José Cárdenas

Jun
24
2013
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U.S. Companies to Chavismo’s Rescue?

jose r cardenas U.S. Companies to Chavismo’s Rescue?

José R. Cárdenas

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff. He is a consultant with Vision Americas in Washington, DC.

News that oil giant Chevron is lending $2 billion to the bankrupt regime in Venezuela has raised eyebrows in both Washington and Caracas.  Red flags went up after the parties to the loan issued conflicting cover stories about its intended purpose.  Venezuelan Oil Minister Rafael Ramirez announced that it would be used “to boost production” at the government’s joint venture with Chevron, Petroboscan, in western Venezuela (a line echoed by Chevron’s head of Latin America operations, Ali Moshiri).  However, Chevron CEO John Watson told Spain’s ABC that the loan was instead “designed to facilitate the repatriation of funds and facilitate further operational activity in the Boscan field.”

According to sources in the oil industry, the loan was likely meant to merely maintain operations at the Boscan field and partly to repay PDVSA’s debt to Chevron resulting from non-payment of proceeds from the joint venture.  Indeed, one expert shot down Ramirez’s rosy scenario of increasing production by telling ABC that would require an infusion of at least $8 billion.

Why does this shell game matter?  We know that PDVSA has been bled dry by the late Hugo Chávez and now by his successor Nicolas Maduro, who have siphoned off its revenues to finance massive domestic programs.  Reinvestment in maintenance and oil production has been neglected, which has led to declining output, a shortage of cash, and a failure to repay some $16.5 billion in debts to oil partners.  In other words, this story matters if it means a U.S. company is helping to mask PDVSA’s insolvency.

Chevron is already the only U.S. major oil company to remain in Venezuela after Chávez tore up existing contracts with oil companies to give his government majority control of oil projects.  Chevron’s shareholders have a right to know just what risks the company is taking by lending money to a regime widely recognized for its corruption and mismanagement – not to mention its swelling debt. The Venezuelan people, meanwhile, also have a right to know just what their government is committing to in terms of repayment of the loan.

Here are some of the questions that the Venezuelan people and Chevron shareholders ought to be asking.  What exactly is the $2 billion for?  What is PDVSA’s current debt to Chevron?  What portion of the loan will be used to recoup what PDVSA already owes Chevron?  Given PDVSA’s chronic shortage of dollars, do the terms of repayment include oil, and, if so, at what price per barrel?  Who exactly will receive the proceeds of the loan?  Will it be PDVSA, Petroboscan, or will it remain under Chevron’s control?  In other words, what guarantees are there that the loan will go to its ostensible purpose – whatever that is – and not be squandered by an unaccountable government?  Given the Venezuelan government’s notorious record of abrogating contracts with foreign companies, what guarantees are there that Chevron will recoup its loan?

There are other troubling issues.   It is well-known that the Venezuelan government has for some time been using the threat of canceling its current contracts to strong-arm its oil partners into investing more money in Venezuela. Already this year, Russian and Chinese firms given Venezuela $9 billion in new financing, while the oil services giant Schlumberger has granted Venezuela a revolving credit line of $1 billion.

Finding salvation in Chinese and Russian companies is one thing.  It is quite another when U.S. companies are exposing their shareholders by helping the chavista government dig itself out of the economic hole it has created at great cost to the Venezuelan people and U.S. interests in the region.

That’s why anyone concerned about Venezuela’s future needs to take a hard look at what deals the Maduro government is cutting to keep afloat, especially if it involves U.S. companies.  Maduro’s desperation is great and so likely will be his proclivity to mortgage more of the country’s oil future for short-term political gains.  All concerned should demand transparency and accountability, not only of the Maduro government, but from companies like Chevron, as well.

 
Feb
26
2013
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ICYMI: Hugo Chavez’s legacy of economic chaos; Tough times ahead for Venezuela

José Cardenas is a former senior official at the U.S. State Department, National Security Council and the U.S. Agency for International Development, where he served as Acting Assistant Administrator for Latin America and the Caribbean. He is a regular What’s Next Venezuela contributor.

