The Devil's Excrement

The misadventures of the Bolivarian University By Simon Bocanegra in Tal Cual

The comical performance by the Bolivarian University is truly incredible. It is already on its third management team since its creation. The new golden pair, by the way, is equivalent to our local baseball team Magallanes, just to mention the President’s favorite team, naming the bat boy as its manager. Poor University! Its misadventures were aired recently in various articles in Tal Cual, which may not be unrelated to this new change in the line up of the board of the Institution. But the sad thing is the swindle that has been performed on the, not 400 thousand students, like Chavez affirmed in one of his frequent pantagruelic deliriums, but to the 16,000 kids who are part of its student body. This is the consequence of the style of governing by stumbling around, from improvisation to improvisation, just using lots of bills, disdaining knowledge and experience, paying tribute to any rogue that Chavez falls in love with and places in positions of responsibility. The worst part is that the Government does not even allow anyone to help it. This whole disaster was forewarned by Luis Fuenmayor Toro, who has the infrequent peculiarity of merging his condition of Chavista with his knowledge of the problems of higher education. But the problem is that Fuenmayor has also a personality trait that makes him ineligible for the responsibilities that a serious Government may have given him: He does not suck up to anyone. Now, however, Fuenmayor will see going by the front of his store the corpse of the new management team, more incompetent, if possible, than the two previous one.

As usual President Chavez stepped on some steps during the bioregional south American-Arab summit. First, apparently President Lula was quite unhappy that Chavez was taking the limelight of his summit by violently attacking the US, with Chavez quoting Mao and Ho Chi Min.

But where the verbose President really ran into problem was in doing exactly what he criticizes everyone for, involving himself with sovereign issues of another country. He called for an end to the US occupation of Iraq right under the nose of Iraqi President, which clearly did not sit well with Iraqi President Talabani who immediately asked to speak again asking Chavez to rectify his words. Chavez was so undiplomatic that his words came right after Talabani’s explanation to the summit of what is happening in Iraq. In the end Chavez had to give in and agree on the final declaration supporting the Government of Iraq, which, of course, favors the US occupation until they can control the situation better.

And to make him even more popular among his Latin American peers, a Mexican newspaper is reporting that funds that came from the Mayor’s office in Mexico City were triangulated via Havana to Venezuela, so that Chavez could purchase AK-47’s for a Mexican guerrilla group. According to that report, the funds were diverted without the knowledge of Mayor Lopez Obrador, the leading Candidate for the Mexican presidency in 2006. The weapons went to the Ejercito Popular Revolucionario, Mexico’s best organized guerrilla group in Mexico.

Thus, Chavez graceful diplomacy continues to make friends all over the place.

I have been holding off talking about Chavez’ proposal for co-management because there are few details about the proposed schemes for this project (There are actually two different ones). Basically, Chavez wants to have any company declared of national importance or social interest to be expropriated by the Government. The company would then be capitalized by the Government and part of the ownership given to a cooperative of the workers via a soft loan.

So far, two companies have been expropriated, one is an agreement with the owners and a fourth one, a state owned aluminum company is under co-management. The way in which the two companies were expropriated outright, violates article 115 of the Constitution that states that in order to expropriate there has to be a final decision by a Court and “opportune payment and just indemnization” has to be made. Neither of these two was done on these two cases.

So far, the Government has expropriated two companies: Venepal and the Fabrica Nacional de Valvulas, which are respectively a paper company and a valve company. Venepal was a publicly traded company which had to declare bankruptcy in part due to political problems, when a Deputy from the National Assembly threatened to expropriate one of its plants a couple of years ago. This stopped the banks from lending the company any more money. And they were right! The Government not only expropriated the company, but paid nothing to the creditors, who by law should have received compensation.

Venepal had basically two businesses, it produced pulp from sugar cane and owned a forest and it would manufacture paper products such as notebooks, toilet paper, etc. The company suffered a lot during the overvaluation of the currency in 1999-2002 as its products stopped being competitive in Colombia and foreign products began coming in. Management took too long in deciding to streamline operations and the company went under. Paper is a difficult business everywhere in the world. You have to be on your toes to adapt, cut costs and it is very cyclical. This is what Venepal’s main competitor did here in Venezuela. The workers that are taking over Venepal’s plants are the same ones that the company had when it went under and they have opened all of the plants. Thus, the chances of success are somewhat limited. Right off the bat, the workers have to give those that make minimum salary a 26% salary increase decreed by Chávez himself.

