Venezuela’s Fight for Control of the National Wealth

In an interview in Caracas with Susana Santos, of Hour of the People (Hora do Povo, Sao Paulo, Brasil), Bernardo Alvarez, Vice-Minister of Mines and Energy of Venezuela, spoke of the challenge to the State and society to consolidate control of its main source of wealth and detailed the Bolivarian Revolution’s policies to develop Venezuela, starting from the development of the petroleum industry in a sovereign manner. Translation of the Hora do Povo dispatch follows. Following are the main passages of the interview.

Interview of Hora do Povo with Bernardo Alvarez, Vice-Minister of Energy and Mines, Venezuela

Hora do Pove: Why did sectors linked to the petroleum industry take part in the failed coup?

Bernardo Alvarez: The history of Venezuela is intimately linked with its development of petroleum. Petroleum is absolutely determinant for the country, remembeer that for many years we were the primary oil producers of the world. The sectors which reject the government of President Chavez, who do not want to accept that we now have a State which defends the national interest. When we came to govern, we had a weak State which did not control the major wealth of the country. Sectors which did not want to accept the new Law of Hydrocarbons, who wanted to initiate a wall between the State and the public enterprise of Petroleums of Venezuela, Incorporated, PVDSA . People who held an anti-national view. The policy of the enterprise, as a matter of fact, wan anti-national. The PVDSA functioned at the margin of the State. Its financial contribution had fallen drastically. It had a policy which gave priority to the increase of production of barrels of petroleum, clashing with the orientation of the OPEC (Oil Producing and Exporting Countries), making a game of saturating the market, which led to the collapse of the price of crude oil. At the beginning of the government of Chavez, the price per barrel was $7. There had been an absurd increase in the cosst of operations. Investment abroad was prioritized. In the most recent years all investment of refineries was made outside the country in a strong process of internationalization of activities, where those who benefited were foreigners. They applied the model of a country which extracts petroleum and lives off the income. In the public enterprise of petroleum, 100% Venezuelan, an “autonomous” dictatorship was established, where a directorate of the “meritocracy”, (executives who occupied their posts from a supposed criterion of time and “merits” at the function), imposed a wall which impeded control by the State and government of their activities. There cannot be a barrier which prevents seeing what is being done. There began to prevail in the PVDSA a neoliberal view which was leading to its privatization. The government has done much in that situation. To begin with, the Bolivarian Constitution defines that selling the PVDSA is not possible. Petroleum is strategic for Venezuela. It is its backbone. Whatever social, political, economic Venezuelan national project proceeds by the reformulation of petroleum policy. The new petroleum policy of President Chavez reinforces the OPEC, promotes national development, determines that the refining from now on must be concentrated in Venezuela, and estimates the installations which exist in the exterior which must be invested in the industrialization of hydrocarbons, establishes that the role of the PVDSA is to operate on the policy which is defined by the State, through the Ministry of Energy and Mines. Finally it created the mechanisms of the State to control the enterprise which belongs to all Venezuelans, and is what the country’s future depends on.

HP: Could you detail a little more the new Law of Hydrocarbons which is beginning to be applied?

