“You will never win this war when there is so much money to be made. Never”
Jhon Popeye Velasquez alias “Marino” in an interview before he was released.
To those that watched Escobar, El Patron del Mal, the character Marino is one of the worst guys in the book and series. It turns out that this week he was freed from jail after serving twenty eyars and has been in the press quite a bit. The sentence above hit me, because that is one of the things that I fear may happen in Venezuela: there is so much money to be made, that those trying to change the Government may never be able to. While “Marino” was referring to the drug war, I am referring to all of the corrupt businesses allowed and nurtured by the revolution. Everything in the rveolution has been turned into some form of business or arbitrage. From drugs, to Cadivi, to Fonden, to gas. Thus, do you really think those in control are going to give up these rackets so easily?
I don’t.
The basic question I want to answer is: How much money or profit are we talking about?
In this post I make a very rough estimate of one the biggest businesses (Billion dollar plus) where the boliburgoise and Government officials, civilians or not, have gotten rich, filthy rich. I make many assumptions, attempting in the best case to be under the correct amount, rather than over. I will try to make a series out of this. Today, gasoline
1) The gasoline racket.
When did it become such a big business to take gasoline out of Venezuela? Since Chavez became President in 1998, the price has been frozen. When he got to power, a liter of gas was about Bs. 90 (0.09 of today’s Bolivars) and a dollar was about Bs. 600 (Bs. 0.6 of Bolivares Fuerte). Even at that level it was a good deal to send gas to Colombia. But it did not become such an organized activity until the difference was so large, that the cost of gas was irrelevant. Let’s say a factor of 50, that is, when the parallel market rate became Bs. 5. I am going to assume that this is when the racket began to become massive. We are talking around 2007. And I assume it reached the current massification when the factor became 100. This happened in 2012.
The first question is what is the current number for barrels of gasoline extracted per day. Ramirez says 100,000 barrels a day. Colombia says 55,000 alone to that country. I will assume, the latter and add 10,000 a day to Brazil and 10,000 a day each to Guyana and Caribbean islands. Total today 75,000 barrels a day. I will also assume that when it all began in 2007, about 10,000 barrels a day was being smuggled and from 2007-2011, take the slope between 10,000 and 75,000 reached in Jan. 2012 This is all very conservative.
Now, the next question is: When they say so many barrels a day, are they talking about barrels of crude? Because you only get about 19 gallons of gasoline from a barrel of crude which holds 44 gallons of crude. I am also assuming this interpretation is correct. it’s “only” a factor of almost 2.
So, here I am holding one barrel which was free, given the approximations I already made. The middleman in Colombia, Guyana, the Caribbean islands and Brazil have to make something. So, I will assume that each gallon is sold cheap for about $3, so that my barrel is worth US$ 57. Nice profit. Before we discuss who gets it, let’s calculate what this means in one year for 75,000 barrels.
It is US$ 1.56 billion per year. Or from 2007 to 2013 US$ 8.426 billion in profit.
Now, I would bet the “bachaqueros” do a significant fraction of this business. But they have to pay the military. The question is how much is the more “formal” business. the one that takes full trucks of gasoline to Colombia. My guess is this is about half the business. Thus, assume the “bachaqueros” have to spend one third of their profits in bribes and that “you know who” takes about 80% of the profits from the other half and you are saying the ones that control the gasoline racket have pocketed about US$ 4.67 billion.
Double it if they are talking about barrels of gasoline…
Nice racket! But there are bigger ones! More, as I have time (but going on vacation)…Cadivi, Bonds, Drugs, Foreign Exchange
The Devil's Excrement 
September 5, 2014 at 2:41 am
Miguel,
I was working on a proposal to PDVSA in 2006-08 to help them combat the smuggling problem. As you can see the project got nowhere because of the simple reason stated above, way too much money involved in the illegal trade, and what is still obvious today, the full involvement of members of the armed forces and PDVSA employees in the smuggling trade- and not enough political will to confront it.
At the time we were estimating that the amount of crude equivalent barrels being smuggled out of Venezuela were In the order of 75-100k bopd, with 80-90% of that estimated going to Colombia. Given the huge increase in the fx differential since, this must now be in the order of 150k barrels/day- crude equivalent in gasoline. And it’s not just bachaqueros moving these large amounts of product.
This scam did not appear with Chavez, it has always existed in venezuela.
September 3, 2014 at 12:54 am
Ramerez is out as PVDSA Jefe? http://www.cnsnews.com/news/article/maduro-replaces-venezuelas-longtime-oil-chief Dia a mi the caca details! What boot licker is going to replace him? This should bring incompedence to a whole new level that we never thought possible. As I said after RR, they will kill the Golden Goose (PDVSA) and eat it and the wish bone won’t do them much good after the fact.
