The Trans-Amazonian Gas Line:Project or Deal? By Gustavo Coronel

February 21, 2006


In the old
and much maligned PDVSA a project like the Trans Amazonia pipeline would
require feasibility studies, its public discussion and its approval by
Congress. In this autocracy, Chavez has already committed to it, Venezuela
is apparently the only country that has money to finance it and it appears to be
unprofitable, unnecessary and an environmental threat. But Chavez wants it, so much for PDVSA belongs to everyone.

From what is
understood, the project will ship between 3 and 4 billion cubic feet of gas per
day. Venezuelan gas reserves are 15 trillion cubic feet of free gas (150 trillion cft. total), thus it looks extremely  iffy to spend so much money on a project
with such a short life. Moreover, these markets have controlled process which
are much lower than what would be required to build and make the pipeline
profitable. But lets have Gustavo tell us his take:


The Trans-Amazonian Gas Line:Project or Deal? By Gustavo Coronel

The gas
line proposed by Hugo Chavez to carry Venezuelan gas to Argentina across the
Amazon basin will face four main problems: (1), there are no gas reserves in
Venezuela that can sustain the delivery of this product for the number of
years, 20 or more, that would be required to justify the construction of the
line; (2), there are no likely sources of financing for the US$25 billion or
more required to build the line, except Venezuela. Brazil and Argentina will be
very reluctant to supply their share of the money; (3) the environmental impact
of the line is potentially so disastrous that environmentalists will vigorously
resist its construction; (4), the delivery price of the gas will have to be so high,
between $110 and $130 per barrel of oil equivalent, that clients will refuse to
accept it, unless heavily subsidized. There are other, smaller, problems
involved such as the Venezuelan popular reaction against a project that would
drain much of the financial resources required to solve the urgent demands for
housing, infrastructure, education and health in the country.

Apart from
these “small” problems the gas line proposed by Chvez is reported to
be the object of great interest in certain circles. Mr. Jorge Luis Sanchez,
representative of Venezuelan state agency Enagas, recently announced (La
Verdad
, Maracaibo, 02-15-2006), that
government representatives from Brazil,
Argentina and Venezuela would meet in Rio in order to analyze
the project and that “Brazil
would like to accelerate the construction of the line.” Sanchez added that
in March they could announce the initiation of the project.


In a
related information (AFP, Moscow, February 15, 2006) Vladislav Tsygankov,
representative of Russian company Gazprom is reported to have met with
executives from the Venezuelan state owned petroleum company, PDVSA, to examine
the possibilities of cooperation in the construction of this line that would
cost “some US$20 billion and take 5-7 years to construct.”

In
parallel, additional information (The Daily Journal, Caracas, February
18, 2006) coming from Petrobas, the Brazilian petroleum company, indicates that
the extension of the line would be 6,200 miles, a figure that seems far too
precise if one considers that no feasibility studies have yet been made. The
Gas and Energy Director of the company, Mr. Ildo Sauer, added that the volumes
to be transported would be the equivalent of one million barrels of oil per
day, a volume that, translated into gas terms would represent almost half of
the current Venezuelan gas production, an obvious impossibility. Mr. Sauer also
says that such a line would save Brazil US$11 billion per year, due
to the “lower costs” of the Venezuelan gas (?). The report mentions
US$40 billion as a possible cost for the line, estimate which suggests that no
one really knows what this line would cost. Hugo Chvez has said that the
financing will come from his government and the other Latin American
governments involved in the project, as well as “other nontraditional
sources.” One of this nontraditional sources could be Gazprom, says from
Moscow Mr. Denis Ignatyev, a spokesperson for the company.

Mr. Sauer,
from Petrobras, also believes that the construction of the line will generate
520,000 jobs in Brazil.
It would be very interesting to know how he arrived to this estimate, since the
construction of a pipeline is not particularly labor intensive. Most equipment
would be built abroad, engineering studies take little manpower and the actual
laying of the line would involve a few thousand people.

Although I
do not doubt the good intentions of the technical and managerial staff engaged
in the early conceptual stages of the project, my concern is that, thanks to
crooked and irresponsible politicians, the idea of a trans-Amazonian gas line
will be imposed on our peoples, an idea which is looking less and less like a
feasible project and more and more like a “deal.” Latin American
hyper-corruption has been largely fueled by projects which are not a priority
for the countries, not economically justifiable, not rewarding for the peoples
of the region but very good for some companies, lawyers, politicians, brokers
and other members of the fauna that has grown very rich in the region, while
the population stays largely ignorant, hungry and sick. Many of the large
projects attempted or actually built in Latin America
during the last 50 years belong into this category. There is an anecdote in Venezuela that illustrates this mechanism: a
major outbreak of food poisoning takes place in Caracas. They trace the problem to several
restaurants having served rotten fish. They identify the captain of the boat
who sold this fish who, under interrogation, exclaims: “You mean the
restaurants actually served the fish? How stupid of them! This fish was
not meant for eating. It was meant for deals!”

Well, I
smell rotten fish in connection with this gas line. Imagine the amount of money
and dealings involved in the acquisition of 500,000 pieces of pipe, about a
hundred compressor stations, thousands of kilometers of road building and the
drilling of hundreds of new gas wells, in a hurried and unprofessional effort
to increase Venezuelan non-associated gas production. Most of the contracting
will be done directly, without bidding, as it has become the custom in the
Chvez government. Much will be given to friendly companies and individuals,
who will, in turn, sub-contract acquisitions and services, after pocketing a
healthy portion of the money. There will be billions of dollars running around
in a relatively closed and small circuit of people and organizations. One of
the most frustrating aspects of my experience as an specialist in the
Inter-American Development Bank, during the 1980’s, was to witness how much of
the money dedicated by the Bank to development projects ended up in the hands
of greedy politicians and corrupt business people. There was a corrupt system
in place, one that could not be uprooted by the dismissal of one or more
individuals. As it happens in the world of terrorists (did you see the movie Munich?), when one
is eliminated another one takes his, her place. The solution is to minimize the
incentives for the system to continue operating. In the case of the gas line
proposed by Chvez, the solution is to combat this pretension now, while there
is time.

I am
writing to Transparency
International
in this regard since I believe they can apply the
required pressures to keep international public opinion alert in connection
with this “project.”

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