The Banality of Incompetence

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One story that should be getting more play abroad is the simply amazing tale of the oil Venezuela is selling to China for $5/barrel…only for the Chinese to turn around and sell it on to third-parties (read: gringos) at a markup of over 1000%. (And no, that is not a typo.)

The whole crazy story, revealed in the Wikileaks data dump, beggars belief in so many directions at once your head almost spins. Venezuela is sending foreign aid – to China! – to the tune, potentially, of tens of millions of dollars per day! in the form of oil that ends up in your gas tank!

The obvious question is “why?!” And the answer, as far as I can tell, is “just because…”

And that, I think , is why stories like this don’t get more play. Narratively, they’re just deeply unsatisfying. You can’t fit them into any of the tropes that dominate public understandings of Chávez abroad: Chávez-the-Budding-Dictator, Chávez-the-Buffoon and Chávez-the-Dashing-Champion-of-the-Poor. Basically, they don’t make any sense.

It isn’t because Chávez is a despot that Venezuela is handing over gobs of free cash to the Chinese. And it isn’t because he’s enamored of Chinese communism, either.

The reason China gets those $5 oil barrels is more banal and, in its own way, far more tragic: the people now charged with reaching international supply agreements on PDVSA’s behalf couldn’t negotiate their way out of a wet paper bag. This is happening because PDVSA is now so criminally mismanaged that the government ends up signing multimillion dollar deals before anybody’s really grasped what they’ll mean.

There’s no easy way for a journalist to telegraph this to his readers in an 800 word story without coming across as horrendously condescending, or worse. And so this has become a key missing strand in international understanding of the Chávez era: the way the country’s being destroyed not to serve any given political or ideological objective, but just through the insidious, corrosive impact of official hostility towards professional expertise.

My sense is that, inside Venezuela, people have a good grasp of this dynamic. We’ve all heard the stories about what goes on in nationalized farms and factories, we’ve seen the caliber of the people chavismo puts in sensitive positions. We’re no longer surprised when huge damage is done not through malice or ideological obtuseness but rather through simple, chronic haplessness. We get the vorágine.

Explaining this to outsiders, though, is much tougher. English language readers expect their news to make sense, to fit into an identifiable narrative with good guys, bad guys, set ideologies and events that happen for a reason.

Quisiera uno…

1 COMMENT

  1. And so this has become a key missing strand in international understanding of the Chávez era: the way the country’s being destroyed not to serve any given political or ideological objective, but just through the insidious, corrosive impact of official hostility towards professional expertise.
    ———
    This is the plain truth as told to me by everyone in the know. Simply put, Chavez has never truly believed there is such a thing as an authentic job in government, or even in the private sector. Even the nation’s financial portfolio can be handed over to some Cuban rube with no experience in capitol markets. Imagine this happening even in New Guinea. You’d call the president fiscally suicidal.

    Chavez has gone so far as to suggest even medicine is not an actual job requiring professional expertise, ergo his attempts to streamline the schooling of an MD according to international standards. But these standards are to Mi Presidente simply bourgeois posturing, bullshit that he can cut through with Cuban jefes, themselves the scions of a failed nation.

    Que Lastima pues . . .

    Juancho

  2. The reason I haven’t given that one more play is twofold: First, I’ve yet to see this cable on either the Wikileaks or El Pais website. So we’re taking El Pais’s word for what the cable said. Second, The sourcing is very suspect. According to the El Pais article, the embassy officers got the info by finding people they thought were PDVSA officials in line at the U.S. consulate in Caracas, bumping them to the front of the line for visas, and then hitting them up for data. If there is one thing I know about Venezuelans (and South Americans generally) it’s that they will tell you whatever they think you want to hear in order to reduce conflict and make you happy. I once had a PDVSA official explain exactly how the oil accounting worked at ship loading terminals. On more persistent questioning (based on my prior knowledge of the system), I found she actually knew nothing at all about ship loading and was making up the whole story. This $5 a barrel thing doesn’t match what I know from talking to people very close to these transactions. If anything, there may be a $5 a barrel discount. It’s possible the embassy people simply didn’t understand what the source was saying. But since we can’t see the cable, much less the original interview, we have no way of knowing. The U.S. embassy has no sourcing within PDVSA. They take what scraps they can get. They have little ability to check out what may be a sole-source story. Is this grain of salt getting big enough for you?

