The Devil's Excrement

Economist
Eduardo Mayobre wrote this article in El Nacional, that I think is quite interesting

Barrack socialism by Eduardo Mayobre

An old and dear friend of mine who died recently -Guillermo Pimentel-used to
say that adjectives were more useful for hiding the truth than to elucidate it.
When one says “a babe” everyone knows what you are talking about. But
when you say “a true babe” the statement becomes ambiguous. The same
happens with socialism. If you say “socialism” we know we are
referring to social ownership of the means of production, but if you speak of
“XXIst. century socialism” nobody knows what you are talking about.

In our country what little there is of socialism-if we understand it without
adjectives- we owe to Accion Democratica: the nationalization of iron ore and
oil, as well as some minor nationalizations that were later reverted during the
time that privatizations became fashionable. We would have to add to that what
is left of the state enterprises that drove the development of Puerto Ordaz and
Guayana. The agrarian reform of 1961 also made public property of a good part
of the land of the country. There they are today, even if many remain idle.

The decade of the nineties reverted the process of socialization of the means
of production initiated in the sixties and seventies. In that sense, one could
say that in the same way that the decade of the eighties is characterized as
the “lost decade”, that of the nineties could be characterized as the
“the kneel down decade” in which Governments allowed themselves to be
seduced by the siren songs of “globalization” and
modernization”. As a consequence, what little there was of socialism
receded substantially.

So far in the XXI’st century there has not been a single advance in the
socialization of the means of production. Thus, we have yet to see socialism in
this century. Up to now, it is nothing more than a concealing adjective. In the
oil area, as an example, private and multinational oil production increase all
the time, as the production of public companies declines. If we tried to be
understanding, we could say that perhaps there has been socialization in the
means of distribution-Mercal would be one case-but up to now it is difficult
for us to find a single case of socialization of the means of productions. That
is, of socialism.

Which leads us to ask: What is the qualification of “XXIst. century”
trying to hide when it refers to socialism? The answer is so obvious that it
almost shames me to write it. It tries to cover up the most evident
characteristic of this Government: its militarism.

Given the undeniable attraction of the idea of socialism, all Governments in countries
under development, in our case Venezuela,
have tried to be “socializing”. In the case of the social Christians,
which later due to a commendable Christian regret, called itself Christian
democrats, the Government of Luis Herrera spoke of the “communitarian
society” as a way od adopting a certain socialist tendency. At that time,
the adjective also threw us off base, because nobody ever knew what the
“communitarian” part meant.

Following that example, we could know talk about “barrack socialism”
to attempt to clarify what is meant by this new century socialism Because, for
now, instead of the social ownership of
the means of production, the only thing one can see is the leading role or
protagonism of some of the members of the Armed Forces (now called the
“Armed Force” because much like in monotheism, it is only possible to
adore one true God)

Said in a few words: more than XXIst. century socialism we have XXIst. Century militarism. One has to recognize that in
our national history, militarism has had much more importance than socialism.
For example, Juan Vicente Gomez and Marcos Perez Jimenez had more influence in
molding national life than Gustavo Machado or Salvador de la Plaza. From which
you could extract the conclusion that “the process” due to its
military character, is more Venezuelan.

In his book Venezuela,
Politics and Oil, Romulo Betancourt entitled a section-referring to the period
1948-1958- “the military neofascism functioning as Government”.
Perhaps saying “neofacism” was an exaggeration typical of the character
of the leader from Guatire, but it would also be equally wrong to qualify as socialism
the orientation of the new military regime that is currently governing us. Even
if it has the blessing of Fidel Castro, of whom one still does not know if he
is more of a socialist than military. But at least he took seriously the notion
of the social ownership of the means production.

In our poor Latin America, the
“isms” have served to justify all of the military oppressions that
have scorched us since independence. Bolivarianism, justicialism, corporativism
and modernism, have served as excuses for personal and group ambitions of
power. It now appears to be the turn of socialism. But because socialism has a respectable
tradition that includes thinkers of the stature of Karl Marx, Rose Luxemburg
and Edward Bernstein you have to put adjectives to it. now it has become XXIst.
Century socialism. The mere ideal of Norberto Ceresole. Or, for older people,
the New National Ideal, the slogan of Marcos Perez Jimenez. We have already
bumped into that socialism. It is a socialism that would make the idealists of
the XIXth. Century cry and would make the authentic socialists of the XXth.
century blush. Those like the leaders of the Spanish Republic,
or like Salvador Allende or Pablo Neruda or Albert Camus or Jean Paul Sartre,
who never thought that socialism was a military adventure.

