The Rise and Fall of PDVSA - · PDF fileThe Rise and Fall of PDVSA A Case Study in NOC...
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The Rise and Fall of PDVSA A Case Study in NOC Governance Models Resource Nationalism and National Oil Companies in Latin America Harvard University, 2 May 2014 Ramón Espinasa, Georgetown University
Transcript of The Rise and Fall of PDVSA - · PDF fileThe Rise and Fall of PDVSA A Case Study in NOC...
The Rise and Fall of PDVSA A Case Study in NOC Governance Models
Resource Nationalism and National Oil Companies in Latin America Harvard University, 2 May 2014
Ramón Espinasa, Georgetown University
Part I: The Path to Nationalization
1960 – 1976
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5
10
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45
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tho
usa
nd
wo
rke
rs
The Path to Nationalization
Source: PODE (1965-1995), PDVSA (1995-2012)
Employees
Tho
usa
nd
wo
rke
rs
1,000
1,250
1,500
1,750
2,000
2,250
2,500
2,750
3,000
3,250
3,500
3,750
4,000
19
60
19
62
19
64
19
66
19
68
19
70
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19
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78
19
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19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
The Path to Nationalization
Source: BP
Production
Tho
usa
nd
bar
rels
pe
r d
ay
12
13
14
15
16
17
18
19
20
19
60
19
62
19
64
19
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72
19
74
19
76
19
78
19
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19
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19
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19
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19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
bill
ion
bar
rels
The Path to Nationalization
Source: PODE (1959-1995), PDVSA (1995-2012)
Total Reserves
Bill
ion
bar
rels
The Path to Nationalization
• Scarcity rationale for more government take: – No more concessions 1960 – Non renewal of 1943 Concessions Expire in 1983 – End of concessions: fixed investment horizon – Reversion Law of 1971: Constrained operational mobility – Government take: 50-50 in 1958 90-10 in 1974 – Scarcity self fulfilling prophecy: collapse of oil sector
• 1960: Venezuela joined OPEC as founder – Resolution XVI-90 administer reserves as a sovereign right – OPEC became stronger; oil companies became weaker
• Oil industry nationalized on January 1, 1976
• Seamless transition due to seven reasons: 1. PDVSA subject to private law: Commercial company
run at arm’s length
2. Industry management structure unchanged
3. PDVSA as holding of vertically integrated affiliates
4. Negotiated asset value & expropriation process
5. Technical Assistance Contracts with IOCs
6. Workforce composed of Venezuelan nationals
7. Nationalization result of wide political consensus
The Path to Nationalization
Part II: Consolidation
1976 – 1985
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20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
wo
rke
rs
Consolidation
Source: PODE (1965-1995), PDVSA (1995-2012)
Employees
Tho
usa
nd
wo
rker
s
1,500
1,750
2,000
2,250
2,500
2,750
3,000
3,250
3,500
3,750
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Consolidation
Source: BP
Production
Tho
usa
nd
bar
rels
pe
r d
ay
0
100
200
300
400
500
600
700
800
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Consolidation
Source: BP
Domestic Consumption
Tho
usa
nd
bar
rels
pe
r d
ay
1,000
1,500
2,000
2,500
3,000
3,500
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Consolidation
Source: BP
Exportable Surplus
Tho
usa
nd
bar
rels
pe
r d
ay
12
16
20
24
28
32
36
40
44
48
52
56
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
bill
ion
bar
rels
Consolidation
Source: PODE (1959-1995), PDVSA (1995-2012)
Total Reserves
Bill
ion
bar
rels
• Aim: Consolidating & stopping deterioration
– Personnel: Back to 1960 level, 40 thousand
– Production: Potential around 2.5 Mbd
– Refining: Upgrading capacity 1.4 Mbd
– Reserves:
• Increased to 60 billion barrels by late 1980s
• First assessment of the Orinoco Heavy Crude Basin
– Revenue Distribution: Reduced back to 60:40
– Financing: Profits + 10% revenue for investment
– Relationship through shareholder’s meetings
Consolidation
Part III: Expansion
1985 – 1999
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19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
wo
rke
rs
Expansion
Source: PODE (1965-1995), PDVSA (1995-2012)
Employees
Tho
usa
nd
wo
rker
s
1,500
1,750
2,000
2,250
2,500
2,750
3,000
3,250
3,500
3,750
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
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19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Expansion
Source: BP
Production
Tho
usa
nd
bar
rels
pe
r d
ay
0
100
200
300
400
500
600
700
800
19
60
19
62
19
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19
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19
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19
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19
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19
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20
00
20
02
20
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20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Expansion
Source: BP
Domestic Consumption
Tho
usa
nd
bar
rels
pe
r d
ay
1,000
1,500
2,000
2,500
3,000
3,500
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
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19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Expansion
Source: BP
Exportable Surplus
Tho
usa
nd
bar
rels
pe
r d
ay
Expansion
250
450
650
850
1,050
1,250
1,450
1,650
1,850
2,050
2,250
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
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19
90
19
91
19
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19
96
19
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19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
