Analysis: Opportunity in Venezuela strike

www.upi.com By Owain Johnson UPI Business Correspondent From the Business & Economics Desk Published 2/3/2003 6:19 PM

CARACAS, Venezuela, Feb. 3 (UPI) -- Venezuela's state-owned oil producer Petroleos de Venezuela SA, hard hit by the country's general strike, hopes to turn a crisis into an opportunity. Its president, former OPEC Secretary-General Ali Rodriguez, will take advantage of a walkout by top managers and administrative staff to restructure.

The general strike, which failed to force leftist President Hugo Chavez to resign, has begun to crumble But the 64-day protest is continuing in the oil sector, where most top PDVSA managers and administrative staff are observing the stoppage.

PDVSA is a major supplier of crude oil to the United States, where the company also operates 13,000 gas stations under its CITGO brand. Before the general strike began on Dec. 2, Venezuela was the world's fifth-largest oil producer.

The impact of the strike prompted PDVSA to declare force majeure in early December. The company has taken a tough line with strikers, dismissing about 5,300 of its 33,000 staff for failing to report to work.

Speaking at a breakfast for the international press on Friday, Rodriguez said further dismissals were likely and ruled out a blanket amnesty for strikers.

He said would carry out a major restructuring program over the next six months to reduce staff levels and simplify its complex organizational structure. PDVSA has 189 companies, many of which exist only on paper, and he said the company would evaluate these companies and identify its key assets.

The president did not rule out selling some assets to improve the company's financial position, which has been badly affected by the strike. He said announcements could be expected later in the year, after the review.

The company has already scaled down its planned investments and spending for 2003 from $8 billion to $6 billion. The cuts include a 40 percent reduction in spending and a 30 percent reduction in investment. Rodriguez was emphatic, however, that PDVSA's cash flow problems wouldn't affect its ability to make foreign debt repayments.

PDVSA hopes to be able to ease the force majeure declaration by the end of February, although Rodriguez said it would take a long time to recover from the strike completely. He said, however, that he was very pleased with the progress to date. "We have demonstrated a great capacity for recovery," he told reporters.

Rodriguez said PDVSA produced 1.5 million barrels per day of oil last week and would regularly produce 2 million bpd by mid-February. He estimated that production would reach 2.5 million within the first half of March, close to Venezuela's OPEC quota of 2.8 million bpd.

Joint ventures in the Faja del Orinoco with international oil producers such as France's TotalFinaElf and Norway's Statoil are expected to restart production this week, adding a further 330,000 barrels to Venezuela's total daily production levels.

The speed with which PDVSA restarted production is impressive, given the absence of most top managers and the shutdown of the company's information and communications systems.

Rodriguez has retained the loyalty of most ordinary workers, and PDVSA estimates that most contract workers have returned to work. The company might take on a small group of U.S. experts on short-term contracts to replace sacked managers and help restart operations.

The PDVSA president was a left-wing guerrilla in his youth and remains loyal to the ideals of Chavez's "social revolution." That philosophy is intended to address the enormous disparities of wealth in Venezuela, but opponents say it masks an authoritarian project to convert Venezuela into a socialist state.

Rodriguez believes that by slimming down the energy producer and reducing costs, he will be able to deliver greater value to PDVSA's only shareholder, the government. Income from oil exports generates about half of all government revenue.

"In cultural terms, we are beginning to see the real nationalization of PDVSA," Rodriguez said. "Venezuelans are going to realize they are the real owners of this company. PDVSA is just an instrument for maximizing the benefit of our natural resources."

Striking oil workers allege, however, that Rodriguez has filled PDVSA with government loyalists and under-qualified staff to replace strikers and keep the company running. They claim that laxer supervision has already led to more accidents and the new reorganization will mean a drastic cull in operations that will reduce its production capacity and potential for growth.

"We are seeing the destruction of PDVSA's very base, the exploration and production businesses that are now at only a third of their capacity," a recent statement by the strikers read. "They want to put an end to refining, supply and trading businesses, gas operations, the businesses of (petrochemical company) Pequiven and more importantly, the company's human and management capital."