Its so sad.
September 2, 2014 at 2:16 pm
Article in today’s WSJ about PDVSA, Portugal’s BES and Goldman Sachs: http://i.imgur.com/oEHmsHv.jpg and http://i.imgur.com/rlkx45C.jpg
September 5, 2014 at 2:51 am
The PDVSA – BES relationship will be shown to be a lot deeper -and full of shady dealings- before this story plays out.
September 2, 2014 at 9:17 am
What bothers me about this is that it involves not only the poor but also the rich, the gangs, the military and many in government and PDVSA. All acting together to sell Venezuela’s one benefit down the river. In places like Nigeria and the middle east these are acts of revolution are used to buy more guns and such. On the Colombian side, we can be sure what the FARC are doing with their share. In Venezuela it seems to be mutual greed?
September 1, 2014 at 11:06 am
[…] There Is Too Much Money To Be Made In The Bolivarian Revolution I: The Gasoline Racket. […]
August 31, 2014 at 2:17 pm
[…] Via The Devil's Excrement: […]
August 31, 2014 at 7:23 am
Interesting article in the Miami Herald by Oppenheimer on how VZ has to start importing light crude in order to mix with their heavy, because the heavy is too thick to run from their pipes to the ports. (So they mix the light in.)
This quote kind of blew me away, how Chavismo took a stellar state-owned company like PDVSA and managed to turn it into shit. But is this math right?
——————————
“In 1999, when Chávez took office, PDVSA had 51,000 employees and produced 63 barrels of crude a day per employee. Fifteen years later, PDVSA had 140,000 employees, and produced 20 barrels of crude a day per employee, according to an Aug. 14 report by the France Press news agency.
“Venezuela’s net oil exports have plummeted from 3.1 million barrels a day in 1997 to 1.7 million barrels a day in 2013, according to U.S. Energy Information Administration estimates.”
———————————-
Their barrels per day per employee indicates little change in overall production between then and now, and we know that’s wrong. So I don’t get it.
Read more here: http://www.miamiherald.com/2014/08/30/4319013/andres-oppenheimer-venezuela-from.html#storylink=cpy
August 31, 2014 at 9:08 am
Yeah, sometimes simple math gets in the way of a good story.
August 31, 2014 at 9:59 am
“official” numbers. 🙂
August 31, 2014 at 7:17 pm
We know production is way, way down–but the “French news agency” is reporting a 3-fold increase in workers, resulting in 1/3 barrels per day per employee compared to before, more or less.
Which means no change.
August 30, 2014 at 7:14 pm
I live fairly close to the border and it IS gasoline not crude. Fuel can only be purchased even in our part of Ven on the black market, even from the government pump. a barrel of gasoline at the pump is 14 bs F, but to get what we need, we have to pay anywhere from 5,000 to 10,000 bs F a barrel, and this is from the pump. Outside the pump, prices get as high as 20,000 Bs a barrel.
August 30, 2014 at 4:36 pm
[…] again Miguel has published two superb posts, one about the $$$$ magnitude of the racket of gasoline at the border which explains why so many are "against" a gasoline price increase; and another one […]
August 30, 2014 at 11:36 am
Miguel
The government admits 2.200 millions per year.
http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/contrabando-de-gasolina-genera-2-200-millones-en-p.aspx
Though of course we do not get the detail, from what crosses the border to waht is imported to compensate.
August 29, 2014 at 2:08 pm
Guys,
Here
http://www.ardmediathek.de/tv/WDR-Weltweit/Im-Herzen-Venezuelas-Von-den-Tafelberg/WDR-Fernsehen/Video?documentId=22901108&bcastId=7989132
at minute 6:35 you can see how a Swiss who worked for decades training
Venezuelan military lives now in El Dorado smuggling petrol & fuel to Guyana
and you can see how the military get their dosh.
That comes from the public German TV channel ZDF.
August 29, 2014 at 2:09 pm
Sorry, that’s the ARD channel, not the ZDF.
September 1, 2014 at 7:35 pm
In any event, it is followed by a great video on Canima and the jungle around it.
September 2, 2014 at 2:07 pm
It is indeed, but it also shows some scenes that should be enough to make a prosecutor open an investigation against that Bruno character and a lot of military.
August 29, 2014 at 12:55 pm
Miguel, i know a person that did at least 3 bachaqueo trips with one large bag of food. She got 10.000 Bs.F for each trip.
