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Chavez Unlikely to Relinquish Control of PDVSA
15 April 2002
Summary
Reinstated Venezuelan President Hugo Chavez faces a tough choice: either to loosen his grip on Venezuela's enormous oil sector in a bid to avoid new strikes, or maintain tight control in order to consolidate his power after a failed attempt to topple his regime. His decision will become apparent in his choices for new leaders of Petroleos de Venezuela (PDVSA). With his opposition discredited and fractured, Chavez likely will appoint a new cadre of his own supporters to lead the company, contributing one way or another to the further decline of Venezuela's energy sector.
Analysis
Oil prices resumed their upward march April 15 following the reinstatement of Hugo Chavez as Venezuela's president. In New York, crude oil for May delivery closed up $1.10, or 4 percent, at $24.57, making up about two-thirds of its April 12 price drop. Reports that state-owned oil company Petroleos de Venezuela (PDVSA) was up and running again, as well as Chavez's softer tone toward rebellious PDVSA employees, helped to mute the market response.
All is not well with the world's fourth-largest oil producer, however. Although Chavez immediately complied with striking oil workers' demands by accepting the resignations of PDVSA's controversial board of directors and president -- which was comprised largely of Chavez cronies -- assurances for the company's future have not been made. Chavez now faces a choice: either to loosen his grip on Venezuela's oil sector in a bid to avoid new strikes or else maintain tight control of PDVSA to consolidate his reclaimed power. The president's newly conciliatory tone is likely only temporary -- once the shaky domestic situation is under control, he likely will continue to manipulate PDVSA for his own political purposes. As a result, Venezuela's oil sector will continue to decline.
That spells trouble for the United States, which was counting on Chavez's fall to improve its own long-term energy security. Now Washington not only must continue to deal with Chavez, but the already troubled relationship between the countries is sure to deteriorate further -- especially in the wake of official U.S. statements supporting Chavez's brief ouster and rumors of surreptitious CIA and State Department involvement.
Chavez's increasingly destructive control of PDVSA played a large role in the events leading to his brief removal from office. Company employees and managers rebelled against this control -- which was evident in PDVSA's Chavista-heavy board -- and went on strike when Chavez refused to budge.
Chavez appeared to soften his tone on PDVSA soon after his reinstatement, saying he had accepted the resignation of PDVSA President Gaston Parra Luzardo and the board of directors. He also pledged a desire to "set aside old attitudes and work together" with PDVSA employees, UPI reported. However, Venezuelan daily El Universal reported that resignations of Parra and the board were in Chavez's hands on April 11, undermining his claim that their removal represents a new willingness to respond to workers' demands.
Nevertheless, PDVSA managers responded in kind, expressing a desire to negotiate. More important, employees did not immediately renew their strike. Horacio Medina, a PDVSA manager who had been dismissed by Chavez but was reinstated April 15, told Agence France Presse that the company was "working normally today." UPI reported that oil production at PDVSA was at close to normal levels and that PDVSA employees were holding a series of meetings April 15 to evaluate concessions offered by Chavez.
The conflict between the president and PDVSA is far from over, however. Chavez recognizes the need to get PDVSA working again and to avoid a renewed strike -- hence his new "conciliatory tone," as it is widely being called in the press. Far from a change of heart, however, Chavez's statements are simply a pragmatic attempt to ward off further pressure from PDVSA workers and their sympathizers in order to consolidate his own power and regain more public support. For that, he badly needs the earnings that PDVSA delivers to government coffers.
The main question for the energy sector is how much control Chavez can and will exert on PDVSA in the new phase of his presidency. The true test will be in his new appointments to the company's board of directors, which have yet to be made.
Chavez could avoid further confrontation by appointing board members acceptable to company managers, but that also would limit his control over PDVSA policy. If he chooses to appoint more of his own supporters, he would further anger managers and employees and risk another strike, devastating the industry. Chavez may be willing to take that risk, however, since large portions of his opposition are now discredited, and he may calculate that PDVSA managers are not willing to do battle once again.
Two early indications of his intentions came April 15. First, Chavez said that PDVSA would in fact continue to supply Cuba with oil, directly contradicting PDVSA managers who said April 12 that Cuba would not receive even one barrel of Venezeulan oil. Second, the Los Angeles Times reported that Chavez may tap Bernardo Alvarez, now vice minister of mines and energy, as PDVSA's new president. STRATFOR sources indicate that such an appointment -- a government official rather than industry worker -- would indicate that Chavez has no plans to change his policy towards PDVSA.
Chavez's likely intransigence could result in another strike, again crippling the industry. Alternatively, if the company caves to another board stacked with Chavez loyalists, the continued siphoning of revenues for government use will rule out new investment and the country's production capacity will continue to decline. Either way, foreign investment will still steer clear of Venezuela, at least for the near future.
Unless Chavez undergoes a complete transformation from his near-coup experience, the net result will be the continued deterioration of the oil sector. |
