Archive for July 19th, 2007

PDVSA to create eight companies, overextending its financial and managerial capabilities

July 19, 2007

On the same day that The VP of Exploration and Production Luis Vierma said at the National Assembly that PDVSA was currently in an “important operational emergency” and that the Board of Directors as a whole was to blame, it comes out that this same bunch of incompetent fools are getting ready to destroy the country’s main source of revenue.

Vierma’s sharp criticism is the first attack from an insider on how the company is being run, while outside analysts all question the company’s production numbers. Vierma, who is being investigated for some reported monkey business in the hiring of some Chinese drilling rigs, using phantom companies, simple said the whole thing is a mess. Vierma seemed to have little memory of why particular companies were picked, other than the bidding committee recommending them. he then proceeded to tell the Deputies that oil is a difficult business and that it took 15 years to form a good oil engineer, thus, he said, PDVSA was in the hands of multinationals, until all those engineers could be trained. Vierma selectively forgot how his team fired thousands of such technically trained people in the name of ideology and politics, guaranteeing that PDVSA would be mired in the mess it is in.

And as Chavista fanatics still want to believe the fake numbers given out by Ramirez and his cronies, the truth is that not only is PDVSA dysfunctional in its operations, but its finances are now being compromised beyond repair.

But these guys, who can not even manage PDVSA properly, have an incredible ability to believe their own BS and now have come up with an even bigger scheme: Let’s have PDVSA get involved in a whole bunch of different areas, reviving the same Venezuela Inc. concept that failed so miserably in the 70’s for the same reasons, trying to do too much without the required managerial capability.

Thus, these guys have now come up with the idea that PDVSA will create eight companies called: PDVA Industrial, PDVSA Servicios, PDVSA Construction and building, PDVSA Naval, PDVSA Gas, PDVSA Urban Development and PDVSA and PDVSA Agriculture. An eighth company has yet to be approved called PDVSA Home (Hogar), the most ambitious of them, which will manufacture everything from lightbulbs to shoes.

Now, I will not bore with the details of what each company will do, but suffice it to say that it will be a sort of Everything Inc. taking over gas bottling and distribution from the private sector, house construction, shipbuilding, tools, matresses, shipbuilding, oilr services, refining design and whatever they come up with.

So, they can barely run the country’s most important industry and they want to do them all, guaranteeing that PDVSA will not make the investments it needs, because the funds will be used elsewhere, and that none of these new companies will do their job efficiently, since there is little technocal or managerial capability to do them.

But it is the financial part that is getting truly scary. As PDVSA is not making the investments required, its cash flow is being diverted to social programs, airlines and the like and now it will be needed to fund all of these grandiose plans. But even worse, PDVSA has committed to help build 14 refineries abroad, has to compensate its former and current partners for their stakes in the heavy crude companies and may even have to buyback some US$4 billion in bonds from these projects.

Clearly, not even at US$ 100 per barrel of oil, there is sufficient money to do all of this. In the meantime, attention is diverted from the focus of PDVSA and the future gets even murkier then. Of course, all of this plans assume that PDVSA has fantastic management and oil prices will hold up at current levels. This from the same people who can not even manage to keep up oil production or even guarantee that the country will have sufficient functioning oil drilling rigs to sustain oil production, a business which they are supposed to know.

It is all a gigantic circus where the lack of transparency and accountability does not reveal the extent of the damage that is being done to the country’s main industry. And with it, the damage will be done to the whole country. PDVSA and its clowns will subsidize competition with the private sector, which will suffer. Perfectly running private operations are being nationalized. Factories will be built that will never even open or sell anything. Money will be wasted. Corruption will be rampant. All in the name of the revolution.

Until one day it will all run out of money, gas and more importantly, all that hot air!

Baduel sends a strong message in farewell speech as Minister of Defense

July 19, 2007

Yesterday, a new Minister of Defense was sworn in and legendary General Raul Baduell gave his farewell speech. Leaving aside his strange religious and samurai musings, the speech represnts a very strong condemnation of Hugo Chavez and his Government. Politely but firmly, Baduel took shots at everything that Chavez and his Government stand for, making you wonder how much more was left unsaid.

Here are some pearls of wisdom by Baduel:

On XXIst Century Socialism:

“The call by President Hugo Chavez to construct XXIst. Century Socialism implies the urgent and imperative need to formalize our own theoretical model…We have to admit that such a theoretical model does not exist up to this moment nor has it been formulated and I estimate that as long as this persists, uncertainty will persist among social groups.”

Jeez, where do I start. After eight years in power Hugo Chavez has only managed to give a label to whta he wants to do, but exactly what he wants to do and how is unknown, has yet to be defined and we have to go along with it no matter what it ends up being. I guess you could call this journey into the unknown led by an amateur and ignorant autocrat/dictator.

“On political matters, , our model must be profoundly democratic”

Well, given the fact that it has not been defined, Baduell seems to be saying that so far it is not.

“A socialist model for production is not incompatible with a political system which is profoundly democratic, with counterweights and division of powers”

My God! Can it be any clearer than that? Counterweights? Division of Powers? Certainly not in Venezuela under Hugo Chavze, where exactly the opposite is happening. There are no counterweights or divisions of power and Chavez wants even more control an more decisions by him, whom Baduel has already told us is clueless about the type of system that he wants.

“We can not allow that our system be transformed into State Capitalism, where the state is the only owner of the means of production”

Well, so far it seems as if that is all Chavez’ model is about, he has not only expanded dramatically the role of the state in the means of production, but also on the distribution area where the state is now competing head to head with the private sector in a very inefficient manner and talking advantage ofi ts access to foreign currency at the official rate of exchange. In fact, just today (next post) it became known that PDVSA will create as many as 8 companies which have little to do with its core business of exploring for and producing oil.

“Let us not forget something which is evident but we obviate many times. Before distributing wealth one has to generate it. You can not distribute something that does not exist”

Need I say anything about this dart by Baduel? This Government has given away abroad and in Venezuela the easy oil money, destroying value, rather than creating it , by spening money in acquiring efficiently run operations, rather than creating new wealth or getting rid of good managmenet because they were not ideologically aligned with him.

“Our model must break with the bad custom of the past (recent?)of teaching the people about their rights, but not about their duties…the model has to each the people that things do not appear by magic, but they need to be obtained on the basis of effort and work”

With this sentence Baduel is saying the model has to be exactly the opposite of what Hugo Chavez has said and done for the last eight years. With Chavez you get only if you are loyal and you get it for nothing. Chavez has created useless dierct assistance programs which do not promote work or responsibility only to create unquestioned loyalty. Baduel can not be talking about a project led by Hugo Chavez, this statement is the definition of the anti-Chavismo.

Baduel spoke directly, he is ambitious. In private he tells his friends he would like to be President one day (“If Chavez can, so can I” he has been quoted as saying). Was he warning Chavez? Was he telling him he will be watching? There are rumors Baduel will be named to an important position in the next few days. If he is not, Chavez better watch his back all the time, there may be a criollo Samurai who is religious ready to step into his shoes…

I guess our military is full of megalomaniac nuts.

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