Oil, Citgo, and gov't policies

An interview by Daily Journal’s Leopoldo Taylhardat 

The DJ recently interviewed columnist Per Kurowski on his views regarding the Venezuelan and international oil industry. We caught up with him with his foot virtually on the plane's steps for a flight to Guatemala. He was committed to a week's work there for the Inter-American Development Bank (IADB).

As usual with him, his statements were clear and frank. Per has been writing well-balanced opinion articles for the DJ for several years now.

PK: "The OPEC Summit Conference results? In general, very good. Results will depend on the unity of OPEC and its decision to defend its interests in very specific areas such as the fiscal and environmental discrimination against oil.

“I hope I'm not seen as ungrateful, but it looks to me as a poor beginning when we give so much publicity to the donation by the European Union of 250 million euros, almost one year after the Vargas disaster, because we all should know that even the least discrimination against our oil will, in the mid-term, easily save the EU that amount - through volumes and prices - in one-month additional revenue. 

“The good future results for Venezuela we may get from OPEC depend mainly on how we push the organization's lazy bureaucrats, normally afraid of the risks involved in any change. Let's not forget that the high-taxes problem has been affecting us for several years. Why didn't they point it out before? 

"About the San José Pact I can't say much. I'm not familiar with the subject but-and it seems to be an international procedure -any country has, I thinkthe right to use any strength it may haveto defend its interests in any way it feelsreasonable. At least it seems politicallyproper when it's done by the world's superpowers. The New York candidate to Congress, J. Lazio said, during a debate with Hillary Clinton: ... ask our allies and those who went to bat in the Desert Storm War, to think about our needs ...'- or words to that effect. So, if someone can send some of his own people to fight and die for the oil, what's wrong with giving out some oil, out of good will or, as some people claim, because of foolishness? 

"The volume of oil involved in the San José Pact is very small, so selling it at discount to other poorer countries may be a minor sin, if anything. Except when it is used for purely political reasons - now that would be a major sin.”

"On the other hand, Venezuela need not feel guilty for the difficulties other poorer countries may experience due to increasing oil prices. We are innocent infants compared to those countries selling renewable products such as medicines at prices thousands of times their cost, including raw materials and production. Let's stop sucking our fingers ... 

“Let me elaborate some more on this subject that, after all, is in fashion. The discussion over "fair prices" is, in my opinion, irrelevant. As long as oil is needed and scarce, its price will be high. If it becomes abundant and could be replaced by some other energy source, its price will go down. Any reference or comparison to the prices of other products is irrelevant, because regularly and naturally, the prices of any product or group of them can go up while others fall.

“Fairness is, to me, a matter of participation: the products obtained from a barrel of crude oil are sold in Europe for the equivalent of $200. Laborers housewives, teachers, and so on must pull out of their pockets that $ 200 and pay in cash. So it is evident that this is the market price for it. In other words, oil has never before been so valuable.

"On the other hand, we the oil owners and producers, we do not get much for a barrel of oil. Our share is only about $30 - or 15 percent - out of the $200. The rest is shared by refiners, transporters and distributors, who get $25, and the ever-hungry European government that grabs up to $160 - 80 percent.So it's unfair for the country selling that non-renewable resource to get only percent of the market value. It's like selling our house and being obliged to pay the real estate office over 80 percent of the price." 

Will the current Venezuelan government's oil politics contribute to change the world oil panorama? 

"I'm not sure. It depends on the government's capacity to strengthen the country and to encourage the nation to defend our interests. All our interests, not only the oil. Since consumer countries do know how to defend their interests, including oil, we must be continuously defending ours. Not just spasmodically. Results will depend on the strength of will displayed by all of us. What cannot be denied is that the oil politics promoted by our current government were not only necessary, they were taken just in time, at the eleventh hour." 

Shouldn't we emphasize conservation over production? 

"We must either preserve or sell our oil. It's up to us. What we must not do is fall into the death trap of producing while the price stays above the cost of extraction and shipping – that is, accepting as valid the idea that we must be satisfied as long as the oil pays for its production and transportation. 

"I am definitely against that. The nation must obtain a higher level of added value. And that's what we have OPEC for. If we get only 15 percent on the selling price of our product, then we are such poor users of our buried-for millions-of-years-wealth that we deserve having the wells locked up so future generations can benefit from oil. That also applies to the use of oil revenues. If we continue being as inefficient as in the past, we don't deserve to benefit from the nation's oil.” 

The appointment of a Venezuelan as " Citgo president is it convenient or not? 

"A Venezuelan as president of Citgo? Why not? Of course, it depends on who that Venezuelan is. Personally, I believe the Venezuelan state must control 100 percent of the exploration, extraction and basic refining operations. This isthe only way it can have the possibility for using it as a weapon for geopolitical negotiations or ensure its value via, for example, OPEC. Until someone convinces me of something different, I insist that anything else the Venezuelan state tries to do with oil means a loss or a net reduction of the benefits brought by the first phases of the operation

"Because of that and the fact that I have seen the corporation's reports, I still can't understand the economic reasons for having bought and kept Citgo. There is evidence in the reports that it's being subsidized by PDVSA. 

