The end of a long debate

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bernard_mommer_1277
Would you buy a used oil company from this fellow?

Léelo en Español en Prodavinci.

It’s easy to forget that, before chavismo descended into outright farce, there was a genuine intellectual debate to be had about the proper role of a State-owned firm in managing the nation’s energy resources.

It pitted a left deeply skeptical of a technocratic, empowered, arms’-length state oil company against a right committed to preserving PDVSA as an island of entrepreneurial culture within the public sector. The left saw PDVSA’s claim to technocratic independence as part of an empire-building ruse, a fig-leaf for an elite’s attempt to appropriate as much of the oil wealth as possible, and a preamble to outright privatization.

The right saw any move against PDVSA’s autonomy as a threat to its ability to carry out its core mission: optimizing the state’s resource take over time. The left deeply mistrusted an explanation that, conveniently, left more and more of the company’s resources at the disposal of the elite that happened to be managing it.

Part of the debate had to do with time-horizons, and the best  way to divvy-up the company’s cash flow between investment and spending. The right’s position was predicated on a longer time-horizon, and so advocated devoting a larger share of the revenue stream towards guaranteeing tomorrow’s production and a smaller share towards current consumption.

The left believed that addressing dire poverty now was a higher priority than guaranteeing future income streams – which is a perfectly reasonable position, especially if you believe that poverty will tend to decrease over time: why spend scarce resources now to protect revenues tomorrow, if you think there’ll be fewer poor people in need tomorrow than there are today?

The right’s key argument was that to starve PDVSA of investment funds would gradually deprive its ability to act as the cash-cow the left wanted it to be: go too far towards privileging current consumption over investment flows and you eventually find yourself with no resource stream left to consume. And what if early spending fails to break the cycle of poverty? You’d end up compromising the future revenue stream of a country just as poor as the one you have now.

The right always thought that the left’s position was self-defeating: shortening PDVSA’s time horizons would end up weakening it, compromising its ability to act independently. In time, undermining PDVSA’s autonomy would leave it at the mercy precisely of those foreign operators the left was notionally opposed to. The  right continually noted the irony of a left position that was often glossed as “resource nationalism”: left to run long enough, it would end up eating itself and delivering the nation’s resources to foreigners.

It’s in the context of this debate that the recent announcements of PDVSA’s financing deals with CNPC and Chevron should be read. The agreements leave PDVSA without any effective control over its own funding stream, putting foreign conglomerates in complete operational control over projects that they’re notionally “minority partners” in.

Having completely erased the firewalls between PDVSA and the State, the “new PDVSA” left itself precisely in the position the right had always warned about: so desperate for funding and so unable to issue credible commitments that they will be spent on actual energy investments that it can only raise revenue by handing over the keys to the projects.

It’s hard for me to think of a more complete indictment of “Resource Nationalism” (what a misnomer!) than the deal that has just been signed. More than a funding agreement, what PDVSA has signed is a sort of unconditional surrender to foreign capital, a voluntary certification of its own prostration .

Lost in the maelstrom of day-to-day madurista incompetence and chaos, it’s easy to lose sight of the importance of what’s just happened, to forget how central the debate over the proper role of a state oil company has been to the last 40 years of the republic’s life. But the verdict is now in, and it’s as unambiguous as this sort of thing gets.

1 COMMENT

  1. Great post, Quico. It’s always a treat when you take the time to point out the big picture.

    Funny, Bernard Mommer, currently a high-ranking PDVSA official, was at the forefront (together with Alí Rodríguez) of the criticism of the Apertura Petrolera, blasting it as “entreguismo.” Now, Mommer acts as conduit to … this.

    Our readers may not know this, but the new “empresas mixtas” are much more detrimental to our sovereignty. Putting aside the fact that the foreign companies control our foreign debt, the fact remains that as minority partners, they are entitled to put OUR barrels of oil in THEIR asset sheets. In essence, that 40% that Chevron owns in Petroboscán, a field with 1.5 billion barrels of oil, mean that Chevron can list 600 million barrels of OUR oil as THEIR assets.

