Venezuela's turmoil shows no signs of being resolved anytime soon, two speakers agreed during an Oct. 14 discussion at the Inter-American Dialogue in Washington, DC. They said indications that some of the current top officials at state-run Petroleos de Venezuela SA (PDVSA) are trying to be more pragmatic with foreign partners may be the only recent encouraging development.
"Venezuela, for a long time, mistreated its partners and did not listen to their advice on how to maintain production," said Raul Gallegos, a senior analysts at Control Risks in Bogota and author of the recently published "Crude Nation: How Oil Riches Ruined Venezuela."
Bureaucracies grew as production fell under the presidencies of Hugo Chavez and Nicolas Maduro, Gallegos said. Little basic maintenance and rampant equipment thefts show a pattern of neglect, he noted. "The process of approving something so simple as a truck's spare tire can take months because so many bureaus get involved," he said.
Venezuela's government renegotiated agreements so aggressively when crude oil prices were at their peak that many foreign partners left, added the second speaker, Francisco Monaldi, a fellow in Latin American energy policy at Rice University's Baker Institute in Houston.
"The movement to pragmatism increased when oil prices collapsed," Monaldi said. "They have offered control of hiring contractors and recruiting employees. Nevertheless, PDVSA's production kept going down while production from joint ventures has increased."
Gallegos said policies now leave PDVSA some room to negotiate. "In most projects, the government owns a 60% share, but it can drop to 51%. Also, under law, PDVSA's 30% royalty share can drop as low as 20%," he said. But Monaldi added that "shadow taxes" still can make the government's actual share 50%.
Unclear negotiations
"It's very opaque," said Gallegos. "Service companies are negotiating with the government so they can be paid what they're owed. But it's not clear how, even though many can't leave."
Monaldi said, "They seem to be negotiating contracts similar to what they're paid in Ecuador, where they're paid very well. But they're negotiating more aggressively with Venezuela because they haven't been paid at all."
Gallegos said the Chavez administration filled PDVSA with administrators geared to redistributing revenue to the poor and supplying crude oil at a discount to countries with similar governments. This helped it establish good relations with labor unions, he noted.
But Monaldi said frustration among workers is so high and support for the government is so low that it may be delaying elections. "One reason the government brought the military into the oil fields is that so much equipment was being stolen," he observed.