    The logistical point, though, is right: Venezuela always talks about “sending oil to China” when what it’s really doing is selling oil to CNPC, which can do whatever it likes with the crude. It’s very unlikely the markups are really 1000%. But they do make money off the oil, and some of it does not end up going to China. For that matter some doesn’t come from Venezuela. Trading is trading.

    • I think Setty may be right.
      And remember the Chinese gave Venezuela’s military president a “package” for several billion dollars. Miguel initially doubted the Chinese would give billions a and I told him the Venezuelan milicos would give oil for years and years and if necessary their grandmothers’ golden teeth just to get cash for the 2009 and 2010 elections. And that is what happened.

      Read what Janssen wrote there:
      http://venezuela-europa.blogspot.com/2010/04/chinese-pawn-broker-and-venezuela-or.html

      My hypothesis now is that it may the Venezuela regime committed to send Xxx barreils of oil a day for 10 years at a price equal to the market price at that moment (sometime 2009, around 60ish) plus $5 discount. This is not $5 a barrel, but it is already selling off Venezuela’s future as prices are bound to go up and up. What did they get? If you follow the news in El Universal about the Chinese, the Asians gave indeed some months before elections lots of things to the Venezuelan government.

      Now, just a wild thought: beardy Samán also announced they would be fighting off inflation by giving away so many Chinese cars and mixers and washing machines to the people…and soon afterwards he was sacked. Perhaps he compromised too many of the goodies? Or perhaps he was destroying some kind of revolutinary business with that paquete chino?

    • Another thing: half of the 20 “billion dollars” the Chinese promised were to be giving in the form of “yuan purchases”.

      In clear text: you give us Chinese oil for a decade and we give you for each barrel of oil -even when market prices go through the roof-

      about 25 dollars (10 dollars before the next elections) plus the official yuan rate of $25 in the form of Ping Pan Bun Crackers and 2 Zi-Zi Scissors and 2 Tin Tan puppets (one of them in red) and 1 Chew Chop mini-mixer from Guang Dong.

      As you see, we keep with the tradition Columbus and Turuntaima from Wairicotoco (now somewhere in Paria) started when they exchanged pieces of broken Flemish beer glasses for gold.

    • Setty: You are basically saying that PDVSA ‘informants’ are like the natives that tell phony stories to the anthropologists. I don’t know if that’s actually the case but you are making a good point

      Here’s the link to the Venezuela cables from El País
      http://www.elpais.com/documentossecretos/geo/venezuela/

      And this is the Five-Dollar-Gate cable:
      http://www.elpais.com/articulo/internacional/Cable/directivo/PDVSA/reconoce/Venezuela/vende/petroleo/China/dolares/barril/elpepuint/20101213elpepuint_28/Tes

    • I don’t think they actually agreed to sell a specific number of barrels, the agreement was for them to pay off their first loan with fuel oil shipments. That first deal was in 2008, when prices were at their peak. The Chinese, of course not being dumb, said if the price fell then PDVSA would have to make up the difference with more barrels. Of course the entire thing smacked of banal chavismo incompetence from the start — PDVSA couldn’t keep its crap refineries running so it was constantly getting too much low-grade fuel oil that was pushing down the Caribbean market. Some genius came up with the swap financing plan, which had already been test-driven in previous deals with the Japanese, on the logic that they didn’t need that fuel. Of course within a matter of months the price of oil had collapsed to around $35, and within a year and a half PDVSA was faced with a power crisis and a massive demand for thermoelectrical power and had to start importing fuel oil because its own ample supply was already tied up. Maybe if you combine that massive price drop, increase in the number of barrels to ship and the cost of imports, you get to $5. But I don’t really get the math, so I’d say its something of a fish tale for now.