    This is way more than the arrangements under the Apertura, where foreign companies acted as service providers without any claims to the actual barrels of oil as ASSETS other than what was stipulated in the contracts. We are giving away our sovereignty, and that is a legal and accounting fact.

    • Initially Mommer and Rodriguez werent as opposed to foreign investments as they later became as Chavez pushed every one to a more radical position ( quite sure that now they ve forgotten that) , they didnt like specific things about the Apertura ( for example that Pdvsa not retain mayority stockholding control in all the ventures) or that the method for awarding the fields wasnt as favourable to the State as had been the case in other instances. They had objections but generally did not oppose for example foreign participation in heavy crude projects, in fact they favoured that participation but on terms different from those that the government proposed . Im not sure that Mommer and Rodriguez , absent Chavez would ever have adopted the radical position they later came to advocate . I dont find scandalous Chevron having its accountants play with their account books to include the oil reserves they help produce , they are not saying that they own the deposits only that they have the shared right to exploit them. (which is legally accurate) . that helps them with their share market price and get financing more cheaply and easy .The point is subtle but congent , one thing is to own phisical assets quite another that you own title to the RIGHT to extract those assets .

      • “One thing is to own phisical assets quite another that you own title to the RIGHT to extract those assets .”

        Really? I guess this is an area of your expertise, so I better defer. But my understanding was different.

      • Bill,
        Alí Rodríguez was at the forefront of a lawsuit trying to declare the whole Apertura unconstitutional. I think you’re whitewashing their opposition – he and Mommer were virulently opposed to it.

        • Juan : You are right that they opposed the apertura , but probably something people miss is on what grounds they opposed it , as I remember it ( and this was quite a few years ago) their main points of contention were the fact that contrary to their understanding of the Law the government participation had to take the form of a stockholding share in excess of 50% whereas the terms offered allowed for participation which did not exceed 35% and which could take the form of a partnership. Why? because the government wanted to attract lots of big potential investors to spend a lot of money on prospecting in large areas where no one knew whether they would find any oil or not . To offset the risk factor the offer had to meet certain economic guidelines among them big areas and a cap on state participation . this was the result of an economic modelling study which compared prospective conditions Venezuela had to compete with elsewhere in the world . If the discovery wasnt so great Pdvsa could opt out and not have to spend money on what to it was less profitable than other projects they had on stream . ( the current regimes insistance that they have to own 60% of the Ventures forces them to put up a lot of money even if they are not the most attractive investment in their porfolio which is dumb) . The exercise turned out to be very good for Venezuela , the investors spent billions of dollars on prospecting with very few desilutory results which save Pdvsa and the Government lots of money it could spend on projects having bigger priority . Another point was of course International Arbitration and a third one very important for Mommer was that the areas offered were too large ( he wanted to replicate the small areas of the 1943 process of president Medina ) except that those areas were small because they had already been explored and investors knew what prospect each area held, so for them it was like shooting fish in a barrel. I happen to have quite a bit of detail on what these guys where doing at the time , Bernnard was personally very close to Calderas minister of planning and had an inside view of the coming process . Rodriguez was not an extreme nationalist , he just thought that Pdvsa should keep to itself the gravy and let the foreign investors spend their money on what then where not very attractive investment in heavy crude. I guess as Chavez rose in power they retrospectively made themselves out to be much more radical than they showed themselves at the time .

    • Juan Cristobal,

      I generally agree with your comment. However, the reserves booking is not as head-on as you think. First, you have to discount royalties, taxes, special contribution and other contributions. Then, if you are a listed company you have to follow the relevant reserves booking rules (SEC, SPE-PRMS, CSA, etc). According to these rules you may “book” your entitlement in many ways: developed and undeveloped reserves or, for example, as a contigent resourse. This is also correlated with the company production and current and future investments. So, if you are a minority partner in a “Empresa Mixta” with 40% of the shares (39.2% in the current case) you will book less that 400 million barrels, if for example the field has 1.5 billion barrels of proved reserves. As a matter of fact, Chevron’s reserves in the Americas (outside the US) is way less than 600 million barrels.

