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How Rafael Ramirez bankrupted Petroleos de Venezuela

Rafael Ramirez is the Minister of Energy and Petroleum of Venezuela. For the past 11 years he has also been the President of the state-owned petroleum company, Petróleos de Venezuela (PDVSA). I would like to describe in this article how he led the company into bankruptcy. In so doing he has also generated economic and social chaos in the country, since petroleum is the only source of foreign currency for our nation. It represents 96% of all Venezuelan exports.   

Bankruptcy is essentially a financial term, but it can also be applied to the operational, organizational and ethical aspects of a corporation. I argue that PDVSA is bankrupt in every one of these aspects. I will use the official data provided by the company in its Annual Report for 2012 to support this assertion. 


(a) PDVSA currently produces about 2.5 million barrels of oil per day. The official production figure is 2.9 million barrels per day, which includes the production of the foreign partners in the Orinoco area, about 0.4 million barrels per day (BPD). PDVSA’s production, therefore, is about half a million barrels of oil per day less than in 1998. In 15 years the company has not only failed to increase production, but has lost production capability. Previous management had left a plan in place to increase oil production to 5 million barrels per day in 2012. This plan was abandoned by Ramirez. Therefore, PDVSA is now producing half of what it should have been producing, if the plan had been executed.The loss to the nation is enormous.   

(b) The huge heavy-oil deposits of the Orinoco area have not been developed. Upgrading plants that are essential to convert these heavy oils into a commercial product have not been built. Instead, the area has been divided into blocks, mostly given to state-owned companies from ideologically friendly countries -Vietnam, Cuba, Russia, China, and Belarus- that lack the technical, managerial or even financial capability to develop these deposits. International private companies have been largely excluded and two of them, ExxonMobil and ConocoPhillips, have resorted to legal actions against the expropriation of their assets.

(c) The traditional oilfields of light and medium gravity oil are in great neglect and, as a result, the Venezuelan composite basket has lost much value in the international markets. No light oil deposits have been discovered in the last 15 years due to lack of exploration. Only two exploration wells were completed in 2012, compared to about 200 in Brazil. 

(d) The refineries are now operating at some 70 percent of design capacity, while the index of industrial accidents is 10 times greater than the international averages (link). The explosion of the Amuay refinery in August 2012 has been the worst tragedy, but not the only one that has afflicted the installations of the company, due to lack of proper maintenance.

(e) The deficit of natural gas is increasing, while In Anaco, Eastern Venezuela, there are up to 22 trillion cubic feet of gas reserves undeveloped due to the ineptitude of the company (link). Offshore deposits have not been produced because foreign partners, ENI and REPSOL find it undesirable to invest in development to sell the gas at subsidized prices in the domestic market. Natural gas continues being imported from Colombia.


(a) PDVSA is no longer an oil company, much less an energy company. It is a multipurpose company that has been ordered by the central government to engage in the most diverse activities, e.g:  food imports and distribution, building houses, raising pigs, planting cassava and ideologically indoctrinating its employees against capitalism. It has created dozens of affiliates that spend millions of dollars doing tasks unrelated to its core business. This has led to organizational chaos and to much corruption. In this type of organizational environment no company can be efficient.

(b) The president of the company is also the minister of the sector. He supervises himself, a no-no in management. The company has no checks and balances. It is simply the political tool of the executive government and has no managerial autonomy.  

(c) The number of employees of the company has quadrupled, from 32,000 in 1998 to about 120,000 today. Not only the number has increased, but their average credentials have deteriorated, as they are selected on the basis of “loyalty to the revolution”. In 2002-2003 about 22,000 technical staff and managers were dismissed by Hugo Chavez, during a two-day period, for political reasons, and their legal severance payments never made. 

(d) The company has practically abandoned outsourcing, in favor of a policy to own most auxiliary services to the core business. This has impacted negatively the overall efficiency of the company, has increased operational costs and led to the expropriation of numerous small and mid-size contractors without adequate compensation.   

3. Moral Bankruptcy

This is the worst aspect of the company: the loss of transparency, accountability and ethics that prevails within the corporation. 

(a) The company has been totally politicized. Mr. Ramirez openly says that the company is an arm of the “revolution”, and that no one can work there unless is totally loyal to the government. Any employee showing signs of political dissidence is immediately expelled or called a saboteur. See speech of Ramirez to PDVSA managers (part 1) and, in particular, part 2.