“And, for those who argue so much in favor of privatizing PDVSA, I challenge them to make an IPO for Citgo, subject to their obligation to purchase oil products at market prices."

PS. I am still for Venezuela getting rid of Citgo

The OPEC that I want to see

Towards the end of 1980, oil of optimum grade such as Arabian Light was being sold at US$ 36 per barrel. By the end of 1998, its price had fallen to US$ 12.20. The latter is equivalent to US$ 6.50 in 1980 US dollar terms, and represents only 18% of its value in 1980. This would seem to imply that whatever the strategy was that OPEC used to defend its oil was simply dead wrong.

This situation was so disastrous that at the end of 1998 the only alternatives that were ventilated publicly were either to violently increase production capacity or to simply sell or privatize the entire industry.

To limit oneself to the simple increase in production capacity would be to repeat the same errors that were committed with the other raw materials and natural non-renewable resources. It would mean to resign oneself to receiving the marginal contribution that results from being the sector’s low cost producer. It is sad that a country that has been so blessed with a valuable resource such as oil has to adopt a model that, at the end of the day, would let it to sell it at the variable cost of production. Something like receiving a valuable family inheritance and then turning around and selling it for what it costs to wrap it and ship it to the buyer.

In the same vein, the outright privatization of the oil sector would eliminate all possibility of geopolitic negotiation and the only thing we would receive as a going away present would be the resources to solve the existential problems of an entire generation of Venezuelans that have, for the last 20 years, not been able to decide if they were coming or going and that lived in a sort of Limbo State in the duty free zone of our international airport.

Today, when OPEC, for well know reasons (albeit not well recognized reasons) has received a new lease on life, it would be naughty not to wish it success in taking advantage of this second wind to build itself into a solid organization capable of facing the new challenges. If it fails, this will surely be its last breath. This is why I wish to share with you what I would consider the OPEC I want.

The OPEC I want would be able to win the confidence of all of its members in order to consolidate in one single block all the resources necessary to really defend it oil. These resources go far and beyond the simple turning of the tap.

The OPEC I want would be one that, upon observing how consumer nations have usurped the value of oil by increasing taxes (the UK, for example, increased taxes from 85% in 1980 to 456% ad valorem in 1998), would humbly accept the fact that they have lost the battle to an able opponent, but is now regrouping in order to win the war.

The OPEC I want would train the world’s100 best environmentalists in order to insure that, even though it shares the conviction and responsibility of taking care of our fragile world, the costs of defending the latter would not be laid squarely and unjustly on oil’s shoulders and that the environmentalist’s arguments will not be used for other hypocritical ends.

The OPEC I want would train the world’s 100 best experts in international commerce who would help avoid measures like direct subsidies for carbon as well as taxes that are aimed directly at oil and not at other sources of energy and that are evidently discriminatory and therefore not permitted under the norms established by the World Trade Organization.

The OPEC I want would train the world’s 1000 best scientists who would work in the world’s best laboratories and study, research and develop new uses for oil in order to minimize pollution or maximize added value as well as alternate sources of energy that could be used in the future.

The OPEC I want would not recognize the rights to intellectual property, brands and patents that, like a rabbit pulled out of a hat, generate income for the countries that own these rights which are definitely renewable, while the income obtained from the sale of a non-renewable natural resource such as oil is simultaneously being treated in a discriminatory fashion.

The OPEC I want simply would not allow a company to abscond with a hefty portion of the value of oil because it has formulated an additive that (supposedly) permits gasoline to be less polluting and based on a process that has dubiously been patented.

The OPEC I want would train the best image and marketing advisors in order to insure that the world’s public opinion does not continuously receive distorted information about OPEC and its members.

The OPEC I want would be staffed with the best team of diplomats and negotiators that would insure adequate representation at all international forums.

The OPEC I want would not allow gas and other sources of energy who’s values are not set under the OPEC umbrella to be introduced into the market like Trojan horses in order to compete with oil.

The OPEC I want knows that it counts with other resources other than oil to defend itself. The mere addition of all its international purchasing power would allow it to receive better treatment by imposing uniform special duties on all those who discriminate against oil.

The OPEC I want would not be formed by managers that think that their only objective is to perform comfortable bureaucratic tasks, but rather by soldiers that know and accept that they are on a mission aimed at improving the lot of their nations and that borders on being sacred.

The OPEC I want knows that it is not totally unimportant and is able to rally the solid support of its members and above all, of the population of its member countries.

The citizens of countries belonging to the OPEC I want know that even though their happiness and well being does not depend only on oil, it does depend on being able to defend what is theirs.

In the OPEC I want everyone prays to his respective God to give them strength to take full advantage of the meeting in Caracas.

