ENI color you want, so long as it's green

PDVSA en Flames

Finally, some truly juicy bits about Venezuela are coming out of the Wikileaks cables. What’s coming out, though, is not exactly what Eva Golinger fantasized about when she first heard of the mega-leak.

Take it away, Rory Carroll:

Venezuela’s tottering economy is forcing Hugo Chávez to make deals with foreign corporations to save his socialist revolution from going broke.

Italy’s ambassador to Caracas, Luigi Maccotta, told his US counterpart that Italian oil company ENI squeezed PDVSA over an Orinoco belt deal in January this year knowing it had no one else to turn to.

The Italians delayed the signing by two days to reinforce the Venezuelan government’s “need for ENI”. Paolo Scaroni, the company’s CEO, then faced down Venezuela’s oil minister, Rafael Ramirez, over changes to terms and conditions.

“Thirty minutes before the ceremony was supposed to begin Scaroni told Ramirez: ‘Take it or leave it, I can get on my plane and move on.’ Ramirez apparently used that half an hour to convince President Chávez to accept all of ENI’s proposed changes or risk losing the deal,” according to the US cable. The Italians said they would not pay PDVSA a standard signing bonus because the company already owed them $1bn.

Venezuela’s oil minister, who is the head of PDVSA, travelled to Moscow and Beijing hoping for solidarity deals with allies, only to find the Russians and Chinese as profit-minded as western companies.

Do yourself a favor and read the whole thing.

Addendum: Drilling down on the Energy-related cables Rory links to, one big theme that comes out is that the major bottleneck in PDVSA these days has to do with Natural Gas: there’s just not enough of it being produced to re-inject into oil wells to keep their pressure up, largely because PDVSA’s insistence on keeping prices artificially low leaves foreign majors with virtually no incentive to invest in the sector.

The way PDVSA’s handled the Gas shortage is, to say the least, interesting. In one of the embassy cables, we find this absolute pearl:

According to XXXXXXXXXXXX [a Mitsubishi official], Vice Minister for Petrochemicals (and PDVSA Vice President for Refining, Trade, and Supply) Asdrubal Chávez [Note: Hugo’s cousin -ft] reportedly told another Japanese firm recently that any natural gas supply deal signed before he assumed his current position at the Ministry is invalid and that it was not in PDVSA’s interests.

Read it twice. Let the implications really sink in.

Holy. Cow!!!

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  1. None of this gets filtered down to the common folk on the street, or it it does it’s dismissed. The great majority of the people still believe in Patria, Socialismo o Muerte. I mean, in any normal functioning Democracy, the government would have been scandalized out of office already… years ago.

    The only thing this highlights (because you can’t call it news, is anyone surprised by these events?) is that Chavez and his cronies are smacking into that wall called reality and can’t seem to figure out why reality won’t adjust to their worldview. Meanwhile they keep the spin machine going telling the masses that yes indeed, socialism of the XXI century is alive and well.

    • They don’t believe that crap. Most pretend to buy it to milk the system for what it is worth.

      They suffer from a lack of institutions and education. Where would they go to complain about these things? They have been dependent all their lives and have had no power. Maybe they buy the crap that by putting up “El Pueblo” (aka Hugo Chavez) in power, they share some power.

      It’s an old fallacy associated with democracy, especially the “popular” and “people’s” versions. When you vote for a person, you vote for a person with some thousands or millions of other voters, period. If they can behave like a despot once installed with no consequences and not be ousted, if they can curtail your rights and especially those to complain, guess! when exactly your power ends, if you had any power by voting. Hint: you still have the indelible ink on your pinky finger.

  2. Reading those reports on how Cuba is holding to the last minute before implementing further reforms because they are scared to loss power they have worked to obtain in the last 50 years is laughable. How Venezuela is the only thing in the way of complete economic colapse of Cuba is also intresting. Who much do you think Venezuela is giving them? I’m pretty sure Hugo can not allow the economic collapse of Cuba, as everyone will quickly start to wake up and realize what a horrible mistake this XXI Century Socialism really is.

  3. I think this is how oil companies always negotiate. From what I hear, people in the oil industry are tough as nails, and they will screw you at the slightest opportunity.

    However, if you have options (as Venezuela clearly does not), you don’t get screwed *that* easily.

  4. The real story here, I think, is the way PDVSA’s pricing for Natural Gas is creating a huge set of knock-on problems that chavismo has no idea how to handle. The cables make it clear they desperately need more gas to keep the oil flowing and the power-plants running, desperately need foreign investment in the gas sector but…won’t agree to bump up gas prices from their madly subsidized levels.

