<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, May 14, 2003 By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: Mr. President: I just heard you saying that the 18,000 rebel PDVSA managers and workers who were fired by you, in an undignified fashion through newspaper listings, "will never go back to work at PDVSA."

You added that "they are criminals who deserve 30 years in jail."

In answer to these utterances, I would like to say to you that, yes, these people will go back to work at PDVSA ... not while you are President, of course, but almost the instant you go out of the Presidency by means of a popular referendum ... much before the normal end of your Presidential term.

This will happen, as sure as the sun goes up every morning...

It will happen because what you have installed in PDVSA is not a group of true and professional managers and technicians ... some of whom know about petroleum what you know about running a country ... i.e. very little.

Let me tell you why the real PDVSA professional managers and technicians decided to rebel. I am sure that many of the things I will tell you will be new to you, since you have a praetorian, authoritarian perspective of the Presidency, certainly not a democratic and civic outlook: 1.-- PDVSA, Mr. President, does not belong to the State, much less to the government and, of course, much less to you, Hugo Chavez ... a public servant and not a feudal ruler. PDVSA belongs to the Venezuelan nation ... this is all of us, you included, together with 23.4 million others. 2.-- The nation is not at the service of the State and the government, but these must be at the service of the nation. You, as a servant of the State, are clearly at the service of the nation and should be accountable to the nation ... but you are not. 3.-- From 1. and 2. above, it clearly follows that PDVSA is not your personal playground. It is one of the most important institutions of the nation and, as such, it has to be protected at all costs by the servants of the nation, of which you are one. 4.-- As a national institution, PDVSA belongs to all Venezuelans, not only to your followers. We are all shareholders of PDVSA. The State is not the only shareholder, much less the government or you as a person. All shareholders have the right and the duty to protect PDVSA from destruction, contamination, prostitution of its mission and corruption of its activities. 5.--The rebel staff that you fired had been trained in a tradition of meritocracy, apoliticism and professional management. These values formed the backbone of the corporation and their practice explained its sterling operational and financial performance for 25 years, until you came into action. These values had been accepted by the nation as the guiding principles for the Institution. You came, as gracefully as an elephant in a china shop, and proceeded to demolish all these principles. You named a madman, a Marxist enemy of professional management and a terrorist as successive presidents of the institution. You placed as members of the board people who lacked the credentials to be there. You promoted the use of PDVSA's facilities and equipment for political events. You became enemy number one of the institution which provides most of the financial resources for the nation, resources that the State and the government have consistently tried to misuse for their selfish purposes. 6.-- The managers and technicians of PDVSA acted on their triple duties as trustees of the institution, as shareholders of the institution and as citizens of the nation, Venezuela, to protect the institution from this gross attempt at destruction and prostitution of its values, norms and procedures. They acted against you, the person who has tried and is still trying to destroy PDVSA. Do you think, for a moment, that these managers and technicians want to go back to work under a Presidency which represents the exact opposite of the values they cherish?  They are selling cakes in the streets today but, every morning, they see themselves in the mirror and they see people with dignity and self-esteem. They do not see lackeys...

Do I go on or you got it clear?

I doubt that you did, or that you would, no matter how much in detail I explained it to you. Because for ten years, by your own admission, you plotted a coup against the democratic governments of Venezuela.

Whoever discredits his own institution in this manner can not understand what institutional loyalty means.

And ... after ten years of plotting, you finally came up empty.

On the other hand, the managers of PDVSA did not plot ... they met in a public assembly and decided to act immediately, on the basis of their conscience, putting everything on the line: jobs, financial stability, family and career. They are not asking for your mercy and they would not accept it. They know they will be back to PDVSA after the national nightmare is over, after you are gone. Some of them will find that there is life after PDVSA and will not go back to the institution ... but the majority will get their jobs back and, more importantly, they will put right most of the wrongs.

And there will be no more fish markets in front of PDVSA's headquarters, there will be no more political commissars, there will be no more international embarrassments.

As you are still young, I hope that the example of civic responsibility given by the PDVSA rebels will make you reflect on your own ethical posture and will help to improve it.

