The mouse that roared

This is dedicated to all of those who consider that the only way to combat the actual lack of self esteem present today in the country is to reduce it even further.

Last week, columnist Michael Rowan issued several recommendations for Venezuela, among these that you should “Ask not how you can be protected from the world. Ask only how best you can live in it”. I have frequently asked myself this question, but since the response that begins to develop in my mind is vastly different from the text book type answer hinted at by Mr. Rowan, I wish to make note of some of these differences.

To begin with, and even though I agree that a lot of the country’s internal problems as mentioned by Mr. Rowan really do exist, I consider it to be wrong to label Venezuela as a protectionist country. It could be that he did not know the Venezuela of old, but as of 1989 the country has, not always in a straight line and more often than not out of necessity rather than conviction, been submerged in a process of commercial and cultural aperture of such import that it is today one of the least protectionist countries in the world.

Upon rereading some of the articles I have written over the years, I find clear evidence of the fact that I have always been a constant defender of the markets as prime regulators and motors of the economy and as a consequence of this, I have also always been totally against what is today know as protectionism. In this sense, I am worried that Venezuela’s opening has not produced the desired results.

The commercial recipes common in today’s world are comprised primarily of the following two commandments: 1) Open your borders and allow the products, services and capital offered by the rest of the world to come in so that all of your citizens may have access to the best the world can offer, produced in the most efficient manner possible; 2) Respect the rights to intellectual property and to brands and patents in order to insure the adequate return of costs and to allow those who today fuel development to continue their mission.

In exchange for compliance with these commandments, the interested party is offered a first class ticket on the Train of Sustained Development on the way to a better economic future. Certainly, some of the passengers will be weaker than others. However, if all follow the same basic diet and exercise plan, based on the exploitation of inherent strengths with the adoption of an effort towards specialization, sooner or later, so goes the theory, all will be more or less equal.

Chile, for example, is a good example of what excellent results a ride on this Train can produce. Unfortunately, Venezuela, while having complied with the commandments almost religiously has absolutely nothing to show in the way of favorable results. Why? Rowan would answer, ‘It is Venezuela’s own fault’. I would say that while he is partially right, it is also important to say that the world is not playing a fair ball game.

The indisputable fact is that the world is applying duties on products derived from oil, as is the case of taxes on gasoline that in some parts of the world top 800% and that bar the producers from receiving his fair share of the sale of their resources. 

If these taxes were eliminated or were simply limited, for example, to something like the 26% duty imposed by Venezuela on the importation, Venezuela’s income would be much greater. Easily US$ 10 billion greater!

In this sense, if I am to respond to Mr. Rowan’s questions as to “How best you can live in it (the world)”, I would not be lying if I told you that I am feeling dangerously close to suggesting that we quit being stupid and that until the world comes around and gives us a fair shake by eliminating the damaging taxes on oil, we begin to behave as rogues.

As a first measure, it would be most tempting to raise all import duties to the same levels each country applies to oil. To follow up I could suggest we violate all brands and intellectual property rights, copy all medicines and facilitate their generic sale world wide. Finally, I could ask PDV to quit building fancy gasoline stations in Venezuela which, being sure that Kuwait is not waiting in the wings to compete on our turf, do not generate the sale of even one extra liter of gasoline. 

Instead I would construct large floating gasoline stations, anchor them off the coast of Europe and offer each European entrepreneur with a neoliberal bend the right to freely commercialize our gasoline tax free.

Am I exaggerating? One of the principal elements of discussion in the universe of ecological taxes, the ecotax, is how to insure that oil producing nations are also convinced to adopt fiscal policies involving high oil or energy taxes. 

The reason for this, in layman’s terms, is that if we don’t, industries that consume large amounts of energy could conceivably move to those countries with cheap energy, causing the loss of jobs in non-oil producing countries. So much for the specialization credo.

We should declare total and absolute war on the injustices of today’s system of commercial interchange. Just like the small country that declared war on Europe in the movie The Mouse That Roared, we have absolutely nothing to lose and much to gain. With so many enemies without why do we need to have enemies within?

