the trust of the radicals in the organization.

In the production division in eastern Venezuela there's organizational chaos due to the removal of Gilberto Zerpa, an engineer with great popularity among his colleagues.  Zerpa was named in his job by President Chavez but, a few days ago, Chavez himself fired him.

A company in which the President of the country employs and dismisses middle managers is bound to become a Mickey Mouse company in the short term. In fact, this short term is already here. The technical staff in eastern Venezuela are now up in arms (figuratively) against Chavez. As would be expected, PDVSA has been severely downgraded by the international community ... not so much due to the strike, but to the dismal performance of the new management and technical team.

While the "new" PDVSA is starting to rot from within, some international companies are sending mercenaries to do jobs for a company which is no longer the company they were doing business with.

• They know very well what is happening in PDVSA ... they know that the company is being dismantled and systematically destroyed in the name of a vague and undefined "revolution."
• They know that the corporate values they share are rapidly being disposed with in the "new" PDVSA.
• They know that the top officers of this PDVSA are the same persons that during the 1960´s were blowing up their installations all over the country. They know....

And yet, they're sending their people to help a crime to be committed ... they're not doing this because they need the money. They're too big and powerful for that!

They do not have any contractual obligations to do that because Technological Agreements signed by PDVSA with these companies in 1976 are no longer valid ... they faded away many years ago when INTEVEP, PDVSA's research company came into being.

What are they looking for?

Positioning, of course. But I say: What positioning will you have in two or three year's time, when a new government is in place and when PDVSA is back in the hands of its true managers? Positioning is a medium- to long-term proposition. but if you are betting on Chavez to be here until 2021 (as he claims), I can tell you that the odds are very much against you.

I recommend that you read Venezuelan history. If you do, you'll see that nationalization of the petroleum industry in our country was accelerated because of resentment created among democratic political leaders because of the cozy relationship some of you guys had with the Dictator Perez Jimenez.

The success of international oil companies in host countries has much to do with the empathy these companies develop with the country, rather than with the governments. If you bet on political horses rather than interpreting correctly the real mood of the country you are not going to be well positioned.

But, who am I to tell you this?

I am just an old petroleum hand while, surely, you have the technology, the know-how, the financial clout, the organizational might to be successful in any country ... be it Angola, Chad or Venezuela.

I just might mention that maximum benefits are usually less desirable than optimum benefits and that, after all, the heart of a big corporation ultimately has to be in the right place if it wants to come out on top.

You think Chavez is going to hand over the petroleum industry to you. There's no doubt that international petroleum companies should play an important role in the development and successful management of our oil resources ... I've always been in favor of an aggressive "aperture" (opening up) of our oil industry to private investment ... but this is not the way to do it.

It can not and should not be done by taking advantage of the political destruction of the real company by the lame duck and rogue government that is now offering you an opening.

Faust sold his soul to the devil and paid for all eternity.

Are you going to do business with this Commander Faust, who is at the threshold of political oblivion?

GIMME ME A BREAK...

Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983.  In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort.  You may contact Gustavo Coronel at email gustavo@vheadline.com

Our editorial statement reads: VHeadline.com Venezuela is a wholly independent e-publication promoting democracy in its fullest expression and the inalienable right of all Venezuelans to self-determination and the pursuit of sovereign independence without interference. We seek to shed light on nefarious practices and the corruption which for decades has strangled this South American nation's development and progress. Our declared editorial bias is pro-democracy and pro-Venezuela ... which some may wrongly interpret as anti-American. Roy S. Carson, Editor/Publisher Editor@VHeadline.com

By Inti Landauro

Lima, April 27 (<a href=quote.bloomberg.com>Bloomberg) -- Peru granted political asylum to two retired Venezuelan military officers who participated in a civil disobedience campaign against President Hugo Chavez, bringing to five the number of Venezuelans who received asylum in the past year.

The Peruvian Foreign Ministry said in a statement it granted asylum to retired military officers Wismerck Martinez and Jose Landaeta. They will go to Peru immediately after Venezuela authorizes the travel, the statement said. The pair applied for asylum on Thursday.

