ogj.pennnet.com Sam Fletcher OGJ Senior Writer

HOUSTON, Jan.10 -- A panel of former executive and technical employees of Petroleos de Venezuela SA (PDVSA) said Friday they are struggling to prevent Venezuelan President Hugo Chávez from taking over the state-owned oil company to "gain control of Venezuela's economy."

PDVSA generates more than 50% of the revenue received by the Venezuelan government and accounts for 20% of the Venezuela's gross national product, said Luis Pacheco, an engineer and planning director at PDVSA before being named president of PDVSA's US operations late last year (OGJ Online, Sept. 23, 2002).

In a US telephone conference call Friday, he and other former PDVSA officials claimed Chávez's administration faces a severe financial crunch over the next few months as the cash flow from foreign sales of Venezuelan oil and petroleum products dries up.

PDVSA's oil production has fallen to 340,000 b/d from 3.2 million b/d since the Dec. 2 start of a general strike in that country, aimed at forcing Chávez from power.

"Half of that is produced by third-party licensees and half by our own effort," said another panel member who was among some 800 PDVSA employees fired for participating in the strike. PDVSA workers still on the job also are producing 880 MMcfd of natural gas to supply electric power generators in Venzuela, but the company's refining and petrochemical operations remain virtually paralyzed, panel members said.

They disputed claims by Chávez and members of his administration that PDVSA will return to full production within 30-45 days.

It would take at least 2 months for PDVSA to regain 50% of its November production level and 3 months to reach 90%, based on the "fundamental premise of the right people (remaining) in the right places, and that we can restore the normality of our situation," panel members said.

Ciro Izarra, former manager of downstream international commerce for PDVSA, said "all but one" of the company's refineries are closed, while the domestic "distribution system for gasoline and diesel has virtually collapsed." Recovery of PDVSA's refining operations "depends on experienced people," he said. "With no (interim) maintenance, it could take awhile to restore."

Cut off from access to PDVSA facilities, panel members could not say if Chávez has succeeded in recruiting foreign specialists to replace any PDVSA workers, nor could they confirm reports of increased accidents at PDVSA facilities.

However, one said, "I'm sure the number of incidents has increased 1,000% in the last month" as the government has brought in unskilled workers and military personnel to reactivate PDVSA facilities.

However, Petroleumworld.com published on the internet a photograph of smoke billowing from a 130,000 b/d, reportedly resulting from damage to a seal in a vacuum unit as unskilled workers tried to bring that unit on stream. It also reported Rafael Ramirez, Venezuela's energy minister, denied claims by dissident workers that 31 accidents had occurred in the past 6 weeks as a result of operational failures.

Petroleumworld.com said local television stations reported 13 oil spills at Lake Maracaibo in Western Venezuela as unskilled workers tried to increase oil production.

Meanwhile, the panel of former PDVSA employees said there is no merit to new government plans to split the state oil company into two operational divisions, one controlling oil and gas activities in the eastern part of Venezuela and the other handling operations in the western part of the country.

"It's a back-of-the-envelope plan for political expediency. There's no rationale whatsoever for such a move," Pacheco said.

Since his election as president of Venezuela in 1998, Chávez has focused attacks on PDVSA and its employees, Pacheco said. As a result, he said, five boards of directors and six company presidents have rotated through PDVSA executive offices in the last few years.

Pushed to "a breaking point" in April 2002 when Chávez attempted to replace the company's professional executives with political allies, PDVSA employees "took to the streets," where they were joined by other opponents.

Chávez briefly was ousted as a result and promised on his return to office to work with PDVSA executives in the future.

Pacheco and other panel members said they are willing to abide by any democratic decision reflecting the will of Venezuelans in the current crisis. But they rejected a suggestion that other South American countries might align with the Chávez administration to press for an end to the strike.

"This is an internal issue to be decided by Venezuelans," Pacheco said.

Contact Sam Fletcher at samf@ogjonline.com

www.forbes.com Reuters, 01.10.03, 5:57 PM ET By Erwin Seba

HOUSTON, Jan 10 (Reuters) - Lyondell-Citgo Refining LP is laying off contract workers at its Houston plant and preparing further cuts as it operates at 50 percent of capacity because of a shortage of crude supplies from strike torn Venezuela, sources familiar with refinery operations said on Friday.

Lyondell-Citgo executives and officials of the union representing workers at the plant are scheduled to meet on Monday to discuss effects of the 40-day-old strike in Venezuela on plant operations, the sources said. Venezuela normally supplies about 13 percent of the United States' crude imports.

The cuts were directly related to the lack of supplies from Venezuela, the world's No. 5 crude exporter, the sources said. A Lyondell-Citgo spokeswoman did not return calls from Reuters. It is unlikely layoffs of union workers will be discussed at Monday's meeting between refinery executives and leaders from Local 4-227 of the Paper, Allied-Industrial, Chemical and Energy Workers International Union, one source said, but cancellation of bonus pay and other financial benefits may be discussed.

Officials of PACE Local 4-227 declined to comment on operations at the plant.

The national agreement between PACE and refining companies carries assurances of job security for union members while a refinery is operating.