Caracas, Venezuela, Daily Journal, September 2000

Originally published in Spanish in El Universal, Caracas, Venezuela August 26, 2000

I privatize you, I privatize you not

The sad truth is that for a very long time now - decades really - the country simply has not had anything even remotely close to a coherent economic policy. Without one, it will be very difficult to drag the country out of its current emergency, the bottom line of which is serious unemployment and poverty. I still have fresh in my mind that infamous cocktail of eighty “urgent” measures presented to the previous administration by Fedecámaras.

It is even more difficult to find a good direction due to the fact that our dilemma as a country is situated within the context of globalization process that seems to threaten national identities even further.

In these circumstances, it is no wonder that magic, instant solutions, and quick fixes seem to be coming from everywhere. Among these, none is more beautiful and tempting than the privatization of PDVSA. It seems to be to the economy what the Constituent Assembly is to politics.

Before I continue on this track, I wish to make the point that by referring to a state- run oil industry I refer only to activities in exploration, extraction, refining and distribution to basic markets. All other downstream business such as the petrochemical field, among others, is subject to such intense competition that the cruel efficiencies of the private sector are required for it to be successful. Any intervention by the State in this secondary business, can only result in the loss of part of the riches initially created by the basic activities mentioned above. There is not doubt that downstream business must be privatized.

We return, then, to the beautiful siren song (the sirens themselves are not so beautiful): The sale of PDVSA and oil reserves, Nirvana, Shangri-La and immediate gratification.

Evidently, it is not logical for a country as potentially rich as Venezuela to be in the state it is in. The sale of PDVSA could mean, among other things, that we could cancel all of our public debt. If we were able to resist taking on new debt, there is no doubt that the country would have a rather promising future, at least in the short and medium term.

Evidently, any industry that is not subjected to the critical and continuous surveillance by a greedy owner, can easily be led astray and would produce unsatisfactory results.

Evidently, it would not seem to make any difference who really owns PDVSA’s assets. The source of business would remain in Venezuela and the country would continue to benefit from royalties and income tax.

Why is it then, that like Ulysses, I would want to be strapped to the main mast in order to resist the siren song? My reasons are partly intellectual and partly from the heart.

On the intellectual side, the most important reason is that I am not convinced that the country can maximize the value of its oil without OPEC. The privatization of PDVSA would in essence mean our disincorporation from OPEC. This does not mean I am expressing satisfaction with the management of OPEC, which leaves much room for criticism.

The interests of the current players, management and the government, may be in conflict with those of the Nation. Additionally, there is no effective way to evaluate management of the industry. The sirens affirm that the privatization of PDVSA would solve this problem since its valuation in the open market would be a measure of management’s success, and would indicate the way forward. Personally, I believe one way to solve the problem is to require the transparency of information and to create the Office of the Oil Ombudsman. This would allow for the introduction of some national and long-term variables, which are frequently ignored in an increasingly globalized, and short term oriented marketplace.

Notwithstanding, I do admit that in these times, irrational reasons driven by the heart may be weightier by far. To begin with, I am not among those that disqualify the government as a manager.

Defense of oil requires decisive protest against those that prohibit the use of Orimulsion without reason, and against those that impose confiscatory taxes on oil derivatives, meaning that we receive only a fraction of its value. I still have not lost hope that this need for defensive action could rally us to unite as a nation and not simply as greedy individual shareholders.

I do not believe that as a generation that has failed in its management of oil resources we have the moral right to continue to anticipate even more cash flow. 

Should PDVSA actually be privatized and should there be a surplus that can be distributed, I hope it will be distributed among Venezuelans under 21. This opinion will most likely be contrary to that of those people that preach privatization of PDVSA in the same way children try to get to the end-of-party gifts in order to get away early from a boring piñata.

On the other hand, I recognize the value of all the arguments against centralization of fiscal income. Quickly, please... tie me to the mast!

Fighting for one's country

Today, debates of the “cross-fire” or “opposite poles” type in which participants each defend opposite or extreme positions are very popular. 

I recently had the opportunity to be present during one of these debates, live, between to prestigious personalities from a European country. In simplified form, one represented “one trend” (the right), the other represented “the other trend” (the left) and the debate was about “exactly the opposite” (the third way).

 

The debate, needless to say, was excellent. I enjoyed the intellectual capacities of the debaters, as well as the abilities in the art of debate both of them displayed. Taking advantage of the presence of such distinguished personalities, of the serious academic environment in which the debate took place and the invitation to ask questions, I took it upon myself to ask the following:

 

"Gentlemen: It is well known that in the country you come from, a tax that is often above 800% is levied on the value of gasoline.

This type of tax is without a doubt the main reason why our country does not perceive more income from its oil exports. As a citizen of an oil producing country, I ask how, in your opinion, and from the perspective of “exactly the opposite”, the existence of these taxes can be explained in the context of the commercial aperture that is being developed worldwide?"

