FEATURE-No turning back in Chavez fight for Venezuela oil

www.forbes.com Reuters, 01.27.03, 12:23 PM ET By Tom Ashby

CARACAS, Venezuela (Reuters) - "No pact. No negotiation. Deepen the revolution," reads graffiti daubed in red paint opposite the Caracas headquarters of state oil company Petroleos de Venezuela (PDVSA).

The message is not wasted on leftist President Hugo Chavez. Faced with an eight-week-old strike intended drive him from office, he has responded by tightening his grip on the company and removing his opponents from its management.

As Venezuela's economic powerhouse and a natural workplace for the country's elite, PDVSA was an obvious target for Chavez, who draws much of his support from the slums that house almost a third of Venezuela's population.

The strike has cut off Venezuela's economic lifeline and seriously threatened Chavez's presidency. But the former paratrooper wasted no time in his counterattack, sacking 3,000 top managers, breaking the company into two small operating units, and boosting the government's role in the oil industry.

"The coup plan has allowed us to deepen the revolutionary process, because there is no other way of defeating it. We won't go back or negotiate principles because the revolution is not negotiable," Chavez said on Sunday, referring to the strike as a second attempted coup against him.

Having survived a coup in April staged by rebel military factions and key PDVSA managers, the populist leader has grown more cunning at dealing with opposition in the world's fifth largest oil exporter.

"The April coup allowed us to restructure the Armed Forces," Chavez told a news conference on Sunday. "Now the December coup, the (oil industry) sabotage, has allowed us for the first time to nationalize the oil company," he said, adding that PDVSA had become a "state within a state."

To fill the chairs emptied by the strikers, Chavez's trusted PDVSA chief, Ali Rodriguez, moved loyal bureaucrats from the Energy and Mines Ministry out of their dilapidated skyscraper in central Caracas last week to occupy PDVSA's plush La Campina headquarters in the east of the capital.

LONG-TERM SUPPLY LOSS It was a further sign that Chavez has no intention of negotiating with the strikers, whose conditions include early elections and a return to their jobs in PDVSA.

The government has said it can restore crude flows fully by the end of March.

But opponents think the changes have critically weakened a company which, while the rest of the country descended into economic turmoil, had remained a powerful competitor in the cut-throat global oil market.

Without a political settlement in which sacked PDVSA managers and skilled workers are returned to their jobs, Chavez will never get back to pre-strike output of 3 million barrels per day, the opponents have said.

"It is impossible for PDVSA to return to normal while Chavez remains in the presidency," said former energy minister Humberto Calderon, who backs the opposition.

He fears the government, in its rush to get output back up, is doing long-term damage to Venezuela's reservoirs, many of which have been pumping oil for more than half a century, while the government blames the strikers for damage to Venezuela's reputation abroad.

"Part of the damage of this strike is that PDVSA and Venezuela have destroyed their reputation as a secure energy provider to the rest of the world," Rodriguez said in a newspaper interview on Sunday.

"We will reestablish operations because that is our task, but can we really say we have won?" Rodriguez said.

POWER AND PERKS For decades, PDVSA used special privileges, including preferential access to oil revenues, relatively high wages and other perks, to accumulate power and international respect.

It attracted huge foreign investments to Venezuela, beat off multinational rivals to build up a huge global refining and marketing system, and achieved a credit rating superior to its sovereign parent.

Rodriguez, a former communist guerrilla, has argued that many of PDVSA's high-profile ventures, such as Citgo in the United States and Ruhr Oel in Germany, made no economic sense.

He saw them as part of a secret campaign to transfer Venezuelan capital from Caracas to the United States and Europe, bankrupt the company and force its privatization.

PDVSA commercials on the state television channel now aim to convince Venezuelans that PDVSA grew increasingly inefficient during those years, while its employees grew rich at the country's expense.

Chavez has dismissed oil strikers as a rich, resentful elite intent on toppling him by destroying the oil sector.

"The salary of 11 of the oil industry conspirators was twelve billion bolivars a year ($6.5 million), three million bolivars ($1,600) each per day, equivalent to the annual cost of 20 schools," the government commercial says. "In the 1970s, PDVSA handed over 70 percent to the national treasury. Now it gives 20 percent. PDVSA was devouring itself."

The new PDVSA, split into two operating units in eastern and western Venezuela, holds forums to explain the transformation in school halls in working class districts of western Caracas.

But the message has yet to impress Wall Street, which has reduced the company's credit rating deep into junk territory.