Wednesday, July 25, 2007

Chavez wrecking Venezuelan oil?

Some years ago, around the time of the attempted coup against Venezuelan "strongman" Hugo Chavez, I talked to Roger Fontaine, a Latin American expert who has spent considerable time in Venezuela. He said it is a beautiful country but the society is pretty screwed up. They have crony capitalism instead of a free market, which means the wealthy had become accustomed to luxury guaranteed by good relations with the governmment, often fueled by bribes and the like, while poor people see little hope of improving their lot. Interestingly enough and somewhat counterintuitively, however, he said, the state oil company, Petroleos de Venezuela, was reasonably well-run and efficient, and somewhat insulated from day-to-day politics.

I figured when Chavez announced plans to take over Venezuelas de Petreoleo and run it in a more hands-on fashion, and to take over foreign companies operating in the country, he would eventually run it into the ground, so to speak. Dictators who depend on oil revenues to fund all the promises they've made to the poor are not interested in long-run efficiency but in short-term revenues. And any state enterprise is inevitably going to experience corruption as well as inefficiency.

Even I am surprised at how quickly he and his cronies seem to have wrecked the company. According to this International Herald Tribune piece, the company is "shaken by claims of corruption and by internal dissent." Rafael Ramirez, energy minister and VdP CEO has acknowledged that it can't hire enough drilling rigs to meet production targets To date it has hired only 40 percent of what it thinks it needs this year, and this has led to a crisis. Production is down. Venezuela "claims to produce almost 3.1 million barrels of oil a day, but institutions like the International Energy Agency in Paris put output at 2.37 million barrels a day, down about 230,000 from a year ago.

With production down 7 percent, oil exports have fallen 15 percent from last year. Government income from oil could decline from $60.4 billion last year to $45.6 billion.

Chavez might get bailed out by $100-a-barrel oil. But that won't last forever. The sad truth is you have to run even a state-owned company in a reasonably businesslike manner, not put iedologues and cronies in charge.


Anonymous said...

well, if Our Man Hugo runs the venezuelan oil industry into the ground, then the oil - less usa had better look for a replacement for its FOURTH largest oil importer.

see graph in story linked above.

and why are you slamming Our Man Hugo ???

are you a paid shill for the anti-Chavez usa government ??

the greedy rich in venezuela deserve to be taken down after what they have done to that country. do you like to see the greedy rich rape their own countries and screw over their fellow countrymen ??

more power to Our Man Hugo !!!

Alan Bock said...

You go ahead and root for more power for Hugo. I'll root for less power for every political leader in the world.

No question there are greedy rich in Venezuela who became rich not by providing wanted goods and services but by being cronies with those in government. Somehow I don't think the solution is for a guy like Chavez to assume dictatorial power and act as an avenger.