 

That was the end of “cross-fire” and “opposite poles”. My question immediately fused the opinions of the debaters into one, as if by chemical reaction, and both seemed liberated from any type of academic requirements. 

Almost in unison both responded something like: "Boy!" (I am almost 50 years old now, but the response was basically as if I was being treated as “Boy”). 

You should know that these taxes are imposed in order to reduce gasoline consumption and save the world’s environments from contamination. 

Additionally, you should be aware of the fact that your country’s main problem is that it is wholly dependent on oil and in this sense it should thank us for any help we can give you in order to reduce this dependence."

 

This response, the result of a solid defense of national interest over and above any ideological consideration, was for me a true lesson in the policy of economic development. It clearly indicated that any country that cannot rally its people to fight the commercial war, body to body, that globalization has initiated, is utterly and completely lost.

 

The taxes on oil based products that I have mentioned above are no small matter. According to information obtained for June, courtesy of the Petrol Retailer’s Association of the United Kingdom, a liter of gasoline was sold at the pump for the equivalent of Bs. 661. The distribution of this amount is basically as follows: Bs. 47 (7%) for the distributor, Bs. 68 (11%) for the producer and Bs. 552 (83%) for the British tax authorities.

 

The taxes apparently have no limit. Governments such as the United Kingdom and Germany have recently formally approved future increases. The Sunday Telegraph of the 29^th of August estimates that the gallon of gasoline in England in the year 2010 will be sold at £ 6.90, which is equivalent to Bs. 1,800 per liter. Out of this amount, the producer and the distributor must divide 10% since the taxman intends to keep about 90%. 

 

There is no doubt that should these taxes not exist, Venezuela would today be selling more oil at better prices. There is also no doubt that these taxes represent a major threat to the future of our oil industry. In this sense, the problem should be one of national interest.

 

Notwithstanding the above, there has been an absolute absence of formal protest in Venezuela. What is worse, only a tiny fraction of its citizens are aware of the problem. 

Worse still, the majority of those that work in the oil industry or that are experts therein, express surprise when confronted with the magnitude of these taxes.

 

Oil prices have recently risen. These increases are historically very modest. The European press, however, is full of attacks on the “bad boys” of the OPEC. In The Observer of the 5^th of September in England I read that the fault was attributed to “a number of far-flung dictatorships (and the odd democracy)….”, and the fact that OPEC had reduced its production somewhat, and OPEC's petroleum-addicted economies were suffering”.

 

In Venezuela, we see nothing in the way of response in the sense that the real “petrol-addicted” entities are the fiscal authorities of consumer nations. Our dailies basically limit themselves to reproducing articles that reflect preoccupation with possible inflationary pressures, making the uninformed Venezuelan feel like he is at fault for potential world crises.

 

It is high time that Venezuela begins to defend itself in a globalized world. For me, the negative effect to the country of having part of the value of our non-renewable assets commandeered by the taxmen in consumer nations is exactly as the same as if guerillas from a neighboring country come across the border and carry away a few barrels. Why do all our patriots have blinders on?

Petropolitan: http://petropolitan.blogspot.com/1999/10/fightning-for-ones-country.html  

Close to crying 'Yankee go Home'

I am a Venezuelan of European background and was born a few years after the end of World War II. I grew up under the influence of Audie Murphy movies and comic strips that extolled the valor and sacrifice of American soldiers in their efforts to save Europe from the clutches of fascism. As an adolescent, although against the Vietnam War, my little piece of American heart prevented me from participating in public protests outside the US Embassy, and even more so from flag burning.

However as I am nearing my fiftieth birthday, I suddenly have an incredible urge to yell “Yankee Go Home”. This occurred most recently when I read another of Rowan's articles, in this case blasting away at the latest changes implemented at PDVSA.

Theoretically, had we successfully arrived at the end of the opening of the oil industry, the recent cuts in production, which have had such positive effects over the last few months, would have been impossible to execute since the private sector would have to be compensated. The oil opening per se implied a departure, albeit clandestine, from OPEC. Since I have never been convinced that OPEC was losing relevance, I publicly opposed this oil opening policy, asking that its implications be democratically discussed.

I also considered that the Venezuelan oil industry benefited from being divided into several different entities. Even though this evidently represented additional costs, it was a good way of achieving mutual and cross supervision by experts in the industry. 

Therefore, when we were sold a restructuring based on supposed and overestimated savings (an annual figure of US$ 2 billion was brazenly bandied about) and which simply implied a total centralization of power, I loudly cried foul.

We were told that due to the lack of internal resources it was necessary to invite foreign capital to participate in the development of basic activities such as exploration and production.

Soon after, as if by magic, resources suddenly appeared tand were quickly invested in the “strategic” but very poorly explained building of gasoline stations that could also sell fast food. I felt misled and publicly informed PDVSA that the risk of Kuwait building a gas station in Las Mercedes in Caracas in order to compete directly and sell its ultra-light gasoline to the local market was really very slight.