Venezuela Protest e1361899707868 ICYMI: Hugo Chavezs legacy of economic chaos; Tough times ahead for Venezuela

Courtesy of: Associated Press

Washington Times
February 26, 2013
By José Cardenas

The recent return home from Cuba in the dead of night of cancer-stricken Venezuelan President Hugo Chavez is likely not a sign that his condition is improving. In fact, it is more likely that his doctors have decided there is nothing more they can do than to allow him to go home to die peacefully, surrounded by family.

That suits just fine senior Venezuelan officials and their Cuban minders, who need Mr. Chavez’s physical presence nearby to better stage-manage a chavista succession. They now can tell the Venezuelan people, with whom Mr. Chavez maintains a deeply emotional connection, that the “comandante” remains intimately involved in the process, “approving” all decisions.

It appears the only decision to be made at this point, however, is whether Mr. Chavez’s inner circle declares the ailing leader “incapacitated” or whether they wait out the inevitable before calling elections within 30 days, as the constitution mandates.

If they have their wits about them, they probably will move to “retire” the Venezuelan leader sooner rather than later. A few months down the road, they are likely to be facing a much less favorable political climate than they are enjoying today. That’s because Mr. Chavez has bequeathed to them a ticking economic time bomb, which is set to blow up in the faces of the very people Mr. Chavez has claimed to represent — the poor and working masses.

Much will be written in the coming weeks that Mr. Chavez’s legacy is that he transformed Latin American politics by giving a voice to the voiceless. Less will be focused on just what the cost will be to those very same people, as well as their children.

Once the emotion of the moment passes, Venezuelans will be left to pick up the pieces from Mr. Chavez’s gross mismanagement of the Venezuelan economy. To squander Venezuela’s vast oil wealth takes real effort, but Mr. Chavez and his profligate spending proved up to the task. In what has been an abject lesson in the perils of populist economics, his actual legacy will be soaring inflation, a bloated public sector, a crippled private one, electricity blackouts, shortages of basic goods and one of the highest homicide rates in the world.

The first sign of more difficult days ahead came on Feb. 8, when the government ordered a 46 percent devaluation of the country’s currency. Inflation, already running at 22 percent, is now expected to surge, prices of goods will increase, and shortages of items such as toilet paper and cornmeal (the staple of arepa cakes) and even automobiles will grow worse.

Of course, the burden of such economic dysfunction always falls on the poor and working classes, who devote a higher portion of their incomes to basic necessities. As a result of the devaluation, Venezuelans’ real income is expected to decrease by 20 percent this year, at the time when their purchasing power already has dropped to 1966 levels.

What’s more, it will only get worse. Analysts say another devaluation is almost inevitable, given that this latest one will not come close to balancing the government’s books. Rumors are also rampant that the government will soon introduce rationing measures for basic food items.

Nor is any relief likely to come from the private sector, which has been plagued by price and currency controls, expropriations, government interventions, legal uncertainty and oppressive labor laws. Indeed, under Mr. Chavez, the number of private companies has dropped from 14,000 to 9,000. While a decade ago, 8 out of 10 jobs were generated by the private sector, today that figure is 6 out of 10.

Neither does it appear that China is willing to continue to pay Venezuela’s bills. Having already lent Mr. Chavez $39 billion against future oil sales, it recently sent home Venezuelan Foreign Minister Elias Jaua empty-handed, with no indication that further loans were in the offing.

The fix is already in that the uncharismatic Nicolas Maduro will be entrusted with trying to keep chavismo alive without Mr. Chavez. Whether he and his Cuban advisers can successfully exploit Mr. Chavez’s image to confront formidable challenges on the horizon remains to be seen. One thing is certain, however: As opposition leader Henrique Capriles tweeted upon Mr. Chavez’s return to Venezuela, “Hopefully the president’s return means that Mr. Maduro and his ministers can get to work. There are thousands of problems to resolve.” Without a doubt.

