Venezuela's PDVSA, Mixing Big Oil And Leftist Politics

Venezuela's PDVSA, once among the world's most powerful oil firms, was transformed and largely gutted under Hugo Chavez and Nicolas Maduro. But the story is more complicated than it may seem.

A PDVSA station during a 2019 fuel shortage in Barquisimeto, Venezuela
A PDVSA station during a 2019 fuel shortage in Barquisimeto, Venezuela
Gustavo Bazzan

BUENOS AIRES — Amid anxiety in Argentina over the state of the country's main oil firm, YPF — with problems of debt, management and an uncertain future under a socialist government — people are inevitably making comparisons with Venezuela's Petróleos de Venezuela, (PDVSA) another South American energy giant that was a victim of politicized mismanagement.

Still, the Argentinian firm's fate so far is not comparable with the havoc wreaked on PDVSA under the governments of presidents Hugo Chávez and Nicolás Maduro.

With Venezuela sitting, in nominal terms at least, on the world's biggest oil reserves, PDVSA would inevitably become a cash cow, as it generated some 90% of the country's foreign currency earnings, before and after Chávez. It would have been naïve to think it could be free of political influence. Yet experts in the sector widely agree that since its creation on Jan. 1, 1976, PDVSA has largely worked as a "state within a state."

The firm was created on the back of oil nationalization during the first presidency of Carlos Andrés Pérez Rodríguez. Initially PDVSA was placed largely in the hands of people versed in the oil business, including many who'd already worked in foreign firms until oil was nationalized. PDVSA then began to vigorously expand and boost its international presence, using its massive earnings and official information about Venezuela's "proven" reserves of some 300,000 million barrels of crude oil. In terms of refining capacity, PDVSA termed itself in the late 20th century as one of the three most powerful firms in the world. It managed to turn out more than three million barrels of crude a day in the 24 refineries it managed worldwide, including six inside Venezuela.

PDVSA's scale and profits helped it hide some serious deficiencies — at least when booming oil prices allowed it, according to top engineers working with it in the 1990s, through the Argentine contracting firm Pérez Companc. PDVSA went bankrupt after Chávez was elected president in Feb. 1999. Seven years before he had tried and failed to take power through a coup against President Pérez. The firm went bankrupt a second time after an oil strike in 2002. After the strike, Chávez decided on a management overhaul, dismissing top directors and firing 18,000 technicians who constituted 40% of the firm's staff. In other words: He removed the brains behind the firm.

PDVSA Gas operations, Isla de Margarita — Photo: Wilfredor

Venezuelan economist Francisco Rodríguez, a visiting professor at the Notre Dame University's Kellogg Institute for International Studies and creator of the Oil for Venezuela program, says there are two opposing views of the causes of PDVSA's decline. He says "the black legend" claims Chávez destroyed the firm, assuming the firm was efficient before 1999. The "red legend" spread by the Chávez/Maduro camp in power today, "says it became a well managed firm this century, reoriented toward wealth redistribution, later to be destroyed by the economic sanctions the United States has imposed since 2016," Rodríguez adds.

Oil revenues were not being adequately distributed among the population.

Rodríguez says there is "an element of truth in both. But PDVSA has definitely done worse under Chavismo, even before U.S. sanctions hit." This deterioration came in phases, he says, beginning with "the total politicization of PDVSA when Chávez took power." The leftist leader's main argument was that oil revenues were not being adequately distributed among the population. Chávez believed you could not have a wealthy firm amid an impoverished population. He effectively turned the firm into a social development ministry, as it came to finance public works, social plans and big projects unrelated to the oil sector. Its coffers became the public purse.

Rodríguez says the firm had to pay taxes and dividends to its sole shareholder, the state. It borrowed to cover investment costs, while fuel and gasoline were practically "given away for decades in Venezuela. It was all, as some Argentine leaders might say, to care for the "Venezuelans' dinner table."" Fuel prices remained the same in spite of two-digit inflation figures, before the phase of hyperinflation.

Today, the price issue is "resolved" through private, "blue" suppliers and public suppliers, though one hardly need guess which ones have fuel to sell.

In spite of everything PDVSA survived, in part thanks to very high oil prices in the Chávez years. A barrel of Venezuelan crude costing around U.S. $10 in 1999, reached $110 in 2012. In 2006, Chávez moved in on private oil firms. In their new contracts, these firms had to partner up with PDVSA with the latter owning 51% of the stakes in any project. Some firms like Exxon or Conoco rejected the deal and left, or took legal action. Others (Repsol, ENI or Chevron) accepted, thanks in part to booming oil prices. Russian and Chinese firms soon arrived too.

