Oil and communism don't mix: Venezuela faces energy standoff at petroleum company

CARACAS, Venezuela -- After years of quiet complaints, the employees of Petroleos de Venezuela have begun to loudly protest the radical changes wrought by President Hugo Chavez.

Oil-field drillers and subsidiary presidents are staging raucous assemblies, banging pots and pans, chanting slogans in the street, wearing black clothes of "mourning," and publishing newspaper advertisements in an unprecedented furor over what they charge are moves to turn the company into a political fiefdom.

On Thursday, hundreds of employees demonstrated outside the offices of the company, commonly known as PDVSA, in Caracas and other cities chanting: "We are energy; we are PDVSA!" and "P-D-V-S-A!"

Chavez ignited employees' ire when he fired the company's respected president, army Gen. Guaicaipuro Lameda, last month. Lameda had repeatedly clashed with the Energy Ministry over policies he and many employees viewed as putting left-wing nationalism ahead of good business practices.

Chavez replaced Lameda with a leftist economist and academic, Gaston Parra Luzardo, who was then first vice president of the Central Bank of Venezuela. With a long history of supporting state control of the industry, the 68-year-old Parra is expected to acquiesce to Ministry orders with little fuss.

When Parra entered the company cafeteria for the first time two weeks ago, he was greeted by employees clinking glasses and tapping trays in unison as a sign of protest.

· The government's cash demands, paying for much of the federal budget, forced PDVSA to borrow $500 million last year.

· Chavez has insisted that oil sales continue to Cuba, despite an unpaid $97 million bill for past sales.

· PDVSA has continued to produce far more oil than it needs at a time when exports are down because of the OPEC agreement to reduce supplies. The higher production allows the government to collect higher royalties.

Foreign oil executives, who have about $20 billion invested in Venezuela, are staying out of the fray for now. But analysts say that the new direction bodes ill for future investment, especially as Parra was party to a lawsuit that contested the 1996 return of private oil companies to Venezuela.

"This all runs contrary to PDVSA's six-year business plan, which calls for investing $7.4 billion a year, $4 billion of which is to come from the private sector," says Luis Giusti, former president of PDVSA and a board member of Royal Dutch/Shell Group. "The question is what private sector? Who's going to go into Venezuela now?"

The continuing changes in management are resulting in the departure of many managers who led the company when its goal was to operate like an efficient, privately owned oil company.

After appointing Parra, Chavez ousted career PDVSA executives from the board of directors, and this week he named a new expanded board filled with outsiders and middle-management employees aligned with his leftist "peaceful revolution."

The appointments, say protesters, run counter to the company's tradition of "meritocracy," or performance-based promotions. The system was designed to prevent the political cronyism and nepotism that is rampant in Venezuela's state institutions.

Chavez's management of PDVSA has sparked quiet dissent in the three years since he took office with a vow to rein in the company's "gold card culture."

PDVSA, the jewel in the crown of the Venezuelan state, supplies 60 percent of government revenue and 80 percent of the country's export earnings.

Chavez charged that the company's traditional autonomy made it a "state within a state," and neo-liberal managers were leading it to privatization.

"This company cannot be managed as a private company," he said Tuesday. "It is a state company; it does not belong to bureaucrats or technocrats. We respect meritocracy, but there are other considerations."

Lameda and many employees fear that Chavez's philosophies run the risk of bleeding the company of the cash it needs to develop this country's rich reserves.

Lameda locked horns with the Energy Ministry on numerous issues, including the new hydrocarbons law that raises royalties and mandates that PDVSA be the controlling partner in any joint venture. Critics said these rules would stifle international investment.

Other bones of contention were the central government's demand that the company hand over $4.4 billion in dividends last year, forcing PDVSA to borrow $500 million to pay the bill; and the oil sales to Cuba, whose leader, Fidel Castro, is Chavez's longtime mentor.

One of the major disagreements centered on the Ministry's insistence on adhering to OPEC production cuts, but forcing PDVSA to continue producing surplus oil that has now filled every available storage facility. Although PDVSA cannot sell the oil, the catch is that it still must pay royalties for producing it to the central government, Lameda revealed after his departure.

"I started warehousing" when prices were $26 per barrel, he told El Universal newspaper. "They're now $16. The barrels are worth less every day. I told the minister that I have to go out and ask for $500 million in loans while I have $300 million in the warehouse."

Energy Vice Minister Bernardo Alvarez said a new leader was brought in because "Gen. Lameda did not fulfill expectations."

The confrontations with the ministry earned Lameda, whose initial appointment was greeted with skepticism, the respect and affection of employees who resented the meddling.

"He believes that the oil industry should be completely and fully controlled by the state, with no participation by private companies," said a former PDVSA top executive who requested anonymity.

Meanwhile, Fitch Ratings announced last month it was lowering PDVSA's credit rating from A to BBB, while Standard & Poor's said it would likely downgrade the company. Both agencies cited "excessive sovereign interference" as the reason.

The issue may come to a head if the country's labor unions decide to hold a general strike throughout Venezuela this month, which undoubtedly would include the oil workers union Fedepetrol.

PDVSA managers have threatened that in the next oil-field strike, they will not man production lines to keep the oil pumping under the usual contingency plan. A paralyzed oil industry would cost millions of dollars a day and could result in canceled supply contracts.

But Chavez says he will not renege on his appointments or his policies. Employees "have a choice: accept the changes or leave. This is a state company, and I am head of state," he said.

Venezuela's President Announces $2 Billion In Social Spending [and 22 percent Budget Cut]

How secure is our oil supply?

· Chavez has insisted that oil sales continue to Cuba, despite an unpaid $97 million bill for past sales.

This is the only way Castro does "business." A reminder that it is you who will be paying the tab if U.S. companies start "trading" with Castro.

Chavez already has a beachead in Oklahoma and Texas...

CITGO Petroleum Corporation is a manufacturer, marketer and transporter of gasoline, jet turbine fuel, diesel fuel, heating oils, lubricants, refined waxes, petrochemicals, asphalt, and other petroleum based industrial products. Headquartered in Tulsa, Oklahoma, the Company is owned by PDV America, Inc., an indirect, wholly-owned subsidiary of Petróleos de Venezuela S.A., (PDVSA).
Foremost among CITGO's priorities are safe worksites for its employees, environmental stewardship and a commitment to long-term financial health through strategic growth and business diversity.
CITGO's key strategy of focusing on branded distributors has resulted in more than 13,000 retails outlets selling CITGO - branded gasoline, helping to make CITGO one of the top three marketers of gasoline in the United States. The fourth largest marketer of turbine fuel in the U.S., CITGO is a major supplier of distillates. In addition, CITGO is a leading manufacturer and marketer of lubricants and specialty products. Petrochemicals produced at CITGO's refineries in Lake Charles, and Corpus Christi provide an additional important source of earnings. CITGO is also the major marketer of asphalt in its market area on the U.S. East Coast.

Link to CITGO's Web Site

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