<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, April 01, 2003 By: Oliver L. Campbell

VHeadline.com commentarist Oliver L. Campbell writes: I recall that old joke: What is the world’s best business? ...a well-managed oil company.

What is the world’s second-best business? ...a badly managed oil company!

Though it is undeniable that PDVSA needs good management and capable staff, the immediate success of the company largely depends on a factor within its control ... how soon it can get production back to 3 million barrels per day ... and one outside its control, how long the price of oil will maintain its present high level.

Given a high production level and a high price of oil, PDVSA should be back on the road to prosperity reasonably soon.

I would like to comment on a point made that many PDVSA employees left because of former PDVSA president Luis Giusti’s policies.

Before continuing, however, let me declare an interest: I used to play tennis with Luis (Eduardo) Giusti’s father, Luis German Giusti, a good friend, when we both worked for Shell de Venezuela in Maracaibo ... Luis senior was a keen tennis player, and some readers may remember when, back in 1956, he organized the tournament, we enjoyed so much that he brought Pancho Gonzalez , Jack Kramer, Dinny Pails and Pancho Segura to Maracaibo.

I was not in Venezuela when Luis Giusti was president of PDVSA ... so I am not qualified to comment on any negative aspects of his tenure ... though the 'malas lenguas' (bad tongues) among my friends did suggest he appointed too many of his colleagues from Maraven to key posts at the expense of people from Lagoven and Corpoven, and that this had caused friction.

What I can comment on (as an observer) is that Luis Giusti achieved what I believe are two remarkable successes. Firstly, he changed the industry from a vertical to a horizontal type organization. Out went the vertically-integrated companies Lagoven, Maraven and Corpoven to be replaced by functional companies for Exploration & Production and Manufacturing & Marketing. This had been talked about for many years, but no Chief Executive had wanted to grasp the nettle ... particularly as the three integrated companies opposed it.

Making a drastic change in an organization requires courage, needs detailed planning, produces opposition and ... unfortunately ... creates winners and losers. You no longer needed three heads of exploration, production, engineering, manufacturing, marketing, etc. and this is reflected further down the organization.

Obviously, this meant some staff became redundant, but those close to retirement who decided to leave were, I believe, fairly compensated.

Yes, some good people left prematurely, but that was the price of making a more efficient organization. All the major oil companies have had their reorganizations in the last few years, which have led to a reduction of staff ... particularly in administrative areas such as head offices.

The second considerable achievement was in the 'aperture' or opening-up of the oil industry to foreign companies. Luis Giusti played a leading role in negotiations with oil companies that wanted to invest in Venezuela ... and his was a major contribution in extracting so much cash from them. That the negotiations were so successful has been borne out by the fact that several oil companies now recognize they paid too much under the various agreements and have written down the assets in their books.

Of course, everyone has the same right to express criticism of Luis Giusti’s tenure as Chief Executive of PDVSA as they do of those who held the post before or after him ... but, to my mind, in those two important instances mentioned above he was eminently successful.

Let honor be given where honor is due.

Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM  was born in El Callao in 1931 where his father worked in the gold mining industry.  He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA).  In 1982 he returned to the UK with his family and retired early in 2002.  Campbell returns frequently to Venezuela and maintains an active interest in political affairs: "I am most passionate about changing the education system so that those who are not academically inclined can have the chance to learn a useful skill ... the main goal, of course, is to allow many of the poor to get well paid jobs as artisans and technicians."  You may contact Oliver L Campbell at email: oliver@lbcampbell.com

www.vheadline.com Posted: Tuesday, March 18, 2003 By: Patrick J. O'Donoghue

According to defense lawyer Juan Martin Echeverria, arrest warrants issued against 7 former Petroleos de Venezuela (PDVSA) have been revoked. "The Appeals Court has annulled all the acts of 50th Control Judge Belkis Cedeno.”

Echeverria points out that the court has moved on three things:

Declaring the defense lawyer’s appeal inadmissible, arguing that Echeverria was not qualified to exercise the recourse

Thrown out articles that violate the right to defense, due process, appropriate judge and balance between the parts in question

Declaring the 50th Control Judge absolutely null.

The seven accused oil rebels are: Finance Planning & Control manager Juan Fernandez, Refinery Strategy chief consultant Gonzalo Feijoo, Business Strategy manager Horacio Medina, Human resources labor adviser Edgar Quijano and managers Juan Lino Carrillo, Mireya de Amaya and Juan Santana.