I also protested, and continue to do so, when PDVSA, in the face of an upward trend in outsourcing of services, created the CIED in order to sell seminars and courses to captive clients. I protested and continue to protest when PDVSA, without much explanation, used an inmense amount of resources to finance studies of commercial ports in rivers in the eastern part of the country, for example.

The President of PDVSA should occupy his post as if he were a soldier on a battlefield on a sacred national mission. It wrenched my soul to see how he thinks he is a General Patton instead, and finds his way onto an entire page of the Wall Street Journal as Executive of the Year. Perhaps it should have been Entrepreneur of the Year.

Three years ago, as I traveled in the interior of the country, I observed how high interest rates, new taxes and a foreign exchange policy that in real terms strongly revalued the national currency were taking the country on a wild ride towards recession. 

At that point, while expressing my anguish at the possibility of a permanent loss of jobs, the then President of PDVSA, as if he were any common politician on TV, happily informed whoever would listen, that Venezuela was "condemned to success”. I almost cried with rage.

Last week, Rowan wrote that PDVSA’s ex-President, Luis Giusti, had produced a bonus of US$ 2.3 billion for the state with the oil opening - as if this were not simply the fruit of oil income perceived in advance, unfortunately already frittered away.

Rowan wrote: “Giusti’s strategy was brilliant. From a national perspective, Giusti was a patriot”. With respect to the recent changes at PDVSA, he wrote: “The development of this country has just been set back twenty years. The only institution in active transition to modernization, professionalism and meritocracy in Venezuela has been sacked. It’s been vandalized, ruined by ideologues from a Dark Age”.

I recently registered a NGO called Petropolitan, and through it I am fighting against the taxes on oil products imposed by a majority of the oil consuming countries of the world. These charges prevent oil-producing countries from receiving what they should rightly be receiving from the sale of their non-renewable resources.

The real value of an item of goods is normally measured at the consumer level, and in this sense the average value of a barrel of oil in the world might have already surpassed US$ 100. Of that value, up to a few months ago, the producer only received US$ 10, and today still has to settle for a meager US$ 20. I hope that someday when the absurd confiscation by taxmen in the developed world is eliminated, they will receive, say US$ 40 or more. If this defense of what is rightly ours classifies me in Rowan’s world as being one of the ideologues of the Dark Ages, then that is exactly what I am, and am proud of being so.

Daily Journal, Caracas, September 24, 1999

Petropolitan: http://petropolitan.blogspot.com/1999/09/close-to-crying-yankee-go-home.html

Seeking allies against oil taxes

In Europe, as well as in many other parts of the world, the price of gasoline is somewhere around US$ 1.25 per liter (Bs. 750 at current exchange rates). This is five times what a liter goes for at gasoline stations in the United States. This sky-high price is the simple result of applying what effectively is a commercial duty and which I have roughly calculated at about 800%. 

This duty, basically imposed by means of a gasoline tax, is the main reason oil producers today are obtaining such poor results. The 800% duty, besides naturally reducing demand for oil, also generates a totally unjust distribution of income. The producer of the very valuable and non-renewable resource of oil receives less than 10% of what the consumer pays at the pump.

It might only get worse. A European government recently announced a fiscal policy that implies raising these taxes on gasoline by 6% over annual inflation, thereby effectively duplicating them by the year 2007. There is no doubt in my mind as to the danger this implies for countries such as ours. How much more will demand be depressed if the plan is to charge US$ 2.50 per liter?

It is evident that the degree of development of a country is to a great extent a function of how they defend their own interests. As an example today we observe the United States threatening to impose duties of 100% on Europe as a result of a dispute over bananas, a fruit neither one of them cultivates. In this sense, and faced with the surprising silence both of our own oil industry as well as of the rest of the world, I will try do my part by a small campaign aimed at informing the public in general about this abusive tax-duty on gasoline.

What can be done? The answer to this question should be, before anything else, to inform. It is very probable that many of the affected parties that today are unaware of this problem could, once properly informed, become powerful allies. The following comments are aimed at exactly that.

Today’s strategy of defending prices is based on production cuts, which requires a heavy dose of sacrifice for producing nations and creates divisions and disputes across the board. On the other hand, a well-aimed protest against elevated taxes on gasoline could serve to unify all oil producers, OPEC and non-OPEC.

In the United States there are a great many individuals, owners of oil wells, who would form a pressure group with much more power than shareholders of fruit companies once they understand that the main reason for their diminished royalties is the gasoline tax.

Likewise, we must analyze how and to what degree these high gasoline prices, caused by these high taxes, are putting the brakes on the growth of the global economy. A decrease in gasoline prices could have a very positive impact, for instance creating jobs in the service sector, where Europe clearly lags USA. 

