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  HOME | Venezuela (Click here for more Venezuela news)

Venezuela Oil Company PDVSA to Mine Gold
Venezuela's state oil company PDVSA has been tasked by President Hugo Chavez in the decade since he came to power with building affordable housing, paving country roads, creating and running farms, and importing, distributing and selling food, amongst other things. On Friday, Chavez added another task: gold mining.

By Carlos Camacho
Latin American Herald Tribune

CARACAS -- In President Hugo Chavez’s Venezuela, Petroleos de Venezuela (PDVSA), the national oil company, has become the "go-to problem-solver" for all manner of troubles.

So, when the government nationalized the country’s gold industry this week, Chavez just added a new task to PDVSA’s “to do” list: gold mining. What used to be a “mere” oil company has been tasked in recent years with building affordable housing, paving country roads, creating and running farms, and importing, distributing and selling food, amongst other things. As of today, PDVSA will now hold 40% of the venture to develop the country's gold mines, including Las Cristinas and Las Brisas. Corporaction Venezolana de Guayana (CVG), the state owned heavy industry company, will hold the other 60%.

"What they are creating is a super-state. No longer is PDVSA a state within a state, but now it is becoming something above the state,” says Rafael Quiros, a professor at Central University specializing in oil economy and author of the upcoming “Marchas y Contramarchas del Petróleo en Venezuela: 1989-2001”, a book that analyzes the last few years in Venezuela’s oil policy.

Professor Quiros -- widely considered pro-Chavez in the local political divide -- is very critical of giving PDVSA tasks other than “production, refining, transportation and exporting” of oil.

“With this latest move, what the government is doing is deepening the mistake of giving PDVSA tasks and responsibilities for which it was not created."

PDVSA, Quiros says, should go back to oil, exclusively, as soon as possible.

The government of Hugo Chavez either has blind faith on the company headed by Rafael Ramirez (who is also Minister of Energy and Oil, Vice President for Territorial Development, and also National Director at Chavez’s PSUV party) or has no one else to turn to.

However, PDVSA's success rate has been less than stellar. Once thought to be one of the most professional of world's state-owned oil companies, the mission over-reach is proving to be a bit of a disaster. In 2008, PDVSA purchased over one million tons of food of which an internal audit found that only 266,000 tons ever got to the country. The cost of the one million tons of food was $2.2 billion for the period covered by the audit, implying over US$1.5 billion "disappeared."

The leaked internal PDVSA audit also found that of the food that did arrive, only 54% was actually passed on to PDVSA's distribution network, PDVAL, with the remainder found still in storage. The report concluded that “the effective distribution of food was less than 14% of the total purchased and paid for, incurred in many cases with elevated costs of acquisition and shipping and despite this, they were not managed adequately nor distributed in efficient fashion to the Venezuelan population.”

In 2010, PDVSA let 130,000 tons of imported foodstuffs rot at several major Venezuelan ports, enough to feed the half the country for a month. Three PDVSA officials were arrested and demoted. Then Thursday of this week, Opposition Deputy Neidy Rosal announced that he had found a "graveyard" for more rotten food being guarded by the army, where $2 million had been spent trying to bury another 159,000 tons of rotten food with heavy machinery.

PDVSA is also being heavily criticized from abroad as well, as expropriated former international partners have filed suits against the company and Venezuela before the World Court's International Center for the Settlement of Investment Disputes (ICSID). 18 suits are currently pending by foreign oil and mining countries that Caracas economic consultants Veneconomy estimate "could cost Venezuela between $20 and $30 billion."

Indeed, one of the suits is over the Las Cristinas mine today given to PDVSA -- which may hold 27 million ounces of gold -- after Chavez took it away from Canadian gold miner Crystallex. Crystallex is now seeking $3.8 billion in damages before ICSID.

And while PDVSA's payroll has doubled in the last 5 years -- from 47,433 to 99,867 -- oil production has been declining -- from 3.5 million barrels per day (bpd) in 1998 to 2.3 million bpd in 2011. While the Venezuela government disputes this production figure and says production is around 2.9 million bpd, market watchers including OPEC and the International Energy Agency gauge Venezuela's production at 2.3 million.

After a substantial upward revision by PDVSA, OPEC and the US Geological Survey (USGS) earlier this year, Venezuela now has the largest oil reserves in the world at 296 billion barrels, so Quiros’ call of just getting busy with that makes economic sense -- especially since PDVSA is responsible for extracting the oil that provides 95% of the country’s hard-currency needs.


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