Venezuelan oil giant reels as strike, layoffs wreak havoc

www.globeandmail.com By PAUL KNOX Tuesday, February 25, 2003 - Page B1

CARACAS -- Engineer Teo Risquez used to know many key players in Venezuela's state-owned oil firm. Gonzalo Feijo was a senior adviser in its planning department. Francisco Navas remained bitter after leaving the firm nine years ago.

That was before the dramatic upheaval at Petroleos de Venezuela SA (PDVSA), the world's fourth-largest oil company, where a crippling, politically inspired strike led this month to mass firings and a major reorganization.

Seizing the chance to tighten his grip, President Hugo Chavez has dismissed 16,000 employees and launched a radical restructuring of PDVSA that brings it under the control of his leftist government.

Now Mr. Risquez says he doesn't know whom to contact at PDVSA about contracts. The engineering firm where he's a vice-president is surviving at half-speed on work for other clients.

Mr. Feijo has become a full-time anti-Chavez political activist -- a leader of fired PDVSA professionals who wonders if he'll ever work again in Venezuela's oil patch.

And Mr. Navas? He's delighted to be back working as a maintenance supervisor at PDVSA's El Palito refinery. He's one of thousands of former employees who have been recalled as the government fights to push oil production back to prestrike levels.

The three men have walk-on parts in a titanic struggle over the future of Venezuela and its vast oil deposits. The country was the world's No. 5 petroleum exporter before the strike, part of a national protest aimed at driving Mr. Chavez from office, began on Dec. 2.

Control of PDVSA has been wrested from its internationally oriented executives and engineers and given to Chavez loyalists whose assignment is to squeeze more revenue out of the company for government coffers.

Mr. Chavez says he has smashed a cabal of elitist technocrats who milked the company for their own benefit while 80 per cent of Venezuelans lived in poverty. He has accused striking workers of sabotaging refineries and oil fields -- a charge they deny -- and demanded that the courts jail their leaders.

"We are redefining the mission of PDVSA," Energy Minister Rafael Ramirez told foreign journalists recently. "Besides being a commercial enterprise, it's a Venezuelan state company -- one that must be identified with our national goals and plans."

The Venezuelan crisis has helped push North American energy prices higher this winter, although unusually cold weather and fears about disruption of production in the Middle East are more important factors.

Mr. Chavez, an ex-paratroop commander who led a failed coup d'état, was elected as a civilian in 1998 and re-elected in 2000 under a new constitution.

He has improved education and health care for children and made a modest start on land reform -- programs he says he wants to accelerate with more oil revenue. But his opponents say he has also militarized the government and is leading Venezuela toward Cuba-style communism.

The national work stoppage was called by business, union and civic leaders in a bid to force Mr. Chavez to submit to a vote on whether he should continue in office. PDVSA (the acronym is pronounced peddevessa in Spanish) was the linchpin of the protest.

Most businesses that took part in the stoppage threw in the towel after two months. But roughly half of PDVSA's 40,000 employees -- mostly white-collar workers -- remain on strike. More than half of those have received dismissal notices.

The result is a portrait of chaos.

"I don't know who I'm supposed to deal with," said Mr. Risquez, vice-president for special projects of the engineering firm Tecnoconsult SA. The company, which also does engineering work for multinational clients, has placed its staff on reduced hours and pay.

Mr. Risquez expects projects he planned to bid on to be cancelled for lack of financing, since data on which lending decisions are based are suddenly murky. The government says crude oil production is now at two million barrels a day -- well below the prestrike level of 2.8 million -- but strikers say it is just 1.4 million.

"The problem is going to be now that there are so many stories on production levels, which lender is going to believe you?" Mr. Risquez said.

Mr. Feijo said the loss of expertise will cripple its ability to manage the complicated affairs of Latin America's largest company -- a fully integrated operation that not only pumps oil and gas but refines a wide range of products and distributes them around the world.

"It's one thing to produce oil," he said. "It's another to produce the right mix according to international requirements . . . change all the recipes and formulas when you need to, time the maintenance schedules properly and so on."

PDVSA president Ali Rodriguez, a former guerrilla leader who belongs to the leftist Fatherland For All party, acknowledged in an interview that PDVSA is short of trained staff.

"We are recovering production and getting refineries working with significantly fewer people than were working at the company before," he said. "That doesn't mean we don't need some specialties that are indispensable."

Beyond numbers is the issue of competence. The strikers say PDVSA had developed a culture of meritocracy, rewarding performance and remaining aloof from the corruption that corroded other Venezuelan institutions.

But they say that after Mr. Chavez took office in 1998, his political allies began showing up in senior company posts and making questionable decisions. "During 19 years in PDVSA I had never seen such a rapid deterioration," said Merle Mawad, an oil trader and former refinery worker.

Thousands of retired PDVSA employees and former oil workers have been called in to replace the strikers. Questions have been raised about their competence.

Mr. Navas, the maintenance supervisor, is working for the first time since 1994 at the El Palito plant, 120 kilometres west of Caracas.

He said he quit because he had been passed over for promotions several times following job evaluations. "You'd work and work, and you got no recognition," he said.

Meritocracy was a myth at PDVSA, Mr. Navas said. "If you didn't have a good relationship with your boss, that weighed more heavily than how well you worked."

Formed in 1976 when foreign oil operations were nationalized, PDVSA grew to become the largest business enterprise in Latin America, with $46-billion (U.S.) in revenue in 2001.

It pursued a strategy of investing in downstream operations to secure markets for Venezuela's heavy, high-sulphur crude oil, which requires special refining techniques. PDVSA's Citgo subsidiary operates 13,400 gas stations and has interests in refineries and asphalt plants in the United States and the Caribbean region.

"We are a country that lives off oil," Mr. Risquez says, and the figures bear him out. In normal times, oil exports account for 80 per cent of export earnings and 50 per cent of government revenue.

But there has always been tension between company executives who want to plow earnings back into diversification and development of new resources, and governments that see PDVSA as a cash cow. In 2001, it paid $11.8-billion to the state and reported a profit of $4.3-billion, 40 per cent lower than the previous year.

PDVSA brass have also tended to favour higher production levels than governments. As a founding member of the Organization of Petroleum Exporting Countries, Venezuela acts in concert with other oil exporters to control production levels in an effort to keep prices from falling too low.

A new hydrocarbons law passed last year boosted royalties to 30 per cent from 16 per cent. PDVSA also pays dividends and taxes.

A sweeping restructuring now being carried out will see PDVSA's headquarters in Caracas gutted and the company split into two divisions to manage assets in eastern and western Venezuela.

"We want a more flexible business, a more nimble business," Mr. Ramirez said. "It didn't make sense to have a concentration of more than 8,000 senior managers here in Caracas, where we don't produce a single barrel of oil."

Mr. Rodriguez said authorities hope to boost oil sales to Asia to lessen Venezuela's dependence on markets in North, Central and South America and the Caribbean. "There are markets farther away that are reachable for Venezuela," he said.

Critics say the cuts will eliminate PDVSA's strategic planning capability and turn it into a politically driven operating arm of Mr. Ramirez's ministry. But the changes are popular among poor supporters of Mr. Chavez, who have long been envious of PDVSA's high salaries and gilt-edged benefits, which included low-cost loans.

Paradoxically, those benefits are now bankrolling the strikers as they wage a political battle against Mr. Chavez.

Ms. Mawad said she and her husband, who also worked at PDVSA, own their home and car. By cutting down expenses they could last for months on their savings, she added.

"I don't have much hope of returning to PDVSA," Ms. Mawad said.

"But by protesting I hope I can do something for my country."