This week, PDVSA released its full, 128-page long Financial Statements for 2015. Excited? We were! So excited we devoted some quality time digging through the mud and the fine print, so you don’t have to.

Some of what we find is…the kind of thing you’d rather hear after taking a seat, with a glass of rum in hand. Wicked stuff. But let’s start with the vanilla bits:

Production levels

PDVSA reported a total production of 2,863,000 barrels per day (b/d) for 2015, down from 2,899,000 b/d in 2014. A mild 36,000 b/d drop over the span of one year. Doesn’t sound that bad, except, those 36,000 b/d represent $586.7 million at 2015’s average Venezuelan oil price.

Now, would you take an oil production figure from these people at face value? OPEC, for one, says our country was producing 2,357,000 b/d in 2015, and as of June of this year the figure dropped to 2,095,000 b/d – a staggering 262,000 b/d free fall in 6 months. This is the lowest output since the early 90s (if the 2002-2003 oil strike is not considered), and we would need another rum to go with the loss in US dollars.

PDVSA’s longer term production performance is abysmal. Back in 2005, the company announced its “Plan Siembra Petrolera” (breathe, Amanda) to raise production to 6 million b/d by…2012. OK, that didn’t work out so well. In fact, the company’s targets have been missed and re-set so often, it’s all become a bit of a joke. A while back, Friend-of-Blog Setty made a fun chart of all the ambitious production targets PDVSA has announced…then missed.

missed targets
Hope springs eternal…

It’s not funny, though: according PDVSA’s own data, we actually produced 350,000 b/d more back in 2005 than we did last year. Jeez.


And there’s something even funnier than that: PDVSA’s average cost per barrel. Back in 2013 it stood at $11.40 in 2013, then it jumped to $18.05 in 2014, then collapsed to $10.68 last year. Huh?

How convenient that PDVSA is able to reduce costs by 44% just as oil prices dropped by more than 50%. Is it a miracle? A herculean feat of cost-cutting? A work of the pachamama puking oil to help our people fight the oil price war? Of course not.

The Prime Directive is, ‘when something doesn’t seem to make sense, think exchange rate shenanigans’. Sure enough, the weighted exchange rate PDVSA uses to massage its balance sheet accounts for much of the weirdness. At a glance it makes sense to do it this way because PDVSA disburses expenses in both currencies, and exchanges dollars with the Central Bank at whatever official exchange rate depending on the origin of the greenbacks – exports or financial sources.

So, if something cost Bs1,000 in 2014, it got booked as $48 (Bs/USD 20.8 weighted rate), and $14.6 in 2015 (since the weighted rate had slid to Bs/USD 68.70). So those local currency expenses don’t mean that much.

Bachaquerismo contable, pues.

These rates are PDVSA’s weighted average rate in which the company exchanged dollars to the Central Bank. Sadly, there’s no detail in the report to allow us to double check it.

Making BCV Eat PDVSA’s Junk

The deeper you get into the weeds in the Estados Financieros, the crazier the critters that jump out. On page 39, we find this for-the-ages Accounts Receivable note:

In the second half of 2015, PDVSA transferred IOUs (pagarés) to the Central Bank (BCV), owed by Nicaragua and El Salvador on Petrocaribe oil exports. In total, PDVSA reported a financial income of $8.0 billion from these transfers to the BCV. At face value, this represents half of the total financial income of the company for 2015, valued at $16.83 billion. But what’s behind it can rather be one of PDVSA’s worst businesses in years:

We sat there and sort of scratched our collective heads over this one for a good long time.

As best as we can make out, what it means is that PDVSA had been sitting on a bunch of IOUs from Nicaragua and El Salvador without an easy way to turn them into cash. PDVSA could’ve tried to sell them on the market, as it did with the Dominican Republic IOUs, but it would’ve gotten pennies on the dollar. So somebody at PDVSA had a much better idea: why not shove this paper off on the BCV?

Here’s the detail, though: it looks like PDVSA didn’t get a dime from the BCV for the paper. What it got, instead, was lochas. Lots of them.

If BCV had handed over actual dollars, that would leave a paper trail. But dollar outflows of this size are nowhere to be found in BCV’s International Reserves records for the second half of 2015.

Our guess, in fact, is that BCV seems to have printed up fresh bolivars to purchase these IOUs from PDVSA.

To double check, we went to BCV’s monthly financial statements for 2015.

The month-on-month increases in the account named “Public Securities in Hard Currency” between August and October more or less matched with the numbers and time frame provided by PDVSA related to the IOUs transfer.

In criollo, for every Bs.100 banknote out there in October 2015, a fresh Bs.2 was printed to pay for PDVSA’s junk IOUs.

And there’s something I have not mentioned yet: the nominal value of the IOUs (the money that Nicaragua and El Salvador actually owe) reported by PDVSA is $4.3 billion. But the financial income from their transfer to the BCV was reported at…$8 billion!

Is it me, or did PDVSA inflated the price of the IOUs to get more bolivars?

