- The Washington Times - Sunday, October 23, 2005

BUENOS AIRES — Labor troubles and the politicization of Venezuela’s state-owned oil company have left the company struggling with reduced production and problems in meeting its internal investment goals.

The problems raise questions about the long-term future of the company, which Venezuelan President Hugo Chavez has used to fund social and government services and to court foreign allies with preferential contracts.

Venezuela, the world’s fifth-largest oil exporter with about 81 billion barrels of proven reserves, accounts for 12 percent of all oil imported into the United States.

But documents filed with the U.S. Securities and Exchange Commission this month by the state oil company Petroleos de Venezuela (PdVSA) indicated drops in production and problems meeting its internal investment goals.

Analysts say PdVSA’s problems stem in part from a massive strike by workers that ended in 2003, the last year covered by the filing. The company fired 18,000 workers, draining itself of technical knowledge and expertise that many observers say it has yet to replenish.

The company also has been left short of cash by Mr. Chavez’s decisions to sell oil at below-market prices to allies such as Cuba and South American neighbors, and to use company profits to fund social programs. The report to the SEC said PdVSA contributed $4.4 billion to social programs in 2004.

“PdVSA is experiencing a monumental collapse,” said Luis Giusti, an outspoken opponent of the Chavez government who served as president of PdVSA from 1994 to 1999. “Everything it does is painted by Chavez’s political agenda.”

Though PdVSA says it produced 3.1 million barrels per day (bpd) of crude oil in 2004, the U.S. Department of Energy estimates that number is between 2.5 million and 2.6 million bpd. Other estimates put the number for 2004 as low as 1.5 million bpd when adjusted for factors such as output by Venezuela’s joint-venture partners.

Although Mr. Chavez has tended to restrict oil supplies in hopes of boosting global oil prices, “most independent analysts believe that Venezuela is currently producing well below its quota of 3.22 million bpd since the 2002-2003 strike,” says a report by the U.S. Department of Energy.

The SEC documents show that despite high oil prices, the company last year reinvested only $2.9 billion on upkeep, 42 percent less than it anticipated in its business plan.

“This was due to technical difficulties resulting from sabotage against the Venezuelan oil industry in December 2002 and the first quarter of 2003,” the company told the SEC. “Additionally, in 2004 PdVSA expensed $4.4 billion as a contribution to social programs in Venezuela.”

Analysts say the company may have to increase international borrowing to maintain its production levels.

“PdVSA is in trouble, but the situation is masked by high oil prices,” said Antonio M. Szabo, a former PdVSA executive and president of Stone Bond Technologies in Houston.

Mr. Giusti said international oil companies engaged in joint ventures with Venezuela also are frustrated by PdVSA’s unpredictable shifts in policy.

In an effort to decrease his dependence on U.S. markets and technology, Mr. Chavez has pursued and publicized new oil deals with regional neighbors and nations such as China and Russia.

But Mr. Giusti said few plans have materialized. “Nearly all his grandiose announcements are still in a drawer,” he said. “They have gone nowhere.”

The SEC documents leave little doubt about Mr. Chavez’s resolve to continue his pursuit of strategic deals through PdVSA.

“We will also contribute effectively to put into practice the governmental initiative of building a new worldwide multipolar system of international relations based on justice, mutual respect and social equity,” the SEC filing says.

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