Venezuelan State Oil Company to Pay Debts, Reduce Spending on Contractors

Mérida, March 3rd 2009 (Venezuelanalysis.com) — The Venezuelan state oil company PDVSA announced Tuesday that it will immediately pay off its debts to 90% of its contractors, including nearly 6,000 private companies, cooperatives, small and medium size enterprises, and health care providers for PDVSA employees.

“We will immediately honor our obligations to 90 percent of the service providers and contractors,” the company declared in an official statement.

PDVSA also plans to cut back on its contracting by as much as 40% to adjust to lower oil prices brought by the world economic crisis, but will not cut back on social investments in Venezuela, according to Energy and Oil Minister Rafael Ramírez.

“It should be understood that we are not going to cancel our projects, we are just reviewing the five-year contracts because the current fees cannot be maintained. That is why we are regularizing our payments to the contractors,” said Ramírez Tuesday.

Ramírez said PDVSA will go ahead with its investment of $125 billion in 88 social programs in accordance with the government’s national development plan for the final four years of Chávez’s second presidential term (2009-2013). Also, the social programs known as “missions” and international cooperation initiatives such as PETROCARIBE will be maintained, said Ramírez.

“In the oil industry, we are accustomed to these scenarios, and we adapt to meet these new cost structures, which appeared in 2004 and 2005,” said Ramírez.

In the meantime, Venezuela plans to propose a new reduction in oil production at the upcoming March 15th meeting of the Organization of Petroleum Exporting Countries (OPEC), with the objective of stabilizing the price of oil at $70 per barrel, said Ramírez.

Oil prices peaked at nearly $150 per barrel last July, and have since dropped to more or less $40 per barrel with the onset of the global financial crisis. Since October, OPEC has cut back its supply by a total of 4.2 million barrels, of which 368,000 correspond to Venezuela.

“There is much unity in the core of OPEC,” said Ramírez with regard to further supply reductions. “There must be a balance between the price of oil and the necessary investments,” he said.