The holy ignorance
Black gold among us is a totem. Every one bets on it without bothering to know how it operates. Among oil countries Venezuela is the one with more shortage of experts on the issue.

Perhaps this is why oil managers think that the world is divided in two: them and the others; the definition of who “they” are would leave more than one Ministry of Energy’s executive with the mouth wide open.

The rent prone feature of our society is so sharp that it has led the oil people to think of public opinion —and most particularly political opinion— as a Greek chorus to be fed only with information having previously been distilled at the refineries of "corporate communications".

Not only does this conduct reflect two antithetical cultures, it derives from the distortion applied to the industry by its professional “enemies” —people who have made a lucrative career of denouncing PDVSA—, “experts”, now and then, financed by the industry or by the Ministry of Mines and Energy.

As the PRI in Mexico, PDVSA should thank the Almighty for those enemies. People who swear that PDVSA’s President is a natural member of imperialism’s executive committee meeting three times a year in New to eat children and raw seals.

There is no one in Congress, the Comptroller’s Office or the media, able to understand, much less to analyze, the complex bulk of information generated by a corporation such as PDVSA, with activities in the four corners of the planet.

Accusations of happy spending made against PDVSA reveal how much those who think that way ignore our industry’s nature. Since Pérez Alfonzo, the national elite —within the system— does not even have a single objective analyst, free of any suspicion of agendas differing from national interest, who does serious study of oil and its repercussions on society.

When CITGO’s and other foreign investments’ earnings are compared, something is forgotten: the inclusion of the price perceived by Venezuela from these facilities’ strategic nature within an industry that, at the time of the nationalization was left without a client list and without trade strategies in a single moment.

Just to give an example: in the eighties when the critic bulk of what today is PDVSA was being formed, the "experts" condemned, from congress, the internationalization. The political “technicians” hoped that the nation would jump from an airborne craft without a parachute only to satisfy their ideological itchiness.

Just look at the backwardness and intellectual poverty of the publications against PDVSA, at the preposterous nature of the thesis promoted, from time to time, by the Central University of Venezuela, or at the “Seminars” sponsored by political leaders, in order to understand the condescension of the oil industry for its civil society counterparts.

If something measures the accelerated national decadence that is the inability of a richer, more informed and cosmopolitan society to produce the Pérez Alfonzo, Pérez Guerrero and Mayobre who were all respected by the oil world.

Oil culture: advantages and disadvantages
Another ungrounded accusation is the degree of efficiency attained by the oil people when they have been called to serve in other areas of public administration. There is the pretension in this policy of believing that mere voluntary effort is able to replace the lack of corporate efficiency and honesty goals.

If you register hookers in a convent it is probable that they will end up praying, but if you put just a few nuns in a brothel it is quite unlikely that offices will be held there. The oil executives are not wizards, but neither are they insane —as Pulido Mora believes—.

The purists of oil industry whisper at the industry’s halls that the rule of the best "reaches the High payrollÉ" forgetting that it is not the industry executives who allow for PDVSAÕs efficiency, but rather the clarity of goals and objectives.

As time goes by, the black box condition has begun to affect even its procedures. When hiring staff, the tendency to appeal to the closest family led a manger to comment on the almost hereditary character of some subsidiaries. Nobody dares to reject the members of managers’ families hoping to work at the industry, since that sin would jeopardize the interviewerÕs career; there are subsidiaries where family members make up for almost half the payroll.

The “engineering consultancy” companies —Infectar, Jactase, Otepi, Vepica and Tecnoconsult—, the retired oil executive’s final destination, get hold of most PDVSA subsidiaries’ contracts, creating friction with other firms adducing their equivalent technical excellency.

Errors have been made also in PDVSA but in most of the same save for the petrochemical, political interference is present in its decisions.

Some years ago, the annual meeting of the powerful Saint Lucia group had as its main issue the review of a white elephant: Pequiven Projects such as the PARC (project for the upgrading of the Cardón refinery) ended up costing more than three times their original estimates, thanks to the financial guidelines given by Gustavo Roosen as PDVSA President.

