Venezuela steps up the oil flow - But strike's legacy clouds future of state-owned firm

www.iht.com Juan Forero NYT Thursday, February 27, 2003   CARACAS Tankers are once again setting sail loaded with crude oil bound for the United States, while government planners busily try to rebuild and reorganize the state-owned Petroleos de Venezuela SA, pondering how to function with 40 percent fewer workers. Oil, the lifeblood of Venezuela, is flowing again after a two-month national strike, with production now topping 2 million barrels a day, leaders of the $46 billion-a-year oil company say. They predict that Venezuela's oil industry, with a leaner government-run company leading the way, will soon churn out 3.1 million barrels daily, matching the pre-strike level. "We are getting close to normal," said Enrique Salazar, a loading master on the Caribbean coast, peering from a control room as a tanker, the Morichal, took on 25,000 barrels an hour. But oil analysts and economists say the government's rosy statements hide a painful truth about a 27-year-old company that was born when Venezuela nationalized oil production and quickly became one of Latin America's more highly regarded multinational companies. Petroleos de Venezuela has lost $4 billion in exports and nearly 16,000 workers, fired by the government for taking part in a walkout aimed at debilitating President Hugo Chavez's left-leaning government. That financial blow and the loss of workers with, on average, 17 years of experience could permanently hobble the company, keeping it from assuming its role as a leading world oil provider, analysts here and abroad say. "It will not be the company it once was," said Mazhar Shereidah, an oil economist in Caracas who helped write oil regulations for the Chavez government. "For a country that depends on petroleum, now more than ever, the challenges are too great. You have to pray for Venezuela." The dire predictions, if borne out, would be disastrous for this country of 24 million people, which depends on oil for half of its government revenue and 80 percent of export earnings. It would also leave the United States - which has counted on Venezuelan oil for decades - without one of its most reliable suppliers as war with oil-rich Iraq promises to batter energy markets. The obstacles in the aftermath of the strike, which ended in early February, are daunting. A lack of maintenance has caused sand to build up in the gelatinous deposits and the pressure to drop, making some fields worthless and threatening to cut production capacity by 300,000 or more barrels a day. And perhaps most troubling is that no one knows what Chavez's government has in store, though it has promised a wholesale revamping of what was once the second-largest oil company in the world. Reports from international analysts are blistering. UBS Warburg predicts that oil's contribution to gross domestic product will fall 22 percent this year, with Venezuela facing "a fiscal crisis of major proportions." Fitch Ratings Inc. says Venezuela's "image as a reliable crude oil supplier has been undermined" and will be hard to recover. Analysts say the lack of technical expertise and the company's financial straits mean that Petroleos de Venezuela will be unable, in the short term, to return to its pre-strike status as the fifth-largest oil exporter in the world. Most of the recent production has come from the fields that were the easiest to restart, leading independent analysts to predict that Venezuela will, at best, produce 2.3 million barrels daily by the end of this year. The government is already preparing for the worst. The 2003 budget for the oil company was cut by $2.7 billion, to about $6 billion, while the income the government draws from oil is forecast by UBS Warburg to fall from $11.5 billion in 2002 to as little as $5 billion this year. The sharp drop will make it especially difficult to raise the $5 billion the company would have spent to keep production steady. Ali Rodriguez, the former leftist guerrilla who is now president of Petroleos de Venezuela, does not gloss over the obstacles. But in an interview, Rodriguez said the doomsday predictions had originated from dissident executives who hoped to undermine international confidence in the oil company and thereby weaken Chavez. He predicted that through sharp budget and personnel cuts, the company would reach 3.1 million barrels a day. And "with its resources," he said, "it is perfectly possible that it will even surpass that level." But analysts still warn that the company will be debilitated for years by the loss of many experienced workers. Those employees - executives, office workers, engineers and highly trained technicians - joined the walkout and, in some cases, damaged computers and software and stole files to hinder reactivation efforts.