Venezuela officials plan to split PDVSA into two operations

Jan. 20, 2003
Members of Venezuelan President Hugo Chávez's beleaguered administration announced plans to split state oil corporation Petroleos de Venezuela SA (PDVSA) into two operations, one responsible for all of the company's activity in eastern Venezuela and the other, for activities in the west.

Members of Venezuelan President Hugo Chávez's beleaguered administration announced plans to split state oil corporation Petroleos de Venezuela SA (PDVSA) into two operations, one responsible for all of the company's activity in eastern Venezuela and the other, for activities in the west.

Administration officials claim their goal is to improve the company's "agility" by dispersing decision-making to lower managerial levels and cutting corporate costs by reducing what Venezuelan Energy Minister Rafael Ramirez described as "a bureaucratic concentration of more than 7,000 employees" in Caracas, the capital city.

Ramirez claimed those employees are responsible for $1 billion in unnecessary corporate costs. He said the added "costs of maintaining an excessively centralized and costly bureaucracy in Caracas" raised PDVSA's total production costs to $15/bbl, instead of $3.50/bbl that the company reported prior to the strike.

Political opponents claim the administration is trying to eliminate many of PDVSA's top managers, administrators, and technical experts who have been at the front of the 6-week general strike that has slashed Venezuela's oil production to less than 500,000 b/d from more than 3 million b/d previously, in an attempt to force Chávez from office.

Ramirez outlined a "new transition organization" of PDVSA in a nationwide radio and television broadcast Jan. 7. "We talk of a transition organization because it (the restructuring plan) is not yet completed," he said. "It requires much more study, and it is a process that has to be nurtured by its own practice and the experience of other similar process."

New managers for PDVSA's eastern and western divisions have already been selected, along with "a board of directors with a more strategic vision of the oil business," Ramirez said.

Previous attempts by Chávez to place political allies in top PDVSA positions resulted in a coup that briefly forced him out of office early last year.

Strike to end?

Analysts at UBS Warburg LLC, New York, earlier reported that, under Chávez, Venezuela's oil production capacity has fallen to 2.9 million b/d, with PDVSA previously producing close to that maximum capacity since second quarter 2002. They also noted that Chávez has maintained a "rigid adherence" to the production quota assigned to Venezuela by the Organization of Petroleum Exporting Countries.

They noted that Chávez might yet resort to martial law to break the strike and silence his opposition. But even if Chávez is ousted, UBS Warburg analysts said, "There is no opportunity for a new government to 'open the taps' and produce more (oil)."

An earlier announcement by Chávez that PDVSA would return to full production within 45 days was met with widespread skepticism among industry observers. Dissident PDVSA executives claim it will take at least 4 months to resume full production and exports, once the strike ends.

The administration's attempts to use the military and unskilled workers to reactivate PDVSA refineries reportedly resulted in damage to at least one unit.

Chávez has appealed to Algeria, Brazil, Mexico, and Ecuador for the loan of industry technicians and engineers to increase PDVSA production and resume refining operations. "Only fellow OPEC member Algeria has agreed to provide help, while Brazil has stated that it is too dangerous to send workers to Venezuela during a potentially violent strike," said Robert Morris with Salomon Smith Barney Inc., New York.