Although it is presumed that the government will not drop charges of economic sabotage against the 7 for organizing the crippling oil stoppage, it will have to go to the courts or the Supreme Tribunal of Justice (TSJ) to appeal against the order to annul arrest warrants.

www.latintrade.com March, 2003

How much pressure can state oil giant Petróleos de Venezuela (Pdvsa) take before it—and Venezuela—cracks?

Depends on whom you ask, but the consensus is that while the company itself is in no real danger, millions of ordinary Venezuelans who depend on the oil business are hanging by a thread. Venezuelan President Hugo Chávez must get the oil flowing again soon or his country’s economy, already on the mat, could be knocked out cold.

Control of roughly US$45-billion-revenue Pdvsa means control of Venezuela, and both Chávez and the strikers flooding the country’s streets know it. The oil sector employs just 1% of Venezuelans, but Pdvsa is the economic motor responsible for some 70% of Venezuela’s foreign exchange income and 43% of government income.

Shaking the Pdvsa tree for the benefit of Venezuela’s poor is Chávez’s plainly stated goal. “We want to favor the people who’ve never seen a drop of petroleum,” says Luis Vierma, the Energy Ministry’s hydrocarbons director.

Laudable, but estimates of the strike’s impact on the national economy during the first 50 days hit $14 billion in lost revenues, or 15% of gross domestic product (GDP). Economists predict that national output could plummet 10% in 2003—40% in the first quarter alone.

“The oil business contributes 50% of the economy of Venezuela, so a 40% decline in GDP is a realistic number,” says Fadel Gheit, senior energy analyst at Fahnestock and Co. in New York. “Absolutely, the economy is going to be a basket case.”

Can Pdvsa itself prosper after these hits? If it can get the oil pumping again soon, probably so, analysts predict. Under normal conditions, the company needs anywhere from $2 billion to $4 billion to operate. In addition, the company must make $1.6 billion in debt payments in 2003, more than $800 million of which is due by the end of March. Pdvsa must continue servicing $3 billion in long-term unsecured debt despite the strike that through the end of January had erased an estimated $600 million in revenues tied to pending oil sales, analysts report.

The government told analysts in January that it will meet obligations using Pdvsa’s $900 million in cash and the company’s $2.4 billion macro stabilization fund.

The fund was established to provide a cushion against macroeconomic instability by setting aside a percentage of Pdvsa revenues. Chávez has gone to great lengths to use it to extract money from Pdvsa since 2001. He recalculated Pdvsa’s macro fund contribution, nearly doubling its payment to 30% from just under 17%. Now, though, it looks like he’ll have to spend a good part of that macro fund fixing Pdvsa—if the money isn’t gone. Chávez admitted taking at least $1 billion from the fund in December 2001 to pay government salaries and bonuses.

“We don’t know if the money is there,” says Edgard Leal, a former Pdvsa executive and director, now a senior associate at the Caracas office of U.S. consultant Cambridge Energy Research Associates. “We don’t know if the government has used it. Pdvsa is no longer managed by a board but by an individual [Pdvsa CEO Alí Rodríguez] who has close links to the government.”

Pdvsa says it could restart operations and be back to nearly normal levels in less than two months, but it is not clear how much damage might have been done to equipment by departing strikers.

Venezuelan heavy crude oil, if not pumped, hardens in the pipes, experts say. (“It just turns to rock,” says one analyst.) Nor is it clear how the government might run a huge state oil company after firing thousands of seasoned professionals. Critics say four months is a more likely time-frame for resumption of full operations.

Apertura. Former Pdvsa CEO Luis Giusti, a Chávez critic, figures the company needs to spend $4 billion a year or lose ground at a rate of 25% of production each year. Under Giusti, who headed Pdvsa for five years until 1999, the petroleum sector opened to foreign investment and dozens of multinational oil companies rushed in. Exports grew as capacity increased.

“By widening the constituent base of the oil sector you expand the economic activity in the country,” says Giusti, now a consultant with the Center for Strategic and International Studies in Washington, D.C. “You generate steady growth.”

