Venezuela's Ramirez declares war on Big Oil
By Gustavo Coronel
31.05.05 | On May 25th, Energy and Petroleum Minister, and President and CEO of Petróleos de Venezuela (PDVSA), Rafael Dario Ramírez Carreño was sent by Hugo Chávez to the National Assembly, where he read an hour long speech to denounce the international oil companies operating in Venezuela as tax evaders and as accomplices of the former petroleum managers of PDVSA in an effort to rob the nation of its petroleum wealth. Ramírez's speech was extraordinary because he: (1) openly denounced international operators as robbers of the national treasury, (2) demanded that these companies pay significant back taxes based on a new interpretation of their contracts made by the Venezuelan Tax authorities and (3) systematically insulted the former managers of the oil industry, calling them traitors and servants of foreign interests.
"They wanted to convert our oil industry into a global industry. . . ."
The language used by minister Ramírez throughout the speech was extremely aggressive, one that could be expected from a thug but not from a prominent public officer. The whole event was quite tacky, since the minister was surrounded in his entrance to the National Assembly by a group of samba dancers dressed in scarlet red. It looked like the entrance of a heavyweight fighter into the arena.
Ramírez started his speech saying that the Venezuelan professional management ousted by Chávez from PDVSA had sold themselves to the international petroleum companies. From the early stages, he claimed, these managers "pretended to convert the oil industry into a global industry . . . forgetting that the oil was ours." Such a statement illustrates the ignorance of the revolutionary leaders. They still do not understand that oil is a global industry.
"Petróleos de Venezuela was a Trojan horse. . . ."
Ramírez went on to say that PDVSA had been created as a "Trojan horse," to deliver Venezuelan oil into the hands of the international companies. The truth is that for over twenty years, before Chávez got his hands on PDVSA, this company was one of the top five oil companies in the world, both operationally and financially. Venezuelans were very proud of that company. Today, under Ramírez and Chávez, the Venezuelan petroleum company is completely discredited in the eyes of the international energy community. In fact, the collapse of its oil production under the mismanagement of people like Ramírez has made it highly dependent on the international companies, precisely the ones that the regime is now denouncing. International operators are currently generating 35% or more of current Venezuelan oil production.
"Petróleos de Venezuela pretended to be a commercial enterprise. . . ."
Ramírez added in his speech, as if this was a crime, that "PDVSA pretended to be a commercial enterprise." This is another sign of ignorance and ideological perversion. A company should behave in a commercial manner. The mission of a company is to generate optimum benefits to shareholders, not to become a welfare institution. Today PDVSA is the piggy bank of the revolution, not a commercial company. Billions of dollars of oil income are missing and the Chávez regime will not tell us what they are doing with that money. The resources required for investments and maintenance is being taken from the oil company and being used for political purposes or personal benefit. The company has become impossible to audit. If PDVSA were a public company and its shares were traded in the stock exchange, they would already be junk bonds and the rating of the company would have fallen below investment grade since the company has not published financial statements for the last three years.
In acquiring international assets Petróleos de Venezuela "committed a crime."
Ramírez went on to attack the international deals done by PDVSA, especially the acquisition of Citgo, company that according to him pays no dividends and received unjustified subsidies from the Venezuelan government. Ramírez claimed that, by going international, PDVSA committed a crime against Venezuela. As it happens in any business, some of the deals made by the Venezuelan company abroad were better than others, while some could be defined as bad. But there is no doubt that the strategy of acquisition of refineries abroad to create markets for the less attractive Venezuelan oils was impeccable. In his speech Ramírez did not claim that some of those deals were bad. He claimed that all deals were bad and had been made by the former managers of the petroleum company with the intention of doing harm to Venezuela. In stating this Ramírez crossed the line that separates acceptable criticism from slander.
Ramírez spoke in a demeaning manner of the Venezuelan Congress that authorized the operation contracts and the associations with the international oil companies.