–The US Ambassador to Venezuela
visits the President of the Supreme Court and openly tells the press that he
can visit the US
on official missions, but not on personal ones…umm.

–Chavez says
the hawks in the Pentagon want to kill him. Castro says
the US
wants to kill Chavez. Vice President Rangel says
the CIA wants to kill Chavez….umm.

–El
Nacional says that decrees in 1997 by the Minister of Energy and Mines authorized
heavy oil partnership Sincor to produce the amount that the Minister of Oil
said last week in his National Assembly testimony that was illegal and the
company should pay US$ 1 billion in back royalties over the “illegal”
production…umm.

–The
Governor of Carabobo state said, despite the Supreme Court telling him that he
can not make use of land without following legal procedures that he will
continue expropriating lands he needs…umm.

–Courts
reversed this week fines imposed on two TV stations for showing ads (mostly
political) at discount or no price…umm.

–Officers
graduation class in the military “High Staff” course chose
Fidel Castro as the “godfather” of their class…umm.

–Prosecutor
determines Lopez Catillos’s parents were
innocent…will someone apologize? What happens the day they determine their
dead son, killed by the police, was also innocent?…umm.

–Professor
Saez Merida dies after more than thirty days in intensive care after being
assaulted by robbers, cops show up at funeral to take body away as “evidence”,
wife refuses to hand him over…umm.

–Chavez
gives a speech to Mision Ribas (high school) graduating class. He said material
things have no value, points to his jacket and tie and says they have no
value. A guy shouted “Give me the tie then”…umm.

This article by Veneconomy
is too important to not reprint here, even if it can be found on
various other websites including Veneconomy (for subscribers only) and vcrisis and Daniel’s blog.

You could subtitle it “Debunking Eva’s Code or her sloppy work“

VenEconomy reviews for
the benefit of its readers the new “chavista” best seller titled “The Chávez
Code.” The book was written by Eva Golinger, a U.S.-Venezuelan dual national
whom President Hugo Chávez has personally baptized, “The Bride of the Bolivarian
Revolution.”

Why be subtle? The
Spanish-language version of “The Chávez Code,” launched officially in Havana before it arrived in Caracas recently, is 355 pages of organic
fertilizer dedicated to the memory of Danilo Anderson, the prosecutor killed by
a car bomb in November 2004. Anderson
was buried in a grand ceremony where President Chávez praised him as a hero of
the revolution. Then police investigators posthumously exposed Anderson as the presumed leader of a gang of
extortionists working out of the Attorney General’s office. Golinger should
dedicate a book of lies and distortions to the memory of a public prosecutor
who has been pointed out to be crooked instead of heroic. Golinger reportedly
is living in the Caracas Hilton as an official guest of the Chávez government.