The Peruvian ministry gave no details as to why it accepted the officers' request. The Dominican Republic Embassy in Caracas is still considering the request of two other officers who applied for asylum on Thursday.

Martinez and Landaeta are the latest Venezuelan opposition leaders to receive asylum in the past year since a military coup deposed Chavez for two days in April last year. They follow Carlos Ortega, a union leader, who was granted asylum last month by Costa Rica.

Dissident military officers took over Plaza Francia in the upper-class neighborhood of Altamira in October, calling for civil disobedience against Chavez. The officers, who now number more than 100, have promised to stay in the square until Chavez resigns.

Two of the officers have been arrested this year, while another three were murdered. Investigations into the murders are continuing.

Venezuelan newspapers reported yesterday that security forces have stepped up patrols at the country's embassies to prevent other officers from seeking asylum.

By Peter Wilson

Caracas, April 28 (<a href=quote.bloomberg.com>Bloomberg) -- Super Octanos SA, one of Venezuela's largest petrochemical companies, said one of four workers injured in Friday's explosion and fire has died, the plant's first fatality in 11 years, El Nacional reported.

Super Octanos, which produces methyl tertiary butyl ether, a gasoline additive used to boost octane and add oxygen to make fuel burn cleaner, remains shuttered. Unidentified officials gave no indication when it would restart operations, the newspaper said.

The fire and explosion may have resulted from a leak in one of its systems, releasing oil components into the atmosphere, the paper said. Super Octanos is a joint venture among Venezuela's state petrochemical company Pequiven SA, Italy's Ecofuel and Venezuela's Mercantil Servicios Financieros.

The plant, in the eastern state of Anzoategui, has the capacity to produce 600,000 metric tons a year.

(EN 4-28, B14) To see El Nacional's Web site, click on {NCNL } Last Updated: April 28, 2003 08:36 EDT

By ROBERT J. McCARTNEY <a hre=goerie.com>goerie.com-The Washington Post

VIENNA, Austria — The planned rebuilding of Iraq's oil industry could drive down prices and loosen the grip on world markets of the Organization of Petroleum Exporting Countries and its leader, Saudi Arabia.

With the expected removal of United Nations sanctions, which have hobbled Iraq's oil facilities for 12 years and excluded it from OPEC production agreements, the nation is poised to reclaim its position in the top rank of petroleum exporters.

While it is not clear what kind of government will emerge after the U.S.-led toppling of Saddam Hussein, any new administration in Baghdad will be eager to increase oil revenue quickly to finance reconstruction, OPEC and industry specialists said.

That prospect for Iraq creates significant new competition on world markets.

It adds to strains on OPEC that already challenge the Saudi-engineered strategy of adjusting production to keep prices from $22 to $28 a barrel.

OPEC feels steadily increasing pressure from non-OPEC exporters, especially Russia.

Moreover, the organization is riven by an internal dispute over production quotas, with Algeria, Nigeria and some other members pressing for a larger share of OPEC's total output.

A struggle for influence in oil markets could be part of a larger battle for political leadership in the Persian Gulf. A democratic Iraq would be an example of an alternative to the region's mostly authoritarian governments.

Iraq, which has the world's second-largest oil reserves after Saudi Arabia, has produced at most 2.5 million barrels a day in recent years and is exporting nothing now. It is likely to raise production to 3.5 million barrels a day within two years, when, by opening fields that have gone untapped because of the sanctions, it could increase production to as much as 6 million barrels a day in five to seven years.

That would be nearly a quarter of OPEC's current targeted output of 25.4 million barrels a day. Other OPEC countries would have to give up a lot of production, and revenue, to make room for Iraq.

"The pressure will start this year, when Iraq comes back" and resumes exports, said Nordine Ait-Laoussine, a former Algerian oil minister who is president of Nalcosa, an energy consulting service in Geneva. "OPEC has to think hard about whether it can maintain the price range of $22 to $28."