August 29, 2014 at 1:50 pm
I know a person that used to send perfume and shampoo by MRW to Colombia to complement his income. The business died when there began shortages of those items in Venezuela.
August 29, 2014 at 9:42 am
It’s a lot of money and less riskier than smuggling cocaine.
August 28, 2014 at 5:58 pm
To buy a barrel of diesel in Apure in Jan/2014, you had to call and beg the General that controls the military, not the GNB.
That said, I am sure that military personnel are busy stealing, transporting and selling diesel, oil and gas to Colombia. And that is on top of charging a landing fee for drug dealers in the area.
My guess is that if protests erupt in San Fernando de Apure the military will follow the money trail instead of the righteous one.
August 28, 2014 at 4:57 pm
Well, when Chavez got to power the it took Bs. 0.576 of current Bolivars to buy a dollar. Today, at the parallel rate that is Bs. 89, that is a factor of 154 times.
August 31, 2014 at 7:14 am
So that’s a 1,500% difference!
I think.
Math was never my strong point.
August 28, 2014 at 4:49 pm
There’s a 1000% difference between bolivar gas-paying power between early Hugo and now?
I think that’s a lot.
August 28, 2014 at 3:44 pm
When they say barrels they mean barrels of gasoline, not crude.
August 28, 2014 at 3:48 pm
Are you sure? If this is true, then Venezuela uses 800,000 barrels a day of gasoline according to Ramirez of which 100,000 is smuggled. This means, that 1.85 million barrels of crude would be needed for this. The numbers do not add up.
August 28, 2014 at 4:32 pm
A BBL of Crude is 42 US Gallons or 159 Ltrs. a BBL of Gasoline is 55 US Gallons or 208 Ltrs. A barrel of Gasoline and a barrel of Diesel are the same volume. 55 USG / 208 Ltrs.
August 28, 2014 at 4:38 pm
I know all those conversions. However, these guys are not very precise. Thus, when Ramirez says 100,000 barrels are smuggled out, does he mean crude or gasoline. And if this is the case, when he says Venezuela uses 800,000 barrels of gasoline every day, is that 1.85 million barrels of crude? If true, then to me the numbers dont add up at all.
August 28, 2014 at 7:01 pm
When I worked on the Alaska Pipeline some of our pump station jet engines used liquid fuel. We extracted crude from the line, processed the JP-4 we needed for our engines and re-injected the residual back in the pipeline. The API of crude being exported from point Barrow was much higher than what arrived and was sold in Valdez. 5 of our pump stations did this and a refinery was set up in North Pole to process JP-4 for the airport in Fairbanks (Cheapest fuel in the world in 1975) . 19.2 gallons from a barrel of crude is a world average. I don’t know what it is for Venezuela, it could be only 18, but the residual is still shipped as crude. Sorry I’m a mechanic that works on turbines and compressors to get the Excrement out of the hole (here in Venezuela for 33 years). There are a bunch of numbers to crunch to calculate this. I have to leave that to you.
Really appreciate your Blog, hang on your every word.
August 28, 2014 at 3:51 pm
If you are right, multiply all numbers by 2.3. But, if you are right then: 1.8 mm for gasoline, 0.425 for China, 0.2 for Petrocaribe and Cuba. We export 300,000 barrels only?
August 28, 2014 at 3:40 pm
No, sorry.
August 28, 2014 at 3:25 pm
do u have this post in Spanish?
August 28, 2014 at 3:19 pm
Reblogged this on manuelcarbajal.
August 28, 2014 at 3:00 pm
Octavio: When I saw your last but one post I wondered if someone might be printing money for their personal use — today’s post revived the thought!
I don’t normally comment on websites but this is a good opportunity to say how much i enjoy TD’sE. I am an old CSV hand from the times of Lucio M and Alberto Q and others you are too young to know about. I left in 1973 and wondered in the following years why my extended family one by one left Venezuela! Now there are none left and my sueño de ilusión of ending my days in Venezuela are long gone — life without toilet paper would not be worth living!
August 28, 2014 at 3:03 pm
Thanks, I am not that young….
August 28, 2014 at 2:20 pm
Capturing.
August 28, 2014 at 2:16 pm
Miguel: What is the photo of the GN with the tomahawk? Capturing or transporting gasoline?
August 29, 2014 at 1:57 pm
Funny thing about that pic, which is taken from this story
http://www.ochina.gob.ve/guardacostas/index.php/noticias-guardacostas/111-guardacostas-maracaibo-incauto53-pipas-de-presunto-combustible-en-el-municipio-mara
is that it talks about 53 pipas, however, I see at least 36 if not 37 rows of 3, which would give you over one hundred of them.
Did they keep some?