Venezuela Doubles Down on Chinese Money to Reverse Crisis

(AP, 20.Sep.2018) — Venezuelan President Nicolas Maduro said Tuesday that new investments from China will help his country dramatically boost its oil production, doubling down on financing from the Asian nation to turn around its crashing economy.

Already a major economic partner, China has agreed to invest US$5 billion more in Venezuela, Maduro said following a recent trip to Beijing, adding that the money would help it nearly double its oil exports to China.

“We are taking the first steps into a new economic era,” he said. “We are on track to have a new economy, and the agreements with China will strengthen it.”

A once-wealthy oil nation, Venezuela is gripped by a historic crisis deeper than the Great Depression in the United States. Venezuelans struggle to afford scarce food and medicine, many going abroad in search of a better life.

Venezuela’s inflation this year could top one million per cent, economists predict.

After two decades of socialist rule and mismanagement, Venezuela’s oil production of 1.2 million barrels a day is a third of what it was two decades ago before the late President Hugo Chavez launched the socialist revolution.

Maduro says that under the deal, Venezuela will increase production and the daily export of oil to China to one million barrels a day.

However, China is taking a strong role in its new agreements. Over the last decade, China has given Venezuela US$65 billion in loans, cash and investment. Venezuela owes more than US$20 billion.

FINALISING OIL PLANS

The head of the National Petroleum Corporation of China will soon travel to Venezuela to finalise plans on increasing oil exports.

Russ Dallen, a Miami-based partner at brokerage Caracas Capital Markets, said the influx of money appears to be investments China will control.

“The Chinese are reluctant to throw good money after bad,” Dallen said. “They do want to get paid back. The only way they can get paid back is to get Venezuela’s production back up.”

Venezuela also agreed to sell 9.9 per cent of shares of the joint venture Sinovensa, giving a Chinese oil company a 49 per cent stake. The sale will expand exploitation of gas in Venezuela, the president said.

Maduro also recently launched sweeping economic reforms aimed at rescuing the economy that include a creating new currency, boosting the minimum wage more than 3,000 per cent, and raising taxes.

Economist Asdrubal Oliveros of Caracas-based firm Econalitica said he doubts that Venezuela can reach the aggressive goal to boost oil exports to China to one million barrels a day, given problems faced by the state corporation PDVSA.

“Increased production I see as quite limited,” Oliveros said. “The Chinese companies alone have neither the muscle nor the size to prop up production.”

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Venezuela Oil Production Continues to Collapse

(Energy Analytics Institute, Jared Yamin, 12.Sep.2018) — The decline is consistent and constant as well as consistently and constantly bad, writes Caracas Capital Market in a research note emailed to clients.

Summary details from the research note follow:

OPEC released the production counts for its member states today and while overall OPEC production was up 278,000 barrels per day (bpd) during the month, Venezuela’s production continued to collapse.

According to OPEC’s August calculations, Venezuela production fell another 36,000 barrels per day (bpd) to 1.235 million bpd. (Venezuela production actually fell 43,000 bpd from the original OPEC July count of 1.278, but OPEC revises their numbers as new data comes in later in the month and moved Venezuela’s July production count down to 1.272 million bpd from the original 1.278 bpd), according to the research note.

“The decline is consistent and constant.”

OPEC calculated that July’s Venezuelan production fall was 42,000 bpd and that June’s fall was 48,000 bpd. In May, Venezuela production fell 43,000; in April, -42,000 bpd; in March, -55,000 bpd; in February -52,000 bpd; in January, -47,000 bpd. Consistently and constantly bad.

In the one year period from August 2017 — when PDVSA was producing 1.918 million bpd — Venezuela has lost 683,000 bpd of production. At the current year average price, that is lost income of $47 million a day and $17.5 billion in a year.

Making this situation worse is that Venezuela’s current 1.235 million bpd production is just a shade more than a third of what the country was producing 20 years ago before Chavez came to power. Hundreds of billions of dollars lost through communism, corruption and incompetence in a country that can ill afford it.

“By the way, we are seeing just one example of how that corruption works in a case playing out before the U.S. Federal District Court in Miami that sucked $1.2 billion from PDVSA in what I label a ‘perpetual money machine for bad guys’ in today’s Miami Herald and El Nuevo Herald, writes Caracas Capital Markets Managing Partner Russ Dallen. “The cast of characters reaches all the way to the top and includes the Derwick boys (especially Francisco Convit), the Boligarch Raul Gorrin (who bought Globovision), the Maduro family (especially the stepsons ‘los chamos’ but also mentions mother Celia Flores and Nicholas Maduro), and a Swiss banker who has copped a deal to tell all (but still had to put up a $5 million bond yesterday).”

