Pequiven, Sidor – double standard?

During the last few weeks, we have been informed about the national petrochemical industry’s (Pequiven) ambitious ten-year investment plan which calls for outlays of US$ 8.3 billion.

Investments for the first three years are estimated to be US$ 1.53 billion. During this same period, Pequiven’s cash flow is projected to be US$ 680 million. The question that immediately arises is how to fund the resulting deficit during the years 1998, 1999 and 2000 which comes to US$ 850 million. To begin with, a bridge loan is to be negotiated with its head office, PDVSA. In addition, the idea is to exonerate Pequiven from the debt limits imposed on it by the Organic Law of Public Credit.

The press notes that accompany the news describe the debate relative to whether this investment plan should be implemented with the participation of the private sector (evidently without giving up government control) or if, on the contrary, the Nation should reserve for itself the totality of the shares in Pequiven and fund this growth with debt and State funds.

This debate is depressing. It is a clear indication that we have made few inroads into the identification of a horizon for the future of our country. I’ll explain what I mean.

Why is it that while the country is trying with great difficulty to come to terms with the privatization process, for example Sidor, in other corners of the official bureaucracy, someone is brazenly developing investment plans for a whopping US$ 8.3 billion?

In the meantime, where is the Nation’s financial management? Pequiven’s projects admittedly will yield returns of between 9% and 12% in dollar terms. This seems like a meager result for project risk, specially when compared with the returns in excess of 9% being offered by the Republic to the 30-year bond holders, presumably without risk.

A few weeks ago, the press published what seemed to be a scolding by a government official, stating that since the flow of funds received from the National Government has stopped, “FIV’s teat has dried out”. This has made it impossible for the FIV to continue subsidizing the power sector in order to accelerate privatization of the latter, which simply “requires a sufficiently attractive tariff structure” (i.e., an expensive one).

Going back to the cash flow for the next three years of US$ 680 million that Pequiven maintains it will generate, the following questions arise: Who establishes the country’s investment priorities? Can the management of a State-owned company allocate the firm’s entire cash flow into eternity to perpetuate its growth? Is it possible that Pequiven’s investment plan, with its dubious returns, is more important that, for example, insuring power supply at reasonable cost for the Island of Margarita, or even more imperative, ensuring that the country’s youth receive decent physical and spiritual nourishment?

In spite of the multiple accolades awarded Venezuela by the International Monetary Fund (which frequently and justifiably are not understood the common citizen), there are rumors circulating that the IMF is slightly preoccupied with the disorganization in entities responsible for the management of the country’s economy, Cordiplan among them. In view of the apparent institutional vacuum in which Pequiven’s investment plan is being hatched, it is important that we join the IMF in its preoccupation.

And while we are at it, we should strive to avoid the tragic results which normally result when a public (or private) entity is allowed to fall back on bridge loans, “while the situation is being defined”. Unfortunately, we are much too inclined to allow transitory patches to quietly convert into permanent fixtures.

Hopefully, we will not have to ask the Central Government (as we have done so many times before) to assume an immense amount of Pequiven debt a few years down the line in order to facilitate its privatization. Hopefully, Pequiven’s investment plan will contribute heavily and positively to the country’s future development and well being, and that these uncomfortable feelings will be proven to be unjustified.