Cuba & Venezuela

[The Mad Viking]

Originally posted by DanS


Of course, there is a certain contradiction. But our commerce is something that is ours and that we have every right to control as we see fit. Hypocricy doesn't enter into it.

Re Venezuela, I think it is trying hard to exit the US business because of the very things that you mention. But as you probably know, the US is pretty much Venezuela's sole market. Even if they sold Citgo and its refineries, they would have to build new refineries elsewhere to refine the country's heavy oil. But in any event, this just shows how retarded Chavez is. He has a steady market nearby for his oil, and he just wants to trash the relationship and start over with China or whoever. Lots of Citgo ads on TV now, leading me to believe they are prepping the company for sale. I wonder whether the refineries will fetch much because the prospect of lack of supply soon.

Who's retarded?

Previously you suggested that the US should embargo Venezuela because it's not in your best interest to do business with socialist dictators. Does it not make good business sense for Venezuela to investigate options for business with nations who are less hostile?

[The Mad Viking]

Originally posted by lord of the mark

own you ass they might, but it wouldnt change the fair value of any assets. It was the job of the Bautista govt to audit firm values. If they didnt then they, who were the Cuban govt, accepted the values.

So the Batista govt was bribed. When a new government takes power, they are supposed to live with all the previous governments deals?

Even American governments revisit treaties when their leaders change.

Anti-ballistic missiles?

Geneva convention?

[Jon Miller]

Originally posted by lord of the mark


own you ass they might, but it wouldnt change the fair value of any assets. It was the job of the Bautista govt to audit firm values. If they didnt then they, who were the Cuban govt, accepted the values.

And later the government pointed out that the previous government had been bribed...

Jon Miller

[DanS]

Originally posted by The Mad Viking
Who's retarded?

Previously you suggested that the US should embargo Venezuela because it's not in your best interest to do business with socialist dictators. Does it not make good business sense for Venezuela to investigate options for business with nations who are less hostile?

Apparently, you are.

Read carefully what I said. I said that if it were possible, we should stop doing business with Chavez's Venezuela. But it's not really possible in a relevant timeframe, while protecting our interests.

[DrS]

Chavez has more than halved investment in V's fields, and fired most of the managers and technicians, replacing them with unknowledgeable loyalists. Venezuela may be on an oil-high now, but it won't take long for it to come crashing down to reality.

http://www.economist.com/business/PrinterFriendly.cfm?story_id=7270301

Oil's dark secret
Aug 10th 2006 | CARACAS AND LONDON
From The Economist print edition


Most of the world's oil reserves are in the hands of state-run companies, many of which are run badly

AP
AP


EXXON MOBIL is the world's most valuable listed company, with a market capitalisation of $412 billion. But if you compare oil companies by how much they have left in the ground, the American giant ranks a lowly fourteenth. All 13 of the oil firms that outshadow it are national oil companies (NOCs): partially or wholly state-owned firms through which governments retain the profits from oil production. Because these national champions control as much as 90% of the world's oil and gas, they can do far more than the likes of Exxon to assuage the current worries about supply and to influence the accompanying record prices. But like most state-owned firms, they are prone to over-staffing, underinvestment, political interference and corruption.

Petróleos de Venezuela (PDVSA), one of the biggest (see chart), provides a cautionary tale of how bad they can be. Venezuela has exported oil since the 16th century, when the mother of the Hapsburg emperor, Charles V, had some shipped to Spain to treat his crippling gout. Big multinationals, such as Royal Dutch Shell, set up shop in Venezuela almost a century ago. By the 1930s the country was the world's second-biggest oil producer. Today it remains one of the main sources of American oil imports. There is also huge potential to expand production: if you include its near-endless supply of treacly “ultra-heavy” oil, Venezuela has the world's biggest reserves.

Like many developing countries, Venezuela nationalised its oil industry in the 1970s. But its politicians were mindful of the extravagant mess that Pemex, Latin America's biggest NOC at the time, had made of Mexico's oilfields since the 1930s. So the Venezuelans devised a structure to minimise the disruption. Former foreign concessions became free-standing divisions of PDVSA, with many of their existing managers left in place.

From these sensible beginnings, PDVSA developed a reputation for professionalism and competence, matched by few other NOCs. The company was thought to be relatively free from the corruption and cronyism that had spread through Venezuela, fuelled by oil wealth. It was certainly efficient, producing as much oil as Pemex did with a third of the staff.

