SOSA: GOVERNMENT TAX BURDEN HAS PDVSA FACING CASH CRISIS

Petroleos de Venezuela SA faces a potential cash crisis. The head of Venezuela's state oil company warned last week that unless the Venezuelan government eases its tax burden, Pdvsa could become decapitalized and unable to carry out its ambitious investment program. Pdvsa Pres. Andres Sosa Pietri said in a speech in Caracas the company, which now pays taxes of more than 80% on its operating profits, requires more equitable tax treatment to continue investment plans, generate profits, and

Aug. 26, 1991

4 min read

Petroleos de Venezuela SA faces a potential cash crisis.

The head of Venezuela's state oil company warned last week that unless the Venezuelan government eases its tax burden, Pdvsa could become decapitalized and unable to carry out its ambitious investment program.

Pdvsa Pres. Andres Sosa Pietri said in a speech in Caracas the company, which now pays taxes of more than 80% on its operating profits, requires more equitable tax treatment to continue investment plans, generate profits, and function as an efficient international oil company.

Venezuela's Congress recently approved a small cut in the oil company's taxes, but only for revenues generated by joint ventures in which Pdvsa is an equity partner (OGJ, Aug. 19, p. 14). Details on the tax reform have not been made public.

Last year Pdvsa had total revenue of more than $23 billion, and most of this was derived from the company's own activities rather than joint ventures.

Meantime, a former state oil company official warned Pdvsa's expansion program for the 1990s faces another potential threat: a lack of skilled employees to carry it out.

PDVSA ATTACKED

Sosa's statements came after critics in the government and other sectors launched a barrage of harsh attacks against Pdvsa, suggesting the company is working without government supervision, spending lavishly on certain projects, trying to evade taxes, and acting as "a state within a state."

Sosa called the allegations "irresponsible and imprudent" and said they were part of a smear campaign against him and the company.

Some of these attacks and threats of greater government control over the state owned company reflect sharp differences of opinion on policy matters between the professional managers who run Pdvsa and politicians, including Minister of Energy and Mines Celestino Armas, who legally control the industry's activities.

Industry sources contend some Venezuelan politicians clearly are envious of the state oil industry's independence and success and want to exercise greater influence over the huge company's activities.

PDVSA CURBED?

There were unconfirmed press reports in Caracas last week that the ministry has issued a directive limiting Pdvsa's ability to raise money through international borrowing, establish new subsidiary companies, or increase spending on equipment and services.

At the same time, the Venezuelan press reported Sosa had resigned to protest the action, as well as to protest public criticism from the government-specifically ministers of planning and finance-and that other members of the Pdvsa board were also ready to quit. Sosa denied the reports. Pdvsa is carrying out a $48 billion investment program designed to increase capacity in crude oil production, refining, petrochemicals, coal, international marketing, and other areas by 1996.

Due to the central government's deficit, Pdvsa was forced to trim its 1991 budget by $491 million, and the company may face more cuts this year imposed by the administration.

Pdvsa executives worry that whenever the central government runs low on cash in the future, it will either slash the oil company's spending once more or maintain taxes at an excessively high level.

Pdvsa, which has extensive equity holdings in oil subsidiaries in the U.S. and Europe, ranks as one of the world's largest petroleum companies. Last year, it posted net earnings of $2.48 billion and had more than 51,000 employees. The company is viewed as a well managed and profitable entity and provides the Venezuelan government with most of its tax revenue.

Venezuela observers note Pdvsa stands in sharp contrast to many other state owned companies in Venezuela, where political interference has led to poor service, large financial losses, debts, and featherbedding.

LACK OF PERSONNEL

While some fiscal and legal barriers to Pdvsa's expansion program have fallen in recent months, there remains a major concern for the company: the lack of qualified personnel to carry out the work.

Upon leaving the presidency of Pdvsa affiliate Maraven SA this year, veteran oilman Carlos Castillo warned that finding adequate human resources would be the biggest bottleneck in Pdvsa's investment plan through 1996.

Castillo, a long time executive in Venezuela's oil industry and a former manager at Shell de Venezuela, said a shortage of adequate technical and managerial personnel could limit the scope of the company's ambitious investment program, the largest undertaken in Venezuela.