USA Today
May 28, 2012
By Peter Wilson

La Victoria, Venezuela — Beatriz Rodriguez sits in a long line under a sweltering sun, waiting for state oil company Petróleos de Venezuela to deliver cylinders of natural gas she uses to cook her family’s meals.

She and her neighbors haven’t had gas for two weeks, and her patience is running out.

“I complained, and they told me I should use firewood,” Rodriguez, a mother of three, fumes. “Firewood, they told me. And we’re supposedly an oil power.”

Venezuelan President Hugo Chávez points to the state takeover of his country’s oil industry as one of his revolution’s great successes. He boasts that his renegotiation of oil agreements made by his predecessors has improved oil production and allowed Venezuelans to guide the direction of its major export.

New discoveries have pushed Venezuela, which was the USA’s fifth-largest crude supplier last year, to No. 1 in the world for proven oil reserves.

Exploration of Venezuela’s 21,000-square-mile Orinoco belt shows that its oil deposits exceed the proven reserves of even Saudi Arabia. But critics claim that the there’s no telling much of the oil will ever make it out of the ground. They say Chávez is diverting profits toward social spending rather than investing in Venezuela’s energy production.

Chávez’s “Socialism for the 21st century” policies have included the confiscation of foreign-owned facilities and the bloating of state oil company Petróleos de Venezuela S.A., or PDVSA, with patronage hires. As his election approaches, some experts believe mismanagement of Venezuela’s oil could be the issue that derails Chávez’s hold on power.

“The lack of direction, investment and maintenance are wrecking the oil and natural gas industries,” says Jose Bodas, secretary general of the FUTPV, one of the country’s largest oil unions. “PDVSA is falling apart.”

Oil and petroleum products account for about 95% of Venezuela’s exports and contribute more than a third of its GDP. Petrodollars also fuel Chávez’s socialist spending.

But reliance on oil revenue has led to the abandonment of other economic sectors. Much tillable farmland remains idle amid attempts by Chávez to increase food output, and Venezuela continues to import two-thirds of its food. Chávez uses oil revenue to subsidize the cost of the imported food, but shortages of basic goods are not unusual .

Chávez has also used the oil wealth to underwrite artificially low domestic gasoline prices of 11 cents a gallon, which is among the cheapest in the world.

Chávez, who has been undergoing cancer treatments in Cuba, says PDVSA is running better than ever. Upon the recent drilling of a new well, he posted an online message May 3 to Oil Minister Rafael Ramirez: “Venezuela, an oil power! Doing well, Rafael and PDVSA. Congratulations and onward.”

Critics charge that the president is destroying the company by packing it with loyalists rather than qualified personnel. PDVSA’s payroll has more than doubled to 115,000 employees since Chávez took office in 1999, and debt has risen 10-fold since 2006 to $34 billion.

Those increases have seemingly accomplished little: Venezuela’s oil production has dropped more than 25% since 1998 to its current 2.4 million barrels a day, according to OPEC.

Accidents plague the company’s operations as well, causing frequent shutdowns of PDVSA’s four domestic refineries and blamed in the deaths of 67 workers since 2004.

Oil spills increased about 70% to 4,052 incidents in 2011, according to the PDVSA annual report released in April. A major oil spill, one of several, cut off drinking water to the eastern city of Maturin for more than six weeks earlier this spring. Venezuela now finds itself importing components for production for natural gas and gasoline.

Ramirez, the oil minister who also heads PDVSA, did not respond to requests for an interview about the charges. Venezuela’s inability to develop its energy resources is the result of Chávez shifting PDVSA’s focus from petroleum and natural gas to politics. Instead of investing at home, the firm has poured resources into energy projects in countries that are Chávez’s international allies, such as Cuba, Bolivia and Nicaragua.

At home, the firm has been put to work implementing Chávez’s many social programs. Last year, PDVSA said in a preliminary report that it invested an estimated $27 billion in social programs, compared with $15 billion in energy projects. Plans to build natural gas complexes, new refineries and boost production have been pushed aside.

“Chávez has used PDVSA to implement government’s policies,” says Luis Oliveros, an oil professor at the Central University in Caracas. “It’s now engaged in housing construction and pig farming. Not surprisingly, the company has lost its vigor.”

Making matters worse, PDVSA’s social contributions aren’t open to public scrutiny, and may be wracked by corruption.

“PDVSA is running on autopilot right now,” says Pietro Pitts, an analyst at Caracas-based Latin Petroleum. “I have no idea where they are spending their money.”

Development of the country’s extra-heavy-oil belt, or Faja, is symbolic of the problems Chávez has caused. The belt has an estimated 235 billion barrels of crude the consistency of tar that needs to be refined to lighter blends before being exported. Five years ago, Chávez seized four joint ventures in the Faja, a decision that led ExxonMobil and ConocoPhillips to pull their operations out of the country.

Since then, production in the Faja has stalled, and new projects have been slow to get off the ground. Part of the problem is that PDVSA needs to build refineries to upgrade the oil. Each upgrade costs billions of dollars, and PDVSA’s new partners — including state oil companies from Cuba, Belarus, Vietnam and Uruguay — don’t have the capital or expertise.

Chávez’s opponent in October elections, Miranda state governor Henrique Capriles Radonski, has made Venezuela’s oil industry an issue.

Capriles Radonski, who trailed Chávez by about 13 percentage points in recent polls, has promised to make the company more efficient and return it to its core oil and natural gas businesses. He has also pledged to revise alleged sweetheart deals between PDVSA and Cuba, China and others.

“Petróleos de Venezuela can’t be used as a political institution,” he said after winning a primary to become the opposition candidate. “We have to have a more efficient management.”

That call resonates with many in the country, including Rodriguez. Tired of waiting for deliveries of natural gas, she finally bought an electric hot plate. Three days later she couldn’t use it when the state power company began programmed blackouts in her neighborhood as part of electricity rationing.

“I can’t win,” she said. “What good is being rich in oil if we have to go through this?”

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