In the 1990s the Venezuelan oil company embarked on a scheme to raise output to 6.5m barrels per day (b/d). This would be done by increasing its own production and farming out marginal fields to foreign firms. The idea, says Luis Giusti, who ran PDVSA from 1994 to 1999, was to make use of multinationals' technology and capital without surrendering the most lucrative opportunities to them.

By 1998 some 36 foreign firms had set up shop and were rapidly expanding their output. PDVSA, meanwhile, had already reached 2.9m b/d and was seeking the government's blessing to invest more to increase its production capacity. But royalties were falling along with the oil price. With an election looming, the government slashed the company's investment budget instead. Output promptly started to fall and has never recovered.

Partly because of geology and partly because of their age, Venezuela's fields require a lot of maintenance. The oil they produce is more viscous and acidic than the norm, and so harder to handle. Less than a tenth of the fields simply spout oil thanks to the natural pressure of the reservoir. Keeping the remainder flowing requires constant injections of water or gas. Even so, their output declines at roughly twice the pace of oilfields in the North Sea. Venezuela has to add 400,000 b/d of new annual production capacity just to keep output stable, according to Mazhar al-Shereidah, an academic.

That is even more expensive than it sounds, because each well produces only a small amount: perhaps 180 b/d, compared with as much as 7,000 b/d from some Persian Gulf wells. It takes Venezuela ten times more wells than Saudi Arabia to produce a third of the oil. No wonder that at the height of its expansion in 1997, PDVSA was investing $5.4 billion, according to Wood Mackenzie, a consultancy.

But when President Hugo Chávez came to power in 1999, he started squeezing even more money out of the firm. By 2000 investment had fallen to $2.5 billion. Mr Chávez accused PDVSA of hiding its profits from the government through deceptive accounting. He also questioned the firm's expansion plans and overseas acquisitions. Above all, he decried its relative autonomy and appointed a number of hostile bosses to impose his authority.

PDVSA's management, naturally, resented this. They joined a general strike in December 2002, along with half of the firm's 40,000 employees. Most of the skilled staff, including engineers and technicians, stopped work for two months. Since—like patients in intensive care—many of PDVSA's wells require constant monitoring and treatment, says Mr al-Shereidah, the strike killed lots of them. Analysts estimated that Venezuela lost as much as 400,000 b/d of production capacity for ever, not to mention billions of dollars in revenue.

Sacking the lot

But the worst was still to come. Mr Chávez denounced the strikers as saboteurs and sacked them all. The toll was highest among skilled workers: two-thirds of managers and technical staff went. At a stroke, PDVSA lost almost all of its most experienced and best-qualified employees, with an irreplaceable understanding of the idiosyncrasies of its wells and fields.

Critics say that the government restaffed the firm with incompetent cronies and placemen. Contractors whisper that it is having trouble spending even its reduced investment budget. Bids take months longer than necessary to complete, one contractor complains, because the procurement staff cannot get their technical specifications straight. Others point to an increase in fatal accidents and fires at PDVSA's refineries as proof that its workers are no longer up to snuff.

Staffing has certainly become more political. Mr Chávez's cousin, Asdrubal, runs the firm's shipping arm. The president's brother, Adan, helps to co-ordinate the company's subsidised oil sales around the Caribbean as ambassador to Cuba. Those who signed a petition advocating a recall election for Mr Chávez complain that they cannot get jobs at PDVSA or its contractors.

Politics has begun to intrude into the firm's strategy, too. Mr Chávez wants PDVSA to do less business in the United States and more in Latin America. In the name of regional integration, he is pushing for an expensive natural-gas pipeline from Venezuela to Brazil, which would “bring gas that does not exist to markets that do not exist”, in Mr Giusti's view. In theory, the hugoducto, as the pipeline is sarcastically known, will be a money-making venture, but Mr Chávez has also dragooned the company into all manner of charitable works. He insists that the firm spend a tenth of its investment budget on social programmes, and has pledged its help, in the form both of cheap oil and technological assistance, to allies from Argentina to the Bahamas.

Clearly, Venezuela's oil company no longer operates at arm's length from the government. Its head, Rafael Ramírez, is also the Minister of Energy and Oil. “The president tells PDVSA to commit suicide, and he says, ‘Yes sir!'” gripes Elie Habalian, a former Venezuelan representative at OPEC, with a mock salute.

The company is also becoming more secretive. It has de-registered its refining subsidiary, Citgo, at America's Securities and Exchange Commission, and so no longer files any public reports to the organisation. In Venezuela, the Ministry of Energy and Oil has only just released the 2003 edition of its annual statistical compendium on the company's performance. Its finances are certainly getting murkier: it now transfers much of its earnings directly to a development fund controlled by Mr Chávez, rather than sending them all to the central bank as it used to.