Moral force is always stronger than brute force, you can be certain of that...

You have some personal qualities which, if properly blended with true democratic manners and a more humble disposition, would allow for a reasonably good political career.

But, right now, you are making a mess of it.

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 gustavo@vheadline.com

Posted: Friday, May 09, 2003 By: Gustavo Coronel

VHeadline.com commentarist Gustavo Coronel writes: Nobel Prize winner Gabriel Garcia Marquez is not in good health. This has prompted him to write a letter to his friends which I have received via Internet, where it can be read not only by his personal friends but by his numerous admirers all over the World. For those who do not read spanish I have made a translation which, I hope, transmits something of its original beauty.

From Gabo to his friends...

Ask the Lord for the strength and wisdom to express them ... tell your loved ones how much they mean to you..."

This is the letter from Gabriel Garcia Marquez to his friends ... in writing it, he is preparing for a journey that many other distinguished travelers have undertaken before him ... a long line of great minds and great hearts ... who have created exquisite beauty with the rather modest tools of humanity. His work has added significantly to the wonder of Man... Man, who, although condemned to death remains defiant, addressing an audience that he, she feels will be listening beyond the remotest stars.

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 gustavo@vheadline.com

<a href=www.energypulse.net>Energy Pulse article 4.28.03   Joseph Cacioppo, Director, Coal Services for Evolution Markets, Evolution Markets LLC

A sharp rise in demand due to a cold and snowy winter in the Northeast, a disruption in coal imports, credit problems, and rising energy prices converged this winter to push near term coal prices upward. Producers, end users, and markets should take heed. The volatility in over-the-counter (OTC) coal markets highlighted the price risk faced by market participants. Companies that hedged this risk prior to winter softened the blow from a run up in prices. Recent OTC market activity illustrates the benefits of instituting hedging strategies, whether you are a producer, end user, trader, or marketer.

Big Chill, NS Supply Crunch Converge

The big chill started it off. This winter was considerably colder in the Northeast than in recent years. In addition, unusual amounts of snowfalls blanketed the region. The vagaries of Mother Nature contributed to an increase in power demand from November to mid-March. During that time burns were up and coal stockpiles were down.

Credit issues for utilities impacted their willingness to tie up cash with coal purchases to refurbish their stockpiles. Rather than pile up cash at their plants, utilities conserved funds. At the same time utilities were not fully hedged against price movements for when they really need to return to market. Market watchers feel there will be a flurry of activity to replenish supplies, especially in the second half of this year.

Further complicating matters was a supply crunch from producers serving Northeastern power producers. There was a virtual shutdown in production from Venezuela. First a general labor strike shuttered mines. Later, even as coal miners prepared to go back to work, a continued strike in the oil sector inhibited coal producers ability to ramp up operations to meet export demand. Venezuelan mines went back online in February, but the incident highlighted the political risks involved with taking coal out of the region. Much of the coal from Venezuela bound for the U.S. was a 1.2#, high-BTU coal very near compliance specs for American power producers.

Those caught short during the shutdown turned to regional compliance coal supplies on the NS. Unfortunately, NS coal took a blow in supply at about the same time imports dried up. A major supplier in the region, Horizon Energy entered into bankruptcy – severely restricting supply for coal buyers on the eastern seaboard. Horizon’s demise compounded the Venezuelan problem, leaving the east coast with tight supplies of compliance coal during an unusually cold winter.

Perhaps the best representation of the impact of eastern coal shortfalls is the in the spread between the CSX and NS coals. In past years, the NS compliance coal has traded at a premium to CSX, but the difference was always between $0.10 and $0.25 per ton. Lately, the spread has widened significantly to between $0.50 and $1.00 per ton.

These demand and supply factors alone can account for the run up in coal prices for 2003, but there another – more esoteric –- factor impacted the market. The increase in coal prices coincided with the general rise in energy prices from heating oil and petroleum to natural gas and power. The correlation between the price of coal and other domestic energy commodities is subject to perennial debate in the industry. Some argue that coal production is constant and coal plants are mainly baseload generation and therefore not subject to dispatch based on natural gas or oil prices.

