Financial Statement of Venezuela’s State Oil Company Shows Profits Up by 44%

Rafael Ramirez, the President of Venezuela’s state-owned oil company PDVSA, presented today the company’s audited 2005 financial statements, which, according to the audit, show the company to be generating 44% more profits relative to 2004.

By Gregory Wilpert –
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Caracas, Venezuela, October 3, 2006—Rafael Ramirez, the President of Venezuela’s state-owned oil company PDVSA and also Minister of Energy and Petroleum, presented today the company’s audited 2005 financial statements, which, according to the audit, show the company to be generating 44% more profits relative to 2004.

The 2005 financial statement was audited by the consulting and accounting firm KPMG, which, according to Ramirez, found no irregularities.

For Ramirez this meant, “The operational, financial, and social results [of PDVSA] are evidence of efficient management and the full social commitment PDVSA had during 2005, which allows us to conclude that we are in the presence of a corporation that is totally recovered and in full growth.”

From December 2002 to January 2003 PDVSA suffered massive losses, due to the opposition's politically motivated shutdown of the oil industry, which practically paralyzed PDVSA for two months, during a combined lockout, sabotage, and work stoppage. At the time, the opposition sought to force President Chavez to resign. In the end, though, over 18,000 PDVSA employees, mostly management, adminsitrative workers, and professionals were fired from the company.

Of PDVSA’s total 2005 $19.2 billion profit, $5.8 billion were paid to the government in the form of tax payments and $6.9 billion were paid directly towards social programs that PDVSA funds, leaving $6.5 billion as PDVSA’s net profit. Another $13.3 billion went towards the government in the form of royalty payments, which are counted towards PDVSA’s costs.

PDVSA’s total transfer to the government, whether in the form of royalties, taxes, or spending on programs thus reached $26 billion, which was 65% more than it transferred in 2004.

The $6.9 billion PDVSA spent on social programs directly went towards infrastructure projects such as the La Vueltosa Dam, the thermo-electric plant Pedro Camejo, the Caracas-Tuy Medio railroad the subways systems of Los Teques y Maracaibo. Also, it helped fund the social programs Misión Ribas (adult ed), Misión Sucre (university scholarships), Misión Milagro (eye operations), Misión Vuelvan Caras (cooperatives), Misión Guaicaipuro (indigenous land titling), Misión Barrio Adentro (community health), and Misión Mercal (subsidized food markets), among others.

Ramirez highlighted that the vast bulk of the company’s profits were made in Venezuela, while most of the expenses were incurred outside the country. That is, while costs constituted only 32% of revenues in PDVSA’s national business ($14.5 billion out of $45.6 billion), costs constituted 95% of revenues in its international business dealings ($51.8 billion out of $54.3 billion). In other words, while PDVSA’s national business generated $17.8 billion in operational profits, its international business generated only $2.5 billion.

“Notice the perversion of the internationalization policy, when a business that generates $54.3 billion in the exterior has costs of $51.8 billion,” said Ramirez. “We must review this very carefully,” he added. According to Ramirez, most of these costs are linked to the cost of purchasing oil and oil products to supply 14,000 gas stations that PDVSA’s subsidiary Citgo licenses in the U.S.

Touching on the recent reports that implied that the convenience store chain 7-Eleven, which Citgo supplies, was canceling its contract with PDVSA for political reasons, Ramirez reiterated that the decision to cancel that contract was made a long time ago in Venezuela, out of economic reasons.

Comparing PDVSA’s national costs in 2001 with those in 2005, Ramirez highlighted that PDVSA had lowered these slightly, from $14.9 billion to $14.5 billion, while national revenues boomed from $25.6 billion to $45.7 billion.

According to the minister, the increase in PDVSA’s contributions to the central government, which went from 15% of revenues in 2001 to 29% in 2005 was due to the changes in the hydrocarbons law, which doubled royalty payments in 2003.

Ramirez also reported that Venezuela’s oil production averaged 3.27 million barrels per day (bpd) in 2005, compared to 3.15 million bpd in 2004. Of these, PDVSA itself produced 2.17 million bpd, while 497,000 were produced via operating agreements with transnational oil companies and 602,000 were produced via joint ventures in the Orinoco Oil Belt.

As of early 2006, though, nearly all operating agreements were transformed into joint ventures where PDVSA has a majority stake. Ramirez emphasized that the operating agreements generated tremendous losses for PDVSA because their costs were tied to the price of oil and not to the actual production costs in their respective oil fields.

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