A recent interview in
Exceso magazine, and anecdotal reports of her travels throughout Venezuela on
book-signing tours, confirm that Golinger is delighted with her 15 minutes of
fame. The Chávez government is certainly delighted with Golinger, whose
meteoric rise to Bolivarian fame started when she was interviewed on television
in the United States while
protesting in support of Chávez in New
York City. Now she is the author of the Bolivarian
Revolution’s “true” account of the forces and events surrounding the violence
of April 11-14, 2002, in which Chávez left the presidency and returned to power
less than 48 hours later. The official Bolivarian truth recounted by Golinger
is that the government of the United
States conspired to oust Chávez from power
by working through the Central Intelligence Agency and the National Endowment
for Democracy (NED) to finance, organize and train a civilian-military coup
against Chávez. Golinger bases this claim on documents she obtained through the
U.S. Freedom of Information Act (FOIA) with the help of a U.S. photojournalist
named Jeremy Bigwood (if readers wish to know more about Bigwood, do a Google
search and click on his web page).VenEconomy read the book
from cover to cover. This included double-checking what Golinger claims in the
principal text of the book with the official U.S. documents that she obtained
under the FOIA and cited in the book’s footnotes. In every case involving a
specific quote linked by footnote to a specific U.S.
official document in the book’s appendix, VenEconomy found that none of the
statements she attributes to various U.S. diplomats in the main text of
the book are found there. She cites the U.S. documents included at the back
of the book in English as the source of these statements. This is odd,
considering that Golinger claims that her many professional skills – besides
immigration and entertainment industry lawyer, jazz singer and nouveau
glitterati of the Bolivarian Revolution – also includes certified translations.
VenEconomy did not count all of the factual mistakes, distortions and lies in
the book. However, following is a small sample of Eva’s deceits. First,
Golinger claims in her biographical description that she obtained
“ultra-secret” CIA documents through the FOIA. This is untrue. The CIA
documents in question were never even designated as classified documents. They
consisted of intra-government security briefings the CIA provides daily to a
restricted number of U.S.
government officials. The reports are confidential, but they are not secret.

Golinger claims that she
obtained her trove of official U.S.
documents through FOIA requests that Bigwood assisted her with. She claims in a
recent interview in Exceso magazine that no one helped her financially.
However, this is untrue. The U.S.
government charges fees for providing documents sought under FOIA requests.
Depending on how many documents are sought, the costs climb quickly to
thousands of dollars. Nevertheless, Golinger promises her readers the
investigation will “continue for decades.” Who will finance it?

On page 49 of her book,
Golinger claims that NED and the U.S. Agency for International Development
(USAID) have spent “more than $20 million” in Venezuela since 2001 to “foment
conflict and instability.” Elsewhere in the book, Golinger says the sum spent
by NED and USIAD was $2 million. This could be a typographical mistake, of
course.

In Chapter 3, which starts
on page 59, Golinger discusses the natural tragedy that destroyed Vargas state
on December 15, 1999. She states that the torrential rains started on Dec. 14,
one day before the Avila
Mountain slid downhill
into the sea. This is mistaken. It rained almost ceaselessly for over a week
before Dec. 15, and civil defense officials reportedly warned Chávez on repeated
occasions that a natural disaster was imminent. However, Chávez was more
interested in campaigning for his new Constitution than in flooding rivers or
landslides. He ignored all warnings, and did not react publicly until at least
three days after hundreds died and tens of thousands were left homeless.
Golinger also claims on page 60 that the U.S.
unilaterally sent military warships and Marines towards Venezuela
without being invited in the aftermath of the Vargas tragedy. She goes on to
say that, when Chávez learned of the U.S. action, he issued orders that
the uninvited Yankees be turned away. This is also false. The U.S. government
officially offered humanitarian assistance, which the then-Venezuelan Minister
of Defense Raúl Salazar accepted. The President subsequently overruled him when
the boats were already on their way.

In Chapter 4, Golinger
discusses the International Republican Institute (IRI), a Republican offshoot
of the NED. The Democratic Party has the National Democratic Institute (NDI). She
describes Georges Fauriol as the head of the IRI’s Latin
America program on page 70. This is incorrect. Fauriol is the
IRI’s director of global strategic planning. He is the former director of the
Americas Program at the Center for Strategic and International Studies. His
expertise almost exclusively centers on Haiti. Fauriol was taken to the IRI
by its president, George A. Folsom, who has good Republican connections through
Brent Scowcroft but is not regarded as the brightest bulb in the Republican- Latin
American policymaking circles of Washington, D.C. Golinger does a fast shuffle
on page 74, where she refers to U.S. laws that supposedly prohibit the NED and
its offshoots financing political parties outside the U.S. She cites Title 2,
Section 441e of the U.S. Federal Criminal Code, as reportedly barring the U.S. from
interfering in any foreign local, state or national elections. In fact, the
statute she cites refers to foreign financiers of U.S. political campaigns. NED and
similar entities are regulated by other U.S. legislation. In any case, NED,
the IRI and NDI do not finance the political campaigns of foreign politicians.