An e-mail to our accusers

We were recently surprised by a lawsuit brought against Venezuela by an organization of independent oil producers in the State of Oklahoma in the United States. The suit was based on the charge of dumping oil. 

In simple terms, 'dumping' occurs when one country exports products at a price lower than their real cost of production or at a price lower than the sales price in its domestic market. In order to calculate the real cost, one must consider the effects of all state subsidies. Dumping is considered to be unfair competition and is therefore prohibited. If proven in this case, it will also give rise to serious retaliatory commercial measures. 

As an outside observer, I feel that this suit is a real threat to Venezuela, but I also think that if may be an opportunity as well. To understand this, it is important to analyze who is really behind this lawsuit. 

There is an incredible amount of oil wells in the United States, hundreds of thousands. In Texas alone, it is said that there are at least sixty thousand wells that produce less than one barrel per day. Due to low oil prices, the number of wells that have reportedly been shut down is equally as incredible. An organization known as IPAA estimates that more than 136,000 wells were shut down between November 1997 and February 1999.

Behind these wells are not only large oil companies, but also hundreds of thousand people, small businessmen, workers, widows who receive royalties, suppliers of goods and services, all of them voters at one time or another. It should, therefore, not surprise us that this sector possesses great political clout. 

To Venezuela, this means that, even though the lawsuit may not be based on solid ground, it may be more successful than we at first thought. We just have to remember that a small interest group in the State of Florida managed to block the usage of Venezuela Orimulsion. Can you imagine what a large group can do? Since I have always thought that Venezuela was lax in protecting its interests in the case of Orimulsion. I honestly hope that in this more recent case, authorities will be more careful, and will take the necessary measures. 

However, as I mentioned above, this lawsuit may not just be a threat, but may present an opportunity for Venezuela as well. For months now, I have been promoting a movement I have named Petropolitan. The purpose of this group is to protest and make known the fact that oil producing countries are subjected to commercial discrimination when the consuming nations apply taxes or duties so that producers receive only a fraction of the real value of their oil. 

For example, according to the Retail Motor Industry Federation of the United Kingdom, the price of premium unleaded gasoline on June 4th, 1999 (one month ago) at the pump was US$ 4.17 per gallon. Out of this elevated value, evidently real since the English motorist is willing to pay it, only US$ 0.43, that is 10%, ends up in the producer’s pocket. The distributor receives US$ 0.26 and the English tax authority, the only real rentist in this chain, stays with US$ 3.48, representing 83.5% of the retail sales price. 

When we compare the US$ 3.48 levied by the [UK] taxman to the US$ 0.43 received by the oil producers in lieu of a non-renewable asset, it is evident that the duty is more than 800%. This duty is unquestionably a main reason for the low oil income, not only ours, but of those in Oklahoma as well. 

The situation gets worse with every day that passes. Based on laws already passed,we can foresee that the price per gallon of gasoline in Europe will be US$ 10 by the year 2006, of which the producer will receive only US$ 0.50, that is, 5%. Germany, for example, has recently approved a “shift from personal income tax to an energy users tax”. These taxes will be used by the German government to “finance the lowering of old age security premiums”. 

By the way, it is not only Europe to which I refer since most of the world is currently levying taxes and duties on oil. One of the few exceptions is the United States where there has been more moderation. Because of the above, and were the decision mine, I would be on the next plane to Oklahoma in an attempt to educate our accusers as to who our real enemies are. I would tell them that the latter are laughing while we fight over the crumbs, and I would try to convert them into powerful allies. 

Executives at PDVSA are either not seeing the forest for the trees or have been lulled to sleep by their own internal realities. In any case, they do not seem prepared to take radical steps. Likewise, the common citizen is too far away from the industry to react with strength in the short term. 

Who knows? Maybe the small Oklahoma producer, the one that suffers and personally feels the current injustices of this situation, the one that most likely has the will to go out and avidly defend his interests, the one that belongs to a country that can defend bananas it does not produce, the one that today is our accuser, may ultimately be the ally that Venezuela really needs. Just in case, I have already sent them an e-Mail.

https://petropolitan.blogspot.com/1999/07/an-e-mail-to-our-accusers.html

It’s electricity Margarita needs

I haven't even moved to Margarita (about 15 years to go) and already I must ask my readers to bear with me because, once again, I just have to write about something related to the Island. I believe my reasons will be understood.  