      Regardless, the rationale behind your comment is right, whatever the number of barrels Chevron may book for its share in Petroboscan, it’s a pretty good number (by the industry standards) that looks pretty good on its accounting book (…and share price).

      Carlos B.-

        • Yes, he nailed the booked value of the reserves pretty much spot on.

          Another thing to takeaway from the Chevron agreement is that the funds are derived from ongoing operations…no production, no funds for the loan. That, and their initial funds, which as I mentioned elsewhere likely originate as “trapped” paid-in capital makes a really basic accounting exercise on Chevron’s part into a rather nice hedge against a devaluation and a shield against a raid on the project piggy bank.

          What Chevron is really doing will be clearer in July.

    • Gotta call BS on this one. The Boscan field has 28 billion barrels of oil, and a company like Chevron can only list as assets what the Empresa Mixta is able to produce during the contract period….much much much less than the numbers you think or quote above.

      • You are right insomuch that accounting requirements for a depletable asset, as far as the SEC goes, only allows you to recognize what you extract. Its either revenues or inventory, and the later really is the only “asset”. However, proven reserves are also required in supplements to the annual reports submitted to the SEC.

        Why is this pertinent information to the investors, even if it is a JV? Because, for the next 20 years, Chevron has relative exclusivity to 39.2% of whatever Petroboscan can extract. If they can manage to drain it all, those would be converted to revenues/inventory. Something of an intangible that can be monetized and thus needs to be reported.

        Key thing here, is that at this point, PDVSA is unable/unwilling to fund its part of ongoing JVs, and thus surrenders both initiative and effective control of the project to whomever bankrolls it. As I mentioned above, this is to be funded from ongoing operations (i.e. trapped cash). If PDVSA doesn’t play ball, nothing gets done. Just as importantly, Chevron’s hope is to increase its extraction capacity and thereby further monetize its intangibles.

        You are right also in that the production, at its current rate, is only a minimal amount of total reserves: at the “official”annual production rate, its about .002% of proved reserves. (Chevron’s numbers for 2012, with a bit of direction from the esteemed Coronel, make it even lower, a tad over.001%) Given that that translates into roughly 500 years to deplete the basin at unchanged production, and Chevron has a lease in place for the next 20, I can see why they’d want to up their numerator somewhat.

        Will production really increase? Given the state of Venezuela, PDVSA, and things in general, I think Chevron isn’t going to get much out of this beyond moving its trapped capital into hard assets. Why? This little gem:

        http://www.chevron.com/chevron/pressreleases/article/07011996_chevronassumesoperationsforvenezuelasboscanoilfield.news

        If official production is true, then they hit their 50% growth goal…in 17 years. If it isn’t and Chevron’s numbers are accurate, then they haven’t grown much, if at all, in that timeframe.

  2. Hm, I cannot shake the feeling off that the actual answer might be something more akin to ‘ni tan calvo ni con dos pelucas’.

  3. What a great post!, as always highly enlightening and helpful to understand this version of Macondo that is our country.This should be read by all venezuelans, should be translated and put at the entrance of every public institution.