No matter how it may hurt, PDVSA is a genuine corporate gem “made in Venezuela”. Other oil corporations are stricken with envy when they compare their results with those of our industry. CorpovenÕs current costs are lower than when it was MOBIL, PDVSA’s world dimension may not be compared with other companies in the world. Oil industry management is the only place in the country where at mid and high levels professionalism and objective analysis of facts rule.

PDVSA is the world’s second largest oil corporation in terms of all the thinkable efficiency variables. Our local people may give lessons to Shell, Exxon, Chevron and Mobil on how to optimize corporate earnings.

Patriots and Royalists: The opening of the oil industry
The opening of the oil industry was the bomb that unleashed the first serious internal divergence as to the vision that the country has of PDVSA. An unearthed corporate war hatchet of which the low profile does not make less bloody. The opening is the daughter of Luis Giusti, former manager of the Cardón refinery, moved to the Strategic Planning Coordination division, from where he began to learn how the rest of Venezuela was.

Jointly with the planning group’s executives, Giusti became aware of PDVSA’s corporate weakness and of the drastic changes in the world’s energy markets. The world was saving more energy every day while the old geography was turning around when the economic dynamics turned to the Pacific, and the rent earning model collapsed as Government was more bound with commitments.

They foresaw —correctly— that through this road it would be impossible to guarantee the resources required in order to hold to the production potential and that the other road of indebtedness was unthinkable in political and economic terms.

PDVSA had to grow and let grow with it a wide sector of the economy that would allow for an oil investments plan. A stagnant State would be considerable more voracious at times when the industry was urged to reduce the heavy tax burden. The industry’s growth was dictated by the reality of opportunities that were passing by never to return.

Investment could only come from abroad. Natural gas was the area chosen to test the waters. The Cristóbal Colón project, something that never went beyond being a hypothesis, was used as a guinea pig to develop new relationships between oil management and the country’s leadership.

The Venezuelan production potential was declining at a rate of 20% p.a.; if new investments were not made at the same rate or no new reserves were added, the country would no longer have any oil to exploit in five years. The Zulia well are almost one hundred years old. These fields require a reinvestment rate of at least 75% of oil income in order to maintain the production levels of four years ago.

The political decision of accepting OPEC quotas, forced PDVSA to shut down well with a productivity somewhere between 100 and 300 times greater than that of US marginal wells (wells that are now being offered as “marginal” to international drillers) to concentrate on highly earning yielding wells and on lowering costs in lower production quota environment.

Were would one find the resources required to revamp the oil economy in a world with greater limitations? Domestic savings are unable to finance a corporation such as PDVSA for two reasons: lack of domestic capital and the inflationary impact it would produce.

Only PDVSA’s internal effort between 1996-2006 implies some US $ 40 billion. There is no single bank in the world able to lend such sum, less to a third world corporation such as PDVSA. The only road left was either internal generation —implying a reduction of tax contribution— or to appeal to foreign investment and to the securities market, there are no other options and this is where we stand.

This was not invented by the oil people, and neither are we in the presence of a conspiracy to let the former oil companies return through the back door.. What PDVSA is facing today are the consequences of the failure to develop —with oil money— alternate currency yielding sources

and economic growth.

Christopher Columbus’ Fourth Trip
If the Executive, the political parties, Congress and the Supreme Court would approve an opening scheme for the exploitation of the natural gas deposits in the coast of Paria, a precedent would be set for the possibility of a process then to be followed by the Orinoco Belt, the marginal areas, the new areas and finally the offering of PDVSA shares to the market.

In spite of the fact that we are already at phase IV of the plan, this was never the machiavellian that PDVSA’s enemies want to show; it is rather the only possible way out —let us say it once more— for the Venezuelan oil industry.