Despite these worrying trends, the government claims that PDVSA has fully recovered from the strike and sackings, and is now producing more than it did beforehand. Officially, it is still planning to raise output to almost 4m b/d by 2012. But observers scoff at such notions. The company can no longer maintain its own fields, let alone complete the many new projects it is pursuing, says Diego González, who used to work for its gas division. Wood Mackenzie estimates that output slumped to less than 1.2m b/d in 2003. It subsequently recovered a bit, to 1.6m b/d, but is now falling again.

These failings have not stopped Mr Chávez from forcing most foreign oil firms in Venezuela to go into partnership with its national champion. It is now running the resulting joint ventures—presumably no better than it runs its original fields. Other countries go further: Saudi Aramco, for one, has a monopoly on oil production in Saudi Arabia. PFC Energy, a consultancy, calculates that 77% of the world's oil and gas is found in countries whose production is controlled by state-owned oil firms and their partners.

No entry

The NOCs will gradually become even more dominant as oil production dwindles in areas which are open to all comers, such as the North Sea and the Gulf of Mexico. New oil is most likely to be found in the NOCs' territory, precisely because it is largely out of bounds to multinationals such as Exxon and BP, and so has not yet been thoroughly raked over. In the future, therefore, oil production will be even more concentrated in the hands of the national firms of Russia and the Persian Gulf.

Happily, not all NOCs are as badly run as PDVSA. But their problems are similar, if not as severe. Many suffer from government meddling of one sort or another. Legal requirements to hire a certain number of locals have left the state firms of several Persian Gulf emirates hopelessly over-staffed. Russia uses its NOCs, Gazprom and Rosneft, as instruments of foreign policy. The governments of China and India, among others, oblige their state firms to sell petrol below the international price at the pump, even though they have to buy much of it on the open market. Bolivia, meanwhile, cannot decide whether it wants an NOC at all. It has opened its oil industry to foreign investment and then nationalised it no fewer than three times.

A lack of openness is common. Saudi Aramco has not released enough data to quash a theory that its oil reserves are not nearly as large as it contends, and that its output may have peaked. Earlier this year a report in Petroleum Intelligence Weekly suggested that Kuwait's state-run Kuwait Petroleum Corporation (KPC) was not providing a full picture of how much oil it had. Even members of Kuwait's parliament complain that they do not know the true level of the country's reserves.

Underinvestment is the most widespread problem of all. Indonesia has become a net importer of oil, despite big reserves, thanks to the failure of state-run Pertamina to develop new fields. The fact that NOCs are sitting on the vast majority of the world's oil but pumping only about half of global output suggests a systematic failure to invest. Any government that relies on oil in general, and a state-run oil firm in particular, for the majority of its income, is likely to skimp on investment when the oil price falls, because it is more politically palatable to slash drilling programmes and seismic surveys than civil servants' salaries and hospital budgets.

Failed ambitions

For all these reasons, nationalisation has failed to live up to expectations almost everywhere. Iran, which has more oil and gas than all other countries save Saudi Arabia and Russia, pumps less today than it did in 1979, when the new Islamic government threw foreigners out. The current expansion of Russia's NOCs is proving equally ill fated: costs have risen and output has grown more slowly at Yuganskneftegaz, the former production arm of Yukos, a Russian oil company, since its takeover by state-controlled Rosneft, according to Andrei Illarionov, a former adviser to the Russian government. Over the past 20 years, he points out, income per head has grown in countries with private oil industries, but has shrunk in those with nationalised ones.

Saad Rahim, of PFC Energy, argues that weak institutions lie at the root of this disappointing performance. Most countries with national firms used their oil wealth to develop the authority of the state, rather than the other way around. So NOCs sprang up before their countries had institutions strong enough to regulate them, or to manage the money they generate—a recipe for inefficiency and corruption.

These feeble governments, in turn, look to NOCs to perform tasks that would normally fall to the bureaucracy. Many oil-rich states rely on them to bankroll their budgets, rather than bothering to collect any tax. They also depend on them to do a lot of the spending: hence the tendency to draft state oil firms into distributing subsidies and providing social services. In the worst cases interference becomes a surrogate for economic growth, as governments demand they build uneconomic facilities and hire unneeded workers.