True, but the rise in coal prices over the last five months closely mirrors the NYMEX natural gas price curve. Mark it up to perception over reality that creates a psychological – if not entirely real – connection. Many of the largest volume traders in coal are also active traders in other energy commodities. Speculation plays are likely being made across the board for energy commodities, ultimately moving coal in OTC markets.

Numbers Tell the Story

And, the moves in OTC markets over the winter have been significant. Prices in CSX <1% coals were particularly indicative of the upward trend in coal prices. At the onset of this winter season, CSX coal delivered in the second quarter of 2003 was trading for $26.40, but near the end of the first quarter of this year it was trading for $31.50 – a 16 percent increase. The outer delivery dates were equally impacted. CSX coal for the back half of 2003 rose to $33.25 from $28.25 from November 2002 to the tail end of March 2003. This represents a 14 percent increase, which is also reflected in coal being sold in the spot market for the next calendar year.

Physical Hedging Protects Bottom Line

The recent volatility in OTC coal markets points to the changing relationship of producers and end users. Both are now adept at using the OTC market to hedge price risk and manage inventories. Some are getting smarter at looking at buying and selling coal as a hedge game that can protect the bottom line from major price swings like we’ve experienced this winter.

Hedging, at its most basic, is an offset of a natural position. Both producers and end users – as well as traders and marketers – can take simple steps to hedge price risk in increasingly volatile OTC coal market.

Producers Maximize Profits

Even as prices rise, coal producers face the risk that they will enter into contracts at prices that will ultimately be below market or that they will be caught short on supply contracts and forced to turn to the market and pay dearly to meet supply obligations. Both scenarios can be easily hedged in OTC markets.

For instance, a producer could have gone to the OTC market last fall and purchased several trains of rail coal, such as CSX <1%, for the second quarter of 2003 at $26 a ton. If the price did not change, the producer could have applied the OTC purchased coal to a contract with one of its utility customers – leaving coal in the ground for future sales.

But, the price went up and eventually hit more than $33 a ton for Q2 ’03 CSX <1%. The producer could, as above, apply the OTC coal toward its supply obligation. Or, it could take advantage of the market’s upward swing by selling the OTC coal into the market – taking a $7/ton profit – and sell its own coal at the elevated price.

End Users Play Time Spreads

Price spikes can be particularly painful for end users who may have to cover short inventories or have an unusual spike in demand. But they, too, can use OTC coal markets to hedge their price risk – and do so while being sensitive to cash concerns.

An end user that may be slightly short coal during a price upswing, can execute a ‘time spread’ hedge in the OTC market in order to soften the blow of purchasing coal at its peak. By purchasing ‘outer coal’, or coal in the latter quarters of a calendar year, it can play off the difference price spreads.

For example, an end user that may be short coal in Q2 ’03 can turn to the OTC market to meet these supply needs – while also buying Q3-Q4 ’03 coal in the OTC markets as a hedge. As Q2 coals rallied in price, this should also drag up the back part of the forward price curve. The end user can later sell the coal purchased in the back half at a profit and use these proceeds to flatten out the balance sheet already in the red from increased short-term coal prices.

Derivatives an Option, Too

The examples above are simple hedges that can be made in the physical OTC coal market. There are, of course, financial hedges or derivatives that can also have the same benefit of protecting against major price swings.

Options plays can protect buyers and sellers against just the type of price risk we have outlined here. Producers looking to take full advantage of price upswings can buy call options that provide them the right but not the obligation to buy coal at a price that may be below the market rate in the future. If the price of coal goes above the option strike price, the producer can exercise the option and then sell the coal at the prevailing market – taking a profit.

Options also provide end users particularly good hedge opportunities. An end user can protect against upward swings in the market by purchasing a similar call option, but this time locking in a price that may be less than the market price in the future.

With many market players, especially utilities and producers, increasingly taking efforts to conserve cash, the options market remains relatively dormant. Nonetheless, market players continue to turn to the OTC market for physical hedges, and there are counterparties available to gain similar results in financial derivative products.

Readers Comments 4.28.03 william grebenc "well written concise, nice snapshot on using traded mrkt to manage risk"