[Marxism] Venezuela's Black Gold - PDVSA letter published in WSJ 8-18-2006

Walter Lippmann walterlx at earthlink.net
Fri Aug 18 09:34:20 MDT 2006


Here's the marvelous letter which Venezuela's publicly-owned PDVSA
oil company sent to the Wall Street Journal, which the WSJ published
today. It's an excellent example of educating the readership of such
a publication, but others who will get to read it through repostings
in other locations through the internet. The Bolivarian Revolution,
a project to reconfigure that country putting the interests of the
working people and poor ahead of the intrests of a tiny handful of
greedy right-wingers, is one that we can learn a lot from. Chavez's
idea of a Socialism for the 21st Century is definitely one which
socialists, even if they came to consiousness during some other
century, can learn a great deal from. Most of those reading such
internet-based news and discussion lists haven't, as yet, managed
to advance the socialist movement quite as far as has Hugo Chavez
and the Bolivarian movement. There are things which I think we can
all learn from the Venezuelan experience. One of them is writing a
concise letter to the editor which can obtain publication in such
a vehicle as the Wall Street Journal. It helps, of course, to have
a product - oil - for which an apparently insatiable hunger exists
in the country where the Wall Street Journal is published. 

We can, I think, learn generalized lessons from the Chavez experience
and the Bolivian revolutionary phenomenon. Some people already have
all of the answers. Some religious faiths offer simple solutions in
complex times. "God said it, I believe it, and that settles it" was
the bumper sticker or desk plaque which some of my fundamentalist-
minded Christian co-workers used to have when I was working for the
Los Angeles County public welfar department some years ago. Those
for whom all questions have already been definitively answered can
proceed forward without difficulty, and the will certainly do so.

Those who believe that a mind is a terrible thing to waste, and
that a mind is like a parachute: it only functions when open, can
proceed here and learn how much can be done in a society where an
amount of private ownership continues to exist, though not in the
country's most decisive economic sector: its petroleum industry.

The Bolivarian Alternative for the Americas, the joing project by
Cuba and Venezuela, begun in December 2004, and to which Bolivia
has subsequently adhered, has a great deal to teach us about the
process of Latin American integration, and the prospects for the
advancement of human society toward a sustainable future.


Walter Lippmann, CubaNews
http://www.walterlippmann.com
http://groups.yahoo.com/group/CubaNews 
===================================================================

Venezuela's Black Gold
August 18, 2006; Page A15

Regrettably, the Journal's story on the Venezuelan national oil
company Petroleos de Venezuela, S.A. (PDVSA), "As Global Oil Demand
Tightens, A Big Producer Has Own Agenda" (page one, Aug. 1),
presented a distorted picture of Venezuela's oil operations and its
commitment to sustainable production and refining of crude oil.

Contrary to the article's tone, PDVSA is "alive and well" as a
world-class oil company that is also focused on the future to become
an ever larger supplier of oil to energy markets. The article failed
to recognize the sovereign right of Venezuela, as any other resource
owner, to use the oil wealth and revenues for its own development and
the progress of its people. The government of President Hugo Chavez
is likewise fully committed to expanding the country's oil production
and its role as a major world oil supplier, and by the same token is
committed to fulfill the hope and needs of so many excluded Venezuelans.

In its mistaken effort to portray PDVSA as a social welfare
organization as opposed to a socially responsive business
corporation, the article ignored that other foreign oil and gas
companies operating in Venezuela have also so far contributed more
than $41 million to social projects. The article fails to note that
Venezuela's total crude oil production is over three million barrels
per day, as calculated by two independent sources -- the
International Energy Agency and the BP Statistical Review. PDVSA is
spending tens of billions of dollars in operating and capital
expenditures to increase its production significantly in the next
several years. Overall, Venezuelan production will be at 5.8 million
barrels per day by 2012. This spring, Oil Daily, the highly respected
journal of the oil industry, reported an increase in drilling
activity by PDVSA as well as an increase in foreign investment in the
energy sector (even after bringing all foreign operations into
conformity with Venezuelan law). Your article also ignored the effort
PDVSA is undertaking in training new engineers: Last year more than
900 engineers were placed in an accelerated plan for masters degrees
in production and drilling in well-known universities in the United
States and Europe.

PDVSA is robust and will become more so in the years ahead. 
As an oil company, PDVSA should be emulated, not denigrated.


