Economy
Sinking oil prices unveiled that oil operations are going through a contractive stage, which has an impact on the rest of the economic sectors, particularly dependants on public investment.

Fewer output volumes, revision of costs and expenses, adjustments in investments and accounts payable to workers and service suppliers is the situation undergone by the oil business, whose exports yield over 90 percent of revenues.

In 2008, the corporation took benefit from a barrel that went beyond USD 100 and oil sales surpassed USD 87 billion. However, even in the face of increasing funds, there were signs of alarm and the economic activity was not showing anymore the high growth rates of previous years.

Due to the collapse of oil prices in the last quarter of 2008 as a result of the global financial crisis, the economy in general slowed down. Such situation worsened in the first quarter of 2009. Based on preliminary estimates, numbers will be in the red, influenced by an untoward effect of the GDP in the oil sector and other sectors with a clout in the economy, such as manufacturing and trade.

"We are going through recession," less implementation in the industry plans shows stalemate, said former manager of economic research, Central Bank of Venezuela, José Guerra. In his view, oil operations in the quarter contracted by 2-3 percent.

Factors
Less production was the first issue that made an impact on pointers. The oil business, as agreed by the Organization of Petroleum Exporting Countries (OPEC), reduced oil volumes by 364,000 bpd. Therefore, output levels total three million bpd.

The state-run oil holding Petróleos de Venezuela (Pdvsa) mostly offset the output with prices. However, the actions agreed upon were not echoed by oil quotations. For this reason, in March, the benchmark barrel to finance the central government expenditure and Pdvsa budget was adjusted from USD 60 to USD 40.

Last April 24, during a videoconference, Minister of Energy and Petroleum and Pdvsa President Rafael Ramírez told workers about new actions that will mark the upcoming trend over the next few quarters.

The senior official said that the budget for investments will account for USD 14 billion and projects such as maintenance, planned downtime, refining, gas development, and operations at the Orinoco Oil Belt, where partners are wanted, will be given precedence. Mention was not made on overseas projects. However, Pdvsa spokespersons disclosed that the construction of refineries in foreign countries would be postponed.

Ramírez added a 64.7-percent cut in the expenditure budget, from USD 17 billion to USD 6 billion. "We are facing a very significant challenge; if we adjust our cost structure, we will surely keep our operations," he said.

Economist Orlando Ochoa explained that as a result of the price performance, investment will fall down. "If the oil barrel averages USD 45 in the year, the income from oil sales will be around USD 39 billion. A portion should be handed over to the Treasury. Therefore, there will be less investment."

Further, said Ochoa, in the face of curtailed expenditure, everything will hardly operate as usual. He added that the costs in the oil business heighten in proportion to domestic inflation and at this time, such situation cannot be offset either with output or prices.

Since late last year, the oil business has been in troubles due to increasing liabilities. Debts to suppliers have not been completely honored. More than one month ago, USD 1 billion was repaid, yet most of the amount payable is still pending. Larger contractors have gotten from 5-10 percent of the payment, as Pdvsa continues discussing rates. Such delayed payment has a bearing on operations, and a service supplier stopped four out of its 14 drills.

The need for money has made Pdvsa seek funding. While it got a loan from Japan, financial sources reported that the oil business plans to issue bonds in the domestic market.

Additional effects
The oil income crisis has emerged as the government insists on advancing on its socialist production model.

The 2007-2013 Plan for Economic and Social Development states: "the oil industry shares primary responsibility in the generation and development of the new model by fostering social economy units." However, such a role is becoming hard to play.

After February 15th, President Hugo Chávez opted to speed up his production scheme through legal reforms, seizure of manufacturing plants and lands, and the establishment of production units managed by communities. The need to cover current expenditure and take care of the model forced the government to review taxes and increase borrowing. However, needs and wants are even higher.

Translated by Conchita Delgado

Mayela Armas H.
EL UNIVERSAL