Yet four vital heavy-crude projects partly owned by foreigners being built in the country’s vast Orinoco oil belt—Petrozuata, Cerro Negro, Hamaca and Sincor—shut down during the strike; the projects can meet immediate debt payments, analysts predict, but after a couple of months it is unclear how operations can continue. The top 10 foreign oil companies working in Venezuela were losing an estimated $6.7 million in revenue a day, reports energy research firm Wood McKenzie.

Foreigners in the country produce 400,000 barrels per day—15% of Venezuela’s normal output—and were expected to double that figure.

A 2001 Chávez law restricted foreign ownership of new projects, dampening investor enthusiasm. Nevertheless, concessions will have to be a large part of Pdvsa’s future, says Alejandro Bertuol, senior director of the Latin America Energy Group at Fitch Ratings. “[There] is cushion enough, but not for long-term operations and investment,” says Bertuol. “The fastest way for Venezuela to recover is through [foreign] investments.”

Even though oil output has declined in recent years, Pdvsa CEO Rodríguez has said the company will spend $40 billion by 2007 to increase its potential output to 5 million barrels per day from 3 million barrels. Of the investment target, more than $18 billion is expected from foreign partners. Increasing capacity, however, doesn’t mean Pdvsa will produce more oil. Recently head of the Organization of the Petroleum Exporting Countries (OPEC), Rodríguez understands the cartel’s cagey quota game as well as anybody. OPEC-enomics is pretty hard to fathom at times, but here’s the bottom line: Everyone wants to add production capacity, but no one can afford to overproduce.

That’s because OPEC calculates each country’s export quota based on its potential output. It figures out a target price, and then sets production levels accordingly. Since the cartel says each country can export 70% of its potential—not actual—output, it behooves each to have as much capacity as possible, even if the extra capacity remains unused.

Venezuela tried to double output a decade ago, only to find that busting the cartel meant lower overall prices. Since assuming power in 1999, Chávez has transformed the company from an OPEC quota cheater to a strict quota adherent. Production, which once reached 3.6 million barrels per day, dropped to 2.7 million barrels.

Cutting production has boosted international oil prices, but it left thousands of oil workers idle. Pdvsa managers on strike say that pouring more money into government and less into the pockets of oil workers is no way to run a modern economy. “It’s a short-term vision,” says Juan Fernández, leader of Gente de Petróleo, an organization of dissident Pdvsa executives. “(Pdvsa) is sacrificing market.”

Oil industry suppliers are fed up over the sector’s slow decline during the Chávez years, says Fernando Cival, owner of oil and gas processing machinery maker Industrias Vander-Rohe. “Businessmen prefer to close their doors now rather than continue under these conditions in which companies go out of business little by little,” Cival says.

The clearest loser in the battle for Pdvsa is Venezuela’s already-battered economy. Using the stabilization fund to pay short-term Pdvsa debts leaves the country itself with no cushion should the price of oil fall. Anxious to curtail the beleaguered bolivar’s slide, Venezuela’s Central Bank stopped selling dollars in late January. The government, meanwhile, will cut $2.4 billion from spending to offset lost oil revenues. It also announced price and foreign exchange controls.

Fallout. Francisco Toro, an editor at the VenEconomy newsletter, predicts that the strike’s losses in export revenues and taxes will push Venezuela’s public deficit to $15.2 billion, equal to the government’s entire year 2002 budget. “What are they going to do?” Toro asks.

Policy analyst Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, D.C., figures Pdvsa is missing a pile of money on bad deals with foreign oil companies struck by previous administrations. Venezuelan oil drilled by foreign licensees in 2000, he points out, represented 11% of output but 45% of Pdvsa’s costs—four times the company’s internal cost of drilling. “That’s just not explainable,” Weisbrot says. “There’s only so much bullshitting you can do.”

Weisbrot believes Pdvsa management made money hard to find to avoid giving it to Chávez. “They want a big company, because that increases their salaries and their power,” he says. “And there’s probably some corruption in there.”

What’s so bad, then, about running Pdvsa the way Chávez proposes, as an institution to benefit all Venezuelans? “Pemex,” says ex-Pdvsa director Leal, referring to Mexico’s corruption-ridden state oil giant.

Striking oil company employees face house payments, children’s school fees and utility bills, yet they say the sacrifices are worthwhile. Teresa Centeno, 44, a marketing manager in Pdvsa’s natural gas subsidiary, has spent nearly half her life at Pdvsa.

Centeno has two children and now no income, but defending Pdvsa is more important, she says. “This is way beyond my personal situation.”