To read this article at The Washington Times, please click here.

 
Sep
20
2012
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Can PDVSA Survive Chávez?

jose r cardenas Can PDVSA Survive Chávez?

José R. Cárdenas

José R. Cárdenas served in several foreign policy positions during the George W. Bush administration (2004-2009), including on the National Security Council staff. He is a consultant with Vision Americas in Washington, DC.

The recent explosions at the Amuay oil refinery in Punto Fijo that killed some 41 people could not have come at a worse time for Hugo Chávez, as it has drawn intense scrutiny on what has become of the state oil company PDVSA since Chávez imposed total state control over its operations in 2002.

It is not a pretty sight. In fact, the company stands at the center of a cautionary tale about the destructive impact of Chávez’s politically-motivated policies. For today, PDVSA represents less a modern oil company than it does a political operation designed only to boot the political fortunes of the President.

One would think that a company sitting atop what is believed to be the world’s largest oil reserves at a time of record prices could absorb some measure of short-sighted policies and still function ably. That PDVSA is not is a measure of how disastrously Chávez has ignored critical re-investments in maintenance, safety, and the development of new means of production.

Instead, the company’s last ten years have been marked by decreasing production, safety mishaps, politicization of management, inflated payrolls, and corruption. All the while, Chávez has directed PDVSA to take an ever-larger role in activities that have little or nothing to do with extracting and refining oil.

First, production. The government claims it is producing 2.9 million barrels per day (b/d), but experts claim that with refineries today operating at 69 percent capacity the actual output is more like 2.4 million b/d. In 1997, the year before Chávez was first elected, output was around 3.6 million b/d, one-third more than today. Experts say that given Venezuela’s prospects, it should be producing 5 million b/d. So far, high international prices have masked the impact of the declining cash flow, but that mirage will not last forever.

Secondly, those with knowledge of the Venezuelan oil industry say there has been a critical lack of re-investment into maintenance and production. They say investment in oil related activities has averaged $9 to $10 billion per year over the last four years — half of what is necessary to maintain production and just one quarter of what PDVSA needs to expand production and build new facilities.

So where is the money going? Into an account controlled directly by Hugo Chávez, bypassing the Central Bank and the National Assembly, meaning there is no accountability and no transparency of how the funds are dispersed. We do know, however, that earlier this year Finance Minister Jorge Giordani said that the government had invested more than $500 billion in social programs.

Now, there is certainly nothing wrong in using oil revenues to boost the social sector; the critical question is whether those revenues are being used efficiently and with an eye towards the long-term health of PDVSA and Venezuela. But it seems all that is lost on Hugo Chávez. The political goal of – getting re-elected – is all encompassing and trumps concerns of productivity and safety.

Today, PDVSA is involved in activities wholly outside its competence: including managing food imports and distribution, building houses, mining, agriculture, and meat production. Indeed, the list is being constantly expanded according to Chávez’s whims. As such, the number of PDVSA employees has expanded from some 40,000 in 2002 to around 115,000 today. The results have been predictably slap-dash.

Clearly, poor re-investment, declining production, diversion to non-oil related activities, bloated payroll, and skyrocketing debt are taking their toll on PDVSA. With no indication Chávez has any intention to change his policies, it’s an open question how long the company can maintain its present course. But PDVSA’s fate is intricately linked to Chávez’s populist political project. He came to power claiming to the masses that for decades “others” (elites, foreign interests) had plundered Venezuela’s national patrimony at their expense. He was to be their avenger, making up for years of neglect by squeezing every last ounce of Venezuelan crude out of the ground for the people’s benefit — even if he effectively kills Venezuela’s ability to secure oil revenues in the process. Populism may have been a great way to get elected, but it is a terrible way to govern.