Archive for April 21st, 2003

The so-called revolution at PDVSA

April 21, 2003


Scott from burtonterrace sends in and comments in his site on this link from the Christian Science Monitor about the “revolution” in the Venezuelan oil industry. Given what the article says I definitely have to comment on it:


“Nine-to-fivers have come to think of themselves as patriots. Senior managers now eat at the same cafeteria tables as secretaries.”


This is not accurate. First of all, most PDVSA workers do not work nine to five but much longer hours. Second, senior managers have always eaten in the cafeteria.


“What was widely regarded as a world-class energy company before the strike has a new philosophy: to help the poor”


This is a stupid philosophy and has never worked anywhere in the world. Oil revenues in Venezuela are less than $3 per day per inhabitant; oil income is around $1 per day per inhabitant. PDVSA should be run to maximize profit so that that income can drive the economy. Guayana companies under the umbrella of a company called CVG were always run “to help the poor”, they always lost money. In the end, the steel company was privatized and is almost bankrupt, the aluminum companies nobody ever even bid for them. (Chavez stopped the privatization when he was a candidate because the price was too low; nobody wants these companies even for free today). The petrochemical industry was in the hands of the Government for years, it never made money. It was handed over to PDVSA and it became profitable.


“The old culture is dead, and a new one is developing,” says Omar Enrique Perez, a compensation analyst with 15 years at the firm, who is working to slash salaries across the board – including his own.”


Imagine cutting salaries that are already low by international standards. High level managers at PDVSA make less than $50,000 a year. This is inconsistent and incompatible with the planned oil opening in which foreign companies will be sold tracts for exploration and productions. The Exxon’s and Shell’s of the world will come in and hire the best talent away from PDVSA and the 18,000 people fired from it. This does not benefit Venezuela or PDVSA. This already happened at the Government level where salaries were held back and no professional worth his while was willing to work for the Government. What will happen is that politics and corruption will rule at PDVSA. Moreover, the PDVSA culture was without doubt its most (and the country’s!) valuable asset. There was no political cronyism and corruption was very low. Over many years the number of corruption cases in PDVSA were orders of magnitude below the Government or the military.


“But Rodriguez has signed on with the government game plan – to divert some revenue to federal coffers that would otherwise be reinvested in PDVSA.”


This was already happening, in the last two years PDVSA was paying the Government more dividends that the company was actually earning in income (Weird concept, no?). I would like someone to convince me that this is not the sure path for bankruptcy for any company. Of course, in the case of PDVSA the end will be simply the privatization of the company.


“The new PDVSA management says much of that money was wasted, and points to operating costs that are three times higher than other oil majors as proof”


This argument is hilarious. The only reason operating costs at PDVSA were higher was that the Chavez administration held the currency constant for so long that it was overvalued. With inflation running at 15-20% and the currency being held constant, salaries were increased so that part of the purchasing power was maintained. Ordinary field workers at PDVSA, before February last year when the currency was devalued, were making $40,000 a year. With the devaluation this effect has disappeared.


“Previously, PDVSA’s management used its considerable degree of autonomy to aggressively explore for oil, develop new technologies, and acquire overseas assets”


This should be the bread and butter for PDVSA: Explore for oil to increase production, develop new technologies to be able to exploit the huge heavy oil reserves Venezuela has and acquire assets overseas to be able to place products in markets. This strategy not only worked, but is the same used for example, by the successful Malaysian oil company Petronas, which operates in a country which produces 20% of Venezuela’s daily production but operates in over twenty countries. Moreover, the Minister of Energy and Mines just announced that they intend to do exactly the same, exploring to produce 5 million barrels of oil a day. This statement is so cynical coming form the people who objected to the oil opening of the Caldera administration which was done to expand oil production without using PDVSA’s resources.


Finally, the article has some active and former military speaking on how they will change PDVSA and move on. Well, so far in the last four years, the military (from both sides) have shown to be mostly incompetent and overrated, making Venezuelans question even the need for them. Chavez’ has surrounded himself with military at all levels and very few of them have shown any management capabilities. Why should PDVSA be any different for them?

Unemployment up by 75% in the last four years

April 21, 2003

According to the National Institute for Statistics, unemployemnt has increased by 75% in the four years of the Chavez Government. (El Nacional page B-1). This despite the fact that oil income in the first four years of the Chavez Government was 41% higher than in the previous four years in US dollars. I wonder who Chavez will blame for this? The strike? The opposition? The US? The Colombians? Maybe he can just shutdown the Institute……

Other good sites to follow SARS epidemic

April 21, 2003

I found today two more sites to follow the SARS epidemic. At there is a plot in semilog scale which clearly shows to me that the growth is not exponential so far. It has three separate graphs for cases worldwide, cases reported by the WHO and cases in the US. A linear plot by Charles Platt is in his site, it is similar to Paul Kedrosky’s plot that I have been using. Paul Kedrosky has added a plot with doubling periods attempting to determine whether the growth is or not exponential. Kedrosky’s plots have the advantage that they update automatically when the WHO site is updated. While the number of deaths is clearly accelerating, the number of cases is only growing linearly. Kedrosky also links to a plot of the 1918 flu epidemic showing what the numbers of deaths was like in that case. It is actually quite starnge that the evolution is still linear, there is obviously something about the way it is transmitted that needs to be understood.