Energy
The board of directors of state-run oil company Petróleos de Venezuela (Pdvsa) has decided to cut its huge cost and expenditure budget, which would require a review of operating expenses as well as the purchases of oil and byproducts and outlays related to royalties, oil extraction tax, among other activities, amidst a sharp drop in revenues due to low oil prices.

Rafael Ramírez, the Minister of Energy and Petroleum and Pdvsa President, announced last week a reduction of costs and expenditures to USD 6.07 billion, compared to USD 17 billion last year. This figure means a 64.7 percent cut compared to last year budget, due to the effects of the global financial crisis.

The senior official added that Pdvsa's budget for investments will amount to USD 14 billion. This figure is 41.6 percent below the USD 24 billion that the state-run oil company planned to invest this year, said Ramírez in a videoconference which was posted Monday on Pdvsa's website.

According to the latest financial statement of the state-owned oil company, dated September 2008, Pdvsa's cost and expenditure budget also includes operation, exploration, depreciation and amortization expenses in connection with the nationalization of the four oil upgrading projects in the Orinoco Oil Belt, as well as new investment, exploration, sales and management expenditures, and overheads.

In the videoconference, the official would not specify what activities would be affected by budget cuts. Therefore, any item will be reviewed. Ramírez had also said that the rates charged by contractors and suppliers would be reviewed.

Wage cuts
Venezuela's Petroleum Minister also announced a 20 percent reduction of the executive payroll, which includes the salaries of senior managers such as Pdvsa's President, Vice Presidents, directors and managers. Ramírez stressed that there would be neither salary increases nor bonuses this year. He would not elaborate.

"We have to cut excess costs and spending; we have to seek a reduction of the rates charged by contractors, suppliers of goods and services; we have to slash expenditures related to the operation of the company. Otherwise, Pdvsa will not be economically viable," Ramírez said to the workers of the Venezuelan oil company.

Analysts claim that investment in core businesses has been significantly curbed. Nevertheless, they argue that the reduction will not affect the operations of the industry and that some projects are likely to be postponed.

"Cuts will not have a direct impact on oil production. There are a number of projects that will be deferred, although they were included in the original budget. These projects will be adjourned until funds are available. This does not imply, in any way, that the exploration and production activities will be affected," said Hugo Hernández Raffalli, a top executive of Pdvsa and former president of the Venezuelan Petroleum Chamber.

Other experts said that Pdvsa has not made any investment, as oil production has remained unchanged over the past three years.

"Venezuela has not invested in the oil sector, and this troubling, because revenues are increasingly lower," said Gustavo Rojas, the director of RG Business, Strategy and Economics firm. 

While announcing the expenditure cut, Ramírez said that Pdvsa has prioritized investment projects. He explained that the projects aimed at expanding production and strengthening the operational capacity will be preserved. The Venezuelan oil giant will also invest in major maintenance programs and scheduled shutdowns.

Translated by Gerardo Cárdenas

Deisy Buitrago
EL UNIVERSAL