  4. Brilliant analysis Francisco !! although Im not sure the lefts actual position was quite as you put it , First there was always a tension between governments which needed money and benefits from Pdvsa to keep their constituencies happy and attain reelection and the more long term rational views of the managing professionals, specially as oil prices fell and reduced the income which the government needed to sattisfy the always ravenous appetites of its political clientele.
    There was also the idea offensive to Estatolatras that there might exist an arrogant technocratic elite which talked back to the government and didnt think that Political or Grand Ideological goals had absolute priority. Then as Chavez took over there was just ignorance , a belief that oil operations were magically and automatically self supporting, could take care of themselves for ever with minimum care and investment and that what mattered was securing absolute political control over the operations to ensure the fabulous unending oil wealth could be put to use ‘for the people’ , Acompanying that was a deep resentment of an ‘arrogant’ technocratic elite which because it operated on a business term basis where infected with corrupt capitalist vices and where in cahoots to betray the country to foreign capitalist , which of course made them into loathed enemies to be destroyed through violent revolutionary action. When the technocratic elite was eviscerated after the 2002 strike purely functional, business or managerial concerns where sidelined to privilege the ideological grand programs of the regime , some private investment were allowed to continue to operate for a few years until the regime which feels on thriumphally melodramtic gestures of political Grandiosity decided to take over those investments operations ultimately yielding them dysfunctional and corrupt with the consequence that we know see, that Pdvsa is such an operational and financial wreck that it must deliver all its proud operational privileges to its ‘minority’ private partners in all sort of old and new ventures.
    In answer to your captioned question . No I would not buy used oil companies from Bernard Mommer the architect of many of the disasters now befalling Pdvsa’s operations . .

  5. Nice article! Although the left had a very valid argument, fighting poverty today so that we don’t need to fight against it tomorrow, the main problem was not that the left was using the money rather that how it used. If the money would have been well spent the problems now would have been less serious.

  6. We have gone back to the “Giusti” model, except that in that model, it was the partnerships that issued debt. Now PDVSA is full of debt, nothing has been done in 14 years in terms of new production and all has been a waste of time. Using the old “Giusti” model, PDVSA could have increased production dramatically if projects had issued debt to finance the Faja partnerships. What a gigantic waste of time and what a fraud these guys are!

  7. This is a very nice post.

    The issue I see is that the so-called debate was really only among the “Illuminati”, left and right.

    This has to do with the fact most politicians and related species in our feudal Andalusian-Castillian-Carib-Arawk-West-African tradition don’t think it’s worth it to have a debate that goes beyond those who read non-tabloid newspapers of any ideological position.

    In developed countries you have a big part of society that, no matter what you try to explain to them, won’t go beyond the “I want my country back” versus “time for a change”.
    Still, there and in countries where sustainable development is taking place you have the fact that the average citizen is more involved and is often participant of the discussions. There have been somehow real debates that are discussed by people NOT ONLY in the capital of the country.

    I have noticed a degree in the level of open, general debate about how to use resources going from Norway and Germany to Spain, where politicians that are asked to answer hard questions more often than not say “qué falta de respeto es eso?” to Venezuela, where grilling a politician is something most people are not used to at all. Most wouldn’t even dream about it.
    The less used a country is with real debate, the more often you will hear this “falta de respeto” reaction.

    Financial literacy is much less developed in Spain and much much less so in Venezuela and this literacy is something that is also determined by the real debates – as opposed to parallel monologues -.

    And our elites, left or right, do not want to change that. They think people are too stupid or they are simply afraid of giving them knowledge, for knowledge is power.

    And that is how the oil cycle and populism at the worst possible moment led us to where we are now.

    My question is: is there anyone there who has the courage to promote a real debate where the average citizen – not just Alberto Rafael Uzcátegui del Pietro in Eastern Caracas – might at least become a listener, if not a talker?

  8. Replaying the same scratched record over and over again will not make PDVSA collapse. In fact according to Fortune PDVSA rose from 66 to 33 in the order of world corporations so it cannot be doing that bad.

    In fact the funds you mention from China and Chevron are investment funds in the case of the latter for exploration and in the case of the former part of the China-Venezuela binational strategic devlopment fund.

