NEW GOVERNMENT RULES CLOUD PDVSA OUTLOOK

Ambitious expansion plans by Venezuela's state oil company may have suffered a major setback because of an internal political squabble. Venezuela's Ministry of Energy and Mines late last month issued an order that placed a set of new controls on the operating activities of state owned Petroleos de Venezuela SA (OGJ, Aug. 26, p. 34). That has raised a cloud over efforts by Pdvsa to position Venezuela to take advantage of changes in world oil markets in the wake of the Persian Gulf crisis.

Sept. 2, 1991

3 min read

Ambitious expansion plans by Venezuela's state oil company may have suffered a major setback because of an internal political squabble.

Venezuela's Ministry of Energy and Mines late last month issued an order that placed a set of new controls on the operating activities of state owned Petroleos de Venezuela SA (OGJ, Aug. 26, p. 34).

That has raised a cloud over efforts by Pdvsa to position Venezuela to take advantage of changes in world oil markets in the wake of the Persian Gulf crisis.

Linchpin of that effort is a planned $48 billion investment program for 1991-96 that among other things would have sharply increased Venezuela's output of crude oil and refined products and petrochemicals for export (OGJ, Aug. 19, p. 14).

What also may be threatened is the momentum toward privatization and increased foreign investment in Venezuela's petroleum sector that was to accompany that expansion program.

WHAT THE ORDER DOES

The Aug. 20 order requires the minister of energy, currently Celestino Armas, or a shareholders assembly in which the government as single shareholder is represented by the minister of energy to grant prior approval to any decisions in four major areas:

Establishment, merger, modification, or liquidation of any companies in or outside Venezuela in which Pdvsa has an equity interest.
Contracting of any financial obligations to be used for investments, acquisition of assets, or expenses not included in Pdvsa's annual budget.
Changes in wages or benefits of oil industry employees.
Naming of top executives.

The new rule covers not only Pdvsa but all subsidiaries and companies in which it is an equity partner.

The ministry order, following instructions by Venezuelan President Carlos Andres Perez, represents a line of government thinking that assumes that as Pdvsa's activities expand, bureaucratic control over the company must also expand.

BACKGROUND

Venezuelan industry observers note the order is the latest development in a long feud between Armas, who is a politician within the ruling Democratic Action party, and Pdvsa Pres. Andres Sosa Pietri, who has a strong business background.

The two often have had major differences of opinion over Venezuela's role in the Organization of Petroleum Exporting Countries and government policies affecting Pdvsa. Media airing of their differences proved a source of embarrassment to the Perez government.

Industry officials said Armas apparently was angered when Pdvsa made a series of important decisions in recent months without seeking his opinion beforehand. They include Pdvsa assuming new international financial obligations covering purchase of oil tankers, participating in a refinery in eastern Germany in partnership with Veba Oel (OGJ, Aug. 5, p. 30), and raising compensation levels for oil industry executives.

EFFECTS?

The ministry order is the first of its kind since Pdvsa was established in 1975. It means the minister will have assumed a big share of the decision making authority in operating areas previously assigned to Pdvsa executives.

Although it's too early to gauge the extent of the order's effects, industry officials speculate this effort by the ministry to exert direct control over operating decisions in the oil sector could be a first step toward weakening the efficiency and managerial leadership at Pdvsa.

At the same time the order was issued, Armas also urged Perez to order establishment of a special, high level committee that will "harmonize" execution of Pdvsa's investment program with the rest of the government's macroeconomic and financial goals.