We must also put to rest the fears of environmentalists. Our joint action is aimed at obtaining a just distribution of income, not to provoke irresponsible consumption. Also if it results in more economic growth and if adequately channeled, this could avoid ecological disasters of much greater impact than those that could result from a simple increase in gasoline consumption. Let us not forget that Chernobyl and fires in the Amazon are events very closely related to poverty.

Just simply raising the issue of gasoline taxes being duties in disguise allows us to redefine the relationships with a series of international entities. For example, one could question the bases on which entities such as the World Trade Organization leans heavily on Venezuela and other countries, to reduce their trade barriers while they simultaneously keep absolutely silent about the tariffs imposed on gasoline. 

In the same sense, we could question the International Monetary Fund’s recipe calling for the increase in gasoline prices and taxes. This is totally opposed to free and open markets, and in our case certainly helps to aggravate our balance of payment problems even further.

As always, I wish to make it perfectly clear that my position on this subject is not an effort to find an excuse for the deplorable economic situation we are going through in this country. That responsibility is ours, and only ours. Nonetheless, one of the aspects we must necessarily rectify is our miserable capacity to unite the nation behind a concerted effort to defend our interests.

If we don’t defend our oil, what else is there to defend?

A nation guilty of innocence

In a European country (it does not really matter which, since in this sense they are pretty much alike), out of every U.S.$100 that a motorist spends on gasoline, $85 goes towards taxes, $5 to cover the cost of distribution and $10 or less to pay for the refined product itself. In other words, the amount that a country will be paid in order to extract this non-renewable resource is actually peanuts.

The 85% that goes to the European taxman is just a simple duty. In normal markets, a fall in oil prices of about 55% should technically result in an increase in consumption. In Europe, however, gasoline prices remain basically the same. 

This means that the tax authorities simply took advantage of the above-mentioned fall in prices to simply increase their collections.

I am among those that believe that the solutions to Venezuela’s current financial crisis will require much more than a simple increase in oil prices. Among other things, I feel it is necessary to develop a real national conscience which will allows us to properly defend our own interests. Ironically, I don’t see any other place to begin but with our own oil.

Had Venezuela properly invested the resources obtained during the oil boom, it would definitely been in a better financial position. There is no doubt that Venezuela’s crime was to spend and give away excessively. An example of this excess is that the overspending did not only include oil income but indebtedness as well.

However, neither the excess generosity described above, even if it borders on stupidity, nor the country’s masochistic streak (nobody can deny that our problems are self-inflicted) should result in the loss of fair and respectful treatment from the rest of the world.

Because of this, it angers me no end that in spite of the fact that Venezuela is suffering due to low oil prices, the country is not being offered other alternatives to restructure its debt than that of suicide by way of the ingestion of 20-year credits at 20 percent interest per annum available in the marginal emerging market.

The taxes imposed by Europe on gasoline, the prohibition on Orimulsion imposed by Florida, and finally, the usurious demands made by the financial markets are sufficient evidence to prove that, even if it seems like a contradiction in terms and even when globalization continues to steam along, it is up to every man to look out for himself.

When we also note that the developed world spends huge amount of resources to co-opt those that ‘misbehave’, logic would seem to imply that one simply has to play hardball.

It would seem to me that something like a suspension of landing rights in Venezuela for flights from Florida as a response to that state’s continued imposition of its ban on Orimulsion simply in order to favor some particular local interests would be a fairly civilized level of roughness, specially when compared to what is going on in, for example, Kosovo. 

It would seem to me that something like a special duty imposed by Venezuela (preferably backed by OPEC) on all products coming from countries that locally apply a direct tax on oil products is neither worse nor different than all the conflicts being debated today in the international commercial system.

It seem to me that we would not be asking too much from the United States if we propose to restructure all of our external debt on 30-year terms at an interest rate of 0.5% over Treasury Rates to be repaid in advance if and when the price of oil goes over US$ 30 per barrel, especially if we consider the expense the USA undertakes in order to build its strategic oil reserves by burying them in underground deposits or in militarily guaranteeing access to other strategically important areas, and if we consider that after such a restructure, Venezuela, with a fairly small debt, would immediately merit a much better credit rating than many of the other countries, currently favored by the markets.

Hunger is a violation of human rights. In my country innocent people are suffering from hunger, most of them as a direct result of populism. The battle against internal populism, however, often results in falling into the trap of innocently accepting imposed external economic populism, more often than not resulting in more hunger. It is high time Venezuela defends its own interests by not consistently bending over backwards.

Let's, all whakapohane!

I remember having read a few years back about one particular method used by the Maori of New Zealand to protest about something that bothered them. This method consists of lining up a group of Maori tribesmen, turning their backs towards the person or persons that are the target of the protest, dropping their trousers and showing them their naked backsides. This rite is named Whakapohane. 

Without delving further into this tradition, and in spite of the fact that it seems primitive and is most certainly an ugly spectacle, I think it could be also classified as a civilized and most efficient way to protest. Civilized because it does no damage to anyone or anything (except to those people with a well-developed sense of esthetics) and efficient because it manages to consolidate into one single act and gesture all the sense we could possibly assign to a real social sanction.