Fadi Kabboul
Minister Counselor for Petroleum Affairs
Embassy of the Republic of Venezuela
Washington

Venezuela's Black Gold
August 18, 2006; Page A15

Regrettably, the Journal's story on the Venezuelan national oil
company Petroleos de Venezuela, S.A. (PDVSA), "As Global Oil Demand
Tightens, A Big Producer Has Own Agenda" (page one, Aug. 1),
presented a distorted picture of Venezuela's oil operations and its
commitment to sustainable production and refining of crude oil.

Contrary to the article's tone, PDVSA is "alive and well" as a
world-class oil company that is also focused on the future to become
an ever larger supplier of oil to energy markets. The article failed
to recognize the sovereign right of Venezuela, as any other resource
owner, to use the oil wealth and revenues for its own development and
the progress of its people. The government of President Hugo Chavez
is likewise fully committed to expanding the country's oil production
and its role as a major world oil supplier, and by the same token is
committed to fulfill the hope and needs of so many excluded
Venezuelans.

In its mistaken effort to portray PDVSA as a social welfare
organization as opposed to a socially responsive business
corporation, the article ignored that other foreign oil and gas
companies operating in Venezuela have also so far contributed more
than $41 million to social projects. The article fails to note that
Venezuela's total crude oil production is over three million barrels
per day, as calculated by two independent sources -- the
International Energy Agency and the BP Statistical Review. PDVSA is
spending tens of billions of dollars in operating and capital
expenditures to increase its production significantly in the next
several years. Overall, Venezuelan production will be at 5.8 million
barrels per day by 2012. This spring, Oil Daily, the highly respected
journal of the oil industry, reported an increase in drilling
activity by PDVSA as well as an increase in foreign investment in the
energy sector (even after bringing all foreign operations into
conformity with Venezuelan law). Your article also ignored the effort
PDVSA is undertaking in training new engineers: Last year more than
900 engineers were placed in an accelerated plan for masters degrees
in production and drilling in well-known universities in the United
States and Europe.

PDVSA is robust and will become more so in the years ahead. As an oil
company, PDVSA should be emulated, not denigrated.


Fadi Kabboul
Minister Counselor for Petroleum Affairs
Embassy of the Republic of Venezuela
Washington

 August 1, 2006
	
PAGE ONE
	

Crude Aid
As Global Oil Demand Tightens, A Big Producer Has Own Agenda
Venezuela's President Chávez
Uses PDVSA to Help Poor,
But Output Diminishes
Free Medical Care in the Slums
By DAVID LUHNOW and PETER MILLARD
August 1, 2006; Page A1

CARACAS, Venezuela -- Ricardo Coronado, the head of western
operations for Venezuela's state-run oil giant, found out the hard
way that his job wasn't just overseeing development of one of the
world's richest oil regions.

On a recent Saturday, Venezuela's flamboyant leader Hugo Chávez
scolded him on national television for failing to appear at a
ribbon-cutting ceremony for a school in western Venezuela paid for by
Petroleos de Venezuela SA.

"The time is past when the president turned up and PDVSA was off
somewhere minding its own business," said Mr. Chávez, who ordered an
aide to summon Mr. Coronado. When the hapless executive arrived a
half-hour later, Mr. Chávez was still raging, and cut him off before
he could defend himself. "There's nothing you can say," the
Venezuelan president lectured.

Since Mr. Chávez took power in 1999, he has become PDVSA's de facto
CEO, steering the oil company into political, economic and
philanthropic ventures that have distracted it from its core business
of finding and producing more oil. The consequences for PDVSA are
stark: Output has fallen to an estimated 1.6 million barrels a day
from nearly 3 million barrels in 1998.

The oil company, the world's third-biggest by most measures, is run
along social and political guidelines as much as business tenets. As
a result, much of the decision-making involves figuring out new ways
to fund Mr. Chávez's pet projects. One of the latest ventures was
paying to televise soccer's World Cup for free in Bolivia, a Chávez
ally.

Mr. Chávez's geopolitical considerations, and his anti-American bent,
also influence the way the company does business. PDVSA has turned
away from traditional partners like U.S. major Exxon Mobil Corp. and
is doing much more business with state companies from Iran, China and
India. This weekend, during a visit to Tehran by Mr. Chávez, Iran
pledged to invest $4 billion in two Venezuelan oil fields. The two
nations also unveiled a raft of joint ventures, including a refinery
in Indonesia.

PDVSA, however, has announced deals and projects in the past that
have so far failed to get off the ground, including a proposed South
American pipeline.

A new community center built by PDVSA in the city of Vargas, about an
hour outside Caracas.