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20
07
20
08
20
09
20
10
20
11
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Source: EIA, BP
Exports to Non-US
Exports to US
Tho
usa
nd
bar
rels
pe
r d
ay
12
16
20
24
28
32
36
40
44
48
52
56
60
64
68
72
76
80
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
bill
ion
bar
rels
Expansion
Source: PODE (1959-1995), PDVSA (1995-2012)
Total Reserves
Bill
ion
bar
rels
• Aim: Sustained growth according to reserves
– Personnel: Highly trained around 40 thousand
– Production: Potential around 4.0 Mbd
– Refining: 1.5 + 2.0 Mbd locally and abroad
– Reserves: Up to 76 billion ever more Heavy Crude
– Revenue Distribution:
• Further reduced back to 50: 50, elimination of surtax (FEV)
• Adjustment of Royalty for Faja Development
– Limits to PDVSA growth: Financing; Technology and Engineering Capacity
Expansion
• Strategy
– Internationalization: Refining capacity and upgrading overseas; particularly in the US (CITGO network)
– Apertura: Private capital welcomed into the country
• Operational Contracts
• Strategic Associations
• Risk Exploration
– Institutional Framework: Article 5 of Nationalization Law; very fragile setup
Expansion
PDVSA Argument
• PDVSA should be run at arm’s length as a private company
• Government take should be subordinate to savings for investment and be lowered.
Opponents Argument
• PDVSA should be under full and tighter government control
• State should demand minimal rent per barrel above normal taxes.
National Oil Policy Debate
Opponents to PDVSA’s strategy took power in 1999.
Part IV: The Decline
1999 – Today
• Arm’s length relationship ended, in at least five areas
1. Personnel Management: Based on political allegiance
2. Non-commercial supply of fuel: discounts to political partners and subsidy to domestic market
3. Discretional revenue distribution / lower investment
4. Operational Interference
5. Allocation of resources to non-core activities: employee base now includes non-oil workers
• 2001 Hydrocarbon Law Reform:
– Government in full control of corporation
• Minister of Energy & Mines is also President of PDVSA
• Increase in Royalty 17% to 30% and reduction of IT 68% to 50%
Decline
• Break up strike 2002-03 Massive knowledge loss
– Employees: 39,300
• Fired: 18,700 (47%)
– Professionals: 19,400
• Fired: 13,100 (68%)
– Fired staff average years of experience: 15 years
– Fired staff accumulated experience: 280 thousand years
– Fired staff accumulated formal training : 21 million hours
• PDVSA has never recovered from loss of knowledge and talent and deterioration has been irreversible
Decline
1,500
1,750
2,000
2,250
2,500
2,750
3,000
3,250
3,500
3,750
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Decline
Source: BP
Production
Tho
usa
nd
bar
rels
pe
r d
ay
0
100
200
300
400
500
600
700
800
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
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19
90
19
92
19
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19
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19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Decline
Source: BP
Domestic Consumption
Tho
usa
nd
bar
rels
pe
r d
ay
1,000
1,500
2,000
2,500
3,000
3,500
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Decline
Source: BP
Exportable Surplus
Tho
usa
nd
bar
rels
pe
r d
ay
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Decline
Source: BP
Production 2.7 mb/d
Consumption 0.8 mb/d
Exportable Surplus 1.9 mb/d
Tho
usa
nd
bar
rels
pe
r d
ay
-
20
40
60
80
100
120
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
tho
usa
nd
wo
rke
rs
Decline
Source: PODE (1965-1995), PDVSA (1995-2012)
Employees 111,000
Tho
usa
nd
wo
rker
s
-
20
40
60
80
100
120
140
160
19
60
19
62
19
64
19
66
19
68
19
70
19
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19
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19
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19
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19
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19
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19
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19
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19
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19
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19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
bar
rels
pe
r w
ork
er
Decline
Source: PODE (1965-1995), PDVSA (1995-2012)
Productivity
Bar
rels
pe
r w
ork
er
12
36
60
84
108
132
156
180
204
228
252
276
300
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
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19
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19
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19
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19
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19
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19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
bill
ion
bar
rels
Decline
Source: PODE (1959-1995), PDVSA (1995-2012)
Addition of Orinoco Belt yields a Total Reserves level
of 300 billion barrels
Bill
ion
bar
rels
Part V: Present Situation
Today
Today: Export Markets
250
450
650
850
1,050
1,250
1,450
1,650
1,850
2,050
2,250
19
73
19
74
19
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19
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19
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80
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82
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08
20
09
20
10
20
11
20
12
tho
usa
nd
bar
rels
pe
r d
ay
Source: EIA, BP
Exports to Non-
US
Exports to US Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
-
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012
tho
usa
nd
bar
rels
pe
r d
ay
USA China India Special Agreement Countries Rest of WorldSource: PDVSA, UN Comtrade
A pronounced shift in export destination has taken place since 2004 with the emergence of Asian markets as importers of Venezuelan crude oil.
Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
-
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012
tho
usa
nd
bar
rels
pe
r d
ay
USA China India Special Agreement Countries Rest of WorldSource: PDVSA, UN Comtrade
A pronounced shift in export destination has taken place since 2004 with the emergence of Asian markets as importers of Venezuelan crude oil.
Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
-
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012
tho
usa
nd
bar
rels
pe
r d
ay
USA China India Special Agreement Countries Rest of WorldSource: PDVSA, UN Comtrade
A pronounced shift in export destination has taken place since 2004 with the emergence of Asian markets as importers of Venezuelan crude oil.
Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
-
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012
tho
usa
nd
bar
rels
pe
r d
ay
USA China India Special Agreement Countries Rest of WorldSource: PDVSA, UN Comtrade
A pronounced shift in export destination has taken place since 2004 with the emergence of Asian markets as importers of Venezuelan crude oil.
Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
-
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012
tho
usa
nd
bar
rels
pe
r d
ay
USA China India Special Agreement Countries Rest of WorldSource: PDVSA, UN Comtrade
A pronounced shift in export destination has taken place since 2004 with the emergence of Asian markets as importers of Venezuelan crude oil.
Tho
usa
nd
bar
rels
pe
r d
ay
Today: Export Markets
Million US$
Export Revenue by Market
WTI Price (US$/barrel)
USA China India Special
Agreements*
Rest of World
Total
2005 33,312 818 - 2,349 18,397 54,876 57
2006 34,563 2,035 533 2,680 22,616 62,427 66
2007 35,335 1,942 679 2,764 20,795 61,515 72
2008 41,509 4,128 3,969 4,041 21,617 75,263 99
2009 25,666 2,097 2,146 3,056 12,177 45,142 62
2010 29,166 3,735 5,079 3,680 8,939 50,599 79
2011 30,377 5,452 4,945 3,879 8,189 52,843 95
2012 28,124 5,625 9,523 4,262 1,205 48,740 94
2013 27,186 5,730 10,028 3,371 - 46,315 98
Sources: Own calculations based on PDVSA, UN Comtrade, EIA * Special agreements: Petrocaribe, Acuerdo de Cooperacion Energética de Caracas, Convenio Integral de Cooperacion, Acuerdo de San José
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Today: Oil Product Imports
Product imports from the US, more than doubled between 2011 and 2012 and has stayed at that
level
Source: EIA, World Bank
Mill
ion
US$
Today: Increasing Debt Load
Source: PDVSA Annual Report 2012
0%
10%
20%
30%
40%
50%
60%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2008 2009 2010 2011 2012
de
bt
to a
sse
t ra
tio
mill
ion
US$
Current Debt Non-Current Debt Debt to Asset Ratio
Mill
ion
US$
Today: Oil Trade Balance
Oil Export Revenue
Oil Import Spending
Oil Commercial
Balance
Interest on PDVSA Debt
Current Account Balance
2008 75,263 4,262 71,001 1,548 69,453
2009 45,142 4,493 40,649 2,190 38,459
2010 50,599 5,593 45,006 2,495 42,511
2011 52,843 6,015 46,828 3,489 43,339
2012 48,740 11,795 36,945 4,003 32,942
2013 46,315 9,862 36,453 4,338 32,115
Sources: Own calculations based on PDVSA, BCV, UN Comtrade, EIA
Current: Oil Product Subsidy
Domestic Oil Product Subsidy
Estimate, million US$ Share of GDP (PPP) Share of Export Revenue
2005 18,963 7% 35%
2006 20,470 7% 33%
2007 20,596 6% 33%
2008 23,653 7% 31%
2009 23,231 7% 51%
2010 23,703 7% 47%
2011 24,765 7% 47%
2012 28,769 7% 59%
2013 28,904 N/A 62%
Sources: Own calculations based on PDVSA, BCV, UN Comtrade, EIA
The Rise…
• Arm’s length relationship
• Commercial profit maximizing
• Set and clear distributional rules
• Best managerial practices
• Career path development and training
• Focused on core activities
… and the Fall
• Direct state control
• Ideologically oriented
• Discretional and changing distribution of revenue
• Political allegiance paramount
• Short-term career focus and little training
• Imposition of non-core objectives
Conclusions
PDVSA: One company… two models