He and other specialists predicted pressure in coming years to drive world prices below $20 a barrel. That would mean a drop in average oil prices of at least $5 a barrel from OPEC's current target. That translates roughly into a reduction in gasoline prices of 12 cents a gallon, and an addition of half a percentage point to the rate of global economic growth.

OPEC is counting on a strong increase in worldwide demand for oil to absorb increased Iraqi production in the long run. Some forecasts, such as by the International Energy Agency in Paris, foresee a large increase in oil demand, partly because of China's rapid industrialization.

"In five to seven years, I believe this will all be academic, because demand will be up there, and countries will be struggling to make investments" to increase oil production, Saudi Oil Minister Ali Nuaimi said after the OPEC meeting here Thursday. But he conceded that there will be problems, at least in the near term. "The main thing is to survive the next two to three years," Nuaimi said.

Saudi Arabia will be at the center of the struggle. As the largest producer among OPEC's 11 members, pumping nearly a third of the group's output, it is under the most pressure to reduce production so other countries can raise theirs. Poorer OPEC members resent Saudi Arabia's effective control of the market, a privilege it enjoys because its large excess production capacity gives it the ability to raise or lower output much more than any other country.

In recent years, the Saudis have placated the rest of OPEC by overseeing production accords that kept prices well above $20 a barrel. That level is widely seen as critical, because lower prices would mean that many OPEC countries, including Saudi Arabia, could not meet their national budget demands.

The other half of the equation is that Saudi Arabia also has moved to keep prices from going above the target range. It did so in dramatic fashion this year by increasing production sharply after prices rose to $39 a barrel owing to fears of the impending Iraq war and unexpected shortages caused by a strike in Venezuela and violence in Nigeria. As a result, prices fell back even before the war began.

"OPEC as an organization did extremely well managing supply, particularly in the last five months," Nuaimi said. "I think you will admit that OPEC delivered on its commitments."

Saudi Arabia acted to prevent oil shortages in part to please the United States, and it fears that it will lose influence in Washington and elsewhere to Iraq's new government, according to industry specialists and Middle East analysts.

The belief is widespread in the Arab world that Washington may seek to establish a pro-Western government in Baghdad that might withdraw from OPEC and pump as much oil as it could.

But the United States also has said that the Iraqi people will choose their government and decide how best to use their oil resources. That leads OPEC officials and many oil experts to predict that Iraqi nationalism and economic self-interest will lead the new government to remain in the organization, which was founded in Baghdad in 1960.

"I don't believe that the Iraqis, if they are genuinely elected, will quit OPEC. I don't think the Iraqis will push production to the maximum, regardless of price," Ait-Laoussine said.

Nuaimi also predicted that Iraq would choose to work within OPEC, and accept restraints on production to support the price and maximize revenue.

"When there is an Iraqi government that we can deal with, the first thing we will ask them is, 'Do you like a $25 price?', and if the answer is yes, then we will tell them how to tangle with us," Nuaimi said.

AP-NY-04-27-03 1319EDT Last changed: April 27. 2003 9:42PM

April 27, 2003 by Irwin Stelzer of TimesOnline.com-The Sunday Times

WHEN coalition forces found that Iraq’s technicians had refused to torch their oilfields, buyers looked forward to falling crude prices. But analysts who had predicted that the liberation of Iraq would quickly increase the volume of crude oil coming onto world markets received a bit of a shock.

First, the Opec cartel agreed to cut output by 2m barrels a day, or at least seemed to do so. Then, technicians found that Iraqi oilfields had been more starved of investment than anyone had thought, and that the looting of everything from tools and equipment to the buses needed to get workers to the fields, will slow efforts to restore production to the 2m-barrel-a-day level before liberation.

Equally annoying, the UN Security Council refuses to end its oil-for-food programme by dropping its sanctions — no surprise since the 2.5% it gets on all sales is used to feed the 3,000-person bureaucracy that administers the programme, and Russia and France want to control the awarding of reconstruction contracts.