The opening of the industry proposes revolutionary corporate changes for such an orderly world as the oil’s. The new actors would bring new technologies to reduce costs —something that has extended the life of the North Sea fields and that has allowed to introduce heavy curds competing with our own—, to attract PDVSA best trained staff with six or the times larger salaries, to develop relations with the political world in less paranoiac terms than those of the industry, etc.

Discipline —the industry’s basis— would loosen because the oil managers would have other alternatives. The value of the bonds started as from the beginning of the oil career ate the fields would be lessened , and comptrollers would have other ways to gauge performance. A most important imponderable factor is that excess of regulations for the industry, the resentment and demagogism in the countryÕs treatment of the oil people would become invisible if they work either for Chevron or for PDVSA.

This change does not have too many fans. In PDVSA the opening carried the division into two blocks: patriots, rooting for continued innovation and for the goal of a global energy corporation, and the royalists who oppose the opening of the industry, mistrust the return of the oil companies and think of stock issue as an heresy —even preferred shares with no voting rights—. Although the patriot leader —Giusti— holds the office of PDVSA’s president, the royalists’ power is not to be unnoticed. Well entrenched inside power positions throughout the entire industry, the patriots are capable of bending any policy.

The opening in new areas, a successful one —not too concurred— is a partial compromise with royalists, who would rather have partners from modest international corporations instead of Exxon’s or Shell’s powerhouses. One thing is to cope with BP, CONOCO, AMOCO and ARCO, all needing oil, a different one is to do with those who were, some fifteen years ago, the bosses of the executives who were then junior management executives of what today has become PDVSA.

Another field where the battle is being fought is that of domestic refining investment, where some argue that it is cheaper to buy an overseas refinery —without laying down a single cent— and to have a foothold in a rich market than having to built huge dinosaurs such as the New Eastern Refinery (NRO) at a cost of seven to eight billion dollars. PDVSA’s tendency —a correct one from the management standpoint— of grading its investment according to Internal Rates of Return by activity will always condemn domestic refineries, the petrochemicals and coal in that order when conventional and new crude are at stake.

Arguments come and go with merits on both sides, but the patriots have a more active vision of the country that goes through a change of the oil people’s mentality.

PDVSA: Venezuelan Management Technology
As a paradox, the key to PDVSA’s success lies in its refusal to imitate the North American management culture. In PDVSA the rulers are the people linked to production, brought up in the fields. In the USA the MBAs have never soiled their hands, their insistence on short term benefits has buried the US manufacturing industry preventing its plants from making use of the innovation coming from its own labs and from universities. Wall Street is to be blamed for more than one corporate corpse.

Financial yuppies are the ones who measure and control the production people, without bothering to prove their point. The result is death of productivity and innovation caused by management conservative postures blocking ideas and new products.

The changes in tastes and markets give advantages to competitors that, twenty years ago, did not dream of equaling the North Americans: a case study is what occurred with the automotive industry when McNamara’s Whiz Kids took control of Ford Motor Co.

This is one of the gray areas in PDVSA’a future. If the oil industry does not bet on the country’s development, the contradiction resulting from an enclave situation will end up by affecting its results. Certainly not a small dilemma.

Its other problem lies with the shaping of a relief generation within the industry, to afford continuity to the effort of two decades. The deterioration of education and the drastic reduction of formation opportunities abroad, joined, as a paradox, to the very low remuneration during the ten first years of the oil career, have lowered the quality of the pool of people to be recruited.

The temptation of resorting to the family brings hazards similar to those that ended with political parties. The oil culture does not sympathize with “people who are OK”; PDVSA is a culture of people being proud of having been self-made. The industry is its member sole horizon for mobility. and this is quite different from the alternatives being considered by the country’s privileged kids, who happen to be, at the same time, better educated.

With Luis Giusti we shall see the retirement of the last generation having been formed by the concession holding companies; the new leader will be then people who have worked for PDVSA only. It was the former generationsÕ role to isolate PDVSA from the country, to prevent it form becoming CORIMON, a State owned agency or the Social Security; the coming generation's role will be a tougher one: to turn the rest of the country into a PDVSA.