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.
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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.
