A1A South

The economic powerhouse that fuels the grand ambitions of President Hugo Chávez at home and abroad is Petroleos de Venezuela S.A., the state oil company.With oil prices at all-time highs, PDVSA’s sales hit $101 billion in 2006 — making it the biggest company in Latin America — and Venezuela’s economy grew by nearly 20 percent over the past two years.

The oil gusher has unleashed a consumption binge perhaps without parallel in the country’s history. It has allowed Chávez to report that he has slashed the poverty rate by 25 percent and to pledge about $8 billion in foreign aid within the past year alone to export his vision of ”21st century socialism” to other Latin American countries.

His petro-revolution has made him popular among the poor in Venezuela and intensely disliked by others — and boosted his standing as the leader of the Latin American left from Bolivia to Nicaragua.

But PDVSA’s good fortune belies profound problems within the company that could sink Chávez’s goal to stay in power indefinitely and use his petro diplomacy to forge an ”anti-imperialist” bloc of nations as a counter to U.S. influence in Latin America and the Caribbean.

Miami Herald interviews with dozens of Venezuelan and foreign oil experts, and reviews of scores of records, turned up a problematic picture:

Since Chávez took power in 1999, oil production in Venezuela has declined by 28 percent, the company’s debt has soared, corruption has flourished, foreign oil partners have pulled out, PDVSA’s payroll has skyrocketed, and the company has taken to hiring employees for their fealty to Chávez, not their expertise.

FOUNTAIN OF MONEY

PDVSA will continue to supply mountains of money to Chávez as long as oil prices remain high, said David Mares, a professor at the University of California at San Diego who co-authored an in-depth analysis of PDVSA last March.

”But PDVSA is not generating more money through better performance,” Mares told The Miami Herald. “PDVSA is generating this money in spite of its deteriorating performance. The threat to PDVSA will be when prices go down, and I don’t mean collapse. When the oil market weakens, PDVSA won’t be able to increase output to keep up income.”

What happens to PDVSA has enormous ramifications, from Caracas to South Florida and throughout the region:

• In 2006, the company generated at least 80 percent of Venezuela’s export revenue, 50 percent of the government’s estimated $52 billion budget, and one-third of the country’s gross domestic product.

• PDVSA is the fourth-biggest supplier of oil to the United States, with a 10 percent market share, and controls CITGO, which owns several refineries and supplies about 8,000 franchised gas stations in the United States.

• Cuba gets two-thirds of its daily petroleum needs from PDVSA — largely free of charge, according to most experts.

• The last time oil prices sagged, in the 1990s, the ensuing political and economic turmoil in Venezuela sent billions of dollars and thousands of people fleeing to South Florida.

Three times in the past 25 years, Venezuela has boomed and then busted along with oil prices.

Many foreign analysts believe that PDVSA was better managed before Chávez became president in 1999.

”PDVSA is becoming highly inefficient,” said Roger Tissot, who tracks the company for PFC Energy, a Washington-based consulting firm.

Read the rest at the Miami Herald.

At the peak of every oil boom, everybody believes that the high prices and good times will last forever instead of the cyclical roller coaster that oil has always been on.  Chavez is hardly the first to make that error.  Compounding his error, however, he fired the skilled managers and oil workers that could keep production high, and instead created crony jobs where loyalty to Chavez instead of knowledge of the oil business was most important.  Seizing the foreign investments is probably what is going to hurt him the worst, especially since reinvestment in the oil fields to keep them going is apparently kept to a minimum in order to maximize the cash flow.  While the oil prices are high, the incredible mismanagement and falling production is not noticeable but once prices fall, his whole house of cards is going to fall apart and once again, Florida will be inundated with ever more refugees seeking a stable place.