    The fact that Maduro will receive an awaed from the FAO in Rome on Monday is good enough evidence that the policies of Chavusmo HAVE WORKED to decrease hunger and poverty in Venezuela. That was always the plan…… http://www.avn.info.ve/contenido/fao-recognition-confirms-chavez039s-policies-succeed

    The problema is that you continue to live in cloud cuckko land after more tan 10 years trying to get your lot into power.

    • Can you not get ANYTHING right, Arturo?

      PDVSA’s rank out of Fortune’s Global 500:
      2005 – Where’s Waldo?
      2006 – # 33 (I’d like some of that creative accounting)
      2007 – Where’s Waldo — again?
      2008 – Where’s Waldo — Amber alert!
      2009 – # 27 ooo-eee!
      2010 – # 56 what happened?
      2011 – # 66 oh no!
      2012 – # 36 aahh, I love massages.

    • Truro! You are alive, I was afraid you were jailed with the Bandes people!

      But really Truro, PDVSA is doing so well, except that the model has now been changed to one from the Cuarta, because the current model failed, except the company owes like 40 billion dollars, despite the oil windfall.

      And no matter what “poverty” indicator you use, Genie or not, with the recent inflation and the black market rate at five times the official one, the only “gain” the people in class D and E, just a tiny bit of more cash in the pocket, has been obliterated.

      BTW, Chavez is dead. You said he was fine.

      As for FAO, what do you expect from institutions like Chavismo that get no respect.

      Talk to you when inflation gets to hyper and see who is in cuckoo land here.

      Maduro is sooo nice,a real leader, the successor Chavez left you. Congratulations.

  9. I like the post, but I would counter a detail:

    There was no “left” or “right” in this argument. The Criollo-Marxist critique against the nationalisation process and its following developments was as you pictured it. But left-wing reformers (that is, mostly AD and Copei) decided to not only create the PDVSA holding keeping initially the human resources and structure of the former multinationals + CVP, but also making the explicitly political choice of making PDVSA off-limits in the spoils system of any representative democracy (for the reasons you attribute to the “right”). Here and there there might have been voices of dissent, but the great continuity of the Venezuelan oil policy regarding the structure of its national industry, helped this goal.

    And so PDVSA created its own ethos because -not despite- AD and Copei’s choices, to the point that when they declined, it had its own political clout.

    As such, the ideas of AD and Copei regarding oil were very similar (give or take a few nuances), up to a point: Copei has the mistrust of the State that any Catholic movement has, so it feared explicitly -before Uslar Pietri did it- that oil riches would transform the Venezuelan State in a monster. So they stressed their optimism about oil with a warning about the needed political independence of the industry. AD complied.

    Whatever counts as “right” in Venezuela cannot include AD or Copei. If there was a “right-wing” opinion regarding nationalisation was that of Uslar Pietri. And yet he was one of the first proponents of a rentier economy (in the short term and with a heavy heart).

    • Of course. I just meant that compared to the Mommer critique – relative to it – the bipartisan consensus was “the right” – not that the people who developed it would identify themselves as right-wing. The real right-wing critique was always so marginal as to barely merit comment, don’t you think?

      • True.

        But since AD and Copei were (and probably are) on the leftish side of history, it might be misconstrued as a fight between politicos and technocrats.

        And while Betancourt and Caldera scoffed technocracy, PDVSA was purposely and adamantly off limits.

        • Thats the problem with labels , they are handy to use , a kind of shorthand for referencing positions which are hard to define , but ultimately they just dont match the people they reference .
          The off limits position eroded with time , each year they dared pluck a few more feathers from the goose that laid the golden eggs ,corporate policy might be decided more on short tem political grounds than on long term business strategy grounds and what was worse people inside Pdvsa started looking at politics as a career move , so that slowly politizacion sprung from the inside creating ‘miscegenated’ alliances . Of course nothing like what later happened with Chavez !! There has never been a bona fide right in Venezuela , Ideology was always made to know tow to short term political demands , to opportunism and expediency .The leftist rethoric is always more likeable in Venezuela , more arousing but basically most people arent that sophisiticated , they all want to have the cake and eat it too.