Drilling Rigs Fall

Meanwhile, Venezuela’s drilling rig count dropped by one in August, continues the Caracas Capital Market report.

Baker Hughes reports that the number of active drills operating in Venezuela fell to 27 last month, after popping up 2 in July off June’s thirty year low of 26. One of the two drills that was added in July was drilling for gas – the first in over a year. It was still deployed in August.

Having failed to capitalize on its natural gas (much less build the Mariscal Sucre LNG plant) for decades, Venezuela signed a deal last week to link into an already existing gas pipeline at a Shell platform in bordering Trinidad waters and through that pipeline pump gas to Trinidad’s Atlantic LNG plant where it will be converted into LNG for export.

Long time readers will also recall that Rosneft was given a 30 year totally wide-open lease on a gas field in that area last year.

Maduro Goes to China

Finally, as we predicted in our “China Promises Venezuela More Money” Report yesterday and correctly forecast in a Report and Wall Street Journal column in July, Venezuela seems to be making headway in getting help from the Chinese, writes Dallen.

“No one else seems to have been able to accurately uncover and read these Chinese tea leaves, so I am especially proud of our Caracas Capital team. We continue to knock the ball out of the park for our clients,” writes Dallen.

Maduro has just announced that he is going to China to sign some big new deals.

Minister of Oil and PDVSA head Manuel Quevedo is also in Beijing meeting with CNPC and is offering to expand natural gas agreements as well. Yesterday, Venezuela’s oil ministry released a statement touting that the Sinovensa joint venture had increased oil production from 70,000 bpd to 110,000 bpd.

Aside from oil, gas and drilling, we are anticipating some other upcoming ventures in gold mining, coltan and diamond mining, concludes the Caracas Capital Market note.

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Exec Pleads in $1.2 Bln Venezuelan Money-Laundering scheme

(AP, 22.Aug.2018) — A former Swiss bank executive has pleaded guilty to his role in a $1.2 billion money-laundering scheme involving Venezuela’s state-run oil and natural gas company.

Federal court records show that 44-year-old Matthias Krull pleaded guilty in Miami federal court on Wednesday to conspiracy to commit money laundering. The German national and Panamanian resident is scheduled to be sentenced Oct. 29.

Authorities say the scheme began in 2014 with bribery and fraud at the state-run PDVSA oil and gas enterprise and grew over time. A criminal complaint contends the scheme involved members of the Venezuelan elite, money managers, brokerage firms, banks and real estate investment firms.

Krull acknowledged joining the conspiracy in 2016. Officials say Krull and others used Miami real estate and sophisticated false-investment schemes to conceal the embezzled money.

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Mange Infested Dog Roams PDVSA’s Paraguana Refining Complex

Amuay refinery in Venezuela. Source: Pietro D. Pitts

(Energy Analytics Institute, Pietro D. Pitts, 14.Sep.2016) – On a brief taxi ride from Punto Fijo’s Josefa Camejo International Airport to the main highway that crosses this city and connects to one of the many refining complex entrances here, a scrawny dog with mange can be seen emerging from an endless pile of discarded trash.

In this small refining town broken beer bottles, dirty diapers, and discarded personal items cling to trees and bushes as far as the eye can see in either direction along the short stretch of highway that separates the two massive refineries here: Amuay and Cardón. The refineries comprise the lion’s share of the processing capacity at PDVSA’s 971,000 barrel-a-day Paraguana Refining Complex, also commonly known as the CRP by its Spanish acronym. The CRP refineries combined with three others spread across this country have produced cumulative financial losses of $53 billion in the last eight years. Definitely not chump change.

Venezuela is home to a wealth of natural resources from gold to iron ore and holds the world’s eighth-largest natural gas reserves and the largest crude oil reserves, according to BP’s Statistical Review of World Energy. Yet, images of the immediate surroundings of the CRP paint a different financial storyboard about the well-being of Venezuela’s all important oil sector – which generates 96 percent of the country’s foreign export earnings.

