The end of a long debate

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.