  10. Quico, in the spanish article it says

    “Y es que el mal llamado “Nacionalismo Energético” consigue la demostración de su catastrófico fracaso en esos acuerdos que se acaban de firmar: más que acuerdos de financiamiento, lo que PDVSA ha firmado es una suerte de rendimiento incondicional al capital extranjero, una certificación voluntaria de su propia postración.”

    Which is the translation of:

    “It’s hard for me to think of a more complete indictment of “Resource Nationalism” (what a misnomer!) than the deal that has just been signed. More than a funding agreement, what PDVSA has signed is a sort of unconditional surrender to foreign capital, a voluntary certification of its own prostration .”

    However, on the spanish note you should change “rendimiento incondicional” to “rendicion incondicional”, as “rendimiento” is related to performance, not to surrendering :p

  11. From Rory Carroll’s book, ‘Comandante’ ……

    Guaicaipuro Lameda, the head of PDVSA under Chavez:

    “Then in 2000, oil prices started to rise and we had a surplus.” Lameda helped manage a special fund to store the windfall. The idea was to save for the future and release portions, if necessary, to the executive, state governors and mayors. Lameda: “A responsible policy. That lasted until March 31, 2000. That’s when the president announced that the government would spend more than it received.” …but for Lameda it was a Rubicon. A crossover to “irresponsabilidad,” from which, he would discover in hindsight, there would be no return.

    PDVSA has never been the same since…..

    • Pdvsa before 2002 was like having a group of witch doctors ( the pols ) owning a modern well run medical clinic, they didnt really understand what the clnic was doing but they some how admired what it did and didnt want to screw up a succesful operation , so they followed a hands off policy ( up to a point) . In 1999 a new witch doctor came into power who thought that the medical staff running the clinic were really his enemies (didnt follow witchcraft standards) , didnt understand a thing about how the clinic operated and produced its magic and decided to take over its operations , firing its staff and substituting it with a group of witch doctors close to himself , the result is todays Pdvsa , a total wreck of a company . The traditional pols for the most part had as their main goal holding on to power which meant using the resources of Pdvsa to get as much income as possible from it so as to maintain the system of patronage ( also called helping the poor) which would allow them go get re elected . They were because of their occupation like professional soldiers , concentrated on the business of winning a war ( the elections) but largely ignorant of how to win the peace (being profeccient and wise at running the country ) once they had won their war. The ugly part is that if your are a careeist medic and you boss is a witch doctor in the end you will try to gain his sympathy by adopting witchcraft methods yourself ( Giusti??)

  12. Excellent post by Toro. Some additional comments:
    1. The debate is old, very old, much before Mommer-vs- Pepe. It raged during the 17970’s, when the nationalization was imminent and what came out of it was a state take over, since even national cmpanies such as Mito Juan, Talón, etc, were absorbed by the state. Th core of the debate was: can a state-owned oil company be efficient and well-managed?
    2. The answer? Not in the long term. PDVSA was well managed and pretty efficient for two decades but the worm of politicization inevitably found its way into the company, arriving in full
    with Calderon . Still, it did better than most of the others: YPF Argentina, YPFB in Bolivia, PetroPeru, Pemex, the Petrobras of old, even ENI, PERTAMINA in Indonesia, all failures due to the prostitution of the managers and deviation from the core business (I used to eat in a v. good Indonesian restaurant in NYC owned by PERTAMINA!).
    3. Prostitution was overwhelming from 1999 onwards, starting with Ciavaldini. PDVSA became involved in importing food, raising pigs, sowing yucca, building houses, transporting voters, serving as the caja no tan chica de Chávez.
    4. Paradoxically Chavez has de-nationalized the industry, since Pre-Chavez oil contractors did not have ownership of production. Today they do.
    5 Today PDVSA is beyond redemption and the debate will become very intense again, if and when a new government comes into action. What will the new oil model be? That will be the debate. The truth is that the most conservative of politicians in Venezuela think that the state should own and control the industry. This is “religion” in Venezuela, God knows why.
    6 I have some ideas on how this model should look like. But I am afraid they might not be very popular. For details see my paper on PDVSA, Journal of Energy security, July 2012
    http://www.ensec.org/index.php?option=com_content&view=section&layout=blog&id=39&Itemid=402