No wonder then that Statoil, Norway's NOC, is generally thought to be the best of the lot. Norway, after all, was a rich, efficiently administered country long before Statoil produced its first drop of oil. It had plenty of educated citizens to help staff and regulate the company, a free press, well-funded police and impartial courts to guard against corruption. Norway also had demanding voters to limit waste and inefficiency. Similarly, the state-run oil firms of Malaysia and Brazil, which had relatively strong governments and diversified economies before they found oil, do better than most.

But institutions are not everything. After all, points out Valérie Marcel, author of a comparative study of five NOCs, Saudi Aramco has prospered since its nationalisation, despite the many failings of the Saudi government. In part, she argues, that is because it was taken over gradually and amicably. Saudi Arabia bought the company from its foreign owners over the course of seven years, helping to preserve institutional memory and an efficient corporate culture. It still keeps a few foreigners on the board. By contrast, Sonatrach took over foreign oil firms' assets in Algeria much more abruptly and acrimoniously, following a long and bitterly fought war of independence.

Moreover, Saudi Arabia has remained remarkably stable since nationalisation. The crown has changed hands only twice in the past 30 years; the same is true of the oil ministry. Political stability, in turn, has led to consistent policymaking. The government of Saudi Arabia has stuck to the same broad strategy for decades. It wants Aramco to maintain its position as the world's biggest producer and to use the resulting pricing power to ensure that the oil price stays high enough to keep the country solvent—but not so high as to turn consumers off oil altogether. That guidance has allowed Aramco to draw up long-term investment plans and to raise the capital to implement them.

But clear strategic guidance, Miss Marcel argues, goes hand-in-hand with operational autonomy at the best NOCs. The Saudi government, for example, lets Aramco set its own prices, unlike Kuwait's, which hands them down to KPC from on high. Whereas Mr Chávez dictates where PDVSA should lay its pipelines, and who its customers should be, Aramco's managers make such decisions for themselves. Critically, Aramco is able to retain a portion of its earnings for maintenance and expansion, rather than subsisting on an allocation from the national budget, as Iran's state-run oil firm did until recently.

Competition also helps. The governments of Brazil and Malaysia, among others, allow other firms to bid against their respective NOCs, Petróleo Brasileiro (Petrobras) and Petroliam Nasional (Petronas), for exploration and production rights. Since the two have better knowledge of local conditions and geology, they can still hold their own against multinationals. But the competition forces them to keep costs down and methods up to date. The presence of multinationals also helps to develop a country's pool of skilled labour and, when they operate in joint ventures, to disseminate new technology and ideas.

Brazil and Malaysia are also among the countries that have tried to raise their NOCs' game by encouraging them to expand overseas, in places where they enjoy no special privileges. Much of Petrobras's oil comes from fields off Brazil's Atlantic coast. It has taken advantage of this expertise in offshore exploration and production to win contracts to develop deep-water fields in countries like Angola and Nigeria. Although KPC's upstream division enjoys a monopoly over oil production in Kuwait, its retailing arm, Q8, competes with multinational rivals in Europe. That not only allows KPC to extract more profit from its oil, but also provides it with useful intelligence for its dealings with other distributors.

One factor that does not seem to be a prerequisite to success for a national oil company is having a lot of oil. Petrobras, for one, began life as a refiner and distributor. It used its profits from those businesses to fund new ventures in exploration and production. Abundant, inalienable oil, on the other hand, seems to do most state-run firms more harm than good.

[chequita guevara]

Originally posted by lord of the mark
own you ass they might, but it wouldnt change the fair value of any assets. It was the job of the Bautista govt to audit firm values. If they didnt then they, who were the Cuban govt, accepted the values.

The fact that it takes to tango, does not mean there was no tango. The Batista government got its punishment as well for its corruption.

[lord of the mark]

Originally posted by chegitz guevara


The fact that it takes to tango, does not mean there was no tango. The Batista government got its punishment as well for its corruption.

and you think the practice of underassessment is not, often, in part corrupt?

[Blaupanzer]

In the modern, anti-Islamo-Fascist era, how are Cuba or Venezuela enemies of the US? This anti-Socialist crap is a bad leftover from the Cold War. The Cold War is over.

We play into Chavez hands by treating him as a threat. As long as he delivers the oil, he poses as much danger to the US a pebble to an aircraft carrier. Cuba poses even less threat. Because the Bushies overreact to both of them, all of us think these guys are big threats. As long as they don't sell arms to or provide haven for Islamo-Fascists, why do we care what they do?

The companies with the siezed assets made back their investment 100 times over prior to the siezure. They'll live. The US Government should not get into the business of trying to collect on claims that ring false, even to capitalists.