There is no doubt that we are often frustrated at not being able to find a way to vehemently protest about the stupid, naive and criminal behavior that negatively affects our country on a daily basis.

The idea of putting together a group of citizens, family men, professionals and white-collar workers with briefcases and ties and heading out to the street to shamelessly whakapohane any deserving person is appealing. Consider the following:

What has been demonstrated without doubt over the past decades in Venezuela is an utter incapacity by government to manage its resources. The International Monetary Fund, for example, predicates that the solution to Venezuela's problems can be found by giving government even more resources to squander by way of increased taxes (as if our oil income wasn't enough taxation).

Clearly, the IMF deserves an act of Whakapohane from our citizens. 

Banking charters are usually awarded in order for them to participate actively in the development of the country's economy.

It is not enough for them to simply return the funds they have received on deposit, since if this were so, it would be better to simply buy a good mattress and put it into a large safe.

There are still many who think it is best to be puritan and to simply continue to tighten the screws on financial solvency of banks without paying attention to the real purpose of banking institutions These people deserve a solid Whakapohane.

There are many national authorities that evidently are aware of the damage to economies that short-term capital flows can cause, and also know that other countries have put workable legislation into place to limit these damages.

They cannot be bothered to take the 48 hours required to simply copy this legislation and enact it in Venezuela. There is no doubt that these authorities deserve to be Whakapohaned.

Those people related to the oil sector that have not been able to either see or warn the country about the possibility of a fall in world oil prices, who, in spite of arguing in favor of conquering new markets, run for cover behind OPEC's skirts when confronted with adverse situations, and who continue to invest scarce resources in projects of low significance such as the expansion of our gasoline stations' capacity to sell snacks, should certainly be offered a great Whakapohane.

Many illustrious representatives of the private sector applauded the privatization of CANTV, without realizing that it was all an elaborate trick perpetrated by the government to collect taxes in advance which we now have to cover through exaggerated service charges. These guys are due a good Whakapohane.

Those die-hard defenders of free trade who simply do not understand that in a globalized world economy each country must, when the chips are down, defend itself and guarantee a minimum internal level of employment should be urgently Whakapohaned.

The entire political and economic system is based on centralized income and decentralized personal apparatchiks.

Members of this system have not been able to come up with a real solution to our problems and should be considered traitors.

They should all be paraded to La Carlota Airport and given the Mother of all Whakapohanes .

We have heard that one of the people most clearly and widely questioned in our recent history is due to return to Venezuela after statutes of limitations have expired.

Just imagine what a marvelous message a small delegation of our "notables" dispatched down to Maiquetía to receive that person with a mini-Whakapohane would send. 

We should definitely not lightly discard the possibility of introducing an ancestral aboriginal custom from New Zealand in to the Venezuelan political scheme . 

Whakapohaners of the world, unite! The alternative are much worse.

Spanish translation

The first version was a blue one

Then, I don't know when... some applied the original concept

Should we abandon OPEC?

Alternative 1: Continue in OPEC, produce little oil and sell it at reasonably high prices. Alternative 2: Abandon OPEC, expand production capacity and sell oil at relatively low prices, while conquering new markets in the process.

Venezuela’s future oil policy should lie somewhere on the axis formed by these extremes. We, as citizens, should supposedly form our own opinion as to where this ideal point should lie.

Over the last 20 years, I have consistently questioned the logic of a policy under which the members of a cartel have turned a blind eye to the diminishing strength of the latter, almost as if on purpose. This is the case of OPEC, which has, year after year, lost market share. In this sense, the only plausible response to the proposal of going out and aggressively conquering new markets should be “let’s go for it”.

Unfortunately, it is not quite like that. Even though I support this proposal on technical terms, I can’t quite seem to drum up enthusiasm. Neither because of the possibility of revindicating myself with an egoistic but savory “I told you so”, nor because of the possible inherent promise of the plan itself. The cause of my indifference is none other than my conviction that such a decision is in itself of little importance for the future of the country.

It does not suffice to follow a coherent oil sector policy. What really matters to the country is its final result. A decision that is technically wrong but produces satisfactory results is clearly better than the opposite. As far as the future of my country is concerned, I am not interested in applying the medical phrase that certifies that “the operation was a success, but the patient unfortunately has died”. 

In its initial phases, OPEC generated large volumes of resources for Venezuela; more than sufficient to set the country on the road to development. This did not occur and there is no reason to believe that the country will manage to reap the non-perishable fruits of this development even if the next oil policy is successful.

Even though I realize that it is not popular today, and feeling a bit like a prehistoric hippie predicating “Love is all we need”, I will risk whispering the statement “oil is a valuable natural, non-renewable resource”.