    • The organization of the Oil Industry in Venezuela is always a subject of great controversy because its weight and importance in the countrys life is so large.
      This means that the industry can be viewed from three very disparate and irreconciliable angles .
      First The VOI is a glitzy symbol of national sovereignty , emotions run strong whenever foreign participation in it is allowed or considered . ( example : this blog)
      Second the NOI is a complex business subject to the same demands for profitability and efficiency than any other business of its importance and size.( Former Pdvsa Guys)
      Third : For the polititicians or statesmen( take you pick) who rule Venezuelan politics its a source of incredible wealth and patronage which they can use to fuel their political ambitions and also something which allows them to play the superpatriot card to make themselves maximally popular. ( the Chavez outlook)
      The first view makes the VOI a highly volatile subject , where irrational views can be so strong that they gain the upperhand and make people blind to the real opportunities for economic growth which having such industry offers .
      The second view makes the VOI something to be managed through a technocratic system which seeks to rationally develop to maximum advantage a highly profitable resource including where advategous the participation of foreign investors ..
      The third view makes it the target of corrupt ambitions and foul manipulations . Ultimately the third view sabotages the goals of the second using the first as leverage.
      Don Gustavo and many others want the second view to thriumph and that to them means giving up on the idea of a national oil company which controls the industry for fear of that the followers of the third view will ultimately screw things up . So far history is on their side !!
      Don Gustavos comments are beyong excellent but there is a small inaccuracy in one of his lines , ownership over the crude oil produced is retained by the State which by law is the only entity entitled to market it. It does this by buying the crude oil from the mixed company producing it . What happens to the money obtained from its marketing once its sold is something else.

  13. The poverty-fighting efforts were also lost completely. That is, IF there were any genuine poverty-fighting efforts.

    On the one hand, the huge inflation resulting from a State living beyond its (diminishing) means insures that the poor will remain poor and that the middle class will join them soon. Poverty is about not having material possessions that endure over time and that can be mortgaged or generate interest. Poverty is also about not having reliable and sufficient sources of income. Inflation and uncertainty such as Venezuela has lived through destroys first the later and then the former.

    On the other hand… Selling subsidized perishables does not count as poverty eradication. It counts as relief, maybe as charity. Though for this government it was probably vote-buying.

    And yes, if somebody wanted to destroy PDVSA and have a go at their reserves… they just needed to let Chavez do it.

  14. As M Octavio mentions, this was the old Giusti model. And I don’t want to sound ignorant -which in this matter I am- but hey, it makes sense. If I’d be lending money to a guy to be a investing partner in a business venture that I have to set up myself, then I would expect to keep the money simply because it needs to go into the project. I don’t see anything wrong with this.

    What I read in Diario ABC however, is that those loans are not intended to increase production but to do maintenance on fields so that oil won’t stop gurgling from the ground. When you see it this way, it does really suck they can’t do it themselves.

    • …It’s like if you’d ask dad for money to fix your crashed car but -knowing you’ll just party it away- he takes the keys away from you, gets the job done himself and from there on drives you to school in your own car, dropping you infront all your friends. How embarrassing!!

