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    Crisis in Venezuela: letter in LRB Archived Message

    Posted by scrabb on March 22, 2019, 2:25 pm

    This is a letter in the current edition of the LRB. It is a pretty devastating critique of how Chavez handled (or mishandled according to this) the oil industry and squandered the revenues accruing from it. I have no idea how pertinent or accurate the claims made in this letter are, and I wonder if anyone here can offer informed analysis, either backing these statements or suggesting a different perspective.


    Crisis in Venezuela


    I agree with Malcolm Deas about the problems in Venezuela (Letters, 7 March). Certainly armed intervention would be disastrous, but it should also be said that the rot started long before Maduro took over. What is constantly overlooked is that Chávez comprehensively trashed Petróleos de Venezuela (PdVSA). This process started on 7 April 2002, when Chávez contemptuously fired the entire board of PdVSA on TV, blowing a whistle like a football referee, and replacing them with political appointees. Unrest then started in Zulia province, the heart of the industry, and the Confederación de Trabajadores called for a general strike. This led directly to the ‘coup’ attempt on 11 April, when around a million people marched from PdVSA headquarters in Caracas to Miraflores in protest. This ended in a shootout with 19 dead; the military stepped in.
    Neither the military nor the opposition had much idea what to do next. When Chávez returned to power, PdVSA paid a high price. Around 19,000 workers were summarily fired, including many of the engineering staff and the trade unionists. Those who had passports fled abroad to Mexico and Canada, where their expertise was highly valued. Those without passports drove taxis.

    Having lost a good proportion of PdVSA’s expertise, the government began to pack the company with more and more employees. By 2013, the number ostensibly employed by the oil giant had almost tripled to around 150,000. Naturally, this did not mean that activity in the oil patch had almost tripled – far from it. Many of these people were employed on a variety of social programmes, paid for directly by the company, though they had little to do with its operations. By 2012, these schemes had cost PdVSA an estimated $44 billion.

    Chávez also devised a generous scheme of cheap oil exports. He created ‘Petrocaribe’, which allowed Jamaica, Guyana, Nicaragua, Haiti and others to pay between 5 per cent and 50 per cent of the market rate. The remaining part of the market price would be paid over the course of between 17 and 25 years through a financing scheme funded by Venezuela. By 2013 this is estimated to have cost Venezuela around $45 billion. The scheme has now been run down because the country can no longer supply its more important contracts with China and Russia.

    Meanwhile the loss of expertise was soon felt. The refineries started to suffer from a lack of routine maintenance. There were major fires in 2003, 2005, 2011 and 2012; in 2012, 48 people were killed. In December 2018, Reuters reported that its massive refining complex at Paraguana was running at only 19 per cent of capacity. As a result Venezuela is increasingly unable to supply its own demand.

    Apart from higher oil prices globally, what saved PdVSA was its ownership of Citgo, the Houston-based company which specialised in refining Venezuela’s heavy, high-sulphur oil. Citgo, which owns the sixth-largest refinery in the US and provides a substantial amount of US gasoline and diesel, was part of a chain of refinery assets in Aruba, Finland, the UK, Sweden and Belgium that the old PdVSA had gathered over the years. The new regime systematically sold them off, culminating in a failed attempt to flog off Citgo for $10 billion in 2010. If the US had really intended to collapse the Venezuelan economy, shutting down Citgo would have been the easiest way to do it.

    Environmental standards also started to collapse. Lake Maracaibo has become an embarrassment. There are more than 25,000 km of ancient pipelines leaking underneath the lake. In 2009 the government sacked the companies charged with renewing them. It is estimated that some three thousand barrels of oil are now leaking into the lake every year. Environmental protection and the avoidance of accidents requires money, and if low oil prices are combined with using the oil industry as a cash cow, the result is likely to be disastrous, not least if oil is responsible for 95 per cent of hard currency export earnings.

    Since 2005, Venezuelan crude production has more than halved from over 3.3 million barrels a day to the current level of 1.5 million. It has ceased to be self-sufficient in oil products and lost a great deal of its considerable expertise. And please don’t fall for the idea that US involvement in Venezuela is ‘all about oil’. The US is currently the world’s largest producer thanks to fracking. It is exporting more than it ever has in its history and its consumption is falling.

    Chris Cragg



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