The company's diminished production has cut world output by more than
1%. That may not sound like a lot, but in a global oil market
stretched tight by growing demand, political volatility and
hard-to-expand supply, the company's production shortfall has
contributed to the run-up in oil prices during the past few years,
and is likely to continue to do so.

A recent report by the U.S. Government Accountability Office says
that PDVSA's long-term decline in output is a growing energy-security
problem for the U.S., which relies on the Andean country as its
fourth-biggest oil supplier. Venezuela boasts the biggest oil
reserves outside the Middle East, and is much closer to the U.S.
market.

Venezuela's production could slide further. Under recent changes by
Mr. Chávez, PDVSA will now be in charge of managing the privately run
fields in Venezuela, where growing production accounts for roughly a
third of the country's total oil output. Mr. Chávez is imposing new
rules on the ventures that could hamper their continued growth, such
as requiring them to spend part of their budget on social projects.

Nothing is more central to Mr. Chávez's political fortunes than
PDVSA, pronounced peh-deh-VEH-za. The oil giant is the source of the
money his government lavishes on the poor and, in many ways, his 60%
approval ratings. Before the former paratrooper took power, many in
Venezuela viewed the company as a fiefdom where oil engineers and
technocrats lived comfortably and little was done for the poor.

Under Mr. Chávez, the priorities of PDVSA, which has funded half of
government spending for decades, have changed dramatically. The
company still hands over a portion of its profits to the government,
but it also gets directly involved in poverty alleviation and
economic development.

The company must spend at least 10% of its annual investment budget
on social programs worth about $1 billion a year. But that figure
doesn't include other spending by the oil giant on projects such as
building roads and the government's subsidized food program. That
kind of economic aid totaled $8 billion last year alone, the company
says. Palmaven, the PDVSA unit that oversees social spending, is the
company's fastest-growing division.

PDVSA's social focus sets it apart from most oil companies, which try
to maximize output and profits. Even most state-run oil companies,
which tend to have bloated payrolls, try to mimic private-sector
efficiency and focus entirely on the oil business. PDVSA's shift
recalls the role that Mexico's state firm Pemex played for decades in
trying to spur economic development by providing jobs and building
roads.

Such attention to economic development, however, gives the company
less time and money to devote to its oil business. It spent just $60
million on exploration in 2004, compared with $174 million in 2001,
according to the company's recently published 2004 financial results.
That's bad news for Venezuela, where current wells are so old that
their output falls at an average rate of 23% a year, forcing the
company to drill new wells just to keep production steady.

"The oil industry needs investments in maintenance and expansions,"
says Domingo Maza Zavala, a central bank director who applauds the
company's social mission but also says it should be more efficient.

In a recent report, Gersan Zurita, an oil analyst at Fitch
credit-ratings agency, said that PDVSA's "forced disinvestment" for
social programs has hamstrung the company's ability to produce oil.

Devastating Strike

Some of PDVSA's problems can be traced to a devastating strike in
late 2002 and early 2003, during which Mr. Chávez sacked about 19,000
employees who opposed his policies. Even though employment is now
back to pre-strike levels, output -- which began to recover in the
months after the strike -- has since fallen again, suggesting a
long-term decline at the company.

PDVSA counters that the company is performing well, and says its
daily output is 2.2 million barrels, though most independent analysts
and the U.S. government put it at about 1.6 million. The company says
it plans to boost production to 4 million barrels a day by 2012.
Venezuelan officials also point out that the country's oil exports to
the U.S. have remained steady since 2004 at 1.5 million barrels a
day.

In some cases, Mr. Chávez has literally taken PDVSA assets and handed
them to the poor. The elegant five-story headquarters for PDVSA
Servicios, a subsidiary that oversaw communications and technology
services for the oil giant, has been turned into the Bolivarian
University of Venezuela. The university's 5,000 students get a free
ride: tuition, materials, health care and food are paid for by the
oil company.

Students and teachers view the campus's marble-lined elevators,
expensive artwork and baseball field as evidence that PDVSA's
executives lived too cushy a life for a poor nation before Mr. Chávez
came to power. As a group of students and teachers play baseball,
36-year-old English teacher Claire Bendahan looks on in approval.
"This is socialism in action," she says. "Now our country's oil money
is being used for the poor."

At this new PDVSA, job creation -- outside the oil business -- is
also in. The company is kicking off a new program to create about
73,000 jobs, including at a paper plant and in ecotourism.

The firm's own hiring is based on social and political goals as much
as on talent. Under a new job-placement system, candidates with
larger families are given priority because they are viewed as needing
jobs more. Those who have been unemployed for longer are pushed to
the front of the line, too. This goes for technical and engineering
jobs as well as secretarial ones.