    So, of course the majors aren’t interested, but somehow that doesn’t budge Venezuela on gas pricing…

    My guess? Chávez has made it clear to Ramírez that Natural Gas rates are a presidential-level matter and Ramírez basically doesn’t have the authority to compromise on it. Chávez, meanwhile, can’t grasp the connection between his hard line on tariffs and PDVSA’s failure to attract investment into the system. And Ramírez – ever the survivor – is shrewd enough to realize there’s nothing to be gained from pushing the boss on this issue. So people lower down, like Asdrubal, are left to fend for themselves, squaring the circle of how to fill commitments for 100 cf of gas for every 80 actually produced…

    A perfect circle of maddening incompetence…

    • That part begs for more explaining.

      The natural gas rate that is out of whack is not the rate that consumers pay, but the rate that PDVSA pays for gas that goes into its wells. In theory, PDVSA should be able to pay market rates for that gas, just like it pays market rates for, I dunno, hiring Halliburton to drill some rigs for them. So why doesn’t PDVSA simply buck up and pay market rates?

    • Right, that’s what I mean. It seems like a simple technical decision: if you can’t get Mitsubishi to chip in a couple of billion bucks at whatever price of gas you’re offering, you up the bid a bit. But PDVSA seems utterly determined not to compromise on this. Why?!

      The only explanation I can imagine is that there’s a presidential veto over that number…

  5. You got to love how the guardianistas winked at their hardcore left readership, by entitling the article “Oil giants squeeze Chávez as Venezuela struggles”, surely a very objective representation of the cables’ content, innit?

    As per gas being presidential-level matter, and going back to Juan’s musical chair piece, may I ask: which matter is not a presidential matter? Can we think of one (1) example, where a minister, or a lower chavista being, has actually taken a decision (1) on things other than what color of shirt to wear in Alo Presidente?

  6. More than the reporting on the cables, I found amusing to read the cables themselves. The one about ENI and the Italian Ambassador made my day (especially considering all the spin that the government has given to the deal with ENI)

  7. The gas issue is very big. Gas is the linchpin to all the Revolution’s plans, but they aren’t willing to pay more than about $1.50 per million BTU. That’s because they have already promised gas for about 40 cents per million BTU to the chemical plants, the little companies that provide gas canisters in the community, etc. They are already subsidizing the gas at $1.50 and don’t want to increase the subsidy. Obviously they also don’t want to increase the price. When I say “all” the Revolution’s plans, I mean it — everything from food sovereignty to Venezuelan manufacturing to increased oil output to you name it. The worst part is that because they don’t want to pay $3 per million BTU to Chevron at Plataforma Deltana or Mariscal Sucre, they end up (according to the rumors; I don’t have this on record) paying as much as $5 per million BTU to Colombia so as to import gas. And guess who pumps that gas in Colombia. Hint, starts with Ch, based in California.

    • But, but … they have to increase the subsidy. Otherwise, what is their option? Raise prices on Venezuelan consumers?

      Seems like they’ve gassed themselves into a corner.

  8. I think the banks are about to be plundered. The new regulations which forced banks to put more money in to show that they were finacially sound, was just to fatten the calf before it gets butchered. Also whatever happened to the 2 billion dollar bond? Hardly seems enough to do anything real except steal from it. There are two plays at hand. Go after whatever institutions that still have money, take them over and steal their money. Or, steal whatever money is left and ride this revolution into the ground or by some miracle make it to the safety of rising oil prices. At the beginning of the month they were saying 100.00 dollar oil is fair. I think they are going for the “Hail Mary”. I think they have stolen more than enough money. I think all they really want is power forever, and only rising oil can deliver that. Once the regime hits its financial apex everything is going to unravel fast.

    • Maybe I took the response too literally. I would like to think the Chavez regime would have collapsed by now if oil prices had not gone up and save or prolong Chavismo. In 2002 oil averaged in the mid 20’s. This revolution would have been over a long time ago if oil were that low again. The last time I was in Caracas with my family I remember telling my Dad that oil prices would have to collapse in order for things to change. It’s amazing to see that despite the collapse and recovery of oil prices, Chavismo is still approaching the brink if what is described in Wikileaks is true. They seem to have figured out how to destroy an economy despite a golden goose. I have not been there since my sisters wedding four years ago. Since then, she, her husband and two of my other siblings have left. I am sad for my father losing his family. My recent conversations with him have for the first time indicated his despair and pessimism.

  9. Socialism,

    Whether it is: blackmailing and then baiting and then blackmailing foreign oil companies… keeping unrealistic subsidies on gas and gasoline, which amount to populism… expropriating companies and then expecting investment… mismanaging the economy and then expecting to have money… blowing up all the checks and balances and expecting not to be eaten from inside by corruption…

    is simply impracticable. Hugo Chavez is our own reductio ad absurdum of the ludicrous concepts that Venezuelans have in their minds.

    And, oh, it seems some Argentineans have learned their lesson from history, as expressed by Taiana in the Guardian article. Now we have to learn with our own moron, er Peron.


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