Feature: Venezuela's reviving oil industry

www.upi.com By Owain Johnson UPI Business Correspondent From the Business & Economics Desk Published 3/11/2003 4:20 PM

CARACAS, Venezuela, March 11 (UPI) -- There is a Venezuelan joke that begins by noting that the best business in the world is a well-managed oil company. And the second best business in the world? A badly managed oil company of course.

Oil is Venezuela's economic lifeblood and whatever the standard of management has been at state-owned energy producer PDVSA, the country's huge reserves have generally provided Venezuelans with a higher standard of living than their regional neighbors.

PDVSA's activities typically account for around 80 percent of Venezuela's gross domestic product and for around 50 percent of government income, giving the company a strategic significance far beyond that of a normal commercial enterprise.

Recognizing the company's power, President Hugo Chavez has repeatedly tried to tie PDVSA more closely to his government and in the wake of the recent disastrous general strike he has finally got his way.

The majority of PDVSA's managerial and administrative staff joined the opposition-led general strike against the government in early December, and by mid-month the energy industry was paralyzed and PDVSA was forced to declare force majeure.

But predictions that Chavez could not survive a long-term oil strike proved unfounded. The former paratrooper refused to reach a compromise deal, and ordered PDVSA President Ali Rodriguez to import gasoline to keep the nation running.

Rodriguez used a mixture of loyal workers, contract workers and new hires to restart operations, and by late December PDVSA was starting to produce and export crude once again.

The payback began immediately. Rodriguez, a former leftist guerrilla and OPEC secretary-general, summarily dismissed 16,000 of PDVSA's 33,000 employees for 'deserting their posts' in order to participate in the strike.

The dismissed employees, who included virtually all the company's top executives, had an estimated average of 17 years' experience in the industry each, and their leaders were confident PDVSA could not operate without them and would soon recall them.

Earlier this month, though, PDVSA lifted force majeure on all its exports, apart from unleaded gasoline, lubricants and asphalt, and Chavez was able to announce that the company's crude production had reached 2.6 million barrels per day (bpd).

Sacked oil managers immediately poured scorn on the president's figures and placed production at 1.6 million bpd. But, as analysts noted, if PDVSA risked lifting force majeure, Rodriguez must be confident the company can reach its pre-strike production levels of 2.8 million bpd within the next few months.

The dramatic restoration of production at PDVSA has taken the wind out of the sails of the strikers, who now see little chance of returning to their posts until the fall of the Chavez government, an event that looks increasingly remote.

Rodriguez attributes his success at restoring production with vastly fewer employees to a combination of factors. PDVSA was overstaffed with middle managers before the strike, he believes, while loyal employees were determined to disprove allegations that they lacked the necessary skills to restore production.

Critics allege, however, that the restoration of production has come at the cost of lower safety standards. They also note that PDVSA has focused on easier wells, and has cut key maintenance, research and exploration divisions, harming its long-term prospects.

The Gente de Petroleo association of dissident oil workers believes PDVSA will inevitably be unable to maintain its current level of production since the current staff lack the know-how to tackle older and more technically challenging wells.

But for all their public confidence, many former company managers privately admit their surprise at how well the industry is performing without them.

They are also quick to express their anger at Venezuela's political opposition, which called off the damaging strike after failing to force Chavez from power, leaving the dismissed oil workers to carry the can.

"Are we disappointed? I think that's somewhat of an understatement," one former senior PDVSA manager said. "Everyone else has gone back to work, and we are the only ones still fighting for our industry and our country. We feel we are in danger of being forgotten."

Rodriguez has repeatedly ruled out an amnesty for the strikers and he has even thanked them for giving him the possibility of carrying out reforms that would otherwise have been impossible.

Meanwhile, the oil workers who struck in April to protest government intervention in PDVSA have, by striking again in December, effectively handed total control of their industry to Chavez loyalists.

With their opponents locked out, Chavez and Rodriguez are now free to carry out whatever actions they wish to PDVSA and the president has already spelled out his aim of setting the company at the service of his social reform project.

"The new PDVSA must never again be a nest to shelter the privileged elite. This company must be now and always the property of the Republic," he said at the recent inauguration of the company's new board.

"There will be no amnesty, selective or otherwise, there will be no forgiveness for anyone, for traitors. They are traitors and they cannot return nor will they," he added.