Author: Mike Ceaser • Caracas Greg Brown • Miami

www.vheadline.com Posted: Wednesday, March 12, 2003 By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: The rebellion of the PDVSA managers and technicians ... regardless of how it is perceived by different people ... has good reasons. I consider this rebellion as one of the most wonderful examples of institutional loyalty I have ever seen in Venezuela, and the only example of a collective decision.

The reasons behind this decision can be understood by analyzing the nature of true professional managers. Already in 1918, Weber predicted that the big showdown of the 20th century would be between professional managers and professional politicians.

Later, Putnam and others (Harvard) detailed the characteristics of both groups, some of which are:

Professional Managers.

1. Take a long time to be educated, have formal schooling
2. They have long and ascending careers (marathonists)
3. They go up thru a ladder based on performance
4. They work within pre-existing values, norms and procedures 5.Their process of decision-making is collective
5. They show loyalty to the Institution

Professional Politicians.

1. They are graduates of the University of "Life"
2. They tend to have brief and descending careers
3. They can go up on the strength of a 30 seconds speech
4. They abide by no rules, create their own
5. They are loyal to men or tribes

Being so different, it is hardly surprising that an organization, led by managers or by politicians, should also show drastic differences.

In the case of PDVSA, this company was managed professionally for 24 years. During this period it had a President every 3.7 years ... their executives were selected on the basis of merit. The orientation of the company was strongly commercial, designed to make a profit. Its operation was largely respected by the political sector.

But during the last 3.8 years, it has been politicized by Chavez, and it has had a President every 8 months. Its executives have been selected on political and ideological grounds ... one has been mentally unstable, one has a criminal record and one had an obsessive hatred of the managers he was supposed to work with.

The orientation of the company became political and designed to serve as a source of ready cash for the government.

Under professional management PDVSA was a company of the First World.

Under the political control of Chavez it has rapidly become a Third World company.

Why, then, rebels rebel?:

Because they can not see their company under the Presidency of the mentally unstable; of someone with a criminal record or of someone who hates the organization..

Because they can not accept that a company so important for Venezuela should change Presidents every 8 months,

Because they can not accept that company installations should be used for political events,

Because they can not tolerate seeing the headquarters taken by violent, armed groups and social lumpen,

Because they can not accept that the company should be politically controlled by the President of the country,

Because they can not accept the breaking down of the company into uncoordinated, regional entities.

In summary, they rebel because they can not passively accept the destruction of the company they have created and made into one of the most important petroleum companies of the world.

Each one of us has to have an ethical posture in life ... there are many events that fall within the zone of moral indifference, to which we need not react in any particular way. There are events that demand from us a moral obligation, based on the principle of minimum altruism.

This means that we have to commit ourselves to be of help, but without real sacrifice (donating 1-5% of our salary to the poor, perhaps?) ... but there are events that call for maximum altruism, that call for maximum commitment short of total sacrifice. No one is morally obliged to react heroically.

However, this is what the rebels of PDVSA have done.  They have put their careers, their economic well-being, their family life, their personal ambitions, on the line.

They are not talking money.

They are not talking power.

They are demanding respect for the institution which is the economic bloodline of Venezuela, and which is being destroyed by a bunch of demagogues.

They have behaved as heroes.

Knowing many of them in person ... knowing how they were trained ... being familiar with the values of the organization they came to cherish ... I am not surprised that they reacted in this way ... I am not surprised that they remain steadfast, unmovable in their convictions ... loyalty by conviction is indestructible.

Loyalty bought (such as the one a portion of the military had for Perez Jimenez and now for Chavez) usually ends abruptly ... when the money or the privileges are no longer available. He who buys loyalty invariably ends up as hostage of the people he buys.

Modern 'janizaries' will overturn their caldrons at the first indication that their leader is weakening.

In summary, rebels rebel when they can no longer live in a moral environment which violates their principles and innermost convictions.

They have read John Locke, John Stuart Mills, Martin Luther King.

They have read the categorical imperative of Kant.

Rebels rebel when their decision ... no matter if successful or failed ... becomes morally unavoidable.

As Luther said: "Here I stand. I can do no other..."