That places a legal cloud over the title to Iraq’s oil, with the right to sell it claimed by the coalition; the UN; Mohammed Mohsen al- Zubaidi, an exile returned to Iraq to proclaim himself governor of Baghdad; and the several Shi’ite clerics who are using the freedom won for them by the American military to cry “Yankee go home” at rallies attended by the millions of their co-religionists who constitute 60% of the Iraqi population.

Some of these problems can be solved. America can simply ignore the UN, and start selling Iraq’s oil. Buyers who are nervous about receiving clean title to the oil can be reassured by American guarantees or some form of insurance. Or America can simply buy the oil on its account, and pay money into a trust fund for the Iraqi people.

But adding Iraqi oil to world markets might still prove to be no easy thing. When the Americans promised to create a democracy in Iraq they didn’t consider the possibility that Iraq’s 100 billion barrels of oil reserves (9% or more of the world’s total) might end up in the hands of an Islamic regime similar to that in Iran. If the behaviour of Iran (almost 9% of world reserves) is any guide, Iraq’s new clerics-turned-oil-moguls will be price hawks — a voice for the low- output, high-price scenario that analysts were hoping a democratic Iraq would end.

There is worse. In Russia (which has almost 5% of world reserves), Yukos’s acquisition of Sibneft creates a $35 billion company, the seventh-largest oil group in the world, measured by market value. That behemoth is unlikely to be a price-cutting scrambler for short-term revenue. Besides, the pipelines and ports needed to bring more Russian oil to market will cost some $5 billion and be completed no earlier than 2007. So don’t look to Russia for near-term price relief.

Or to Nigeria, America’s fourth-largest source of imports. With opposition parties threatening disruption to protest the apparently fraudulent re-election of President Olusegun Obasanjo, the African nation is unlikely to be a totally reliable supplier. Venezuela, another important American supplier, sits on 7% of world reserves and is controlled by a pro-Castro president who has precipitated a supply- disrupting strike by politicising the industry’s management, and is running the fields so badly that productive capacity has fallen. Mexico shows no sign of expanding capacity by dropping its ban on foreign investment in its oil business. And petroleum inventories in America are at the lowest level in 30 years.

True, oil markets have recently eased a bit. Petrol prices are down 14 cents from their mid-March peak of $1.73 a gallon, as additional crude produced by Saudi Arabia before the war reaches our shores, along with record imports of petroleum products. And demand is being further dampened by the slowing of Asian growth caused by the Sars outbreak, continued recession in Germany and France, and reduced air travel everywhere.

So we have two conflicting signals. On the supply side, there are constraints both political and economic: unstable regimes, a cartel that is threatening to cut back output, and shortages of infrastructure investment. That should mean higher prices. But on the demand side, we have Sars, the collapse of air travel, and slow growth. That should mean lower prices.

Steve Strongin, director of commodity research at Goldman Sachs, has balanced these conflicting pulls on price and decided that crude will likely jump into the low $30s when America’s holiday driving season starts in June. But when Iraq’s oil hits the market in significant quantities, a downward move to Opec’s preferred range of $22-$28 a barrel is likely.

In the end, oil prices may depend on the willingness of Opec to cut output from 26m barrels a day to the quota level of 24.5m, and eventually to trim back even further to make room for Iraq to re-enter the market. The biggest reductions will have to be taken by the Saudis.

And there’s the rub. If George Bush is serious about waging war on terrorism, he will have to put pressure on the Saudis to stop funding the spread of the creed that underlies it. But the president needs the Saudis. Since he cannot persuade Congress to give him the tax cuts he has asked for, he needs a different stimulus — oil prices low enough to keep consumers in the malls, car showrooms and estate agents’ offices.

And here is the ultimate irony: the elder Bush was disliked by many of the younger Bush’s ardent supporters for kow-towing to the Saudi royal family. These folks now find themselves serving a president whose re-election might depend on the favour of those very same royals. That is the price America pays for its inability to develop a policy for reducing its dependence on Saudi oil.

• Irwin Stelzer is a business adviser and director of regulatory policy studies at the Hudson Institute