In Chapter 5, Golinger
cites documents that purportedly show the U.S. Embassy knew a coup against
Chávez was being planned as early as September 2001. The documents she includes
in the book, and which are found on her web site, do not substantiate that
assertion even remotely. Golinger also claims in this chapter that other
documents, which she included in the book’s appendix, prove the U.S. government
shared and encouraged the political opposition’s desires to throw Chávez out of
power.

VenEconomy read the
documents in the appendix, and then consulted other documents at her web site,
and none of the documents substantiate her claim. VenEconomy wants to make it
clear that the criticism here centers on apparently sloppy research and
unsubstantiated claims not supported by any of the alleged evidence cited by
Golinger. In VenEconomy’s view, the book overall is disorganized and poorly written,
and its supportive documentation doesn’t validate any of the claims the author
makes about alleged U.S.
encouragement and advance knowledge of a coup against Chávez.That said, in the weeks
before the violence of April 11-14, 2002, the persons who most frequently
claimed that a military coup was imminent were Chávez and then-Defense Minister
(now Vice President) Jose Vicente Rangel. This is a matter of public record.

In Chapter 6, Golinger
claims that former U.S. Ambassador Charles Shapiro, who arrived in Caracas in February 2002, had been a military adviser at
the U.S. Embassy in Chile
when President Salvador Allende was overthrown in a military coup. This is
incorrect. Shapiro is a career foreign service officer, a diplomat, not a
military official. He certainly did have an image as a tough guy because he
spent time in El Salvador in
the 1980s and was the senior Cuban Affairs officer at the State Department
before arriving in Venezuela.

However, Shapiro wasn’t
sent to Caracas
because the Bush administration wanted to take a tougher stance with Chávez. In
the State Department’s ambassadorial seniority list, Shapiro was next in line
for an ambassadorship, and then-Ambassador Donna Hrinak’s term in Caracas was nearly over. U.S.
ambassadors rarely stay in one post more than two or three years. In any case,
Ambassador Shapiro soon earned the nickname of “Goofy” among opposition
leaders, which definitely is not a nickname appropriate to the tough guy image
that preceded his arrival in Venezuela.

When she discusses Otto
Reich, Golinger claims the U.S. Senate Foreign Relations Committee blocked his
appointment as Assistant Secretary of State for the Western
Hemisphere. Actually, the culprit was Senator Christopher Dodd
(D-CT), who has a personal feud with Reich dating back 20 years. Golinger
claims on page 103 that the CIA had “detailed knowledge” about the coup against
Chávez that could only mean the CIA was in close direct contact with the
conspirators. However, the CIA documents she cites are not any different in
content than the reports that were being published and broadcast daily during
those tense days in April 2002 by the Venezuelan news media. The CIA reports
not claim to know more about the alleged coup against Chávez than what was in
the news media locally at the time. They do, however, contain analytical
judgments that lean towards predicting that some kind of move against Chávez
was imminent.

Golinger cites former CNN
correspondent Otto Neustadt’s alleged claim that on April 10, one day before
the march against Chávez ended in death by gunfire in downtown Caracas, he was approached by a group of
generals and admirals that wanted to pre-tape a message to be shown on April 11
after people had been killed and injured. Neustadt lost credibility. He was sacked
by CNN soon after the events of April 2002 because unedited videotape he
transmitted to CNN’s world broadcast center in Atlanta contained outtakes that showed the
CNN reporter had a close personal relationship with then-Vice President
Diosdado Cabello. CNN’s management concluded that Neustadt was compromised
professionally and they terminated his employment contract.

The timelines Golinger
cites for the violence that occurred in downtown Caracas do not match the known facts. She
claims video of rooftop snipers was destroyed by the private television
channels, which is also false. There hasn’t been proof that there ever were any
rooftop snipers. Forensic analysis and photographic evidence from April 11,
2002, presently consigned before an international court proves conclusively
that the descending trajectory of the bullets that killed 19 persons resulted
from the fact that “chavista” shooters were firing at anti-government
protesters from higher elevations and at a long distance. On page 111, Golinger
attributes to Shapiro a written statement in quotes that she footnotes to an
embassy cable in the book’s appendix of documents. The document does not
contain the statement. This is a recurring problem with Golinger’s footnoted
citations throughout the book.