I know little about the valve company; just know that its owners shut it down in 2002 because they were losing too much money.

What I do find incredible is that the third case is a complex arrangement with a textile company and its owners. Venezuela had a thriving textile industry until the Chinese and maquiladoras in Mexico drove them out of business. The problem? There were many, but cheaper salaries and a rigid labor legislation made it impossible for Venezuelans to compete. In fact, Mexican legislation is equally bad within Mexico, part of the reason maquiladoras were created. A third factor was technology; most plants are heavily automated and the level of automation continues to increase every year. I understand that by now even the maquiladoras are having a hard time competing with China.

Now, in the case of the textile company, the owners, the Mishkin family, will contribute their plants and land, and I understand some know-how, in exchange for 51% of the company and the Government will provide the money. Given my preamble, you can imagine that I think this is such a sweet deal for the owners. They have an asset that is not giving them any return, they can’t sell, they can’t do anything with, they don’t want to put any money into it, but they find a Government that wants to give them money in exchange for 49% ownership. What’s the worst case? You end up with nothing valuable, much like it was a month ago.

The amazing thing is that all of this is done without any feasibility studies, valuations or expert opinions let’s just do it and see if anything good happens. As Petkoff says in today Tal Cual Editorial, which I have translated below, this is likely to just generate frustration and disappointment in the workers that are being sold the idea today. Even if the companies manage to survive, barely getting along, they will end up owing money and the company is unlikely to be profitable enough to give them much dividends.

According to the Tal Cual Editorial, the Mishkin’s built all these plants by borrowing from the Government and they have never repaid their loans. I can’t vouch for that, but I doubt Petkoff would dare say it without having some specific knowledge about the case.

This is simply another Chavez economic pet project that will likely end up badly. As was the case in the IVth. Republic, it is the state that is using and wasting resources to jump start enterprises of dubious future and prospects. It is the state that is overextending itself beyond its reach. Chavez said yesterday that the money the Government has is not enough, maybe he has not learned the lesson: The state can not do it all, that is why you need a private sector. Of course, the lesson will not be learned until oil prices go down. And to those that don’t think oil prices will drop, it really does not matter, if they go up to $100, Chavez will spend $100 and there will still be a day of reckoning, nothing goes up in a straight line forever. Ever.

To complete this discussion about co-management here is Petkoff’s take on the issue

Chavista Congestion ((In Spanish co-management is co-gestion, thus the play on words) by Teodoro Petkoff

The truth is that Chavez is in the end quite gullible. Any salesman of refrigerators in the North Pole is capable of tying him up and swindle him by simply rubbing his ego the right way. With the idea of co-management, which is interesting and of which there are important experiences in some countries, especially in Germany, some sneaky people have figured out how to live off the President. It is simply enough to have a bankrupt company and suggest it to him as an experimental field for a co-management experience, for him to jump in without finding out its viability. And behind him, his whole team, that will have no qualms in believing that the boss has just given birth to a new brilliant idea.

The recent case of Hilanderias Tinaquillo, a textile company,  gives us a chance for more than one reflection. This company was part of the famous textile conglomerate-in more than one way- of Leon Mishkin, who reciprocated to Carlos Andres Perez in very generous fashion the dollar denominated loans that were given him via the Corporacion Venezolana de Guayana and which were never paid.

The factory has been around for 25 years, but it has been closed for a long time. One can imagine without difficulty that its machinery is not only obsolete, but that it will have difficulties measuring up to its competitors in an area, like Venezuelan textiles, which has almost extinguished.

-Why did the company shut down?

-Does the Government know that the loan it received was never paid?

-What happened to that multi million dollar debt, one time held by the CVF holding, registered in the books of the Fondo de Inversiones de Venezuela and we are sure in those of its successor Bandes?
–Has there been a technical evaluation of the machinery to know to what degree it is operational?

-Was the shortage of national raw materials (cotton), especially if it happens to be long fiber, which, contrasting to what Chávez has said with his usual improvisation, has never had a significant level of production in Venezuela-without taking into account that today the national production of cotton is at its lowest point ever?

-Will we import then, cotton, to give life to a project which has no viability?

But the heirs of Mishkin must be dancing on one foot. They had spent more than twenty years trying to get rid of that white elephant, without paying anything back to the state and now they have managed their objective.

Of course, there is no way to revive that corpse. The textile industry is literally finished, a victim, what an irony! of the untenable Chinese competition.

The workers that embark themselves in this project will soon be stuck.

