Chavez' plan to sale CITGO and the Oxford Institute for Energy Studies

    English

    London 03.02.05 | My involvement in this business of writing and reporting the crisis of Venezuela started in October 2002 when I learned that Hugo Chavez had been invited by Oxford's Center for Socio Legal Studies to give a conference, as a guest speaker, in a human
    rights seminar. At a latter date I found out that the convener of the
    seminar and visiting fellow of the said center, William F. Pepper,
    received a handsome payment of $137.527, 42 from the Venezuelan
    government via the Venezuelan Information Office in Washington DC. I
    was astounded by the discovery that a visiting scholar to one of Oxford
    University's colleges could be so easily, and cheaply I must add,
    bribed by Hugo Chavez.

    My attention has turned now to the Oxford Institute for Energy
    Studies (OIES). With the precedent aforementioned ever daunting me, I
    have started investigating a couple of individuals that have done/are
    doing research in that Institute and currently sit in the board of
    directors of PDVSA, namely Bernard Mommer and Juan Carlos Boué.

     

    Bernard Mommer

     

    Platt's Oilgram News reported on December 22, 1994 "fallout about PDVSA's foreign investment plan". The brief read:

    "The first signs of internal conflict in PDVSA over its much
    heralded profit-sharing agreements have emerged with the surprise
    resignation of senior strategic planning advisor, Bernard Mommer. PDVSA
    vice president Claus Graf admitted Dec. 15 that Mommer's resignation
    resulted from his disagreement with the way the oil industry is being
    opened up to foreign participation. But he said he didn't believe
    Mommer's views were widespread or that they would affect the scheme.
    Mommer, who will remain at PDVSA until Jan. 15, declined to comment in
    detail on the issue, but indicated that his views had been made clear
    in a paper delivered to the Fifth Petroleum Conference in November.

    Hence Mommer was, already in 1994, a senior strategic planning
    advisor of PDVSA. It is puzzling to imagine how such a leftist radical
    made it to the senior echelons of the company. Nonetheless, sources
    report that he was asked to leave and he headed for greener pastures.
    Mommer is quoted as an Andres Bello fellow of St. Anthony's College by
    The Times on October 20, 1993; then again on October 4, 1996. His name
    appears associated with the OIES for the first time in 1994 in a paper
    published by the OIES entitled "The Political Role of National Oil
    Companies in Exporting Countries: The Venezuelan Case". In 1998 he
    published another paper under the OIES umbrella called "The New
    Governance of Venezuelan Oil". Both papers reflect Mommer's own
    understanding of how commercial relationships between the State,
    through its vehicle PDVSA, and foreign companies should be modeled. He
    argues that Venezuela, in regards to the public administration,
    possesses an appalling record of economic performance and even goes on
    to admit that PDVSA was "…the only profitable, stable and dynamic
    institution" [sic] of the country. Alarmingly Mommer condemns the
    management of the oil giant for having, effectively, taken control away
    from the Venezuela's Minister of Mines vis-à-vis energy policy and
    related activities. The State has a role of administrator of a system,
    coined by Mommer, as rent-capitalism (little he seems to know about
    mercantilism…).

    The FT Energy Newsletters - Energy Economist of June 1, 1998,
    carries an article whereby it is argued that the policy of opening up
    Venezuela (Apertura Petrolera) to foreign firms to recuperate marginal
    oil fields, augment production and in some cases initiate exploration
    activities had been a resounding success:

    "PDVSA began in 1991 to put various of its marginal or low-yield
    fields out to tender to domestic and foreign firms to reactive under
    operating contracts. Proven reserves in the marginal fields, mainly
    situated in western Venezuela, are estimated at close to 2 billion
    barrels of light and medium crude oil. Together with a second round in
    1993, a total of 15 contracts were awarded to companies, although one
    was subsequently cancelled.

    A third round of 18 marginal fields offered last year was
    massively oversubscribed, with a record 240 investors queuing up to
    participate. PDVSA eventually received GBP 2.1bn, more than twice what
    the company had anticipated (see FTEE 188/10). The total investment for
    these third round fields alone is now estimated at between GBP 8bn and
    GBP 10bn. Venezuela will also benefit from foreign technology and
    expertise; foreign operators now expect to boost production from the 18
    fields from 150,000 bpd to 500,000 bpd, far greater than PDVSA's
    original forecasts of 350,000 bpd.

