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.