  15. I am a children of Carlos Andrés Pérez’ nationalization and the creation of PDVSA. I was 15 at the time. When I was little we had Shell, Creole and Mobil and, all of a sudden, we woke up one morning with Maraven, Lagoven and Petroven. Everybody was making fun of it, but, in the end, we were pretty proud. The nationalization of the industry (the real one) marked my generation. All of a sudden, science was important, engineering was important, good universities were important, good research was important. The feeling that talent was needed to “feed” our industry went beyond the oil industry itself. All of a sudden it was “cool” to be an engineer, it was “cool” to study mathematics or physics or chemistry, it was “cool” to register in oil politic classes. We had the feeling that Venezuela was going to be a great country and we were preparing for it.

    Frankly, we did not experienced that feeling in the country before the nationalization when the seven sisters were in charge of our oil. So CAP nationalization did much more than just a monetary balance. It created a movement, a vision, a way of taking Venezuela out of underdevelopment. At the time, we thought that oil would last just 30 years and we had to do something quickly to make the country great without oil.

    Then came the drop in prices, and the discovery of the Faja, and the swinging of the world toward a neoliberal policy. And the re-thinking everything, and then the years that lead to Chávez.

    My point is that when I read you guys writing about right and left and explanations in the past tense of convoluted economic extrapolation I think you are missing a big point: the wonderful effect the real nationalization had in the soul of the country. It didn’t matter which part of the political spectrum we were. We were just proud to be part of it.

    • Remember the TV short programs by Maraven “Petroleo en Gotas” and the Lagoven “Cuadernos de Lagoven ” ?

      Petroleo en Gotas no. 1

      Cuadernos de Lagoven

  16. A couple of points to bear in mind:

    1. This loan (or credit line) is given by Chevron to the EM PetroBoscan (not to PDVSA directly)

    2. This type of financing deals usually have as an applicable law the law of the financial centre where it was agreed or implemented (e.g.New York) and New York Courts or internacional commercial arbitration are to be used if there is any dispute re the loan

    3. Also, the ‘invesment’ itself is protected by a bilateral investment treaty which contemplates that in case of any dispute re the ‘investment’ (e.g.direct or indirect expropriation with no compensation) the ‘investor’ could use international investment arbitration. Just have a look the ‘nationality’ of the companies

    • (…sorry I posted this comment without completing it)

      ….or its place of incorporation that the minority shareholders are using to invest in Venezuela (e.g. a US company a Danish company, a Japanese consortium a UK company, an Indian companies consortium a second degree Dutch company owned by two companies in Sweden and even a Venezuelan company a Spanish company and so on…). Venezuela has BITs in force with all of these countries.
      Those who wondering about Venezuela’s denunciation of the ICSID convention, well the investors cannot invoke this convention anymore and it has not jurisdiction (unless used as an ‘additional facility’ = mere administrator). However, the BITs thesecompanies are using have other arbitration option, for example, ad-hoc and/or institutional.

  17. Wasn´t Mommer ( a mathematician, I believe ) the guy behind the end of the Orimulsion project ? (theme for another post, though…)

    • Yes he was and technically he had a point, the thing was that when Venezuela produced 3.3 million bls a day and prices were low the opec quota restrained Venezuela being able to sell all the oil it produced and get an oil income it needed .
      Orimulsion allowed extra heavy crude oil on being emulsified to be treated as falling outside the quota which was useful to a cash strapped Venezuela , Other Opec members were willing to accept the ruse because the volumes involved werent all that large . After the oil strike oil production fell precipitously so the opec quota ceased being a problem , the problem them became one of being able to include every bl being produced as part of Venezuelas official exports which could be done by blending extra heavy crude with much more scarce light crudes and selling the blend , which might in scenario of rising prices help Venezuela increase its income . This allowed Mommer to argue that technically orimulsion was not really something all that different from heavy crude and thus justify putting those volumes again into Venezuelan official export statistics playing down pdvsa’s failure to increase production to its former levels. There is much more to this story but space will not allow us to deal with it more fully.

      • Technically he had a ” point ” ? And all the technology and man hours invested in its development at Intevep and then given away to the Chinese ? I invite Francisco to make a post on the sad story of the Orimulsion

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