    Mommer, begged to differ though, he advocated from the get go that
    the internationalization plan of PDVSA was flawed, unprofitable and
    prejudicial for Venezuela's interests. Mommer went on to become adviser
    to OPEC Secretary-general Ali Rodriguez, then back to managerial
    positions in PDVSA. In 2002 Mery Mogollon published an article entitled
    "VENEZUELA: 'PARALLEL' PDVSA LEADERSHIP SEEKS ALI RODRIGUEZ'S REMOVAL"
    in which one can read the tactics devised by Mommer, by this time
    already in company of Boué, to have the management of PDVSA removed and
    replaced by a group of revolutionary supporters of Hugo Chavez. Said
    group, structure created by Mommer, was formed by Adina Bastidas,
    Gustavo Perez Issa, Vladimir Lazo, Carmen Romero, Yolanda Vetencourt,
    Victor Poleo, Gaston Parra, Carlos Mendoza Potella, Alfreda Riera,
    Argenis Rodriguez, and Felix Rodríguez.

     

    Juan Carlos Boué

     

    In the current version of the OIES' website one can see the profile of Juan Carlos Boué.
    Dr Boué is meant to be an expert in "Microeconomic and logistical
    aspects of oil markets and oil trading. Oil geopolitics. Oil and gas
    taxation. Oil and development. OPEC. Political economy of oil in Latin
    and North America". His professional career appears to be linked solely
    to PEMEX, the national oil company of Mexico, his own country. Boué has
    also written about the petroleum industry of Venezuela; a book
    published in 1993 entitled "Venezuela: The Political Economy of Oil"
    and more recently a paper entitled "the Internationalization Programme
    of PDVSA". Boué's opinions are almost a repetition of Mommer arguments
    and strikingly similar to those of Mark Weisbrot;
    i.e. the whole purpose of PDVSA in its internationalization campaign
    was to divert revenues that should have ended up in Venezuela's
    treasury coffers, in the form of fiscal contribution and taxation, to
    the USA. That is the reason why Chavez, a complete ignorant of the oil
    business, keeps hammering upon the argument that CITGO is 'financing'
    Bush. The chemical composition and characteristics of the Venezuelan
    crude lacks relevance in the view of these experts, the issue revolves
    around the unpatriotic conduct of former PDVSA management and the
    evident ideological collision of market oriented method of management
    with obsolete socialist utopias.

    Last month I received a copy of the recent appointments of the new PDVSA board of directors
    produced in a meeting held on January 19 2005. Surprisingly enough the
    name of Juan Carlos Boué pops up as Vice President of Commerchamp
    (subsidiary of Petróleos de Venezuela S.A. that sells aviation fuel,
    lubricants and services related to PDVSA). It is a given that said
    appointment came to fruition thanks to the good auspices of old pal and
    now multitasked-PDVSA's-executive-director Bernard Mommer. Sensing a
    potential conflict of interests between Boué's role as a senior
    research fellow of the non-partisan OIES and his executive position at
    Commerchamp, I decided to send him an email to his electronic address
    at the OIES. He kindly replied, although his arguments are, in my view,
    not only flawed but extremely ignorant.

     

    From: A. Boyd

    Date: 03/02/05 13.13 GMT

    To: Juan Carlos Boué [juancarlos.boue@oxfordenergy.org]

    Subject: Information request

     

    Dear Dr Boué,

    It is with great interest that I have read your recent paper
    entitled "The Internationalisation programme of PDVSA". My attention
    was drawn particularly to this argument:

    "...covenants have probably become the best protection for the
    internationalisation programme against the interference of the
    Venezuelan government. For instance, in the hypothetical case that the
    Venezuelan government had tried to force through the sale of PDVSA’s
    refining assets in the United States, the fiscal agent for the special
    purpose vehicle could have declared PDVSA in breach of covenant and
    then proceeded to retain the whole of the accounts receivable generated
    by designated clients in the United States until enough funds were
    available to pay off the creditors of the vehicle (the balance of PDVSA
    Finance bond issues to the end of 2001 was 3,300 MMUSD)".

    Ergo according to that predicament, Hugo Chavez would be seeking to
    sell CITGO in order to hedge himself against possible actions of the
    fiscal agent.

    Could you please confirm that indeed that is the reason behind the recent move to get rid of CITGO's assets?

