PDVSA’s Idiotic Financial Strategy

April 18, 2012

I like going through financial statements. I like understanding them, going through things, trying to figure out what is important and what is not. PDVSA’s used to be one of my favorite’s, there was so much to learn and understand there. Nowadays is not the same. While the financial numbers may be “correct” the underlying data is not. You can’t believe oil production or local oil consumption. Investment numbers are almost irrelevant, if credible.

The financials are so simplistic that our good friend Setty has told us that the half a billion dollars lost to the Illaramendi funds,. does not even deserve a mention in the financials, by PDVSA or by the auditors. Go Figure, half a billion dollars ripped-off, the company (we are told) replaced the money and this does not even deserve a note from the auditors!

So, I read the financials, without much interest, sure they generated revenue of US$124 billion, PDVSA now has 121 thousand workers versus 40,000 when Chavez decided to integrate into the Government by firing half the workers. Yadda, Yadda, Yadda!

But one thing did catch my attention, in 2010, PDVSA had “Accounts Receivable” for US$ 14.8 billion. For the uninitiated, this is money owed to PDVSA. Remarkably, this went up a lot from 2010 to 2011, a lot like more than doubled at US$ 30.88 billion.

Where did this doubling come from? Well, about US$ 6 billion of the increase came from “Energy Agreements” read oil shipped to other countries like Argentina, the Caribbean, Bielorussia and the like, which PDVSA sells to these “friendly” countries 50% up front, two or three years grace period and then last we hear, a twenty five year loan at 2-3% per year.

Another US$ 6 billion, came from “related entities”, these are things like Corpoelec and Pequiven, which simply don’t pay their oil bills to PDVSA. So, not only is PDVSA forced to give money to Fonden, which Fonden later gives to Corpoelec to fund projects, but these same projects use up oil, diesel and the like, but Corpoelec has no money to pay for it.

Would you run your family like this? Lend your son money, so he can start a business which runs on oil that you sell to him, but he never pays. Some business!

But the most remarkable thing, is that during 2011, PDVSA’s financial debt went up by US$ 11.1 billion, from US$ 21.3 billion to US$ 32.4 billion. The new debt comes mostly from new bonds issued with coupons as low as 8.5% and as high as 12.75% per year, say an average of 10% per year.

The bottom line is that PDVSA is paying over US$ 1 billion a year in financing, so that our wealthier friends in Argentina, Belaruss and the Caribbean (The exceptions are Cuba and Haiti, which are poorer) can have our cheap oil.

This is an idiotic financial strategy. As idiotic as can be. A country with poverty, a company with immense financial needs to even maintain production, should not, can not fund wealthier countries, so they can drive around further distances at cheaper prices, or stay warm, while Venezuelans die without medical service.

This is absolutely idiotic, this is treason, this is total disregard for your own people.

But these people have lost the notion of scale and magnitudes. To them a billion here a half a billion there is rounding error, while the truth is that each half billion can build a few dozen hospitals or a few thousand housing units.

But the revolution no longer cares. Survival is the name of the game. It is no longer the optimum allocation of scarce resources, but the optimum allocation of resources for reelection  and political gain.


(BTW PDVSA’s financials are in PDVSA’s webpage, however, PDVSA must be the only company with a webpage that when you click on a link, the URL stays the same. Just go http://www.pdvsa.com, then click on Informes Financieros and then click on them, the URL will not change. I also tried to follow the route of these receivables and found it funny: One note would send me to another, which would send me to three others, which would send me to the original one. Very circular.)

23 Responses to “PDVSA’s Idiotic Financial Strategy”

  1. PetroSaudi Says:

    Hi! I know this is kinda off topic but I was wondering which blog platform are you using
    for this site? I’m getting sick and tired of WordPress because I’ve had
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    for another platform. I would be fantastic if you could point me in the direction of a good

  2. Ashley Baldwin-Hunter Says:

    Many thanks moctavio!

  3. Ashley Baldwin-Hunter Says:

    Greetings all. I am trying to find PDVSA’s financial statements for 2008, 2009, and 2010. I am not seeing anything when I click on the Informes Financieros link on the pdvsa website, and I’ve tried the two methods mentioned above.

    Any tips for where I might lay my hands on these reports?

    Any advice is much appreciated!

