No company is more critical to the livelihood of Venezuela than state-owned oil enterprise Petróleos de Venezuela. It is hardly surprising that the opposition movement’s struggle against President Hugo Chávez focused on control of PDVSA: With $46 billion in annual revenues and $4 billion in net income, the company provides almost half of the government’s revenue, and it has long been a symbol of Venezuela’s power and promise.
Chávez’s decision to purge senior PDVSA management last year precipitated the April 2002 military coup that briefly removed him from power. Immediately after the coup Chávez brought in onetime guerrilla leader Alí Rodríguez, a lawyer and former Energy and Mines minister who was serving as OPEC’s secretary-general in Vienna, to regain control of the company. But Rodríguez, 64, was unable to calm restive executives, and most of PDVSA’s 40,000 employees joined a two-month national work stoppage that ended in February. Chávez’s opponents hoped that the strike would drive him from power or at least force him to agree to a referendum on his presidency.
The failed strike was the latest in a series of events that have divided Venezuelans. Elites and some members of the middle class believe that Chávez is a dictator, albeit an elected one, opposed to their interests; the country’s impoverished majority, however, consider the president to be their best hope for a better life.
Although the strike did not oust Chávez, it blocked exports and crippled PDVSA, which is the world’s fifth-biggest integrated oil company, OPEC’s No. 3 producer and the fourth-largest oil supplier to the U.S. In late December PDVSA was producing only 150,000 barrels per day, down from 3.1 million before the strike.
The political uncertainty has left PDVSA cut off from capital markets. PDVSA Finance, the company’s external financing arm, has $4 billion in bonds outstanding. The debt is rated B by Standard & Poor’s, down from BB last December, because of concerns about the integrity of PDVSA’s invoicing systems and the effects of a possible default by Venezuela on its $28 billion sovereign debt. PDVSA needs $2 billion in investment this year to maintain production, and PDVSA Finance has a $150 million debt-service payment due this month. To meet these obligations, the company plans to tap $2.4 billion it has on deposit in a special government fund.
Now it falls to Rodríguez to purge PDVSA management of opposition supporters, restore production and, at the same time, implement Chávez’s vision of a PDVSA that works for the benefit of Venezuela’s poor by cutting costs and increasing the amount of money it contributes to the government.
The government, and remaining PDVSA executives, have worked furiously to restore oil production and exports. In mid-March Rodríguez asserted that production had increased to prestrike levels.
But PDVSA is hardly out of the woods. Although the company has regained production by restarting newer wells in eastern Venezuela, older fields in western Venezuela may have suffered permanent damage from lack of maintenance, according to outside observers. PDVSA has lost more than $4 billion in revenues since the strike began, and it still faces bottlenecks in refining capacity and its port facilities. To raise cash, Rodríguez has had to slash capital investment and operating expenditures by 30 percent and 40 percent, respectively, and he is considering divesting PDVSA assets.
Meanwhile, Rodríguez is trying to improve efficiency -- and eliminate opposition sympathizers -- by laying off more than 17,000 employees and splitting PDVSA into two regional operating companies, based in eastern and western Venezuela.
Former PDVSA executives argue that such moves undermine the company’s ability to grow or even maintain its production levels in the future. “They have destroyed the brainpower of PDVSA. They have destroyed the supply, engineering, training and finance departments,” says Luis Giusti, who was the company’s president for the five years preceding Chávez’s inauguration in 1999.
Rodríguez has to prove otherwise: His ambitious $45 billion, seven-year investment plan depends upon at least $13.5 billion from foreign oil companies and oil service firms. He spoke with Institutional Investor Senior Writer Deepak Gopinath during a recent trip to New York to meet with bankers, investors and rating agencies.
Institutional Investor: You are a former guerrilla leader with limited business experience, yet you are leading one of the biggest oil companies in the world. What were your immediate goals when you took the job?
Rodríguez: I was a guerrilla in the 1960s, a long time ago. [Last year] I was the secretary-general of OPEC, and after the coup d'état in April, President Chávez called me to assume this position in PDVSA. Some sectors of the opposition agreed with this decision. My objective was to normalize the situation within the company. To normalize the performance of the company, we needed to reduce costs and produce more and more revenues for the country, taking into account that oil is a common good of our society.
But you couldn’t prevent the strike.
We made the decision to retain [PDVSA executives] who were committed to the coup d'état. Unfortunately, they didn’t understand this policy, and they acted continuously to throw up conspiracies against the company and, at the end of the day, against the country.
For the first time in our country, somebody used oil as a political weapon to impose their position on the government, on the state and on the society. They carefully planned this action against the company and explained publicly that their objective was to defeat the government and put pressure on to impose a referendum to remove President Chávez.
With the support of the army, the workers and different sectors of our society, we guaranteed supplies for the domestic market, and progressively we are recovering the production.
What is your vision for PDVSA?
PDVSA is the most important company in our country and in South America. Its contribution to GDP is more than 34 percent in direct terms and about 40 percent including different activities related to the company.
PDVSA will continue as the most important economic activity in Venezuela, and that’s one of the main reasons we are planning a new vision of the company. We need to reduce the costs, we need to increase the performance, and we need to enhance our productivity to increase the fiscal contribution [PDVSA makes to the government]. The oil sector’s fiscal contribution supports the nonoil sector that is the majority of our society.
Reducing costs means cutting a lot of people. Before the crisis, according to an analysis in our human resources department, it was necessary to reduce 7,000 staff. After the crisis we fired more than 17,000, so the labor costs have been reduced significantly. But we have to apply new technologies, and we have to be more effective in different activities. That is one of the most important objectives we are defining now.
What is your investment strategy?
To maintain production this year, we need $2 billion. If we suffer some reduction of capacity in the western oil fields, we have many possibilities to increase capacity in the eastern area. We will maintain our original investment plan of $45 billion over the next seven years. Right now we are seeking 30 percent of that amount from foreign investors, but it could increase in the future.
What are your long-term production targets?
We want to increase the capacity from 3 million up to 5 million barrels per day in the next seven years.
And you can do that without the thousands of experienced workers you fired?
If you analyze the situation of many oil companies in the world, you can see that some are firing much more than we are.
The biggest percentage of those fired in PDVSA were in administration. Of course, some people were highly qualified, and we have to substitute these people with retirees. There are many, many retirees -- a good example is the decision in the case of the general manager at CRP [PDVSA’s Paraguana refining complex]. He is a man of very long experience, he knows perfectly the plans of the refineries, and he guaranteed the normalization of the facilities there. There are many, many cases like this.
Is PDVSA really in a position to help Chávez reduce poverty in Venezuela?
You have to take into account two factors. The first is that PDVSA’s costs increased significantly in the past two decades, and its fiscal contribution to the government dropped to about 20 percent of PDVSA revenues, limiting the state’s ability to increase living standards.
The other problem is that during the 1970s oil boom, the government increased the public debt, particularly the foreign debt, very high. For example, this year the public debt payment was 11 trillion bolivares ($6.9 billion), and the oil fiscal contribution is only B13.2 trillion. The most important percentage of the fiscal contribution to the state is being used to pay the government’s debts.
You seem extremely confident.
I am a chronic optimist.