    Cordially, A. Boyd

    -------------------------------------------------------------

     

    From: Juan Carlos Boué [juancarlos.boue@oxfordenergy.org]

    Date: 03/02/05 14.13 GMT

    To: A. Boyd

    Subject: Re: Information request

     

    Dear Aleksandr:

    Actually this argument is now rather passé, because
    most of the debt issuance for which these considerations applied
    (specifically PDVSA Finance) was retired by PDVSA in the latter part of
    last year. In any case, the sale of Citgo would not have been a hedge
    against the actions of the fiscal agent. To the contrary, such a sale
    would have been taken by the fiscal agent as a breach of covenant, with
    appropriate actions following. Bear in mind that the fiscal agent is
    merely a large bank working on behalf of the investors in a special
    purpose vehicle (in this case, the vehicle was called PDVSA Finance).
    The reason why the President wants to sell Citgo has to do with
    discounts: owning Citgo is bad business because crude oil sold under
    the supply contracts that Citgo has realises, on average, 1.10 dollars
    per barrel less than the same crude sold in the open market. Hope that
    this is of use. JCBoué

    -----------------------------------------------------------------

     

    From: A. Boyd

    Date: 03/02/05 14.18 GMT

    To: Juan Carlos Boué [juancarlos.boue@oxfordenergy.org]

    Subject: Re: Information request

     

    Dear Dr Boué,

    Many thanks for your rapid response. Thinking aloud, wouldn't it be
    better, from a strategic point of view and taking into account the
    network of outlets for refined products that CITGO possesses, to revise
    and adjust, instead, the supply contracts between PDV and CITGO?

    Cordially, A. Boyd

    --------------------------------------------------------------

     

    From: Juan Carlos Boué [juancarlos.boue@oxfordenergy.org]

    Date: 03/02/05 14.31 GMT

    To: A. Boyd

    Subject: Re: Information request

     

    The idea that one needs outlets for refined products in order to
    sell crude oil is a fallacy. Product marketing is a low return business
    as was, until very recently, refining. A company like PDVSA, with a
    limited capital budget, will always be better off dedicating all of its
    investment capital to exploration and production activities. Notice
    how, until very recently, all the large oil companies in the world were
    very keen to get out of refining and marketing and concentrate on
    E&P. Why should it be that what is good for them is not good for
    us? Furthermore, the internationalisation programme has cost the
    Venezuelan people around 20 billion dollars in foregone revenues since
    1982. Today, it would be possible to recoup a far larger proportion of
    this loss than would have been the case in the past.

    End of messages

    There have been mixed reactions to the above exchange. On the one
    hand some experts believe that the new policies of PDVSA are been
    modeled on those implemented by PEMEX, which need be stressed, are not
    to be heralded as a showcase of profitability or excellence. Others
    feel that the selection process of investment banks that surely shall
    broker the sale of CITGO will represent fantastic opportunities for
    some to make a killing, for corruption and obscure decisions will
    dictate Venezuela's course of action. To Boué's claim that "the
    internationalization programme has cost the Venezuelan people around 20
    billion dollars in foregone revenues since 1982" an expert replied "it
    can easily be demonstrated that the six year presidency of Hugo Chavez
    has cost PDVSA shareholders, i.e. the people of Venezuela, at least 60
    billion dollars in nominal capital value losses".

    Sources also report that there is a somewhat valid apprehension that
    Boué is one of the key elements in instilling the sudden motivation of
    Chavez to sale CITGO. Furthermore it has been suggested that this
    detrimental action to the network of international holdings of PDVSA
    may be the result of Boué's acting in cohorts with old employer PEMEX.

    My own take is pragmatic. I do not see the purpose of selling
    strategic assets due to unworkable supply contracts between a
    subsidiary and a parent company. Neither do I understand how
    refineries, which according to Boué have turned of late into a
    lucrative business, need be disposed of. I firmly believe, this may be
    interpreted by experts as an idiocy, that there is a fundamental
    difference between "large oil companies in the world" (making their
    money out of refining and marketing) and PDVSA like enterprises for the
    vertical integration that the latter have can only be envied and
    desired by the former. Imagine Shell or BP actually owning, without
    contractual time constraints, the reserves that PDVSA has got, without
    having to pay royalties of any sort to "rent-capitalist" governments.
    It's like comparing a supermarket (with the accompanying overheads)
    that buys its products from middlemen, to a farmer who actually grows
    his produce, transports it in his already paid of van and sells
    directly to the end buyer in the farmer's market at full price.

    The fundamental questions that arise are; how come Mommer, a German
    citizen, and Boué, a Mexican citizen, have got so much leverage with
    Venezuela's current administration? Does the chavista concept of
    sovereignty apply only to US citizens? How come Boué admits quite
    candidly "Why should it be that what is good for them is not good for
    us?" Boué is not part of us, he's Mexican, and his actions are defined
    in my Venezuelan sovereignty taxonomic dictionary as treason.

    What would be the OIES' stance, in light of the partisan profile of
    one of its senior fellows? Have PEMEX, Statoil, Saudi Aramco, Total,
    Shell, Exxon, etc., got 'autonomous researchers' at the OIES?

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