    • moctavio Says:

      They dissappeared from the website in the last few days.I think this was a webmaster problem as all content within that area is gone, including Prospectuses, announcements and the like. They should be back (I hope)

  4. Wanley Says:

    Idiotic financial strategy?? What isn’t idiotic in pdvsa?

  5. Dr. Faustus Says:

    By the way, as it appears that the PSUV might need a new Presidential candidate very soon, …er, make that ‘very, very soon,’ why not the man behind PDVSA’s finacial legerdemain? Anyone that can hide half a billion buck loss from a ponzi scheme, is surely deserving consideration for the top job in Venezuela.

    Rafael Ramirez for President!

    Why not?

    According to Runrunes today….

    “The patient’s disease does not recede but it rather progresses. His nerves and depression are taking a toll. He has been in healthcare center Cimeq resting rather than undergoing treatment. He is taking time to make a decision.”

    The ‘decision’ should be Ramirez. You betcha.

  6. Kepler Says:

    Financial reports in Venezuela: somehow we are yet again shocked and yet nothing happens in the minds of the others…nothing, nothing at all…

    What is Venezuela going to do with all those thousands of inept PDVSA employees after Chávez is gone?

  7. CharlesC Says:

    “This is absolutely idiotic, this is treason, this is total disregard for your own people.”-There will be no PDVSA-there will be Petroleum de China…

    • NorskeDiv Says:

      It probably will be what happens, especially if Chavismo remains in power another six years. Already the oil still in the ground belongs to China, some of it at least, so it would be logical to allow the Chinese to extract it. Unfortunately, it will not be a traditional colonial relationship, the Chinese will not stay and insure good governance and local investment in infrastructure since they have no long term interest in the country, they will simply want to remove the oil and get out. Neo colonialism in many ways is much worse than traditional colonialism, worst of all it so easily blinds the natives to the fact they are being ripped off since its one of their guys doing it.

      • NorskeDiv Says:

        By the way, I am not being anti China here, western oil companies do the exact same thing, at best they are subject to stricter anti bribery laws. China and western companies are just paying cash to get their hands on resources, they could care less whether that cash is spent on schools or palaces. Its totally up to local governments to insure they invest the returns well, most are totally incapable of it, unlike traditional colonies which were actually seen as long term investments.

  8. LuisF Says:

    Not to mention the destruction on human assets post 2003, and the x3 escalation of very inprodcutive New PDVSA workers….

  9. Dr. Faustus Says:

    Might I suggest that most of PDVSA’s numbers are meaningless. As is pointed out over and over again (see above), financial data/numbers are easily manipulated. In PDVSA’s case, it’s expected. What is important, however, is the underlying assets of the entity. What’s the status of the oil fields in Lake Maracaibo? How many are being lost because of laxs supervision, i.e. natural gas being pumped in to maintain pressure in the older fields? How many required maintenance overhauls are taking place on a regular basis at the critical refineries of Amuay and Cardon? Are crucial parts being replaced on a regular maintenance schedule, or does anyone there really give a flying…f about stuff like that. Assets! That’s what’s important here. The very simple truth is that it appears that Amuay and Cardon are being held together with duct tape, driven relentlessly 24 hours a day, for an eventual catastrophic collapse in the not-too-distant future. Poof! The underlying assets are gone. That’s where PDVSA is headed. Forget the silly numbers.

    • syd Says:

      that is my suspicion, as well. that most of PDVSA’s numbers are meaningless.

      “Mira, ponle esto. Sí, sí, ponle aquello. Nooooo, no le metas eso….”