Since oil is indeed valuable and because it is not renewable, prices have once upon a time been pushed up to nearly $ 40 per barrel and projected prices should probably be around $300 today. Since oil is valuable and non-renewable, it was also said that before liquidating it at low prices it would be better to leave it in the ground (for the benefit of our grandchildren).

If we were not all, myself included, simple egoists itching to get our hands on resources that would allow us to once again live an easy and happy life, we should really be leaving the oil in the ground today, thereby insuring the future of our country and our children. Not until the price is right (the current market price of US$ 12 may indeed be the right price), but until we can find prudent, reasonable and responsible destinies for the income our oil sales generate.

When oil prices skyrocketed in the 1970’s, the country went the route of mega-projects; duties to protect against imports, subsidies and all of the other ingredients which eventually proved to be wrong. At least, however, these were the result of a plan and a vision. Today, there isn’t one coherent statement, not even an incoherent one, with respect to a development model applicable to Venezuela.

These comments are not aimed at paralyzing the oil industry’s current plans. On the contrary. We have read in this week’s press about the need to isolate the country’s fiscal accounts from the ups and downs of oil prices. In my humble and probably validated opinion, we should probably be doing just the opposite in order to give our industry an even chance to fight for its markets. We should be isolating our oil industry from our fiscal appetite.

The previous strategy of reducing production and selling at lower prices represents, in addition to minimizing investment requirements, the milking of our cash cow, PDVSA. Today’s strategy implies that we must cover increasing needs for investment in the face of falling prices with drastic reductions in fiscal spending. We still have a long way to go before we can be convinced that the political will to reduce spending is really out there. To begin with, the US$ 2 billion the country reaped from the oil opening, which should have been earmarked for PDVSA’s own investments and expansion, have already been spent. As usual, there is nothing left!

Restructuring PDVSA - some doubts

The efficiency of the oil sector in Venezuela could be of more relative importance to the common citizen than is the efficiency of the government itself. Considering the brouhaha that the search for constitutional or electoral reform would cause, it is surprising how easily the reorganization of PDVSA went down.

When faced with all the country’s problems, most of its citizens, at least those that cannot even contemplate emigration, have placed all their hopes on the imminent development of a buoyant oil sector once production has been increased to six million barrels per day. In order to avoid the onset of profound depression, it is probable that most Venezuelans don’t question or even contemplate the possibility that all is not as it should be in the oil patch.

I am one of those that await only good things from our oil industry. However, since “the eye of the owner fattens the cattle”, all Venezuelans have the clear responsibility of keeping watch, issuing opinions and generally do all that is within reach to avoid that due to lack of effective control the industry dives into a tailspin. Without this control, and should the internal meritocracy (however meritorious it may be) be allowed to simply act as it pleases, it seems evident that an organization as rich as PDVSA, dedicated to an activity generous enough to permit the sale of a product with a production cost of about US$ 5 at US$ 20, will eventually degenerate.

In this sense, it behooves us to express our reservations about the amply publicized restructuring of the oil industry. As far as we understand, the plan is based on the substitution of the current organization, represented by Lagoven, Maraven and Corpoven, all of which functioned integrally as operators, with specialized companies designed to cover specific functions, among them exploration and production, manufacture and commercialization and services.

It could be that I have been overly innocent, but I was always under the impression that by splitting the Venezuelan oil industry into three operating companies, we had the keys to some control over it. This division allowed for certain competition, guaranteed a basis for comparison and finally, created different specialized professional teams which in one way or another kept an eye on each other.

I was, however, never so innocent as to figure that this control was perfect. Evidently this three-way split created much duplication of costs. 

The solution, however, seemed to be satisfactory when compared to alternatives such as the politicization of the industry or the awarding of total independence (upon which we would have had to light candles to our favorite Saint).

The new Plan has been justified with the following ideas: 

a) estimated savings that have quickly grown from US$ 1 billion to US$ 2 billion annually; 

b) the need to elevate the country’s participation in the international market; 

c) as a simple response to organizational tendencies and pressures relative to the industry itself.

These arguments don’t completely convince me. Evidently, some savings are always possible. However, if savings such as those mentioned above are possible without adversely affecting the company’s operations, it would imply the recognition of such an incredible inefficiency that the first administrative act we should request is the immediate removal of the entire Board of Directors of PDVSA.

The second argument, i.e. the need to elevate the country’s participation in the global market, has more to do with abandoning the agreements established by OPEC than with a plan for reorganization. Finally, we should not be comparing the organization of a state owned company like PDVSA with private oil companies that operate in a world of shareholders, stock markets and other elements that exercise control over management.

Until I hear arguments to my satisfaction that address the issue of the control that our society has a right to, the Plan simply smacks of a proposal to centralize, both functions as well as power. In this sense, I believe the Plan could simply accelerate the degeneration which I feel the industry is doomed to. Additionally, why are we so set on decentralizing the country’s government, infrastructure, etc. if centralization by function is so beneficial?