“The Chávez Code” doesn’t
stop at the events of April 2002. It includes chapters on the oil strike of
December 2002-January 2003, and the August 2004 presidential recall referendum.
VenEconomy found many more inaccuracies in these chapters, but did not want to
deprive others of the chance to make their own discoveries as they read this
Bolivarian best seller. Besides, this book review is already too long.

Inflation, that untamable beast, also from Tal Cual

What is not going at the speed of a tortoise is inflation

In May it made a jump with a pole vault and placed itself at 2.5% so
that, annualized, from May to May, it is above 17%. There is no country in the
world that has such a level of inflation. It may seem unreal, but once again we
have a Government that believes that macroeconomics is a neoliberal invention.
It may also seem unreal that fifteen
consecutive years, before Chávez, with inflation above 30%, have left no lesson
and the Government seems engaged in repeating the same usual errors. They think
that price and exchange controls are sufficient, but the cost of living is
running, is escaping from them. With an inflationary rhythm of this magnitude
there is no Mercal which can counteract it nor public finances that can indefinitely
tolerate the food subsidies. A country with two budgets, one public, approved
by Parliament, another parallel, managed in the shadows, at the margin of any
controls, of unknown amounts, which transforms into a mystery the real amount
of the fiscal deficit, the uncontrolled indebtness and the constant
manufacturing of inorganic money by the Central Bank, transformed, against the
Constitution and the Law in the financier of the Government , an exchange
control which is destroying the country’s industries, all of this has to be
paid sooner or later. You pay it with a delay, in unemployment and informal
employment, to sum up, in misery.

I talked about this last night, Petkoff picked up on it
too:

Failing grade in Housing by Teodoro Petkoff in Tal Cual

Yesterday the President complained, not without bitterness,
of the slow progress of the plan to build houses. It is not the first time that
he refers to this matter, in the same terms of complaining. Because in this
area the failure of the Chavez administration is clamorous. Chávez, whose personalistic
conception of power makes him aspire to hand himself the keys to each house,
said that he would have to reach the age of Methuselah in order to fulfill that
purpose, the development of which is going, in his own words at the” speed of a
tortoise” Not that long ago he assured us that 120 thousand homes would be
built this year, among other things, thanks to the help of the Chinese. Well,
it is known that a Chinese mission came and after learning about the market,
they told him that it was silly to import prefabricated houses from China, that
he had to forget about it, because we have here in Venezuela an enormous
building capacity which is idle as well as high technical levels and all he had
to do was to lean on the private sector.

He was also told, not without some sarcasm
that if he continued to believe in “self-construction” and the “coops” he was
going to end , like them in their own countries, shooting the supposed
beneficiaries (Even though the term is used metaphorically). In other words, he
was told: you have here the ability to do it, use it.

What is true is that in the first semester 10.120 homes were
completed, 8.4% of the 120 thousand offered for this year and it is obvious
that, with the same methodology, it is very improbable that the goal can be
met. For the seventh consecutive year, what used to be routine for the previous
Governments (delivering each year between 60 and 90 thousand homes) the limping
chavista administration can not place one brick over the next. Moreover, there
is a conceptual problem. For the President, overcoming the drama of the housing
deficit consists simply in building houses and apartments.

That is why the Government got rid
of very early of the team that Josefina Baldo was directing in Conavi, whose
conception pointed to emphasizing the rehabilitation and humanization of the
popular barrio areas, taking advantage, it works in that case, of the enormous
potential for self-construction and cooperation that exists in the barrios, to
repair homes, give them complete public services (with emphasis in garbage
collection and sewage), creating community public services, transform in the
end , the habitat, in order to increase the quality of life of the poorest
sectors. This included an important inventory job to give title over the
property of the land and the shacks to its current inhabitants. All of this was
left in the nebula of the bureaucratic guerilla and what could have been a
truly revolutionary housing policy was discarded, to repeat the traditional
patterns, which rely exclusively on the construction of houses and apartments.
Here, however, with the bunch of useless (and thieves) that populate the civil
service, they can’t get any work done.