  10. Alexander Says:

    Accordingly with the 201~205 articles from the Constitution 2000 and the law of LOH in 2002 including it’s reform in 2007, PDVSA “expenditure” cannot be considered in strict sense ” financial” as any ordinary Sociedad Anonima, public or private.
    PDVSA is today, part of “public sector consolidated expenditure”, this definition incorporates Venezuelan Central Bank too. That is,as you can observe, and in strictu sense, whatever economic or non economic activity PDVSA exercises should be considered FISCAL.
    As a Republic’s corporation PDVSA ( it is not State, it is not a state corporation any more) everything it’s does is fiscal, it does not matter if PDVSA issues ” financial obligations”, the payer is the FISCO.
    PDVSA today sells chicken, houses, alcaparras, hojas de Hallaca, gas, oil, etc, etc, is a multipurpose grocery store, part of fiscal income redistributions coming from oil rent.
    I know that is not easy to “digest” this economic and fiscal behaviour, so if PDVSA is not accountable, we have to find the way to audit all public sector expenditure, ” desalambrar” all possible double accounting in order to find the thread beginning.
    Lot of people out there did not find reasons why Chavez pull out PDVSA from SEC. We have wrote then that accordingly with that political decision we have to be prepared to see the most unorthodox accounting and “financial” ~if you like~ practices, all of them legal and constitutional.
    We have needed lot of years and surprises to understand what is going on, they are playing a particular game, they design rules on the way, we are still playing a game, an inexistent one, and in some respect people is confused, and of course, they play their win win game, by default, jejeje.
    It looks that everything approach it’s end, fortunately, I think.

  11. Alek Boyd Says:

    Pero Miguel, if Aponte Aponte can be chief magistrate of one of the chambers of the Supreme Court for seven years, do you honestly think that different people are going to be running PDVSA? Mind you all one needs to realise that PDVSA is run by idiotic halfwits is just listen to them really, no need to waste times on poorly written accounts that make no sense.

    People that can’t even express themselves coherently on mundane stuff, do you think are going to run efficiently such a complex business as PDVSA?

    • firepigette Says:

      Alek, There is precious little meritocracy anywhere in Venezuela.I know a curator of the art museum with cheesy taste and no art background.I know of psychotherapists who were English majors.I have seen lawyers who cannot write properly, and doctors who believe more in witchcraft than in Western Medicine.Some are nice people and smart, but hey, when did they earn their positions?

      The Peter Principle exists everywhere and I know of no place that is a true meritocracy, but Venezuela exaggerates the personal connection in favor of true qualification , only adding to this tendency.

      Is that likely to go away fast? I doubt it.Bad habits die slowly.

  12. sapitosetty Says:

    To get the proper links, don’t start at pdvsa.com, but rather http://www.pdvsa.com/index.php. From there on out, you’ll always see full links that you can post in your website. CaptainCCS’s method also works. Or right-click (or option-click on Mac) and “copy link address” from a prior page.

    As far as the financials, very well put — the numbers add up, mostly, but the underlying data is obviously off. The fact that they were busted running at least one currency scheme during the year — the Illarramendi situation — shows that our long-time suspicions were correct, and the dual exchange rate allows the ongoing maquillaje of whatever numbers PDVSA wants to maquillar. Also there are constantly unreported restatements from year to year. Whatever, I am as weary as you of these, but they are worth watching all the same.

    You reminded me to look at accounts payable, which are creeping up again, most likely just because PDV now requires suppliers to accept payment 6 months after work is performed, without any interest or inflation protection, so if they hire more contractors, they end up with more accounts payable.

  13. Guest Says:

    “a company with immense financial needs to even maintain production, should not, can not fund wealthier countries, so they can drive around further distances at cheaper prices,”

    Do we even know if this is true? I mean: does all the financing translate to an actual reduction in gas prices in those countries, or does it simply end up in some politician’s pockets like the oil sent to Cuba (which Cuba turns around and re-sells at market prices)?

    • moctavio Says:

      Not necessarily, but that is the idea behind the agreements, to “help” these countries with their fuel bills, whether it happens or not is another matter. I think in some places like Domenican republic, Haiti and some Caribbean countries it happens. If Venezuela did not give them the oil with cheap terms, prices would go up.

  14. captainccs Says:

    Miguel, if you force the link to open in a new page, you’ll see the full link.

  15. Rafael V. Lozano Moreno Says:

    Miguel perdóname por esto, que cagada la de este de Gobierno.

  16. Daniel Says:

    Excellent article. Nothing else to say that hasn’t been said before. PDVSA is so close to bankruptcy that they can’t hide it anymore.


    (BTW, you can’t see the URL because it’s hidden, that’s actually a technique used in the development of websites. The URL for the Informes Financieros is:
    http://www.pdvsa.com/index.php?tpl=interface.sp/design/biblioteca/readdoc.tpl.html&newsid_obj_id=5319&newsid_temas=111 )

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