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ANALYSIS

Then and now: 10 years after Venezuela's general strike

Pdvsa's politicization plows onward while the company suffers at its core

Rafael Ramírez, president of Pdvsa, needs to follow through on social programs (File photo)
ERNESTO J. TOVAR |  EL UNIVERSAL
Saturday December 08, 2012  12:00 AM
A decade ago, Venezuela was in the midst of what was at the time the fourth national general strike in just 12 months, between 2001 and 2002.

Starting on December 2, 2002 and ending in February 2003, that strike formally sought acceptance by the President of the Republic, Hugo Chávez, to hold a referendum on his future as head of State. However, the streets were filled with thousands of people, including state-run oil giant Pdvsa staff, who wanted the president to resign and call for elections.

The passing of time has shown that President Chávez understood back then that absolute and hegemonic control over the oil industry was and is crucial to support his political project, funded through regular and special channels by the highest and most abundant oil income in the country's history.

"Not one step back!"

In 2002, the internal cracks in Pdvsa were revealed: those standing up for the commercial and business vision of an oil company and those proposing a model wherein politics would set the tone for state relations.

During the strike, oil production sank from nearly 3 million barrels per day to a mere 25,000 barrels. This stopped refineries in their tracks and forced hundreds of thousands of fuel barrels to be imported over a span of several weeks.

The split throughout Pdvsa as a result of the strike was offset by dismissal of nearly 23,000 oil-sector employees (including 5,600 operators). This spelled the significant loss of thousands of professionals whose skills were developed in the country and would go on to be denied opportunities to work again in their areas of expertise, leaving many to venture abroad.

After the strike, as a brainchild of Alí Rodríguez Araque, then president of Pdvsa, and Rafael Ramirez, then minister of Energy and Mining, the official sector announced the "new Pdvsa". In 2003, the company had to face the effects of the strike with management being, at the very least, disorganized and in "crisis transition" mode. Structural changes, a new board of directors, crude oil and derivatives requested by other countries, foreign-currency debt and even force majeure issues had to be dealt with.

In 2004, based on legal leeway under the then recently enacted Organic Law on Hydrocarbons, the president ordered the state-owned conglomerate to hold a compulsory majority interest in all oil-sector projects. The goal of this new battle was to reverse the Oil Opening initiated in the 1990's and criticized over the last 14 years of Chávez's tenure for "privatizing Pdvsa and giving away Venezuelan oil." The man in charge of this new onslaught was Rafael Ramírez, minister of Energy and Mining, who in July 2004 went on to become president of Pdvsa.

Once the Operating Agreements and Joint Ventures of the Oil Opening were declared illegal or extinct by the National Assembly, long-standing transnational corporations, such as Exxon, Chevron, ConocoPhillips, Total and Repsol were forced to adhere to the model in which the State is the majority stakeholder. Reversal of that stance was completed in 2007 and gave rise to several multi-million arbitration processes, some of which have yet to be settled, against Pdvsa and Venezuela, as a result of nationalization of projects.

Paint It Red

Booming oil prices have allowed the government to turn Pdvsa into its main funding source. Under the concept of a State-Government-Party, the Ministry of Energy, Pdvsa and the ruling United Socialist Party of Venezuela (PSUV) have practically merged and are subject to similar chains of command, whereby Minister Ramírez is both president of Pdvsa and president of PSUV, with hues of that party's color unmistakably seeping through.

This politicization of the oil company and the loss of managerial capacity after the strike have led to several issues within the industry.

In 2005, the Oil Sowing Plan, contemplating expenses of USD 123 billion until 2012 to spike oil production from 3.3 million barrels per day in 2005 to 5.8 million barrels per day in 2012, was nonetheless launched. The goals set out, however, had to be postponed time and time again as the company was immersed in political and social objectives different from its core business. Throughout the past decade, Pdvsa has grown its payroll to over 100,000 employees specializing or not in oil-related activities, yet its production has fallen from 3.3 million barrels per day in 2001 to 2.99 million barrels per day in 2011. Further, oil exports dropped from 2.7 million barrels per day in 2001 to 2.4 million barrels per day in 2011.

As production, refining and exports plummet, industrial safety and maintenance conditions are under increasing scrutiny. Those doubts grew deeper in light of the tragic explosion in the Amuay refinery, leaving 40 dead and damages yet to be publicly quantified by Pdvsa. In fact, even three months in the aftermath, operating consequences in the domestic oil industry are still widespread.       

The new Oil Sowing Plan, now restructured for the 2012-2019 period, envisions significant indebtedness to be undertaken by Pdvsa to fund investments. Nevertheless, those debts have reached nearly USD 40 billion since 2007, without concrete evidence of material progress in new projects in the Orinoco Belt region or in the Offshore Gas projects, which have not been launched to date.

These are the current conditions of a crimson-tainted Pdvsa, which must face operating, tax and social commitments and which has managed to remain buoyant thanks to soaring oil prices.

Translated by Félix Rojas Alva
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