The refinery, which has a crude oil processing capacity of 270,000 barrels per day (bpd), halved its production late last month because the supply of sour crude oil from Venezuela has been cut off by the general strike in that country.

The refinery has crude oil supplies to run at 50 percent capacity through the end of February, the sources said.

Late February may be a critical time for the refinery if the flow of sour crude from Venezuela does not resume, the sources said. They declined to say what options refinery executives have to cut costs after releasing 300 to 400 contract workers from the plant. They specifically would not comment on a possible shutdown of the plant or layoffs of union workers.

One source did say late February would at time for "hard decisions" if the flow of oil from Venezuela has not resumed. The refinery, located in the industrial section of east Houston along the Houston Ship Channel, is the hardest hit in the United States by the ongoing pollical crisis in Venezuela because one of its crude units is specifically configured to handle the sour crude oil produced from Venezuelan fields. That crude unit accounts for half the plant's crude oil throughput.

No replacement crude has been found that can successfully run in that unit, sources have told Reuters.

That crude unit has been idled and is undergoing minor overhaul work, sources said. It can be restarted in about five days, they said. Lyondell-Citgo Refining LP is a joint venture between Lyondell Chemical Co. (nyse: LYO - news - people) and Citgo Petroleum Corp. Citgo is an indirect, wholly owned subsidiary of the Venezuelan state oil company, Petroleos de Venezuela SA (PDVSA).

www.nytimes.com January 11, 2003 By JAMES DAO and NEELA BANERJEE

ASHINGTON, Jan. 10 — The crisis in Venezuela is creating major new complications for the Bush administration's campaign to oust President Saddam Hussein of Iraq, causing oil shortages that would probably make a Persian Gulf war more costly to the economy than once anticipated, American officials and industry experts said.

The 40-day strike has virtually shut down Venezuela's oil industry, the fifth-largest in the world, and proven more difficult to resolve than the administration expected, the officials said.

Efforts to end the stalemate between President Hugo Chávez and his opponents have been hamstrung not only by the intransigence of both sides in Venezuela, but also mistrust toward American diplomats, the officials added.

Venezuela has for decades been one of the most dependable sources of petroleum for the United States, where industry analysts say the strike has already hurt some refineries and driven up the retail price of gasoline by at least a dime a gallon.

Those shortages will only worsen, and prices continue to rise, if the United States attacks Iraq, they predicted. That means that war in the Persian Gulf could prove more costly to the American economy than had been projected if the Venezuelan standoff is not ended soon.

For that reason the Bush administration has been debating plans to release oil from the Strategic Petroleum Reserve, which contains nearly 600 million gallons of crude. For now, though, the White House has decided to defer those plans, mainly to keep oil available in case of war in Iraq, administration officials said.

"A few months ago everybody thought that if we went to war in Iraq oil wouldn't be a major problem, because there was enough spare capacity to make up for lost Iraqi oil," said Larry Goldstein, president of the Petroleum Industry Research Foundation Inc., a research organization. "But no one then was contemplating lost Venezuelan oil."

"Now," he said, "we won't have enough spare capacity to take care of both those events."

The crisis could be compounded if President Chávez follows through on a proposal to split the government-owned oil company, Petróleos de Venezuela S.A., into two parts and restructure its central offices.

American officials say Mr. Chávez's true goal is to install political loyalists in place of the union leaders and senior managers at the oil company, known as PDVSA, who have joined the strike.

The result could be a more pliable but less efficient company that produces less oil than the roughly three million barrels a day that Venezuela produced before the strike, officials and experts said. That could leave the United States even more dependent on Middle Eastern oil, the experts said.

"Petróleos is one of the few state-owned oil companies in the OPEC group that approximates a normal integrated major oil company," said Leonidas P. Drollas, chief economist with the Center for Global Energy Studies in London. Echoing other industry analysts, Mr. Drollas added, "To break it up into anything sounds obviously politically motivated."

The Bush administration, acknowledging the growing danger from the Venezuelan strike, has stepped up its efforts to calm the oil markets, lobbying major oil exporters to increase production. At a meeting in Vienna this weekend, the Organization of the Petroleum Exporting Countries is expected to vote to increase production by 8.7 percent, or nearly two million barrels a day, officials said.

The United States is also working with Mexico, Brazil and the Organization of American States to cobble together a coalition of South American governments to broker a truce. Diplomats working on the crisis are worried that the O.A.S., which has spearheaded negotiations, lacks the influence to persuade Mr. Chávez to consider concessions.

That will be a topic of discussion when foreign ministers and heads of states from Latin American countries gather in Quito next week for the inauguration of Ecuador's new president.

But senior Venezuelan officials have already expressed suspicions about the administration's intentions.

"We trust that the United States will not take a stand that will divide this country into pro-Americans and anti-Americans," Venezuela's foreign minister, Roy Chaderton, said in an interview. "We want them to respect that this is a democratically elected government."

The Venezuelan Constitution allows for a recall vote halfway through a president's term, which in Mr. Chávez's case would be August. The opposition has said that is too late.