Quality and safety have suffered since the strike. Industry
executives say PDVSA has botched a number of wells over the past year
due to human error. Contractors complain they have to repeatedly send
staffing requests before getting properly trained oil hands. Even the
National Assembly, where every legislator is from a pro-Chávez party,
is alarmed enough that it is investigating whether the new hiring
system has excluded more-experienced workers.

Company officials say accidents are in decline compared with 2003,
just after the strike. "At first we had some bad stumbles, but the
safety side has been improving a lot," says Jorge Luis Sánchez, the
head of Venezuela's Enegas natural gas regulatory agency.

Nowhere has the company's decay turned up faster than at PDVSA's
massive 1.3 million-barrel-a-day domestic refining network, which
suffered more than a dozen plant outages in 2005. In March, two
workers died in a blast at the Amuay refinery, the nation's largest.
Last month, another explosion and subsequent fire caused extensive
damage at a 190,000-barrel-a-day unit at Amuay, sending spot gasoline
prices higher in the U.S. Gulf Coast where Amuay ships much of its
production.

"Workers are scared," says Oswaldo Caibett, the president of the
Fedepetrol oil union. The union filed a complaint with the attorney
general's office last year after a deadly refinery fire, accusing
management of negligence.

PDVSA refining chief Alejandro Granado recently acknowledged to the
local press that accidents at the refining complex are above
international standards, and that the company had contracted U.S.
chemicals firm DuPont Co. to help it improve safety.

PDVSA's ambivalence about boosting oil production is seen in the
shallow waters of the remote Gulf of Paria, where Christopher
Columbus first set foot on the South American continent in 1498. U.S.
oil giant ConocoPhillips discovered the Corocoro oil field in the
area in 1999, and spent the next few years drilling exploratory wells
and drawing up a production plan.

But when Conoco was ready to transport a U.S.-made drilling platform
to Corocoro in late 2004 to get commercial production started, PDVSA,
which has a 35% stake in the project, refused and insisted the
company use a locally made platform. That decision set back
commercial production by more than a year to early 2007.

"Nowhere else in the world do you have a field with 500 million
barrels that just sits there," said an oil executive involved in the
project.

PDVSA says that it doesn't want to rely on imported technology and
wants to spawn a domestic oil-services industry to compete with the
likes of France's Schlumberger Ltd. and U.S.-based Baker Hughes Inc.
PDVSA recently announced that any private oil company doing business
with the state firm must source a majority of supplies and services
in Venezuela.

Rewriting the Rules

In the past two years, Mr. Chávez has rewritten the rules of
Venezuela's oil industry. In 2004, his government claimed a majority
stake in some 32 operating agreements between private companies and
PDVSA, which gave the state firm at least a 60% stake in most
ventures. This year, he announced similar rules for four heavy-oil
projects in the Orinoco region, and is expected to eventually seize
operations from two other private ventures not included in the
original 32 deals -- among them the Corocoro field.

Soon, any private oil company working in a joint venture with the
state firm will be required to spend 3.3% of its local investment
budget on social programs. "It's not easy....But there will be no
more projects with their backs turned to our reality," Rafael
Ramírez, president of PDVSA, told an audience of industry executives
in announcing the move in June.

Oil-service companies, which provide platforms, rigs and drilling
supplies, must also include a community project, such as low-income
housing, as part of their bids for contracts from PDVSA. In addition,
the companies must spend up to 5% of the value of each contract
hiring local worker-owned service companies to do some of the work.

Some in the oil service industry are pushing back. Todco, a
U.S.-based rig supplier, has already sent two of its eight Venezuela
rigs back to Houston.

Nevertheless, PDVSA's priorities are focused on bettering the lives
of people in the nation's teeming slums. In the seaside town of Catia
la Mar, about a half hour drive from the capital, the firm has just
built one of 1,000 new community centers it plans to construct across
the country. The centers offer living quarters for two doctors, often
Cubans, who give locals free medical care. The waiting rooms all have
new TVs and DVD players.

A local PDVSA employee organizes residents into a dozen committees,
including health, sports and political ideology, which identify local
needs and draw up proposals for PDVSA to fund.

The spending goes down well with Yóselin Escobar, a 33-year-old
teacher and member of the local education committee, who is trying to
convince the oil company to pay a monthly stipend to stay-at-home
mothers who look after the children of other working moms. "Thanks to
our president, the oil company helps us," she says. "I'm voting for
[Chávez] until I die."





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