As Chavez Tours Latin America, Opposition Forces Talk of Privatization

| Mar. 31, 2011 |

Published by Minyanville

In the wake of Barack Obama’s tour of Latin America last week , Hugo Chávez has followed suit, taking in those countries that the US president missed—Argentina, Uruguay, Bolivia and Colombia. “Unlike Obama, who came with a 1,000-strong entourage of officials and businessmen to wrap up new trade deals with Brazil and Chile,” says Carolina Barros of the Buenos Aires Herald  “Hugo Chávez has come, above all, on a profit-taking exercise. To reap what he has sown.”

Quite surprisingly, Chávez was given a press freedom award in Argentina. Both he and Argentina’s President Cristina Fernández were slammed last year by the Inter-American Press Society for their “harassment campaigns” against their media. The purpose of Chávez’s trip is essentially to bring in cash to bolster state-oil firm Petróleos de Venezuela (PDVSA) and his upcoming 2012 election campaign.

With oil prices up thanks to events in the Middle East, PDVSA has the potential to bring in more money for the Venezuelan authorities. However, 20,000 oil wells are closed down due to a lack of investment while government subsidies are being criticized for costing the administration billions of dollars every year.

The oil company is often under attack for its figures, which have in some cases have turned out to be untrue. The government this week announced that it would no longer be publishing oil production and export data that had been independently certified.  The decision comes a month after it was announced that output fell last year to its lowest level since strikes nine years ago. A former director of PDVSA, Gustavo Coronel, went through the company’s 2010 accounts and analyzed them under the title, “Travels Through a Desolate Fantasyland.” He said: ““PDVSA has lost its legitimacy as an oil company and has become a mere instrument of domination wielded by a corrupt oligarchy.”

In an opinion piece in the Latin American Herald Tribune, Coronel said: “From being a world-class enterprise before Chavez arrived in power, the company has been converted into an amorphous agglomerate of a dozen companies that import and distribute food, build houses, pave roads, train athletes and has adopted as its mission “the promotion of a socialist society”. As a result, its core business of finding, producing, refining and selling hydrocarbons has become a subordinate task.

The company has lost 800,000 barrels per day of production (which is only partly compensated by contracts with foreign operators), its refineries are working at 70% capacity and a good portion of its oil is being delivered at subsidized prices to ideologically friendly countries. Now the company is hoping to restructure its exploration and production division in order to boost efficiency and ultimately increase output.  It's looking to increase output to 5m barrels per day from the current figure of 2.78m, by 2014.

The company is also looking at bigger players, encouraging foreign partners to secure hundreds of millions of dollars by July to boost production. Companies involved include Chevron (CVX), BP (BP), Repsol (REP) and Shell. They were threatened in January when energy minister Rafael Ramirez said that if production was not increased, foreign companies may face a review of their rights to work in Venezuela. Expropriations have been a trademark of Chávez’s time in power, leading to the huge flight of capital that is currently starving Venezuela’s economy.

One company that faced expropriation was Williams Companies, which saw its natural gas facilities taken over by the Venezuelan government in 2009. It is yet one more company filing for international arbitration against Venezuela, joining Tidewater (TDW), Exxon Mobil (XOM) and ConocoPhillips (COP) in similar actions.

With presidential elections looming next year, Venezuelan opposition politicians are beginning to unify in order to present a candidate capable of fighting Chávez’s charm. One senior official in the coalition, Ramon Aveledo, told Reuters this week that they would be willing to privatize some of the companies currently in state hands. “There are companies in state hands that do not function,” he said. “If they need to be privatized, they will be privatized." The opposition, however, has a hard battle. Many popular candidates are banned from standing for election following corruption charges that are seen by many as simply a tool for Chávez to defeat the opposition.

The opposition also must fight the huge resources that the government has to fight an election campaign, bolstered now with rising oil prices thanks to events in the Middle East. While Chávez makes his Obama-esque trip around Latin America, those back in Venezuela have suffered widespread electricity outages thanks to planned maintenance, but also unforeseen problems that many residents have by now become accustomed to.