[lord of the mark]

Originally posted by The Mad Viking


So the Batista govt was bribed. When a new government takes power, they are supposed to live with all the previous governments deals?

Even American governments revisit treaties when their leaders change.

Anti-ballistic missiles?

Geneva convention?

They can of course revisit deals, including tax assessments. What Im saying they cant do, is claim that the previous tax valuation, which was done with a wink from the govt then in power, overrides fair value for the purpose of compensating an owner of nationalized property.

[lord of the mark]

Originally posted by Jon Miller



And later the government pointed out that the previous government had been bribed...

Jon Miller

which means the lower tax valuation is not a net gain to the company, and is offset by the expense of the bribe.

[lord of the mark]

[QUOTE] Originally posted by Blaupanzer

In the modern, anti-Islamo-Fascist era, how are Cuba or Venezuela enemies of the US? This anti-Socialist crap is a bad leftover from the Cold War. The Cold War is over.

Check out Chavez visit to Iran, Venezuala's opposition to sanctions on Iran. Its not anti-socialist crap, Im kewl with democratic socialism, thats definitely not what Cuba is, and probably not what Venezuala is. We need to deal with the general problem of failed states, and integration of states into the global system, not JUST Islamic states.


"We play into Chavez hands by treating him as a threat."

I tend to agree with this.


" As long as he delivers the oil, he poses as much danger to the US a pebble to an aircraft carrier."

Probably rather more than that, but still.

" Cuba poses even less threat. Because the Bushies overreact to both of them, all of us think these guys are big threats. "

Cuba is more an opportunity for positive change than a threat at this point, I think.

" As long as they don't sell arms to or provide haven for Islamo-Fascists, why do we care what they do? "

Well if they send arms to guerillas in Colombia, or to other mischief in the hemisphere, or even try to lobby folks against trade agreements with us, thats something we do care about, but not a major league threat, no.


"The companies with the siezed assets made back their investment 100 times over prior to the siezure. "

Not relevant to principles of compensation of course.

" They'll live. The US Government should not get into the business of trying to collect on claims that ring false, even to capitalists."

Ultimately im quite sure we WONT enforce more than a fraction of those claims, just as we ultimately were in the forefront of calling for debt foregiveness for Iraq. If and when the Cuban govt begins to change, there will be important discussions of how much of the claims to forgive, that will involve US govt prioirities, the arguements of the exile community, and the claim holders. When there is a process of change in Cuba that we want to reinforce and encourage, I suspect the objections to dropping the claims wll recede in importance. At this point theres no reason to drop the leverage.

[chequita guevara]

Originally posted by lord of the mark
and you think the practice of underassessment is not, often, in part corrupt?

What part of both parties getting punished didn't you understand? The fact that the Batista government was easily bribed doesn't diminish the culpability of the companies for doing either the bribing or the defrauding.

[lord of the mark]

Originally posted by chegitz guevara


What part of both parties getting punished didn't you understand? The fact that the Batista government was easily bribed doesn't diminish the culpability of the companies for doing either the bribing or the defrauding.

First, Im not sure if, under Cuban law, a company was even liable for back taxes due to an underassessment recognized by the govt, even if it was associated with bribery. Second, if it was, they should be liable for back taxes, which wouldnt necessarily be the same as the difference between the fair valuation and the tax valuation.

When the eevil Castroite dictatorship is overthrown and the US govt declares the claims history, and the claimants sue the US govt, the legal arguements about the proper basis for the claims will get very interesting. But they will be legal arguements, not snide "aha" arguments, which seems to be all that the regime has.

I wonder if all the european and Canadian companies that have bought the seized assets, accept that whenever they bribe a govt in some 3rd world country, their properties are subject to seizure and arbitrary compensation?

I wonder if when the Castro regime is overthrown, the companies that now hold assets in Cuba, will want THEIR dealings with the regime scrutinized, to determine if they paid legitimate, equitable taxes (no there wont be bribes - we all know Castros not into that personally, but I doubt theres a transparent tax regime)

[chequita guevara]

One should assume that anytime you invest in a 3rd world country, your assets are possibly subject to arbitrary seizures.

[lord of the mark]

Originally posted by chegitz guevara
One should assume that anytime you invest in a 3rd world country, your assets are possibly subject to arbitrary seizures.

which of course helps to keep the level of investment down. And keeps the countries behind. And enables westerners to complain about the horrors of poverty. And to assert that the success of countries like Taiwan or South Korea, that DIDNT confiscate investments (and in the case of Taiwan, did a land reform with full compensation, IIUC) only succeeded cause they were on some kind of cold war front line