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

Oil and the Stockholm Syndrome

 Fact No. 1: In 1980 the nominal price of oil (Arabian Light) was US$ 36 per barrel. In constant dollar prices calculated using the GDP deflator with 1998 as base, this was equivalent to US$ 67. By the end of 1998 the price of oil was US$ 12.20. In real terms it means that if the price index of oil in 1980 was 100% then in 1998 it was only 18%.

Fact No. 2: The index of oil products retail prices in 1980 was equal to 100%, in the United Kingdom, it reached 247% in 1998.

Fact No. 3: The amazing difference in how the two oil-related indexes developed can only be explained by taxes. As an example, in the UK in 1980 the ad-valorem taxes on gasoline were 85%; at the end of 1998 the same taxes were 456%.

Conclusion. Oil demand and oil prices are being held hostage by the taxes levied on various oil products by most oil-consuming countries. Had it not been for these sky-high discriminatory taxes, Venezuela would today be selling more oil at higher prices, easily repaying its foreign borrowings, and not even requiring a credit rating.

Adding insult to injury, the before mentioned taxes were slammed on Venezuela's main export at a time when the country was busy reducing custom duties and opening up its economy to all type of foreign competition.

It is difficult, then, to understand why, thanks to their country’s press, radio and television, Venezuelans can only worry and feel guilty of the fact that perhaps the recent increases in the price of oil will be the detonator for inflation and worldwide recession.

Could it be that the Stockholm syndrome affects Venezuela (as well as all of the OPEC nations)? As all pseudo-psychologists and writers should know, the Stockholm syndrome is what happens when someone that has been kidnapped finally becomes sympathetic with the position of his captors and ultimately even begins to defend them.

If you doubt what I am saying, just think of how our neoliberals, while talking up the maximization of income as one of their credos, blithely forgive their foreign heroes by either ignoring the issue or by creating lame environmental excuses or by simply repeating absurdities as “being rentist is really not very good for the country”. I would specially like to see them sustain this last thesis in other countries, for example in those that do all that is possible to maximize their rent from intellectual property, to the point of turning us into their best collectors.

That’s it then. There is no doubt in my mind that the Stockholm syndrome, or something very similar, is alive and well in Venezuela’s economic policies.

We need a couple of couch sessions, this time with psychologists that are very different from those we have used up to now. Dr. International Monetary Freund turned out to be simply an unethical Dr. Fraud. While the latter was pretending to give us good advice, he would travel behind our backs throughout the world, preaching the marvels of increasing taxes on oil-based products, and when this was not sufficiently convincing, simply forcing the adoption of the policy.

With its inaction, OPEC is also a prime suspect of having come down with the same affliction. I sure hope that during their sessions next week, to be held in Vienna, they will find time to get the advice of a true Dr. Freud.

Only then will they realize that at US$ 30 per barrel, the price of oil is still less than 45% of what it was in 1980.

Only then will they be able to understand the true injustice present when a taxman of a consumer country perceives an income 4.8 times more than the producer of a non renewable asset. During February this year, premium unleaded gasoline was sold at the pump in the UK for US$ 1.18 per liter, distributed as follows: 20 cts for the producer, 5 cts for the distributor and 93 cts for the British taxman.

Only then will they know that the world is not threatened by oil prices. The world and economic growth is above all, threatened by taxes implement for the sake of easy tax collection.

Only then will they remember to ask for a reduction of oil taxes, as a quid-pro-quo for any increase in oil production.

OPEC friends, … please remember Stockholm.

Calculations based on information in World Oil Trends 1999 published by Arthur Andersen and Cambridge Energy Research Associates.

In the Daily Journal, Caracas, March 24, 2000

https://petropolitan.blogspot.com/2000/03/oil-and-stockholm-syndrome.html

The world’s real petro-pirates!

This week's column is dedicated to those meetings up in Seattle this week.

When, as a citizen of an oil producing country, Venezuela, I see oil being valued by the market at US$ 150, and we only receive about US$ 20, I believe that I have the right to feel a bit let down by all those who promised us a rose garden if we duly signed up on all the international commercial agreements peddled by GATT; and lately by the World Trade Organization WTO. What do I mean? 

From one barrel of oil, one can approximately and simultaneously obtain 84 liters of gasoline, 12 of jet fuel, 36 of gas oil, 16 of lubricants and 12 of heavy residues. 

In Britain today, educated consumers are paying (voluntarily and out of their own pockets) US$ 1.38 per liter of gasoline (sorry, petrol) using the traditional way of establishing a product's value. 

Even if we just consider the gasoline, we obtain a value of about US$ 116 per barrel of oil and then by adding the rest of the products, we should be close to US$ 150 since refining and distribution costs are fairly small. 