After 2012, the fall in oil prices complicated the firm's position. The first sanctions imposed on the government of President Nicolás Maduro proved a far harsher blow, as they prevented the firm from borrowing or renegotiating its debt.

Another Venezuelan economist and head of the Houston-based Latin America Energy Program, Francisco Monaldi, says PDVSA's debt went from $3 billion to $45 billion. This is blamed on the policy of using it to finance social and political programs beyond paying taxes and dividends to the state. The government used some of the firm's money to make cash payments to other states. Investments were neglected.

Monaldi says the firm also suffered for changing its hard currency earnings at official rates, earning itself far less money. But another Venezuelan economist, Carlos Mendoza Potella, a former adviser to the Central Bank, defends the social expenditures, saying "it is unthinkable that oil revenues cannot be spent on society, which is indeed the true owner of the firm."

He says PDVSA grew until 2005, but began spending enormous amounts later, on projects unrelated to social or welfare spending. The firm has since seen a drop in productivity, with productive wells declining from 3,500 to a little over 100 now. Output has fallen from 3.5 million barrels of crude, to around 300,000. The math, and political calculus, has changed indeed.

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New Delhi, India: Fumigation Against Dengue Fever In New Delhi

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 வணக்கம்*

Welcome to Thursday, where America's top general reacts to China's test of a hypersonic weapon system, Russia is forced to reimpose lockdown measures and Venice's historic gondola race is hit by a doping scandal. French daily Les Echos also offers a cautionary tale of fraud in the crypto economy.

[*Vaṇakkam, Tamil - India, Sri Lanka, Singapore]


A dove from Hiroshima: Is Fumio Kishida tough enough to lead Japan?

Japan's new prime minister is facing the twin challenges of COVID-19 and regional tensions, and some wonder whether he can even last as long as his predecessor, who was forced out after barely one year.

When Fumio Kishida, Japan's new prime minister. introduced himself earlier this month, he announced that the three major projects of his premiership will be the control of the ongoing pandemic; a new type of capitalism; and national security.

Kishida also pledged to deal with China "as its neighbor, biggest trade partner and an important nation which Japan should continue to dialogue with."

Nothing too surprising. Still, it was a rapid turn of events that brought him to the top job, taking over for highly unpopular predecessor, Yoshihide Suga, who had suddenly announced his resignation from office.

After a fierce race, Kishida defeated Taro Kono to become the president of the ruling Liberal Democratic Party (LDP), and pave the way for the prime minister's job.

A key reason for Kishida's victory is the improving health situation, following Japan's fifth wave of the COVID pandemic that coincided with this summer's Olympic Games in Tokyo.

The best way to describe Kishida is to compare him to a sponge: not the most interesting item in a kitchen, yet it can absorb problems and clean up muck. His slogan ("Leaders exist to make other people shine") reflects well his political philosophy.

Kishida was born into a political family: His grandfather and father were both parliament members. Between the ages of six to nine, he studied in New York because of his father's work at the time. He attended the most prestigious private secondary school — the Kaisei Academy, of which about half of its graduates go to the University of Tokyo.

However, after failing three times the entrance exam, Kishida finally settled for Waseda University. Coming from a family where virtually all the men went to UTokyo, this was Kishida's first great failure in life.

After he graduated from college, Kishida worked for five years in a bank before serving as secretary for his father, Fumitake Kishida. In 1992, his father suddenly died at the age of 65. The following year, Kishida inherited his father's legacy to be elected as a member of the House of Representatives for the Hiroshima constituency. Since then, he has been elected successfully nine straight times, and served as Shinzo Abe's foreign minister for four years, beginning in December 2012. A former subordinate of his from that time commented on Kishida:

"If we are to sum him up in one sentence, he is an excellent actor. Whenever he was meeting his peers from other countries, we would remind him what should be emphasized, or when a firm, unyielding 'No' was necessary, and so on ... At the meetings, he would then put on his best show, just like an actor."

According to some insiders, during this period as foreign minister, his toughest stance was on nuclear weapons. This is due to the fact that his family hails from Hiroshima.

In 2016, following his suggestion, the G7 Ise-Shima Summit was held in Hiroshima, which meant that President Barack Obama visited the city — the first visit by a U.S. president to Hiroshima, where 118,661 lives were annihilated by the U.S. atomic bomb.

In September 2020 when Shinzo Abe stepped down as prime minister, Kishida put out his candidacy for the first time for LDP's presidency. He didn't even get close. This was his second great failure.

But reading his biography, Kishida Vision, I must say that besides the two aforementioned hiccups, Kishida's life has been smooth sailing over the past 64 years.

When one has had a happy and easy life, one tends to think that human nature is fundamentally good. Yet, the world doesn't work like that. And Japanese tend to believe that "human nature is vice," and have always felt a bit uneasy with the dovish Kishida diplomacy when he was foreign minister.