  3. I think Mr. Setty is correct. It’s likely a $5 discount, off of the brother-in-law-price. Then again I might be trying to impose my English reading background on this story.

    🙂

    I loved that last paragraph.

  4. In keeping with the incompetence of the regime what is the deal with Cuba sending 1000s of tons of cement to Venezuela?

    What has happened to the cement companies that Chavez expropriated?
    Especially in view of the reduced construction going on are we not producing sufficient cement to meet the needs of the country?

    • Good question.
      Venezuela will export from now on only oil and African-Indian dulce de platano and cocoa jam to the children of the Soviet Union (as Hugo the Small said when addressing Medvedev)

      Black bean technology and cement know-how and the corresponding products will come now from Nicaragua and Cuba respectively.

      The engineering power and products to build very basic flats will go to Belarus and China.

      The problem is: who is going to produce toilet paper for Venezuelans? Our civic-military government is discussing options with Lybia and Syria. Bolivians are offering coca leaves.

    • Roy,

      You have been to places.
      You have insider’s information.
      Tell us: are coca leaves better than maize leaves for this?

      Seriously: is there a way in which the incoming Venezuelan deputies can get hold of all the agreements signed by the government with China? I mean: this should not be a secret, should it? Or am I joking if I say this now in Venezuela? OK, OK, OK.

    • Kepler,

      Being deliberately dense and taking your comment literally…

      Coca leaves would be completely inappropriate. They are way too small. However, cacao leaves would work, though they are not absorbent. The maiz leaves are absorbent, but rough textured. Pick your poison…

      I am going to miss civilization. When it is all done, do you think we will have to reinvent fire and the wheel all over again? Or perhaps we can actually stop this madness before we have lost agriculture and animal husbandry.

  5. Kepler

    You would think that they would have access to everything as deputies however my bet is that there is no hope in hell that these men & women will see anything.

    I have expectations that a riot will break out on Jan. 5 when the oppos try to enter the chamber.
    We are dealing with thugs & criminals here.

  6. Kepler:

    Is has not happened. As far as I can determine, only US$ 4 billion has been given out, that is it! So I still say, they will not do it all at once.

    Additionally, I dont think any of the Faja money is going to be given out.

    • Miguel, I did not say they will give it right away, but they did give enough to ease up Chavez’s campaign, they gave enough in advance compared to what Venezuela could have exported in the same period.
      In a video (I think I mentioned it in a post with the “China” label) you can watch Huguito in front of the Chinese thanking the ambassador in such a way that this is puzzled. Hugo keeps repeating that China can count on Venezuela because he (Chavez) will remain in power.
      The thing is: a couple of hundred of millions or a billion a couple of months prior to elections can do a lot. That advanced money -even if it just part of the “package” was bought by selling off Venezuelan oil for well under market prices for many years now.

  7. I believe Setty is right. The $5 discount probably can be related to the transportation differential, the additional cost to ship the extra distance to China as compared to Houston or Louisiana.

    The dictatorship doesn’t anything away without touting the 21st century socialism, and the Chinese are all about locking up long term resources to feed their growth.

  8. I will hazard a summary for this post and associated comments:

    “Never ascribe to malice that which is adequately explained by incompetence”

    English language readers can also relate to the thoughts of many pithy observers on the real nature of human organizations and on the nature of incompetence. It might be prejudice, but I have found, in English-speaking, Anglo-Saxon culture a strong disposition to question the rationality and competence of policy, in rather corrosive ways. They like concision. But that does not mean making a fable for them.

    Maybe it’s that they would expect, like Venezuelans, some incompetence to be the norm here in Venezuela.

  9. Quico, you are assuming that the news are true. I personally doubt that Venezuela would sell under cost the barrel of oil to anyone, in particular in these times in which Chávez needs money.

  10. I can see them doing a $5 discount if it meant a LOT of money in the short term (Elections don’t steal themselves you know)

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