Oiling the wheels

Observations on Venezuela

President Hugo Chávez, who made diverting oil profits to the poor a hallmark of his administration, is faced with a series of corruption scandals that are threatening to undermine the state oil company Petróleos de Venezuela (PDVSA).

Earlier in September, PDVSA reported a 65 per cent loss in earnings over the previous year, prompting critics to declare the industry in crisis. They say that Venezuela, hugely dependent on oil sales, is producing less crude since Chávez expelled foreign oil companies from the country.

Government supporters, on the other hand, maintain that PDVSA is still recovering from the deeply damaging 2002 national strike organised by Chávez's opponents. Historically, the popularity of Venezuelan presidents has been determined by fluctuations in the oil prices. But it is the regularity of accusations of corruption and mismanagement that are chipping away at what would otherwise be a period of unrivalled prosperity for the country.

A few weeks ago, Venezuelan oil minister and PDVSA president Rafael Ramírez admitted that there were systematic financial irregularities dating back to 2005. One such irregularity is the ongoing scandal involving a Venezuelan-American who was caught smuggling a briefcase containing $800,000 through Argentine customs.

The businessman in question, Guido Antonini Wilson, had worked for PDVSA locating and contracting US drilling equipment for Venezuela, leading to accusations that he was attempting to launder kickbacks - an allegation his lawyer denies. Investigators have since submitted documents to the Venezuelan National Assembly amounting to what they called "a wheelbarrow of corruption charges" - 63 in total - against the state oil company.

Such accusations are not new for PDVSA, which operated with impunity throughout the 1970s and 1980s for the exclusive economic benefit of American and European multinational corporations operating there, and the Venezuelan political class. As economic disparities rocketed, resentment among Venezuela's poor majority reached a pitch that paved the way for the election of Chávez.

Chávez restructured the country's oil industry to invest profits in social programmes providing free education, health care, subsidised food and housing for the poor. Over his eight years in office, basic illiteracy has almost been eradicated, while poverty rates have declined (though the reliability of government statistics has been called into question).

This has been achieved by nationalising the abundant oil fields and massively increasing the taxes payable by multinational oil companies to operate there.

In August this year, Ramírez was fined over £4,000 for a controversial speech he made in the run-up to last December's presidential elections, in which he said that PDVSA is "revolutionary red", and that anybody who opposes the company's political alignment should quit their jobs and make way for those that support Chávez's "Bolivarian Revolution".

This statement was aimed at the dwindling minority of PDVSA workers who outwardly oppose the Chávez government. Most - over 20,000 of them, representing 30 per cent of the highly skilled workforce - were fired after the 2002 strike.

Accusations have continued to surface from inside PDVSA that those employees deemed to have a "politically unsuitable profile" are subject to discrimination and even outright dismissal.

One source who quit her position said that the political discrimination she was subjected to was "worse now than 30 years ago". She maintained that an "underhand war" is taking place between PDVSA executives and workers who express opposition to Venezuela's socialist government. Her aim now is to find work abroad, like many former PDVSA employees, whose cumulative knowledge and expertise represent a severe loss to the oil company.

Fortunately for President Chávez, the recent spike in international oil prices has provided a timely financial stop-gap for the Venezuelan economy, which is almost entirely dependent on crude exports.

With a barrel of oil selling at almost $80 on the international markets, the Chávez government can afford to paper over any cracks in the country's turbulent oil industry. But a significant fall in oil prices would reveal the depths of the difficulties afflicting PDVSA, and raise question about its ability to finance President Chávez's costly socialist revolution.