The state will cover the losses and the Mishkins will have kept if not the goat, at least their coins (Reference to a popular Venezuelan song). Co-Management is a potentially fertile idea (the true one, not this caricature that the adecos invented, with union leaders transformed into the millionaire director of State owned companies) and of delicate and careful implementation, but if it is applied in the case of Tinaquillo or with the utopian delirium of Alcasa, it will be a terrible failure, that will discredit perhaps forever the experiences of worker participation in the management of companies.

From America Economia as pointed out by a reader, the drawing accompanies an article about Mercal:

A reader
writes from abroad:

“Yesterday
I went to the Offshore Technology conference
(OTC) and I felt ashamed for the stand of PPTSA (The new PDVSA derogatory nickname).
It was the only one that had a music group playing (because of the noise of the
group, it would have been impossible to talk business, even if you had been
interested) and there was a racing car whose sponsor was CITGO, a company that
is not too relevant for the audience of the OTC. Pretty girls and a group of
unknown officials completed a scene that looked thirdwordly and from an era we thought
we had overcome.”

“I work
with heavy crudes, where I am in touch with former PDVSA  people working for companies in Mexico, Canada
and the US.
What most of these companies lack to close the cycle is to buy CITGO and destroy
the 25 years of market integration that PDVSA had accomplished.”

Sort of
depressing to read today’s paper, I guess this weekend the days are reversed,
since tomorrow is mother’s day, I will take it easy today and join the
festivities tomorrow, which is the reverse order from what I usually do. Thus,
I read the newspapers with extra care and end frustrated by this sort of upside
down world that my country has turned into.

–First we
have the Minister of Oil, the same one that contradicted Chavze twice this week
holding a press conference, contradicting everything he himself has been saying
foe the last year and a half or so. He once again charges that there is some
sort of mediatic plot against PDVSA, but all of the news has started with the
Government, so I think the whole thing was made up to talk about this new
sabotage that apparently is being done by Chavistas after the political
cleansing of PDVSA in the last two years. He once again reiterated all of the incongruence,
including that 12,000 people were not fired, their contracts expired. Goebbels would
have been proud of him.

–Then I
read about Governor Manuitt of Guarico state. This is one of those confusing cases of the Vth. Republic.
Manuitt, a Governor from the Patria para Todos (PPT) party, part of Chavez
coalition, has been accused of rampant corruption as well as murders. The
National Assembly started investigating him. Then on Thursday, his party
publishes an insert in the paper that accuses Chavista Deputies of been
criminal under salary of the cocaine drug lords. MVR’s Ameliach challenges
PPT to say whether the party backed the insert or not. If they did, he
claims, then MVR will have to reevaluate the participation of PPT in the Government.
PPT says yes they back every word and they paid for it.

Today,
Chavez’ “anticorruption commissioner” in Manuitt’s state calls (El Nacional,
page A-2) for Chavze to intervene the state and its comptroller, calling Manuitt’s
administration the most corrupt and incapable one in the state’s history.

The
solution: Chavez will meet with Manuitt to resolve the issue! Talk about improprieties,
the President of a country meeting someone who has been accused of corruption
and even murder by his own party to resolve the issue. Yeah! Tell me there is
Justice in Venezuela.
After that, you can tell me about Unicorns too.

–Since Primero
Justicia has been the subject of discussion in the comments recently, I can’t
fail to mention that the Prosecutor, the same one that fails to charge anyone
for missing billions of dollars or does nothing when Chavez says he has
diverted dollars from PDVSA for social programs, without explaining how he
exchanged the dollars without going through the Central Bank, is
charging Chacao Mayor Leopoldo Lopez and five councilmen from that party
for diversion of funds.

In 2002,
the Government increased salaries nationwide; the Chacao Mayor obviously did
not have the funds in the 2002 budget since the increase was declared on May 1^st.
There was a deficit to pay the salaries. With the approval of the municipal
comptroller and the city council he used funds from savings and the 10% from
local taxes that is supposed to be given to the Metropolitan Mayor, to cover the
insufficiencies and pay salaries. This is what he is being charged for. If
found guilty, he will be unable to hold office. As he says, if he committed a
crime, all Mayors are also guilty, but curiously he is the only one charged. This
accusation is for less than a million dollars, the PDVSA “deficiency” is for US$
4.9 billion, these revolutionaries have their priorities straight!