This is all terrible, terrible accounting practice, but the victim here isn’t PDVSA, it’s the Central Bank. For the BCV’s balance sheet, these bond shenanigans mean two things: fire and ashes.

Artistic representation of BCV’s Balance Sheet

PDVSA is loading up their assets column with paper you probably can’t collect on, and it’s that assets column that backs the value of BCV’s liabilities…a.k.a., the money in your wallet.

We’d be more confident that Venezuela isn’t heading towards hyperinflation if the government would stop implementing the kinds of policies that consistently drive countries into hyperinflation.

PDVSA’s Metamorphosis from Oil Company to Off-Budget Spending Vehicle

But where did all that money go? It’s a bit puzzling, considering that PDVSA reported huge cuts in costs for both operations and administration. Well, it went to the one bit of its expenses that did increase last year: social contributions.

PDVSA says it spent the equivalent to $9.2 billion in social programs during 2015 ($8.2 billion in direct contributions made in bolivars and $974 million in hard currency contributions to FONDEN), such as Gran Misión Vivienda Venezuela, PDVAL, PD-MERCAL, and others, compared to $5.2 billion in 2014. That’s what those elections in December cost, I guess.

PDVSA has been directly financing the bulk of misiones for five years now (what is this “unidad del tesoro” sorcery you speak of?!) For instance, if you check 2011’s and 2012’s balance sheets, you find PDVSA social contributions netting the equivalent to  $52.9 billion between both years. That’s Bolivia’s and Hondura’s combined nominal GDP.

Chinese Whispers

You may also wonder what happened with China and all those thousands of oil barrels sent to compensate Chinese financing.

PDVSA sent 579,000 b/d to China: that’s more barrels than those we sent in 2014 (472,000 b/d), but of course those barrels weren’t worth as much as they did in 2014 – $14.4 billion in 2014 vs $8.4 billion in 2015.

With China getting more and PDVSA producing less, the ax had to fall somewhere. Here, we get to see the government’s real priorities.

Who bore the brunt? Latin America and the Caribbean. The volumes sent under energy cooperation agreements tumbled from 255,000 b/d in 2014 to 185,000 b/d in 2015. Hell, Raul Castro already said so.

There was also a cut in local consumption, which went from 647,000 b/d in 2014 to 580,000 b/d 2015. That’s one hell of a recession. In a glimmer of good news “unrecovered net costs and expenses” (newspeak for “the damn gasoline subsidy”) dropped to $7.7 billion in 2015, from $16.1 billion the year before.

Just compare that “unrecovered” amount for 2015, to the $7.3 billion reported as profit the same year. It’s a rabbit hole, and February’s subsidy cut is not likely to cover it.

There’s a lot more to see, but the tour has to end somewhere. Perhaps here:

El Voldemort de Bariven

“Pdvsa does not tolerate corruption”. That is what it says in note 32, which refers ever so obliquely to the story about an accusation against some representatives from certain contractors regarding certain law violations about corruption and money laundering that happened from 2009 to 2014, and the fact that some former workers from an international subsidiary were indicted and plead guilty in Texas. It’s worth citing the thing, because it’s just kind of funny.

En diciembre de 2015, la fiscalía para el Distrito Sur de Texas, División de Houston, en Estados Unidos de América, presentó una acusación en contra de representantes de ciertas empresas contratistas y proveedores de PDVSA, por ciertas violaciones de leyes anticorrupción y contra el lavado de dinero, entre otros cargos, en relación con contratos de procura internacional de bienes y servicios conexos celebrados con una filial de PDVSA, durante el período comprendido entre los años 2009 y 2014. Adicionalmente, ciertos extrabajadores de una filial extranjera de PDVSA fueron acusados por los mismos hechos. Todos los acusados se declararon culpables en diferentes oportunidades procesales, entre finales de 2015 y junio de 2016.

PDVSA no tolera actos de corrupción y continuará investigando y actuando con el propósito de determinar responsabilidades sobre los hechos identificados.

La investigación está en curso y hasta ahora ha permitido identificar asuntos de interés tales como: Confirmar que la Compañía ha sido víctima de fraude en su proceso de procura internacional de bienes y servicios conexos.

The superstitious unwillingness to use actual names is kind of hilarious. Grow up, dudes. His name is Roberto Rincón and he’s guilty as sin. He said so himself!

Not in EEFFlandia, though. The company insists it was a “victim of fraud”. But fear not, they are investigating and building up new controls. Whew, we can sleep easy at night now.


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  1. Excellent work here. It’s rare that such clear discussions of an (important) financial statement are available to the general reader. And I’m so glad that, after the U.S. authorities investigated, arrested, indicted, tried, convicted, and sentenced a number of people for PDVSA fraud, the company is now able to “confirm” that it has been defrauded.

    That’s some serious oversight, Oil Giant.

    I wish I had a firm grip on what “lochas” are, though.

    • Right! A locha is the closes thing we have to a dime: Venezuela’s nunca bien ponderada 1/8th of a bolivar coin.