However, the blame is not on the blind people but on those that hit them with
the stick.

So, Mr. Bush greets Sumate President Maria Corina Machado and it brings the worst in some Chavista leaders:

Minister of Justice Chacon: “She is a CIA chip”, “I warn that she will be a Presidential candiadte” “She signed the Carmona decree”

Minister of Justice, whatever happened to presumption of innocence, political freedom and prrofs? Do they mean anything to you?

Foreign Minsiter Rodriguez: “Bush meeting her is a provocation”

Will he say the same when Zapatero meets her in two weeks?

Deputy Cilia Flores: “We should revoke her nationality”

We should revoke your right to say anything.

National Assembly President Maduro: “Bush met Maria Corina Machado to create chaos in Venezuela””Maria Corina Machado is a fugitive of Venezuelan justice”

You are right, we have enough chaos with you guys. By theway, she is no
fugitive, she has no prohibition to leave the country. But I know, it
sounds so good to be able to say it.

.

For the
second time in two weeks, President Chavez has become exasperated by the lack
of execution on his projects. Two weeks ago, Chavez was handing out funding for
projects and twice he had to correct himself because he was making
announcements from the notes given to him which were incorrect. He praised the
projects of a Governor who had no projects that day and he pointed out that
they were giving funds to a Mayor from opposition party Acción Democrática, who
took offense at being told that and publicly corrected the President. Chavez
was visibly upset that day and publicly commented that those around him could
not even give him the right information.

Today it
was the turn for “Mision Vivienda” Chavez’ housing program, which Chavez said
would build 120,000 housing units in 2005,
which would be four times more housing units that the Chavze Government has
been able to build in any given year.

Unfortunately,
housing units can not be invented and the Mision Vivienda is so far a failure, with only 10,000 units
being built in the first five months of the year, less than 8% of the
goal.  Chavez said today that he was
declaring this Mision in an emergency and he said he would accept no excuses.

This is
not new; the infamous program to eliminate poverty has not even been presented.
In contrast with many programs like the alphabetization or other misiones, the
housing program can be measured. Those around Chavze made promises that are not
materializing. The approval of the mortgage bill has not been the panacea that
was promised as prices are high for those than can have access to the cheaper
rates and there are too many rules to be eligible with some of them conflicting
with each other.

I think
that it is good that Chavez is noticing the problem and trying to do something
about it. He surrounds himself with people who only suck up to him and have
little managerial experience. But he is also to blame; he likes to invent too
many new grandiose projects leaving many things aside and doing little follow
up or without the competent managers around him to do the follow up.

In the
case of the housing project, it was a newspaper reporter who took the time to
find out how many exactly had been built and published the results. Other
projects are more difficult to quantify or people forget the goals, but in this
case, there may be a lesson for the Chavez administration going forward: They
have been governing for seven years and Chavez popularity rides more on the
back of expectations than accomplishments. These same polls also indicate that
people are getting restless, realizing that Chavez has been in power long enough
to stop blaming the past.  It is time to deliver;
Chavez seems to be getting that message now.

Things we did NOT hear today:

Chief Justice of the US Supreme Court Rehnquist: “Now that I wanted to go to Margarita, I might not be able to get a visa”

MVR Deputy Iris Varela: “I think Maria Corina and George looked very good together”

US State Department: We will extradite Posada Carriles even if these guys gave us no documentation”

Fidel Castro: “If the US sends Posada Carriles to Venezuela, I will extradite Shakur to the US, even if they send me no documentation”

Venezuelan Chief Justice Mora: “If I don’t get a visa, who will go with my kids to Disneyworld this summer”

Maria Corina Machado: “This guy is really weird and he made a pass”

Hugo Chavez: “I never said I wanted to break relations with the us”. Uups, sorry we did hear that

Minister of Oil Ramirez: “I prefer to work with the Chinese and the Brazilians rather than the Americans, they are all about goodwill, they don’t care about profits”

Miss Venezuela and Miss Universe contestant Monica Spear: “Jeez, they rebuilt my body, but forgot to rebuild my brain”

VP Jose Vicente Rangel: “You could never even come close to imagine what a mess PDVSA is in”

Primero Justicia Julio Borges: “They picked me, because the other guys were doing a very good job as Mayors, I was expendable”

MVR Deputy Nicolas Maduro: “I wish Maria Corina was my girlfriend, Celia is just too loud”

COPEI President: “We were going to have a meeting of the party, but nobody came”

MAS President: “We had a meeting of the party, but nobody came”

MVR President: “We don’t have meetings of the party, Chavez may come”

French President Jacques Chirac: “Merde!”