–Reporter
Marianella Salazar was charged
with slander in another one of those speedy and efficient actions by the
Prosecutor’s office. The reporter published an article saying the
Vice-President and the current Governor of Miranda state benefited from a
Government deal. Salazar says at the time neither wanted to comment on the accusations
and neither of them used their right to retort the charges. Salazar is one of
the four female reporters who are well known for their anti-Chavez stance,
three of them (Poleo, Salazar and Pacheco) have been charged by the Prosecutor
for various reasons, Poleo three times, Salazar twice and Pacheco twice. Pacheco
was found guilty in one case and is appealing. Another case for those that
claim there is freedom of expression in Venezuela. Meanwhile murder cases
are not even been investigated.

–But
perhaps the most cynical case was that of CNE President Jorge Rodriguez talking
about the CNE approving
a project for the protection of signatures. He now wants to protect the
rights of those that sign in recall petition by approving this law that would
prohibit these abuses. I still remember when Rodriguez was a member of the
Board of the CNE and approved that the signatures were public, how he staunchly
defended this, while the opposition warned that what ended up happening may
happen. He dismissed the possibility with total irresponsibility.

Ad by Causa R party (Radical Cause, not exactly your mom’s right wing party) parodying the Government’s slogan: Venezuela now belongs to Everyone. Their caveats: Except those that signed! Well done!

So now, it is a campaign against PDVSA, according to the same President who admitted just two days ago, that there were indeed problems at PDVSA. I actually heard him say it two days ago, he acknowledged not only the lower production, but he even said it had been worse, he talked about “problems”, being below OPEC quota and they were studying whether there was some form of sabotage.

But tonight it is a different matter, according to Chavez, it is a campaign against PDVSA from abroad, hey, as far as I know the only person that has spoken on the issue from abroad has been the President of PDVSA Ramirez. The other spokesmen have been: President Chavez, Minister of Defense Garcia Carneiro, General Melvin Lopez (I would hate to be General Melvin too!), Minister (or President you choose) Ramirez, two union leaders, one pro-Chavez -who said that PDVSA people were not doing their job-,one anti Chavez,-who said PDVSA people were not doing their job. And then there was an article in El Universal, but that is a separate story.

The anti-Chavez union leader gave out numbers on Western oil production, they looked bad, but I have no idea where he got them. Today’s El Nacional talks about a “survey” in Western Venezuela and gives equally horrific numbers with things such as drills down 53% from pre-strike levels, active wells down 37%, electricity consumption down 37%. But once again I am not sure how this survey was done.

To clarify for my readers, the big deal about oil production in Western Venezuela is that this area has high quality crudes, almost half the oil production pre-strike of the country (1.4 million barrels a day), but the wells are old, very old. That means you need to invest regularly on maintanance. And yes, the Western area, particularly Zulia state, is the most anti-Chavez area of the whole country.

But hey, anyone reading this blog who is pro-Chavez could say I am lying thru my teeth, El Nacional is lying, the union leaders are lying so let’s us look at two very simple graphs:

Below is the price of oil since Jan. 2003 for WTI as compiled by Bloomberg (Not a CIA source). What is important here is that the average price of oil was roughly US$ 27 in the first quarter of 2003, $30 in the next two quarters, $28 in the last quarter 2003, $33 in 1Q04, $38 in 2Q04, $44 in 3Q04, $48 in 4Q04 and $49 in 1Q05, give or take one dollar. This is not for the Venezuelan oil basket, but that price scales quite well with WTI.

Plot I. Price in US dollars for WTI per barrel in the last six years

In the second graph below we show a plot published in today’s El Universal

of OIL GDP in the same quarters as the oil prices discussed before but only since 1Q03. That quarter, oil GDP was down significantly because of the strike. Let’s jump straight to 1Q04 when oil GDP was up 64.7%. Why? Simple, the weird methodology used by the Central Bank compares one quarter in one year to the same quarter the previous year. Obviously, the quarter after the strike oil GDP was low and its growth was huge a year later. This is where things start to get tricky. 2Q04 had to be better than 2Q03, not only was oil production supposedly still recovering in 2Q03, but the price was only $30 per barrel, versus $44 per barrel in 2Q04, an almost 46% increase that should be reflected in oil GDP growing sharply, but oil GDP actually went down 0.6%. The same phenomenon is observed in the next two quarters, oil goes up to $44 per barrel in the third quarter ’04, up from $30, oil GDP shrinks 1.8%. Finally, in the 4Q04, oil jumped up to $48 from $28, but oil GDP drops by 5.9%!