Hiroshima has always been a city with a leftist political tradition. Kishida's character, coupled with the fact that he belongs to the moderate Kochikai faction within the LDP, inevitably means that he won't be a right-wing prime minister.

Kishida would never have the courage to be engaged in any military action alongside Japan's ally, the United States, nor will he set off to rewrite the country's constitution.

So after barely a year of Yoshihide Suga in office, how long will a Fumio Kishida government last? If Japan can maintain its relatively stable health situation for some time, it could be a while. But if COVID comes roaring back, and the winter brings a sixth wave of the pandemic as virtually all Japanese experts in infectious diseases have predicted, then Kishida may just end up like Suga. No sponge can clean up that mess.

Daisuke Kondo / Economic Observer


Top U.S. general says Chinese weapon nearly a "Sputnik moment": China recently conducted a "very concerning" test of a hypersonic weapon system as part of its push to expand space and military technologies, Gen. Mark Milley, the U.S. Chairman of the Joint Chiefs of Staff, told Bloomberg News. America's top military officer said that this was akin to the Soviet Union's stunning launch of the world's first satellite, Sputnik, 1957, which sparked the Cold War space race. Milley also called the test of the weapon "a very significant technological event" that is just one element of China's military capabilities.

Brexit: France seizes British trawler: A British trawler has been seized by France while fishing in French waters without a license, amid escalating conflict over post-Brexit fishing rights. France's Minister for Europe said it will adopt a zero-tolerance attitude towards Britain and block access to virtually all of its boats until it awards licenses to French fishermen.

COVID update: Russia confirmed a new record of coronavirus deaths, forcing officials to reimpose some lockdown measures, including a nationwide workplace shutdown in the first week of November. Germany also saw its numbers spike, with more than 28,000 new infections yesterday, adding to worries about restrictions this winter there and elsewhere in Europe. Singapore, meanwhile, reported the biggest surge in the city-state since the coronavirus pandemic began. Positive news on the vaccine front, as U.S. pharmaceutical giant Merck granted royalty-free license for a COVID-19 antiviral pill to help protect people in the developing world.

Iran nuclear talks to resume: Iran's top nuclear negotiator said multilateral talks in Vienna with world powers about its nuclear development program will resume before the end of November. The announcement comes after the U.S. warned efforts to revive the deal were in "critical phase."

First U.S. passport with "X" gender marker: The U.S. State Department has issued its first American passport with an "X" gender marker. It is designed to give nonbinary, intersex and gender-nonconforming people a marker other than male or female on their travel document. Several other countries, including Canada, Argentina and Nepal, already offer the same option.

China limits construction of super skyscrapers: China has restricted smaller cities in the country from building extremely tall skyscrapers, as part of a larger bid to crack down on wasteful vanity projects by local governments. Earlier this year the country issued a ban on "ugly architecture."

Doping scandal hits Venice's gondola race: For the first time in the history of the Venice Historical Regatta, a participant has tested positive to marijuana in a doping test: Gondolier Renato Busetto, who finished the race in second place, will be suspended for 13 months.


"End of the ice age," titles German-language Luxembourgish daily Luxemburger Wort, writing about how the ice melting in the Arctic opens up new economic opportunities with a new passage for countries like Russia and China but with potentially devastating effects for the environment. The issue of the Arctic is one of the topics that will be discussed at the COP26 Climate Change Conference which kicks off in Glasgow on Sunday.


$87 billion

A new United Nations report found that extreme weather events such as tropical cyclones, floods and droughts have caused India an average annual loss of about $87 billion in 2020. India is among the countries which suffered the most from weather hazards this year along with China and Japan.


Air Next: How a crypto scam collapsed on a single spelling mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy from Laurence Boisseau in Paris-based daily Les Echos.

📲 The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system. Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation.

📝 On Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. Challenged by one of his employees on Telegram, the CEO admitted that "many documents provided were false", that "an error cost the life of this project."

⚠️ What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond". Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

➡️


"A weapon was handed to Mr. Baldwin. The weapon is functional, and fired a live round."

— Following the Oct. 21 on-set shooting death of cinematographer Halyna Hutchins, Sante Fe County Sheriff Adan Mendoza told a press conference that the "facts are clear" about the final moments before Hutchins was shot. The investigation continues to determine what led up to that moment, and any possible criminal responsibility related to how the "prop" gun that actor Alec Baldwin fired was loaded.


Fumigation is used as a precautionary measure against the spread of dengue disease in New Delhi, India, where more than 1,000 cases have been reported — Photo: Naveen Sharma/SOPA Images/ZUMA

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Share with us your favorite gondola memories or worst crypto scams — and let us know what the news looks like from your corner of the world! -

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