Bernardo Alvarez: On this I would like to emphasize that the present law has substituted for one which was in effect since 1943, a time in which we did not have any national enterprise – neither state or private – and the Venezuelan petroleum was explored by foreign enterprises. At that time, that 1943 law was a great national event because it began to establish important rights and controls on the part of the Venezuelan State. Since then, the great political challenge has been, how the Venezuelan State and society should act to have control of its principal natural resource. We must not forget that the great international corporations were poweful not only from the economic point of view. Above all they had behind them “gunboat diplomacy”, as the saying was at that time. An error committed at the time was that they nationalized, but did not formulate another policy for petroleum, continuing to use the law of 1943. Then, the present Law of Hydrocarbons was inserted in this historic process of national advancement in the sense of controlling the principal wealth of the country. Therefore, the general line of our new petroleum policy is: 1.) Strengthening of the Organization of Petroleum Exporting Counttries, (OPEC). There exists tension between the State, which defends just prices for petroleum and coordination between the producing countries, and the enterprise, which defends more business and more production. It has not been easy to establish the principle of State policy, but it was done. As I already said, we set the price of petroleum at $7 a barrel. Then, either we voluntarily reduce production, or the facts will crush us. At that price we don’t have conditions to produce. Fortunately the OPEC was ideal in the scenario to defend our interests, not the prices of oil alone, but the stabiolization of the market. The OPEC today has a wide agenda. It is having a dialog with consumers; a defense of stabilization of the market; joint projects of state enterprises of different countries; the creation of industries of petroleum services based on the experiencess of the countries of the OPEC; joint projects in the gas sector, among other initiatives. The range of prices of the OPEC, between $22 and $28, is a demonstration that we do not want a control of production beyond the sustainable, not to affect the poorest countries. The return of Venezuela to the OPEC was fundamental, so much that our role of articulators of these questions carried the present president of the PDVSA, Ali Rodriguez, to election as secretary-general of the OPEC. The entity is seen as an entity which defends the interests of the producing countries, all countries in development, which practices a policy of negotiation where the interests, the future, of the countries which are producers of raw materials in the caseiof petroleum, will be respected in the international markets.  2) We are taking measures to reverse the dramatic fall of the fiscal contribution of the petroleum activities. We intend to recuperate a minimum fiscal base coming from petroleum. After nationalization, for lack of control , for expnsive policies, for excessive production, the fiscal contribution has been falling. At that time it was 70% of a barrel of petroleum. Now it is 30%. And with our intervention, it was less. There were some structural explanations, they had some investments. But what took place was a sharp increase in the costs of operation of the enterprise. The PVDSA transformed itself into a “fat” enterprise. The cost of production per barrel rose. Our policy was to implant a fiscal scheme which would function easily and for this we had nothing easier than royalties, because a royalty is something you pay as a cost of entry, for production. What was needed to control the prices of bulk volume. We defined the royalty as 30%. The idea was to have a stable floor of fiscal contribution, above all we wanted to maintain also a stabililzation of prices. Logically, with all the policies which rule in our consumer countries and in various sectors of our country, this raised the price like mad. They said that private investment would not be stimulated, that the State was financially drying up PVDSA. Petroleum and Industrialization. 3) To develop a petroleum policy which is nationalist and oriented toward development.: By law we estalished that refining must be done inside the country. To our last year which had purchased refineries abroad, our period had a steady process of internationalization. The idea was to have control of the market for Venezuelan petroleum. Then, installing the refineries in the exterior, production was committed for them, and we had access to that market. Venezuelan crude is very heavy. It was necessary, according to that view – to adapt the refineries in the consuming markets – in the United Ststes, some in Europe. The problem is that it is an investment where those who benefit are foreigners. The view that is conveyed is of a country which extracts petroleum, exports it, and lives off the income. It is what has functioned up to now in this country. We want another, completely different model. We have to maintain a fiscal floor, but we should guide the petroleum activities inside the country. We want to evaluate the situation of each one of those refineries and build a new capacity of refining inside our country, because this means more sources of employment, larger investments here, and in addition, we can sell products instead of selling crude. They are better prices. The price of accomplishment of our basket increases,. The key point is the internalization of petroleum. Instead of being only an extracting, exporting activity it should be an activity which permits the development of the country. For example, we have a Venezuelan refinery in the United States where 16% of production is going to industrialization. It is more than gasoline and diesel oil, it consists of specialties which are going to industry. In the sector of refining which functions in Venezuela, only 1% goes to industry End Uncontrolled Petroleum Policy 4.) The role of the PVDSA: The role of the PVDSA, Petroleums of Venezuela, should be that of a company which concentrates on the core activity, the petroleum, for which it was created, not to be the administrator of natural resources. As a consequence of confusion on this point, it began to grant oil concessions to all the international companies that came,. The administration of the earth, which is the State’s, was carried out by the PVDSA. In the end it had stopped being an operational company, to transform itself into a commercial corporation. The PVDSA should not carry out the role of the State. It should be an arm to execute the policy of the State and an efficient producer of petroleum: to end the “decontrol”. There was an enoprmous increase in the number of employees, more than 40,000. It was contracted workers, temporary employees and other categories. The cost of production is $3 a barrel, including technical support, financial, etc.. When you verify the cost as it leaves the main office, it is $12, $13. No go!

HP: Factually, what does this increase in operational costs mean?

Bernardo Alvarez: Sophisticated mechanisms were used. For instance they began to build refineries in the exterior. Then, they gave discounts that reduced the fiscal contribution by $2 or $3. Originating here, from this ministry, there were many plots.

HP: After the accomplished modification, does the PVDSA have working conditions integrated?

Bernardo Alvarez: The conflict in which PVDSA was involved demonstrates that there are differencies. Part of the personnel which participated in the movement against the government was frightened – it was under pressure. We don’t underestimate the role of the media against the government policies. Another part was not in agreement with the new Law. Some were directly involved in the conspiracy. What is good in all of it is that the positions explain themselves.. There are many people in the PVDSA who have a national vision, of defense of the country’s interests. The transformations are taking place. We have a new Law. Deep changes do not take place without the participation of the workers of the company.

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