Venezuela to split state-owned oil company in response to crisis

www.etaiwannews.com 2003-01-08 / New York Times /

A Venezuelan pushes his car in a line of cars waiting to fill up with gasolin in Caracas, Venezuela, Monday.(AP)

Energy Minister Rafael Ramirez said yesterday that the government planned to take the state-owned oil company, the world's fifth largest, and break it in two, hoping to snap the back of a devastating six-week strike aimed at driving President Hugo Chavez from power.

Ramirez, who offered preliminary details of the plan in an interview, said the government intended a sweeping restructuring of Petroleos de Venezuela.

The company, widely known by its Spanish acronym, PDVSA (pronounced peh-deh-VEH-sah), controls the largest oil fields outside the Middle East and is an important supplier to the United States.

He said the government would "decentralize" the company by dividing it into PDVSA East and PDVSA West and hollowing out the Caracas-based management.

Such a move would effectively gut the company of middle- and upper-level executives who have joined a coalition of business and labor leaders in opposing Chavez, whose left-leaning policies they say are destroying the country.

Opponents said floating such a plan amounted to government bluster aimed at breaking the morale of what they estimate are 30,000 oil workers who have joined the strike.

Ramirez said the goal was to restore the company's production capacity of some 3.1 million barrels of crude oil a day while reducing "exorbitant bureaucratic costs," which he estimated at US$1 billion. He said the company produced about 14 million barrels last month and was currently turning out 800,000 barrels a day, a quarter of what output was before the strike.

Outside experts expressed doubts that the company was producing even that much oil, and they were immediately skeptical that the plan could revive production to pre-strike levels.

Ramon Espinasa, a former PDVSA economist and now a consultant to the Inter-American Development Bank, said such a plan could have a devastating impact on what was once considered a model among state-run oil companies, and an equally devastating impact on Venezuela's oil-dependent economy. It could also reverberate through world markets and in the United States, which imports about 14 percent of its oil from Venezuela.

"We could talk about the need to diversify the economy, but those are long-term goals," Espinasa said. "But right now, Venezuela's economy needs oil. If not, the country could collapse."

The plan, experts said, appeared to be far less an economic strategy than a political one, aimed at purging the company of Chavez opponents once and for all and wresting more political control over the industry, even if it means enduring sharp declines in production.

Moises Naim, former minister of trade and industry and now editor of Foreign Policy, drew comparisons between what is happening in Venezuela today and what happened in Iran after the Islamic Revolution in 1979.

Iran's oil production, which rivaled Saudi Arabia's, plummeted from six million barrels a day to less than two million. In the decades since, Iran's oil output has been about half the pre-revolution levels. But, Naim said, the Iranian government has tighter political control of the industry.

"He may be willing to live with a smaller oil industry, and a less competitive oil industry, as long as he has more control over it," Naim said, referring to President Chavez. "What we know is that Chavez intends to stay in power at any cost."

In a televised address on Sunday night, Chavez said he had assumed the rank of "oil commander" and promised to rebuild the state company into "a new PDVSA, a patriotic PDVSA."

"PDVSA is being restructured for the benefit of all Venezuelans," he added. "In the near future we will see the fruits that we're sowing."

Ramirez rejected the view from critics, saying President Chavez remained committed to upholding the industry's strong performance. He acknowledged that getting the fallen industry up again was a Herculean task. The strike has virtually paralyzed PDVSA, shutting down refineries and strangling exports.

But, he said, the strike had shown the government that the industry could run with a significantly reduced labor force. Restoring oil operations had been delayed by sabotage at most installations, he said.

But, he added, signs of a slow but steady recovery were clear. He cited a number of tankers that have left Venezuelan ports and the restarting of two main oil refineries, at Puerto La Cruz and El Palito.

No one outside the national oil company is certain of the current state of Venezuela's oil fields. Opposition leaders, including Luis Pacheco, a former director of corporate planning at PDVSA, dismiss government industry reports as "pure fiction." He estimated that the government was producing about 200,000 barrels a day, enough to meet minimal domestic demands and fulfill some export commitments.

Government estimates seem to vary by the hour. On Sunday night President Chavez said the industry was exporting 1.5 million barrels a day. On Monday morning the PDVSA president, Ali Rodriguez, reported that the industry was producing 600,000 barrels a day. Ramirez put daily production at 800,000 barrels.

Outside experts estimate that the government is producing at most 400,000 barrels a day.

"Clearly, by inflating production figures, his game plan is to psychologically wear down the workers," said Michael Shifter at the Inter-American Dialogue, referring to President Chavez. "As time passes, he believes, the workers will get fatigued and come back to their jobs, before they lose them forever."

But, he said, exaggerated rhetoric runs both ways. Every day, the opposition issues oil industry reports promising that President Chavez is close to running out of gas -- literally and politically.

"They are desperate," Shifter said of the opposition. "They feel this is their last battle, and that if they lose, there will be no way to get Chavez out."

Industry experts concur that "the longer the strike goes on, the more problems Venezuela will have in reactivating their wells," said George Beranek, manager of market analysis at the Petroleum Finance Company, a Washington consulting group.

Much of the difficulty in restoring output arises from the unique properties of the country's crude oil. Of the three million or so barrels of oil a day that Venezuela once produced, about 75 percent was heavy oil, Beranek estimated.

Heavy crude is particularly viscous, and the petroleum from Venezuela's vast Orinoco belt is so thick that it is classified as bitumen and must be processed at specially outfitted domestic refineries before it can even be called oil and shipped to standard refineries overseas. Heavy oil has a tendency to gum up unless it is under the constant pressure and flow that is used to extract it.

So Venezuela risks permanently losing hundreds of thousands of barrels a day in production capacity from a protracted shutdown.

In 1998, for example, when very low oil prices led Venezuela to shut some wells, the country permanently lost 500,000 barrels a day in capacity, said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation.

He estimated that about one-third of Venezuelan fields could be restored quickly, in about two weeks, based on his discussions with experts from Petroleos de Venezuela. Most of the rest would take another four to six weeks, he said, with about 400,000 barrels a day of bitumen from Orinoco requiring even more time.