Auditors: Venezuela’s State Oil Company Recovering from Oil Price Slump

Merida, August 5^th, 2010 (Venezuelanalysis.com) – Venezuela’s state oil company, Petroleos de Venezuela S.A. (PDVSA), remains strong, maintaining its daily oil production, and returning social development contribution levels to pre-oil price slump amounts, according to its independently audited annual report. Despite this, opposition leaders and media have highlighted dropping profits and debts, in an attempt to create fears of PDVSA’s bankruptcy and an un-investable climate in Venezuela.

Minister for Petroleum and President of PDVSA, Rafael Ramirez, summarised the annual management report for 2009 on Tuesday. The report, over 500 pages long including attachments and graphs, was audited by the independent accountanting firm KPMG Alcaraz Cabrera Vazquez.

“2009 was hard and difficult for our petroleum industry, there was a drop in the price of petroleum that brought on the reduction of production of oil by 300,000 barrels per day, in order to comply with the what was agreed at the Organisation of Petroleum Exporting Countries (OPEC), with the result of achieving the higher price levels that we have today, at $69 per barrel on average,” Ramirez said.

The minister said between 2002 and 2010 PDVSA obtained additional earnings of $97 billion, 61% more than the income that would have been obtained under the pre-Chavez government legal framework of PDVSA.

The Venezuelan government has implemented a policy of “oil sovereignty” which means that any joint companies between PDVSA and a transnational, PDVSA is the majority stockholder, and transnationals pay royalties of 33%, a petroleum tax of 50%, and a recovery factor of 20%.

Whereas under previous administrations those earnings went to transnationals, now such additional earnings go towards Venezuela’s social programs and missions, such as food, education, health, infrastructure, agricultural, and community projects, Ramirez explained.

Also, Ramirez said that since 2006 the state owned company’s assets increased by 202%, compared to the 45% increase between 1992 and 1998.

According to the annual report, PDVSA’s tax contributions in 2009 were $24.7 billion, in 2008 they were $38 billion, and so far this year they are $16.2 billion.

In 2009 Venezuela exported an average of 2.7 million barrels of petroleum daily. Of those exported barrels, 332,000 barrels were by joint companies, and the rest was by PDVSA directly.

Ramirez reported that PDVSA assigned $61.4 billion to social development from 2004 to 2010. Then he broke down the amount according to areas, where $28.6 billion went to the National Development Fund (Fonden), $2.3 billion to food, 3.6 billion to agricultural projects, $2.3 billion to Mission Ribas (primary education), $5.8 billion to Mission Barrio Adentro (health), $3 billion to communities, and $3.7 billion to housing.

In 2009, PDVSA allocated $7.3 billion to social development, down from $17.7 billion in 2008. In the first six months of this year it allocated $8 billion, meaning that it will likely end the year with figures closer to those of 2008.

“These contributions are thanks to the petroleum income which in the past left the country towards the transnationals’ projects and interests… The Venezuelan state seeks a direct distribution of petroleum income to the people,” Ramirez said.

Opposition distortions

While Ramirez acknowledged short fallings and highlighted positive aspects of the management of PDVSA, opposition leaders and press drew attention to what they considered the negative statistics, with some press using such statistics to paint a distorted picture of disaster for PDVSA.

The government is heading PDVSA towards bankruptcy, Nelson Maldonado, ex-president of the National Commerce and Services Council (Consecomercio), said at a meeting of right wing sectors in Caracas yesterday, AVN reported.

“PDVSA was a profitable company before, now…it doesn’t produce profits. No one wants to invest in Venezuela anymore,” Maldonado said.

The state news agency AVN pointed out that in 2007 Maldonado recognised that the private sector had gained under the Chavez government, and he had said, “We have gained a lot since 2000, but we’re worried that his government is investing in poverty, because everything evaporates from that sector. It’s necessary to give to those who know how to invest, and from there you can help the rest.”

An article about the annual report in the oppositional newspaper El Universal highlighted how the PDVSA payroll has increased by 87% while production has increased by only 4%, and suggested that meant lower overall productivity or efficiency.  However, the increased number of PDVSA workers is a result of nationalisations and putting contract workers and private company workers onto the PDVSA payroll.

In 2009, nationalisations meant PDVSA increased its workforce by 18%. According to the annual report, in 2005 PDVSA had 49,180 workers, and in 2009 it had 91,949.

Ramirez saw the increased number of workers, of which 86,760 are permanent, as positive, and “thanks to the process which has reversed the deliberate policy of outsourcing operations that the old PDVSA management used…we have reversed all this into a policy of inclusion of the workers, and in 2009 we successfully put a further 10,000 workers on permanent wages, thanks to the process of nationalisation of our industry,” he said.

The newspaper of the opposition leader Teodoro Petkoff, Tal Cual, headlined with “PDVSA on its way down”. Its article acknowledged the increased assets and social spending, but highlighted the decreased earnings in 2009 compared to 2008 (from $9.4 billion down to $4.5 billion) due to the large oil price drop last year. In 2008 the price of oil was unusually high at a peak of $148 per barrel, compared to an average of $35 in 2009.

Nevertheless Tal Cual, recognising this “external factor”, blamed “internal decisions, the management of the company” for the difference, citing a supposedly low budget for exploration (of $247 million in 2009). Ramirez however, pointed out that the earnings were despite the world economic crisis and low prices.

The eastern Venezuelan paper, El Tiempo, also highlighted the differences between 2009 and 2008, citing 21% decrease in sales to Asia from 2008 to 2009 and 7% decrease to Latin American during the same period, as well as the decreased net earnings, reflected in debt, which increased from $15 billion in 2008 to $21 billion last year.

Ramirez, however, said that as of mid-2010 PDVSA has a debt between $3 and 4 billion.

At Ramirez’s report summary, Fernando Delgado, a Chamber of Petroleum representative, concluded, “The statistics show … that PDVSA is solid, as a partner for foreign companies, it is very trustworthy.”

The full 523 page report, in Spanish, can be read here, http://www.pdvsa.com/interface.sp/database/fichero/free/5881/1048.PDF