I am well aware that the value US$ 150 is achieved by the taxman forcing himself in at the point of sale of gasoline, as an extremely expensive middleman, keeping 85% of the gross. But, was this not exactly the things that world governments agreed not to do, in order to foster free trade and growth ... and that which we believed when we signed up on all those reductions of protectionist duties, accepting to lend the developed world a hand, collecting, their pretensions of royalties for intellectual property rights? 

Today's result is therefore that, when an oil producing country is selling it's non-renewable and scarce resource to the world, it's only getting a fraction of the real value. 

The hurt and pain I feel at seeing so much poverty in my country, that could be alleviated by just a little bit more of justice by the developed consumer countries themselves, is made worse by thus adding salt to the wound.

Their bankers sold us on the idea, in the mid-seventies, that oil was going to increase in value, and therefore that we could calmly take on the responsibility for servicing a huge country debt ... they never told us that all the increase in the value of oil, which has actually occurred since then, was going to be confiscated by their taxmen.

We producers were, and still are, the remaining scapegoat for all inflationary pressures derived from any price increase in gasoline and other derivatives ... even when these were just the result of higher taxes.

We oil producers were, and still are, branded as the most wanted criminal in environmental issues when, in fact, we are the ones paying 100% of the cost of all the protection plans that through their taxes reduce world demand for oil.

Today we hear of even higher future oil taxes when Germany (for example) announces a plan of annual increases as a way to reduce their workers' social security payments and discriminate against us by not taxing coal and other energy sources.

For what it's worth, I would like to remind the developed world in good conscience that, when you're giving generous assistance to the under-developed world, much of it is with money properly belonging to the oil producing nations. 

When I see the suffering of my more destitute fellow countrymen, I blame myself, I blame all those lousy governments we have had ... but I also rightly blame the taxmen in the consumer countries, who are the true petro-pirates of the world.

http://petropolitan.blogspot.com/1999/12/worlds-real-petro-pirates.html

The Petropolitan Manifest

  The Petropolitan Manifest

We are an oil country, but one day we will stop being one. Interpreting that “sowing oil” means having to move in advance from one economy to another, applying an economic model and developing economic activities unrelated to an oil reality, is wrong and constitutes the perfect excuse for today's apathy.

 

This month, in England, with oil at more than US$ 20 per barrel, the consumer must pay Bs. 820 per liter of normal gasoline, of which the distributor receives Bs. 31, the producer, who sacrifices a non-renewable asset, obtains a paltry Bs. 117, while the English Treasury charges confiscatory taxes of Bs. 672. In fact, what is charged by the Treasury, when compared with what is received by the producer, indicates the existence of something similar to a commercial tariff that around 600%.

 

The same happens in Germany, Japan, Spain, etc. The taxes that consuming countries apply to petroleum products imply for them only a redistribution of their national income, while, due to their negative effects on the demand and prices of petroleum, they cause a real reduction in the national income of the producing countries.

 

The obscene levels at which these taxes are today in most of the world, with the threat of becoming higher every day, constitute a trade war declared against the economic interests of Venezuela. The fact that our country does not protest about this, just as it did not protest about the ban on the use of Orimulsion in Florida, is indicative of a lack of will and national conscience, without which, with or without oil, we are nothing.

 

The historical indifference of the authorities (Government and PDVSA) towards the aforementioned problem led to the formation of the PETROPOLITAN movement. Its activities are nourished by a series of beliefs, not inscribed on stones, but based on the continuous interpretation that its members make of the best interests of the country, which we summarize below:

 

We Petropolitans believe that the true “sowing of oil” must mean the sowing, in the hearts of Venezuelans, of the will to defend, with pride and responsibility, their real interests, which in essence are and will continue to be so for several decades, his oil interests.

 

1. We Petropolitans believe that the true “sowing of oil” must mean the sowing, in the hearts of Venezuelans, of the will to defend, with pride and responsibility, their real interests, which in essence are and will continue to be so for several decades, his oil interests.

 

2. The value of a good is calculated based on the price that the final consumer is willing to pay. Hence, the difference between what the world consumer of gasoline pays today and the little that the producer receives shows, within the framework of the principles of free trade, the presence of a scam.

 

3. Certain that there is strength in unity and even more so in a globalized world, we support Venezuela's permanence in OPEC. However, we demand that that organization develop new and better defenses of its interests. Not fighting taxes and limiting production only guarantees its extinction.

 

4. We object to any inference to an absolute and necessary relationship between oil revenues and a wasteful economic model. The results obtained to date have no relationship with a rentier model. If we had applied a true and responsible rentierism, living off a portion of the income and not the capital, the story would be different and Venezuela would be in a very envious economic situation.

 

5. We reject any derogatory expression, such as “devil's excrement”, which hinders the emergence of a necessary feeling of respect and gratitude for oil, without which it is impossible to manage our wealth for the good of future generations.

 

6. Since we know that oil is a non-renewable asset of the country, we believe that the defense of its price and value should be the main objective of our industry and we reject the concept of a maximization of current income, which is based on the maximize sales volumes.