(b) Oil income has been diverted from the Venezuelan Central Bank, where it should go by law, to parallel funds without transparency (like FONDEN). Money is handled by four persons: the president (Chavez and now Maduro), Jorge Giordani, Nelson Merentes and Rafael Ramirez. As Mr. Ramirez said to Hugo Chavez:  “fortunately we don’t have to account to anyone…”. 

(c) No-bid contracts are the norm, given to friends and relatives, as I have documented in previous papers and articles. See here and here. Newer cases of extreme corruption within the company include the case of the barge Aban Pearl (see here) the case of Derwick Associates (see here) and the case of the oil tanker Carabobo (see here). 

(d) The giving of subsidized or, even, free oil to Cuba, Nicaragua, Ecuador, Bolivia and to Caribbean states in exchange for bananas, black beans and other staples. In particular the delivery of 100,000 BPD to Cuba during the last 7 years or so, in exchange for bodyguards, sport trainers, pseudo medical staff and other diffuse services, represent an act of political treason involving a loss to the country of some $3-4 billion per year.  

4. Financial Bankruptcy

Thanks to Sergio Saez and his very detailed analysis of the financial situation of PDVSA (personal communication) I can summarize the extent of the financial catastrophe of PDVSA, as reflected in the Consolidated Financial Statements of the company for 2012.  

(a) Income effectively received by PDVSA in 2012: $59,579,000,000

This is the net income because of the $121,000,000,000 of total gross income during 2012, PDVSA had to spend $40,000,000,000 in oil bought abroad and 24,000,000,000 had to be paid  to other countries.  


Operational costs  $24,401,000,000
Contribution to the National Budget $26,404,000,000
Given to Parallel Fund, FONDEN $8,311,000,000
Total $59,116,000,000

As we can see the income only served to cover the above expenses. In order to finance “social” programs and to attend to capital investments the company had no other alternative than to borrow money. 

(b) The total production of the company and foreign partners was 2,9 million BPD.


Volume required by the domestic market 0,8 million BPD
Given to Cuba, practically free* 0,1 million BPD
Distributed via PetroCaribe and ALBA, highly subsidized** 0,3 million BPD
Given to China to pay for loans 0,4 million BPD
Given to Belarus, Portugal and Iran to pay for loans 0,1 million BPD
Total deductions 1,7 million BPD

*Note: Venezuela paid Cuba $284 million, in cash, on top of the oil.
**Note: Price obtained averages $62 per barrel, little paid in cash.

Therefore, the net volume that PDVSA sold at commercial prices in the world markets was only about 1,2 to 1,3 million BPD. The average income received by PDVSA for every barrel of oil was only about $54. The nation is only receiving half of the world commercial price for very barrel of oil produced. This would be enough to dismiss Mr. Ramirez and place him under criminal investigation.  

(c) As  a result of this tragic financial situation PDVSA is now forced to borrow money to invest and, even, to help paying ordinary expenses. They owe the Venezuelan Central Bank the equivalent of $30 billion that this bank has printed in order to give it to the company. They owe China about $30 billion. They have issued about $25 billion in bonds. They have received about $6 billion in loans from foreign companies, theoretically to be used in the Orinoco área. They owe suppliers and contractors about $27 billion. They have financial contingencies of the order of $10 billion. As a result PDVSA had debts or financial commitments of some $128 billion by the end of 2012 and surely a greater amount by the end of 2013. I am not a financial expert, by any means, but I suspect I am looking at a bankrupt company, especially since the value of their assets is lower than this figure, specially since the oil reserves are the property of the nation and are not a part of PDVSA’s assets.


As a Venezuelan citizen it is my duty to denounce this situation to fellow Venezuelans and to international public opinion. I believe a gigantic crime against the nation of Venezuela has been committed by Mr. Rafael Ramirez and his collaborators. I believe this crime has to be the object of immediate intervention by Venezuelan authorities. I am also aware that there are no independent Venezuelan authorities existing at this moment in time. However, I hope this accusation finds an echo in international public opinion and contributes to a proper understanding of the Venezuelan tragedy, one that many of my countrymen still do not comprehend.