Venezuela: “operational emergency” in oil sector?

Labor unrest, infrastructure problems and charges of corruption at Venezuela’s state-owned oil company PDVSA have reached the point of a “significant operational emergency,” PDVSA vice president for exploration and production Luis Vierma told the National Assembly’s comptroller committee July 18. The warnings of crisis come just as PDVSA is embarking on an ambitious course of taking greater control over Venezuela’s oil industry from foreign companies.

PDVSA, accounting for about half of government revenues and three quarters of export revenues, is the backbone for funding the Hugo Chavez government’s social programs. In May PDVSA took over operations of major oil projects that had been run by ConocoPhillips, ExxonMobil, Chevron, and Total in the Orinoco basin. Also nationalized were 46 oil rigs, most of which are also centered around the oil-rich Orinoco.

PDVSA’s annual plan for 2007 set a target for 191 active oil rigs to produce a projected 3.3 million barrels per day of crude oil. However, Vierma told the National Assembly that only 112 oil rigs (33 of which belong directly to PDVSA), are currently operational, and only 120 are likely to be up and running by the end of the year. “Venezuela is moving toward technological independence, but it will take a long time,” Vierma said.

The Minster for Energy and president of PDVSA, Rafael Ramirez, told the newspaper El Universal last week: “There’s an international shortage of rigs. The cost associated with oil in OPEC countries has risen 40% and an offshore rig is being hired at no less than $400,000 per day; double that of last year.”

In an effort to combat the shortfall, PDVSA announced July 20 it would invest $3.5 billion in new rigs. The statement also said that PDVSA has reached an agreement with China for the acquisition of new rigs—an initial thirteen rigs to be imported directly and future Chinese rigs to be assembled in Venezuela.

While the Paris-based International Energy Agency, which analyzes the international oil market, estimates that that oil production in Venezuela has fallen to 2.37 million barrels a day, Ramirez maintains that production remains steady at 3 million barrels per day. At least part of the discrepancy can be traced to differences in the type of oil being included in the totals.

In addition to the infrastructure problem, PDVSA is also facing two labor disputes. The first relates to the collective contract for 2007-2009, which has been under negotiation since April. Venezuela’s oil workers are represented by four major union federations, all officially aligned with the National Union of Workers (UNT). A commission of representatives from the four federations has been appointed to negotiate the collective contract with PDVSA. But union leaders have raised concerns over the slow progress and “uncertainty” surrounding the negotiations.

The Minister of Labor José Ramón Rivero said July 21 that the situation within PDVSA is “absolutely normal.” However, José Bodas, general secretary of Fedepetrol-Anzoátegui, has called into question the legitimacy of commission appointed to negotiate with PDVSA, saying it is unelected and comprised of “union bureaucrats.” Bodas called for election of a new committee that is “truly representative of the base.” He also wants democratic elections for a single, united federation of oil workers.

Beginning July 23, oil workers have called for pickets at the gates “of all oil installations” throughout the country, demanding the removal of the Manager of Human Resources, Dario Merchan, a relative of Ramirez, who they claim has delayed negotiations for the collective contract. Another demonstration supported by more than 160 unions affiliated with Fedepetrol has also been called for Aug. 2 in front of the Presidential palace, Miraflores.

The other industrial dispute centers around the nationalization of 46 oil rigs in the Orinoco Oil Belt, with allegations that not all of the oil workers formerly employed in the old joint ventures have been re-employed by PDVSA.

Ramirez has repeatedly denied that there have been dismissals, asserting that all of the 1,342 oil workers are being incorporated into PDVSA. He argues that some unions had tried to incite conflict, so that the control of the rigs did not pass over to rival unions, according to the newspaper Últimas Noticias of July 10.

Bodas, who has described the situation in PDVSA as a “time bomb,” argued that 268 workers remained in “limbo,” saying: “If we achieve 100% absorption of the operators it will be a triumph of the mobilization of the workers.”

Argenis Olivares, a representative of the Sindicato Nacional Unitario de Trabajadores Petroleros (Sinutrapetrol) said last week that “it cannot be denied that in some middle levels of PDVSA there is ingovernability.”

Allegations of corruption have also surfaced, relating to the bidding process of for oil-services providers contracted by PDVSA. On July 19 Luis Tascón, a pro-government member of the Venezuelan National Assembly, said he was convinced there was evidence of “irregularities,” and demanded Minister Rafael Ramirez provide an explanation to the Assembly. Tascón was quoted in the New York Times July 23 as saying, “Our sovereignty is at risk if we allow Petróleos de Venezuela to remain in this situation.”

President Hugo Chavez has not publicly intervened in the debate.

While Venezuela continues to export about 1.4 million barrels of oil per day to the US, it is looking to expand markets through joint ventures with state oil companies from China, Iran, Vietnam, and Belarus.

With oil prices hitting an 11-month high of $78.40 a barrel last week, Chavez remains confident. “Oil is going straight to $100; no one can stop it,” Chávez said last week during a visit to Nicaragua. (Kiraz Janicke for VenezuelAnalysis, July 23)

See our last posts on Venezuela and the global struggle for control of oil.