Gustavo Coronel is the founder and president of Agrupacion Pro Calidad de Vida (The Pro-Quality of Life Alliance), a Caracas-based organization devoted to fighting corruption and the promotion of civic education in Latin America, primarily Venezuela. A member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), following nationalization of Venezuela's oil industry, Coronel has worked in the oil industry for 28 years in the United States, Holland, Indonesia, Algiers and in Venezuela. He is a Distinguished alumnus of the University of Tulsa (USA) where he was a Trustee from 1987 to 1999. Coronel led the Hydrocarbons Division of the Inter-American Development Bank (IADB) in Washington DC for 5 years. The author of three books and many articles on Venezuela ("Curbing Corruption in Venezuela." Journal of Democracy, Vol. 7, No. 3, July, 1996, pp. 157-163), he is a fellow of Harvard University and a member of the Harvard faculty from 1981 to 1983.  In 1998, he was presidential election campaign manager for Henrique Salas Romer and now lives in retirement on the Caribbean island of Margarita where he runs a leading Hotel-Resort.  You may contact Gustavo Coronel at email ppcvicep@telcel.net.ve

Subject: Para contactos internacionales Date: Sat, 22 Feb 2003 22:31:01 -0400

Citgo for Sale Hugo Chavez is once more secretly trying to sell Citgo. However, he has two problems. 1) Citgo has great value to Venezuela, but not to another refiner, because Citgo without Venezuela's heavy crude supply has limited value. 2) There are no apparent foreign buyers with enough capital to buy Citgo. Only a very large corporation (e.g. Star Enterprises) would have the financial ability. However, without available crude supply for the Citgo refineries, a Company would only be interested if it was a fire sale deal. How desperate is Chavez for cash? is a matter of how long he will stay in power.

If Chavez were able to sell Citgo to a foreign competitor, he would not need to export crude or products to the United States, and then he could default on his foreign debt ($35 billion). Chavez would get the revenues he so desperately needs to stay in power from the Citgo sale, and Citgo would be out of reach when he defaults on Venezuela's foreign debt. Furthermore, Citgo would no longer be essential to the operations of the much smaller Petroleos de Chavez.

Reduced Oil Production Venezuelan oil production at this writing in mid-February 2003 is down from 3.1 million b/d (2.7 million b/d, plus 400,000 b/d from the Oil Belt) to a mere 1.3 million b/d. But an even more important problem for the Venezuelan oil industry, and for the U.S. market that has depended on Venezuelan oil imports for 74 years, is the following:

• Of the current 1.3 million b/d production, 500,000 b/d comes from the operating contracts (foreign companies.e.g Chevron and Boscan).

• The four Strategic Association projects in the Oil Belt are shut-in, for they need natural gas, which is not available because of the oil production strike.

• Worse, Petroleos de Chavez in trying to restore oil production, with production in the newer free flowing fields, and they are over producing, i.e., wells that are supposed to produce 1,000 b/d are forced to produce 2,000 b/d. This implies a higher rate of natural decline in these fields. Venezuela has an oil field natural decline rate of 25%/year, requiring large investments in maintenance, which Chavez cut back when he came in to office, in order to squeeze more revenues out of PDVSA.

• What they are producing is not coordinated with what they can export, therefore, millions of barrels are going into storage (e.g. Bonaire and Bahamas).

• Finally, there was a permanent loss of 400,000 b/d in production capacity, resulting from some of the shut-in wells (most of them in the Maracaibo Lake area).

Therefore, when you hear Chavez, or Ali Rodriguez, or Rafael Ramirez, Minister of Energy, inform the public how they have increased exports and oil production to 2 million b/d, or more, it simply is not true.

All of this is of little concern when you intend to create a Cuba style government. In 1998, Chavez campaigned against PDVSA and its president, Luis Giusti, as a "state within a state." He vowed to subordinate PDVSA to the Venezuelan state. His first action after becoming President in February 1999 was to further cut oil production and comply with OPEC quotas. Some 6,000 oil workers lost their jobs because of the production cuts, and many service companies went out of business. PDVSA was also forced to cutback maintenance on the shut-in wells, and they lost production capacity of 500,000 barrels/day. The one area Venezuela was increasing production was in the Orinoco Oil Belt, under the four big joint ventures with foreign oil companies.

Now, Chavez is satisfied that his revolution can be maintained with only 2.0 MMBPD, which his new and only goal. Chavez wants to destroy the economic system in place and built a new country over the ruins of the previous civilization "the old Pdvsa". (any similarity with Julius Caesar and Hitler is mere coincidence!).