Archive for May 11th, 2009

Chavez accelerates the pace of destruction of Venezuela, taking over oil service companies.

May 11, 2009

Not happy with the rate at which he has been destroying Venezuela and its institutions, Hugo Chavez has begun accelerating the pace at which he is doing it, either through ignorance or as a way of justifying the mess he himself has created by the total absence of control and management of the country.

Chavez announced last week that he would be taking over oil service companies and their assets and turn them into “social” companies. In this way, the National Guard took over drilling rigs, barges, boats and equipment that was being used to support the country’s oil production.

While Chavez argued nationalistic reasons for doing this, the true reason is that these companies are owed more than US$ 13 billion by PDVSA and many were refusing to continue their contracts until they got paid or were removing equipment from the country. Additionally, PDVSA was requesting that new contracts be signed at reduced rates and even that the service companies give PDVSA a discount on the amounts already owed.

Chavez said he would pay book vale for what was taken over, but this creates a legal and financial mess, which will take years to sort out. You see many of these boats, barges and drills do not even belong to the companies that have the contracts, but are leased from others. Thus, the equipment does not even appear in their books and there will be suits and arbitration processes that will keep lawyers working for quite a while.

Even worse, PDVSA will now absorb 8,000 workers into a company that the Government is already having troubles managing. In addition, this does very little to promote the sale of the heavy oil tracts that PDVSA wants foreign companies to buy into and provide financing for in the upcoming months. The Chavez Government has once again changed the rules on the fly, affecting the equity of these company’s shareholders. What guarantee do these large multinational oil companies have that there will be no more changes in the future? Many are now likely to have additional second thoughts

To me this is simply further evidence that Venezuela’s Dictator is simply out of control by now: In the face of the problem of the debt of the service companies, Chavez took the autocratic, expedient and simplistic solution of taking them over. This is just like a little kid playing a game that kicks the board because he is losing.

Except that the debts do not go away like the game on the little kid’s board, PDVSA can’t handle this new responsibility and the drop in oil production will not only continue to go down, but is likely to accelerate with these measures. And the debt itself does not go away either.

Because now besides the US$ 13 billion debt, there will be the compensation for their assets, which has to be added to the arbitration processes of Cemex, ConocoPhillips and ExxonMobil, as well as other takeovers that while not in arbitration have yet to paid for.

Thus, Chavez continues to dig Venezuela into a hole in order to protect himself from the realities of the drop in oil prices and the crisis that is already developing in our country. By now, only a dramatic jump in the price of oil can cover up a decade of mismanagement and the results of the irresponsible whims and decisions of Hugo Chavez.

One way or the other, with or without Hugo Chavez, it is Venezuelans that will one day have to pay for all of these decisions. And even more than before, the poor will be worse off in the end that Chavez’ much hated oligarchs.