Hugo Chavez: ” I was not missing, I was misplaced”

Last week, in the testimony of the Minister of Energy there was a phrase that criticized the fact that in the old PDVSA the objective was to maximize the value of the company to the shareholder which is the State, rather than maximizing the value of the natural resource for the same State.

I have pondered about that sentence over and over in the last few days, but to tell you the truth, I am not sure that there really is a difference between the two. In fact, the first statement is much clearer and well defined to me than the second. There are three contributions to the Government by the production of oil. The first is the royalty; every barrel exported pays a royalty tax directly to the Government, which depends on the type of oil. Later, PDVSA pays taxes on the earnings it has for the year based on quaterly estimates and pays it also pays dividends to the owner, which is also the State. I am sure you could write a complicated algorithm that would tell you how to maximize the total, but the business is more complicated than that and I think the Minister’s  words are very empty, they are simply political rhetoric.

The PDVSA strategy, circa 1997-1998

The PDVSA strategy that was being carried out in the mid 90’s has to be understood in its context: PDVSA wanted to maximize its earnings (and thus contributiosn to the State), given its finite resources for investment purposes. It could have decided to leave things as they were, continue producing what it was producing with its own investment capabilities. This was the lowest return path for the Government and for the company. Why? Because PDVSA was exploiting a large number of old fields that needed heavy investments to keep them going, but were fields past their peak production levels. The margin for exploiting those fields was much lower than for the newer fields. This implied lower profits and thus lower earnings, lower taxes and lower dividends for the Government. All of this for the same level of investment.

The oil opening, the “Apertura”

This was the origin of the oil opening: Take those fields; sell the right to exploit them at a price to mostly  foreign or Venezuelan companies, which paid over US$ 2 billion in the 1997 round of the opening. If it was such a sweet deal, how come some fields received no bids in the public auction? Even more interesting is that these paymenst seem to have been forgotten.

Of course, this presupposes that the strategy that the PDVSA Board had at the time of producing six million barrels of oil a day was “correct”. At the time, Chavez and his supporters were highly critical of it, but the latest plan by PDVSA is to produce 5 million barrels, so you can not say that one or the other was trying to get the highest price for the natural resource for the shareholder.

In fact, what about giving away gasoline in Venezuela? Gasoline is currently 20 cents a gallon, what right do current Venezuelans have over future generations to waste away gasoline at these prices?

As usual I digress.

With the oil opening, the Government gets the same amount in royalties, PDVSA does not have to invest any of its own funds and the company that bought the rights has to pay taxes on its profits. Yes, the Government gets fewer dividends, but in theory, it gets more dividends and more profits because it is investing those funds elsewhere, in more profitable, higher margin projects. Notice that I said “in theory”, because such investments are not being done today

The oil partnerships

.The oil partnerships in the Orinoco heavy crude belt are a totally different strategy. At the time, the question was, Venezuela has some gizillion barrels of heavy oil in the Orinoco Oil Belt, can we get any of it out and make a profit?

Recall that oil was at $15 per barrel of WTI, when this question was being posed. What was proposed then, was to upgrade these heavy crudes to make synthetic fuels. There was only one country in the world which was offering similar projects, Canada, which was charging 1% royalties until a certain benchmark in production was reached. Venezuela offered a similar deal for partnerships with PDVSA itself. This is where Sincor, Cerro Negro, Petrozuata and Hamaca were born.

These deals were funded with either publicly traded bonds or bank loans. The owners of the projects were forced to offer a guarantee for the bonds until the projects reached certain production benchmarks. Moreover, all of the bonds were “sinking fund” whereby bondholders are paid part of the capital partially at the same time they get the interest. In this way, part of the risk gets diluted with the passage of time.