The Constitution could be amended by the national legislature to allow for earlier elections, but Mr. Chávez has rejected that idea. A third option would be a nonbinding referendum on Mr. Chávez's popularity in February. The opposition is proceeding with plans for one, but Mr. Chávez has challenged its constitutionality.

American officials say they do not care which electoral option is accepted, as long as an agreement is reached that ends the violent confrontations that have been occurring and allows renewed oil production.

"This is an incredibly important moment in Venezuelan history," a senior State Department official said. "Things are happening now that are going to affect Venezuela for decades: its energy relationship with the United States, the structure of PDVSA, the integrity and credibility of its democratic institutions — all of these things are at stake."

But many Latin American experts say the administration's efforts have been too little, too late. They contend that the Bush administration, distracted by Iraq, allowed Venezuela's problems to fester.

Others say the administration committed two blunders last year that have hurt its credibility with Mr. Chávez and other Latin American leaders: in April, by appearing to endorse an attempted coup against the Chávez government, and in December by briefly joining the opposition's call for early elections.

In addition, the State Department's Latin America desk has been leaderless through much of the strike. The last assistant secretary of state for Western Hemisphere affairs, Otto J. Reich, was reassigned in November after his temporary appointment expired. The White House intends to nominate Roger F. Noriega, the representative to the Organization of American States, to replace him.

"There is no one at the wheel here," asserted Moisés Naím, the Venezuelan who is the editor of Foreign Policy magazine.

Some oil analysts argue that the administration should have moved faster to stabilize the oil market. Those analysts, along with some members of Congress, have urged the administration to release oil from the Strategic Petroleum Reserve.

Even a relatively modest "loan" of 20 million to 30 million barrels to American refineries would stabilize prices and ease short-term disruptions, giving the OPEC countries time to ramp up production. It typically takes 30 to 45 days for Persian Gulf oil to reach the United States.

The impact of the Venezuelan crisis has been widely underestimated by officials and consumers, oil experts said. Venezuela once exported 2.7 million barrels a day, 1.5 million barrels of that going to Untied States, or about 14 percent of America's crude oil imports.

Now, Venezuela says it is producing about 600,000 barrels a day, though outside experts estimate the volume at less than 400,000 barrels.

That means that more than two million barrels a day of Venezuelan crude have been removed from the global market, making this the worst disruption in supply since the Persian Gulf war of 1991, experts said.

www.thoroughbredtimes.com Posted: 1/10/2003 9:41:00 PM ET

Thoroughbreds from Venezuela?s most important tracks are suffering a serious shortage of feed, which is jeopardizing the continuity of racing, following 38 days of social crisis and general strikes against President Hugo Chavez.

La Rinconada racecourse in Caracas, as well as Valencia and Santa Rita in Maracaibo, three of Venezuela?s most important racecourses and training centers, may be force to cancel racing if conditions do not improve shortly.

Many trainers are complaining they are not receiving their daily feed supplies, which could lead to the suspension of racing.

"There is no food to feed the horses; many trainers have canceled their regular gallops and a definitive [suspension of racing] is very possible unless the food arrrives shortly," said La Rinconada’s 2001 leading trainer Francisco D’Angelo whose stable has reached the state of emergency.—Michael Burns and Diego Mitagstein

news.independent.co.uk By Andrew Gumbel in Los Angeles 11 January 2003

The United States is preparing a major initiative aimed at defusing Venezuela's political crisis and ending an anti-government strike that has halted the energy exports of the world's fifth-largest oil producer. The Bush administration is expected to call on governments in Latin America, as well as the Organisation of American States, to negotiate an end to the crisis and map out a definitive strategy for dealing with Venezuela's President, Hugo Chavez.

The Washington Post says a new group, to be called the "Friends of Venezuela", will attempt to steer a middle path between President Chavez, who has so far resisted all calls to step down, and the opposition.

The Bush administration was badly stung last April when it enthusiastically backed an anti-Chavez coup, only to see the coup fail within 48 hours. It has been spurred into action now, diplomats say, because of concern about world oil supplies on the eve of a possible war against Iraq and a determination not to be upstaged by left-wing governments in Latin America which have proposed their own intervention strategy in Venezuela.

The loss of Venezuela oil exports, including 1.5 million barrels a day to the US, has already helped push world oil prices over $30 a barrel. A war in the Gulf is expected to cause a further rise, at least in the short term, and there may be longer-lasting supply problems if, say, Saddam Hussein sabotages Iraq's oilfields or attacks those of his neighbours in Kuwait and Saudi Arabia.

Washington appears to have been alarmed by an intervention proposal from new left-wing President of Brazil, Lula da Silva. He had suggested a regional crisis meeting next week in the Ecuadorean capital, Quito, where another left-wing populist, Lucio Gutierrez, has taken power. Both leaders have attracted suspicion in Washington, particularly in right-wing circles.

The "Friends of Venezuela" group would rather fold Brazil into a broader group that would include the US, Mexico, Chile and possibly Spain. The Friends of Venezuela will look at two proposals: a constitutional amendment opening the way for early elections in Venezuela, or a referendum on President Chavez's rule, which under present conditions could not be held before August.