David Luhnow and Peter Millard wrote a Page One feature article for The Wall Street Journal Crude Aid: As Global Oil Demand Tightens, A Big Producer Has Own Agenda (subscription required). The article focuses on Petroleos de Venezuela SA, or PDVSA for short, the national oil company of Venezuela.
On a recent Saturday, Venezuela's flamboyant leader Hugo Chavez scolded him on national television for failing to appear at a ribbon-cutting ceremony for a school in western Venezuela paid for by Petroleos de Venezuela SA.
"The time is past when the president turned up and PDVSA was off somewhere minding its own business," said Mr. Chavez, who ordered an aide to summon Mr. Coronado. When the hapless executive arrived a half-hour later, Mr. Chavez was still raging, and cut him off before he could defend himself. "There's nothing you can say," the Venezuelan president lectured.
Since Mr. Chavez took power in 1999, he has become PDVSA's de facto CEO, steering the oil company into political, economic and philanthropic ventures that have distracted it from its core business of finding and producing more oil. The consequences for PDVSA are stark: Output has fallen to an estimated 1.6 million barrels a day from nearly 3 million barrels in 1998.
The oil company, the world's third-biggest by most measures, is run along social and political guidelines as much as business tenets. As a result, much of the decision-making involves figuring out new ways to fund Mr. Chavez's pet projects. One of the latest ventures was paying to televise soccer's World Cup for free in Bolivia, a Chavez ally.
Mr. Chavez's geopolitical considerations, and his anti-American bent, also influence the way the company does business. PDVSA has turned away from traditional partners like U.S. major Exxon Mobil Corp. and is doing much more business with state companies from Iran, China and India. This weekend, during a visit to Tehran by Mr. Chavez, Iran pledged to invest $4 billion in two Venezuelan oil fields. The two nations also unveiled a raft of joint ventures, including a refinery in Indonesia.
I have been warning that Venezuela's current path will end in sorrow. Hugo Chavez is focused on his political agenda rather than an economic agenda. His political aspirations appear to mirror those of Fidel Castro. He is squandering Venezuela's wealth on ill-conceived projects. He has taken a very nationalistic approach to the country's resources. As a consequence, he has deterred foreign investment and foreign skilled labor. Moreover, his management of PDVSA's affairs is slowly depriving the company's ability continue as an on-going concern.
While oil prices remain high and PDVSA's production remains substantial, he can continue with his current socialistic policies. The downside, however, eventually he will have insufficient revenue because either low oil prices or reduced production. When that situation develops, the citizens of Venezuela will be shocked because of the abrupt change.
In addition to his socialistic policies, Hugo Chavez is engaged in some rather questionable international policies. He recently purchased from Russia fighter planes and helicopters. According to MosNews.com Russia will help Venezuela build plants to make Kalashnikov rifles and ammunition. And if that were not enough, Chavez has recently signed deals with the government of Iran and pledged his support for Iran's nuclear ambitions.
Some day this will all end badly.