It does not take a rocket scientist to figure out that something is very rotten somewhere. Clearly, production has gone steadily down in those periods. There is simply no way to argue otherwise. Yes, I could show the data for the Venezuelan oil basket, I could calculate better averages than my eyeball figures, but oil GDP in the last three quarters should have gone up significantly, never down as the actual government-provided data shows.

And then we come to Chavez’ attack on El Universal today. All El Universal did was to point out that there was a discrepancy of 49% between the dollars that should have been given to the Central Bank by PDVSA and those actually handed out. We are talking about US$ 4.2 billion, yes four point two billion, a one followed by nine zeroes. Chavez actually said that there were “errors”. How many countries do you know with errors of US$ 4.9 billion in one quarter! Maybe Mugabe can have that happen in his fiefdom, but this was a democracy with reasonably transparent numbers and rational leaders only six years ago, even if they were terrible leaders! Chavez says the paper says little about the money spent on housing (lowest hosuing completion in six years) or the missions, or FUS, but the point is, there is a huge amount of money missing and the President calls it an error and dismisses it. For God’s sake, we are living in the XXIst. Century, the era of knowledge, the era of computers and we are supposed to round off US$ 4.2 billion into zero? So how can anyone believe him? How can anyone believe PDVSA production is not down SIGNIFICANTLY. Where is the money? Where are the houses? There is something rotten, very rotten in PDVSA and in this Government and we should refuse to accept it! I challenge any readers to explain away the data.

And poverty? Very well thanks, still going up!

Note added the next day: In today’s newspapers Chavez is quoted as saying that the reason that PDVSA does not turn over al foreign currency to the Central Bank is that it is using part of its funds to pay for misiones and social programs. Well, there is someything funny there: How do they get Bolivars for that? If they don’t go thru the Central Bank they do it via the black market which is obviously illegal. So, PDVSA people have a lot to explain about where these dollars are. I think it is all BS. But here is criminal evidence for the Prosecutor. Will he do anything?

Hats off to Babalug blog which received one of the highest accolades in blogging when the Government of Fidel Castro banned Cubans from seeing his blog.
It is unclear at this time if it was because of the politics, his
criticism of Chavez or the Caja China ads, after all this high tech
gadget can not be used in Cuba, it takes whole pig to use it,
unavailable at this time to regular Cubans, except in the police corps..

So, Fidel is not a Dictator because everyone calls him Fidel, Fidel is
a Dictator because this is the type of nitpicking actions that he has
to take in order to perpetuate himself in power.

Congrats Val! (Thanks AM!)

There is something going on at PDVSA and it is hard to get a precise
handle on it. This is no longer the case of one hand not knowing
what the other one is doing, this is something much more complicated
than it seems. This appears to be some sort of struggle. Why or for
what is harder to tell, but we should know soon enough.

The signals are all there, last week The Minister of Defense talks
about the CIA sabotage of PDVSA, another General talks about a silent
boycott. Then, there are rumors that 12,000 workers are going to be
fired. But hey! You can’t fire people in Venezuela today, there is a
firing freeze! Then it truns out that the workers are mostly
pro-Government. Chavez speaks everyday on nationwide TV after coming
back from Cuba. The Minsiter of Energy says these people are not being
fired, their contract is simply not being renewed. Little difference
under Venezuelan legislation after three months and these workers have
been there since last summer. Were they really hired only to buy tehir
votes?

But what does it mean 12,000 people are not being renewed? They went
from needing them all to needing only a few? What is the justification?
Then, suddenly, much likes his order to bury Tascon’s list, Chavez
recognizes for the first time in two years that oil production is below
the OPEC quota of 3.1 million barrels a day. This is major, this is
new. Why now? Chavez acknowledges only a 100,000 barrel drop, but a
union leader comes out and says
it is 300,000 in the West alone, only 16 of 69 barges are functioning
there, barely 11 of the 23 drills are in the fields and only 86 boats
out of the 250 they have work at this time.

And just as you think this may be healthy, to acknowledge reality. To
say PDVSA, our very livelihood, is in trouble, let’s try to fix it, all
powerful Minister of Oil and President of PDVSA Ramirez says:
“Despite troubles, we are fullfilling the OPEC quota”. Hold it! Didn’t
I just hear the almighty, the all powerful Hugo the XVIth. say the
opposite? Hugo says he militarized PDVSA, Ramirez says this is just the
daily papers making trouble. Who is on first?

Is Ramirez being set up? Is the military mad at the destruction of the
PDVSA capabilities? Or at the corruption there? Are they looking for a
way to bring back at least some of those fired in 2003? What’s teh
struggle about?

I have no idea, but something is afoot.