In the eyes of Ramírez the contracts and associations authorized by the Venezuelan Congress in the early 1990's were illegal. The congress, he says, "Failed to fulfill its patriotic duties and caved in to the demands of the traitors in Petróleos de Venezuela" and that of the international oil companies. However, he failed to give proof of his wild assertions. Contrary to the shameful assembly that exists today in Venezuela, totally controlled by Chávez, the Venezuelan Congress of the early 1990's was a pluralistic body, where open debate took place. The rights of the minority were respected. Many of the members of congress who approved those contracts are today in Chávez's camp. It is ironic that the contracts Ramírez criticizeshave proven determinant in maintaining Venezuelan oil production at a time in which PDVSA's own production has collapsed, due to the ineptness of Ramírez and his group.
"Now," Ramírez says, "our Tax authorities have made a new interpretation of the oil contracts signed with the foreign companies and, as a result, these contractors will have to pay more tax and back taxes."
Ramírez stated that the Venezuelan tax authorities have made a new interpretation of the contracts indicating that the international oil companies were not simple operators working on behalf of PDVSA but were actually extracting and handling the oil. This defined them, he said, as oil producers, not as simple contractors. Therefore, he added, they had to pay 50% income tax and not the 34% tax they had been paying. Moreover, this new tax rate was retroactive to 2001. The minister suggested that the foreign contractors were a bunch of swindlers. Amazingly enough, however, he added that if they accepted the new taxation, their contracts could be extended for 20 more years. What he seemed to be saying, in essence, was that the Chávez regime does not mind to contract with "criminals," as long as they pay what the regime demands.
This new interpretation of the contracts came six years after the regime had been accepting the original rules signed by both parties. The interpretation is unilateral and violates the letter and the spirit of the contracts. Up to this moment the oil companies have kept silent since they have huge investments to protect but the fact remains that Chávez has taken the relationship of Venezuela with the foreign oil companies to the breaking point.
The associations with foreign companies in the heavy oil area of eastern Venezuela are illegal. The companies are violating the terms of their contracts.
Ramírez defined the associations between foreign companies and PDVSA to produce and upgrade heavy oils in eastern Venezuela as illegal and accused Total and Statoil of abusing the terms of their contract by producing more than they should and operating in a larger area to that they were entitled to. Considering that PDVSA has been represented during the last years in the boards of the companies managing the associations, it is impossible to believe that they were not privy to these "violations" before. Ramírez is making extremely serious accusations, which could end in open political conflict with the countries of origin of the accused companies, France and Norway. Statoil is a state-owned company and this characteristic will further aggravate the conflict.
Ramírez referred to the former Venezuelan managers of Petróleos de Venezuela as traitors to Venezuela and as servants of the foreign oil companies.
Throughout his uncivilized harangue Ramírez kept referring to the former managers of PDVSA as traitors, saboteurs and thieves. As a member of the first Board of PDVSA I would like to comment as follows:
* For more than 20 years PDVSA was managed by a group of professional managers and executives of whom any oil company in the world could have been proud. I knew most of them and worked alongside with them until I left the company in 1981. Men like Rafael Alfonzo Ravard, Guillermo Rodriguez Eraso, Ernesto Sugar and Alberto Quiros, just to name a few, gave the company strong credibility and earned the respect of the international petroleum community. Thousands of managers, technical staff and executives now retired, or dismissed by Chávez in 2002 over national TV, gave PDVSA a very high rank among the oil companies of the world. This is a process well documented and needs no further proof. I think that a mediocre Chávez political appointee such as Ramírez lacks the moral authority to insult the former professional managers and technical staff of PDVSA. It is my belief that Mr. Ramírez commands little credibility or respect from the international petroleum community.
* I say that never before PDVSA had been involved in so much mismanagement, disrepute and corruption as today, under the Chávez-Ramírez regime. About US$6.8 billion have disappeared from PDVSA in the last two years and no one seems to be able or to be willing to explain where the money went. Venezuelan oil is being sold today through third parties with murky connections in official circles. By getting his hands on much of the oil income, Chávez has created a parallel budget of some US$10 billion for which he is not accountable and which is not reflected in an improved quality of life for the poor of the country. The former managers of PDVSA ran a professional and decorous oil company. What Ramírez is running today is closer to a brothel than to an oil company.
The war on the international petroleum industry declared by Chávez is just a desperate move to distract attention from the disaster of the Venezuelan oil industry under his inept managers. Chávez keeps playing with our resources and institutions as if they were his toys to be used, ruined and discarded.
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