Why all the complication? Easy, the price of oil was low, the projects had not been proven, and not everyone was convinced they would make money. It was not high tech, but it was not “proven tech” either.. Even today, with WTI at US$ 50, the bonds for most of these projects which mature in 2009 offer a yield to maturity of 8%. Obviously they are not as risk free as the Government makes it look (Although the Government itself is now creating part of the risk with rules changes and noise)

Perhaps somebody should have thought then about a sliding royalty. (I haven’t heard anyone mention it now either, it is just a thought of I have had). Maybe it would have made more sense to say, the partnerships will pay 1% for x years, after that 16.6% over the first billion dollars of production per year, 30% over the next half billion and son on and so forth. Nobody imagined oil prices would get this high. Nobody proposed a sliding scale, nobody has. All we have is these accusations and unilateral decisions.

Conclusions

In the end, I think that PDVSA’s purpose should be to maximize profit and dividends for the shareholders (The “people”!). PDVSA should also be a motor of growth for the country. To do that it has to establish an adequate level of borrowing and devote that to those projects with the highest profit margins. Lower margin projects should be sold to the highest bidder, if it is in the interest of the country. Heavy oil projects should be promoted given that the country has such ample reserves.

What does not make sense is to have a company with US$ 40 billion in sales have almost zero debt if such debt can help the company increase both profits and revenues. PDVSA has less than US$ 100 million in debt, zero for all practical purposes. This is certainly without justification.

PDVSA should also not cancel existing projects because the profits are small, such as Orimulsion, of such projects already exist. If they create substantial amount of jobs. Who cares?

In the end, the starndard of living of a large fraction of Venezuelans will not improve until there is real sustained growth in the economy. PDVSA is a perfect engine for such growth, but is not being used that way. It may sound really “neat” to have PDVSA give all the funds to social programs, but if doing that is simply taking capital away from the company you are simply killing the golden goose in the long run. In the end, seeing PDVSA as a commercial enterprise tells you exactly what you can or can not do, what you should and should not do. It can be run as a not for profit organization, giving away all of its profits, but it can not be run as a “for loss” organization, because it does not make sense to give to the Venezuelans of today, taking away from those of the next generations.

In the end, I still don’t know what “maximizing the value of the natural resource means”. It could mean increasing the price of gasoline. It could mean producing less oil to save for the future at higher prices, something this Government claims not to be doing, and it could mean only producing a certain type of project, something which is not happening. I still think PDVSA should maximize royalties and profits (And thus taxes and dividends). I can’t think of any other strategy that may benefit the average Venezuelan. The rest is simple rhetoric.

Quotes from Hugo Chavez about the partners in the heavy crude partnerships who have suddenly become the bad guys (Taken from Friday’s Tal Cual):

March 20^th. 2002:

“I was telling the President of Total and the Vice-President of Statoil, that they should be given a trophy, because they decided to start a project when it was claimed-it was 1998-that the devil had arrived to Venezuela. The devil was me, I was candidate Chavez, I was going to destroy all this, I was not going to recognize the contracts of the oil opening, I was going to disavow the agreements of Venezuela. However, they either have a very clear intelligence, or they have a courage that is devil proof, and because of this we have to congratulate them.

I am sure that they always knew that what this project is to make Venezuela a more decent country (sic).

Then, this is Venezuela’s reality, a country, a revolutionary Government, a legitimate Government that respects agreements, compromises and not only respects them, it backs them and I am here to confirm it and ratify it.

Thus, I am very interested in that you-Total Fina Elf and Statoil-and many other companies, together with us advance the gas project, not only in the Delta Platform, but also over there or right next to here the Paria project and even further the development of Venezuela.

Hugo Chavez, France, March 9^th. 2005:

“We have decided that Total will go to from 200,000 to 400,000 barrels a day, doubling its production with an investment of a few million dollars. With Venezuela’s technology and allied with companies like Total, we extracting heavy oils and extra heavy oils from the Orinoco oil belt, taking it to the Jose terminal and transforming it in what we call nectar, oil that is worth gold and which it is sold anywhere in the world as synthetic oil.

Total has understood what the new Venezuelan legislation is about, with a new royalty payment”