This week we witnessed in the press the first skirmish resulting from the privatization of the electricity sector of Margarita, a process I have always, publicly, held as fundamentally flawed. Of course, the system broke down and the submarine cable, 22 years old and never really maintained, refused to cooperate with the new owners.

By sheer coincidence, this week I saw the publication of a series of impressive photos showing the advance of the construction of the power lines to Brazil and read about the new government's commitment to reinitiate in 10 to 14 weeks, the privatization of other electricity companies, hoping that way to raise more funds.

I will not only repeat myself I will also do it shamelessly by quoting from my own articles. There is no "I told you so" intentions but just the need to show that all the current issues were well known, at that time. In February 98, in an article named electricity to Brazil I wrote: 

"I am convinced that if we are to invest in transmission lines, Margarita for one, is probably much more deserving than Brazil. I simply don’t understand how and why an important pole of development for the country such as Margarita is being forced into more expensive generation systems such as, for example, the time-worn idea of a gas pipeline from the mainline to the island, while we are simultaneously developing mega-projects in order to export power to Brazil.

You don’t have to be an expert in environmental affairs to suspect that a 217 Km. suspended power line which must be supported by 512 towers, each of them 36 meters high, spread out through environmentally sensitive areas such as the Canaima National Park, the Imataca Forest Reserve and the Southern Protection Zone of the State of Bolívar, must have serious implications. It is not enough to assert that there will be special care taken to camouflage the towers in order to reduce contrast with the horizon.

I propose that we study the possibility of a swap. A new power distribution system for Margarita, via suspended lines and or submarine cables, in exchange for a gas pipeline (underground) to Brazil. The latter can then build it’s own power plants wherever and whenever it sees fit."

This line of reasoning had its origin in an article published June 1997 and where I, with some vehemence expressed:  "I would consider it unjust if the Island of Margarita ended up paying the highest tariffs in the world for its energy just to satisfy the need to offer an acceptable return to an investor who would not only be required to invest serious amounts of resources in an expansion and investment plan, but also to maximize the income for CADAFE, FIV or any other state entity."

Then I wrote about 4 articles more up until September 1998 when SENE was finally privatized and the results were (for me) much worse than expected. Again I quote myself "If Cadafe and FIV say they would have been happy with the base price of US$ 35 million, why then, will they take the US$ 55 million premium away from the island? We must remember that the entire US$ 90 million, and specially the premium of US$ 55 million, will be ultimately footed by Margarita’s population" 

Although I had wanted that the concession had been sold for 1 US$ so as to obtain more reasonable rates, as a remedy I suggested in that article that at least the US$ 55 million premium be retained by the island" for the submarine cable, a new pipeline of potable water, or any other need. But, that was not to be.

In response to the government's euphoria I also wrote " We obviously understand the laughter and back slapping by State officials. We can almost hear them say “Marvelous. We have gotten rid of the responsibility of the supply of power to the island. On top of this, we have received a front-end tax payment of US$ 90 million on top of all the other taxes we will be able to charge in the future! Nobody was the wiser for it! What a deal! Let’s do the next one!” - And that is, to the tune of a minimum US$ 700 Million, what they are announcing now.

Today we can still try to mend it or at least, not make it worse. First of all, reading that the current owner of SENE is interested in the gas pipe to Margarita, let's make it perfectly clear to him that the island, as the rest of the country, is not interested in gas per se but inexpensive electricity and that in Venezuela, until now, this has meant hydro electricity. If gas is finally imposed Margarita should at least request a supply contract of gas, valid for 50 years, and at a price equal to marginal cost.

An alternative is for Margarita to have first recourse over the new funds the government will receive from the new privatization in order to recover the full US$ 90 million that was diverted from the island, and to help pay for the submarine cable that should have been put in place before privatizing in Margarita. And of course, renegotiate the whole tariff structure.

Daily Journal, Caracas, July 6, 1999

http://suombudsmanelectrico.blogspot.com/1999/07/its-electricity-margarita-needs.html