 

7. Even though their fiscal purpose is evident, oil taxes are hidden behind the cloak of "green protectionism." At the same time that we affirm a commitment to the defense of the environment, we reject, as unfair, that the producing countries must pay 100% of their cost.

 

8. Oil certainly doesn't create many jobs. However, we must avoid falling into schizophrenic models where the country, being an oil producer, deals with the anguish of not being one, making mistakes whose impact on the generation of stable employment is even more negative.

 

9. The results of the international agreements signed by the country during the last decades do not compensate the cost of having to respect the sources of income of the developed world, such as trademarks and patents, without them respecting our right to obtain the majority of what corresponds to the valuation of our oil asset.

 

10. In the defense of oil, it is not possible to replace the importance of a solid will of the country, with the hiring of international advice and lobbying.

 

11. There are Patriots willing to give their lives in the event that a foreign entity enters our country, in order to extract barrels of oil. Oil taxes imposed by the consuming world are, in essence, a similar invasion. It is the responsibility of the Petropolitan to report this.

http://petropolitan.blogspot.com/1999/10/el-manifiesto-petropolitano.html

http://theoilcurse.blogspot.com/1999/10/the-petropolitan-manifesto.html

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

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

Some –isms are still alive and kicking

I recently read an article published in The Daily Journal by a frequent contributor to these pages, Michael Rowan. I do not know Mr. Rowan, but I often envy his capacity for analysis and of expression. The article in question was titled “An End to the Age of Isms”, and it contained a few phrases which compel me to reply.

Specifically, Mr. Rowan wrote: “Yet there are still pockets of resistance to market democracy in the world. There are the nationalists who believe in protectionism and are afraid of globalization, ..... . In those places, one finds the old media, propaganda, hierarchies and also, deeply entrenched poverty. That is their tragedy. The world has passed them by ... . What work is freedom. Freedom in the market .... . For those with the responsibility of writing a new Constitution for Venezuela, this is the truth which can set them, and their country, free at last.”

I cannot agree more with the concept of freedom as expounded by Mr. Rowan in his article. However, when he attempts to segment or divide the world into right and wrong, into those that behave and those that sin, I have no other option as a Venezuelan but to cry “Foul”.

I do not believe there is any reason to, either directly or indirectly, label Venezuela as a country of protectionists afraid of globalization. On the contrary, Venezuela’s borders, both commercial as well as cultural, are among the most permeable and open in the world.

There are no limits as to what goods and services can be imported into the country. On top of this, the limited duties imposed are more than often not even paid at the ports of entry. In addition, few could question the eagerness and openness with which Venezuelans accept any type of external influence.

Champagne is charged a duty of 26%, quasi-monopolistic services such as those of international auditors and law firms are marketed with ease, patent and intellectual property right agreements are applied quickly, as in the case of laboratories, and finally, our early morning radio broadcasts allow us to hear all types of debate about matters typical of the globalized world such as oral sex.

What does Venezuela obtain in return for this extraordinarily good behavior as a citizen of the globalized world?

We know very well that the worth of something is what the consumer is willing to ultimately pay for it. Today, for each 100 units a European consumer pays for a tank of gasoline, the producer of the latter receives 10 units, the distributor 5 units and the taxman of the country it is pumped in receives 85 units. The fact that the taxman receives 85 units and the producer only 10 units means they are applying an effective commercial duty or tax of 850%. The experts, very able at managing the percentages in order to defend their interests, frequently refer to taxes on oil as being “only 85%” and never as a duty on the product. 

If, for example, we were talking about a Mercedes Benz which goes for US$ 100,000, I am sure Daimler Benz would not be talking about “only 85%” if this sale would be broken down into a sales commission of US$ 5,000, a payment to the manufacturer of US$ 10,000 and a transfer to the taxman of US$ 85,000.

It is not true that prices of oil are low, since for the consumer the prices have never been as high. Our only problem as a producing nation is that on the income side, we have never received less. The taxmen in the consumer nations receive more, a lot more, income from each barrel of oil commercialized than the producer of the same.

This is what Venezuela got. A system of free trade that only pays it a meager 10% of the value of the non-renewable asset that it liquidates. Just like any Little Red Riding Hood, we readily swallow the stories about the freedom of markets when in reality they hide the evil, bad wolf of protectionism, environmentalism and fiscalism, three “isms” that are very much alive and kicking, thank you!

I agree in no uncertain terms with Mr. Rowan that the Constituent Assembly has much work to do, but in my wish list I have not included his recommendations with regards to increased global aperture. My rather long wish list includes, for example, ensuring that the citizens of the country can access adequate information pertaining to the government’s management of its affairs, more effective limitations on new public indebtedness and finally (something inspired by Mr. Rowan) the banning of ingenuousness as a basis for our commercial policies.

https://petropolitan.blogspot.com/1999/04/some-isms-are-still-alive-and-kicking.html

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.