        • Makes perfect pre decimal sense. Pre US dollars (real money)’ was frequently sawed, or milled to approximate the worth in silver needed for the current transaction. The bits were exactly that.

          Now as we know from ‘toontown documentaries from circa 1947, a shave and a haircut was two bits, a price set in the mist of ages forgotten. We can extrapolate (not in Mississippi pls) that to equal approximately $25 Current American Cabbage. Thus 2 bits = $25 and equally thus 1 bit = 12.50, that is to say a Hamilton, a Jefferson and a JFK in hard money.

      • The bolivar equivalent of a dime, talk about a worthless coin. Can I safely assume not many people carry these around anymore?

        • Safely assume it. They tried to bring it back from the dead with the #reconversión, but I haven’t seen one in about than 4-5 years. We are nowadays at a point where you hardly see 2 Bs and 5 Bs notes anymore.

  2. Thanks!

    I didn’t even think there WAS anything below the Bolivar. I thought the B was the monetary analogue to the boson or quark.

    I look forward to engaging in locha-level economic transactions with unwitting friends.

    • You never heard of a puya? I think I spelled it right. I recall it was the 5-cent piece. The venerable locha was a large coin for its value, made of nickel I think. A medio (25-cents) was the smallest coin, then the real (50-cents) then the locha was (as I recall) almost the size of a bolivar, but much lighter, so it was rarely confused. The now virtually extinct US Susan B. Anthony dollar aka the JC-Penny (Jimmy Carter penny) was too easily confused with a quarter, the US 25-cent piece. Shame on me, I have forgotten what a puya looked like. It was smaller than a locha, and I think had a copper-ish color.

      The venerable medio was the most useful if you had a screw but happened to not have a screwdriver. Thin, and sturdy. Puyas didn’t work – too fat.

  3. One little big detail that didn’t make the editorial cut I’d like to add…

    PDVSA Pension fund reports assets of USD 3.33 Bn at 2015 year-end, of which USD 2.99 Bn (almost 90%) is composed of ‘Pagarés’ (IOUs) issued by PDVSA itself. WTF?

    And the table-faceness reaches epic proportions on the following paragraph:
    “The Pension Fund portfolio holds IOUs issued by PDVSA, measured at their ‘reasonable value’, which do not represent any financial risk at all for the pension fund administration, because the interests accrued on these instruments have been paid periodically and they represent short-term investments”

    That’s like saying PDVSA is AAA-rated because they haven’t skipped a coupon… #PerverseLogic

  4. Great article. I don’t envy the authors having to go through all those statements – tedious task.

    “…and we would need another rum to go with the loss in US dollars.”

    Technically, not a loss but more of a missed revenue opportunity. My view is that production should not be increased for the sake of being increased or for seeking more profit in the short-term. It should be increased if there is a real purpose behind it (building a SWF for instance) and not just the motivation of having more money to subsidise more things. But then again there are people who believe in the opposite because they argue that it is better to monetise the oil now as it will soon be worthless due to all the alternative energies etc. (many of the believers of the latter often rely on nice catchy 3 min videos posted on social media about the future of oil). These contrasting views can be debated for ages and there are various reports with hard data supporting both cases (after all, el papel aguanta todo), but essentially, I don’t think most countries have the capital to switch to green energies and renewables in such a way that the price of oil would fall to single digits. This process will take much longer than expected. Most developed markets don’t even have enough money to fund their pension fund systems, let alone replacing old normal infrastructure, and they are also suffering due to declining populations (Japan or Europe). And actually, another good point connected to this is that most of the central banks of these developed markets have also been stuffed with bad debts, which doesn’t justify stuffing BCV with bad debts but helps to put the Venezuelan issues in context. I often find that Venezuelans are not very good at putting things in context. What is happening in the BCV is a walk in the park when compared to what is actually happening at the ECB for example (I am not sure if it can still be called a central bank – perhaps the label hedge fund might be more suitable).The consequences of the financial repression will cause long-term effects and we are only beginning to see the tip of the iceber.

  5. “The superstitious unwillingness to use actual names is kind of hilarious. ”

    For the chavista base, every politician, including chavista ones, are guilty, unless they HAVE a name.

    Go on, try it, ask a chavista what does he think about politicians and those “filthy corrupts” and they’ll tell you all kinds of funny stuff, until you ask him to say a single name, moment where they’ll try to resort to their usual useless defense mechanisms.

  6. Thanks for doing the hard slogging for us. I wonder if anywhere someone keeps the real books. I mean, how do you run a company even badly and corruptly without some semblance of accounting?

  7. Proper accounting would list all the contracts, all the names, the accounts involved, etc. so all transactions could reverse engineered back to the players, companies, and actual sums involved. Who believes such numbers were ever recorded?

    What was paid for and what was actually provided is a shadowland that perhaps even the best forensic accounting can never make clear. Excellent job by CC to make some sense out of what was transparently cooked data.


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