Despite Venezuela’s claim to fame in terms of the size of its oil reserves, the South American country has been reduced to importing refined products because its refineries can’t meet local demand. The country’s refining sector is in a virtual state of emergency due to low processing rates, numerous unplanned plant stoppages, as well as accidents and injuries that state oil company Petróleos de Venezuela S.A. prefers to not report, according to oil union officials here. All summed up, PDVSA’s refining sector – especially within Venezuela – is a financial drain on the company as operating losses continue to mount year after year.

Venezuela – a founding member of the Organization of Petroleum Exporting Countries or OPEC — is engulfed in an economic crisis that started way before oil prices began their long downward trend. Political uncertainty, an ongoing threat of asset expropriations as well as currency and price controls have only helped to starve the capital-intense oil sector here of necessary foreign investments. PDVSA, as the Caracas-based company is known, continues to lack the necessary cash to properly revive the country’s oil sector in its majority partnership role, while local Venezuelan oil companies are few and in between and often lack the financial firepower of many of their international peers.

Many Venezuelan-based economists from Datanálisis President Luis Vicente León to Ecoanalitica Director Asdrubal Oliveros blame part of the economic crisis on the failure by former populist Venezuelan President Hugo Chávez to divert financial resources to the country’s private sector importers and the all-important upstream, midstream and downstream sectors during his tenure from 1999-2013 amid robust oil prices. In general, PDVSA’s problems mirror Venezuela’s economic crisis. The country’s economy has not fared any better under the presidential tenure of Nicolas Maduro, the man hand-picked by Chávez to succeed him prior to his untimely death in 2013. By most people’s accounts, considering the scarcities here of everything from milk to basic medicines, widespread looting, and runaway crime, things are much worst.

Oil-dependent Venezuela continues to rely heavily on its exploration and production or upstream sector to generate the bulk of its petroleum sector revenues. However, Venezuela’s oil output appears to be on an unstoppable decline, reaching 2,095,000 barrels per day in July of 2016 compared to 2,361,000 barrels per day in 2014, according to Organization of Petroleum Exporting Country’s Monthly Oil Market Report, citing secondary sources. Data from direct communications is just slightly more optimistic. Nevertheless, the downward continues.

FINANCIAL IMPACT

Oil workers in red work overalls can be seen everywhere in the streets of Punto Fijo, either hailing taxis or waiting in the shade of trees for public transportation. Due to the ongoing economic crisis that has also affected Venezuela’s transportation industry – like countless other industries here – many cars and taxis in these parts and others in this resource-rich country don’t have air conditioning and/or visually lack some part or another such as a rearview or side mirror, working locks, a speedometer or a functioning trunk. The market for used tires, or anything used, is booming in Venezuela as new tire imports have come to a virtual halt.

Inside the CRP complex – physically off limits to visitors without permission from PDVSA but very visible through the wired fences — the scene within is arguably not much better, as years of under-investment on maintenance, upgrades and safety protocols by the state oil company have unfortunately left the refineries and the grounds similarly forsaken. Against a backdrop of a country in the midst of an ongoing political crisis, many refinery workers here say a combination of 12-16 hours work days, a lack of employee benefits and arguably the lowest salaries for refinery workers anywhere in the world (in dollar terms) has also taken a toll on them as well as their colleagues.

Whether the refineries or the workers are in worst condition, is a judgment call, but at first glance they both appear to be on their last legs.

In the last eight years, PDVSA’s refining, trade and supply division accumulated net losses in each of the consecutive years since 2008, which was the last time the division reported a positive gain from its combined operations in Venezuela. All tallied, the division accumulated losses of $53 billion during 2008-2015, according to data compiled from PDVSA’s financial reports.

“With a cash crunch they have focused all efforts in the upstream where you make the money,” said Francisco J. Monaldi, Ph.D. and Fellow in Latin American Energy Policy & Lecturer in Energy Economics at Rice University’s Baker Institute for Public Policy in an e-mailed response to questions. “The lack of human resources adds to the lack of investment to generate the operational difficulties.”

Refining sector stoppages and costly repairs are generating large production and economic losses for PDVSA, said oil union representative Larry López during a late afternoon sit down chat at a run-down restaurant just two blocks from the Amuay refinery.

Venezuela doesn’t need refineries to be a major exporting country, former PDVSA President Rafael Ramírez told me in 2014 during a company-sponsored media trip to visit the CRP on the anniversary of the deadly explosion at Amuay that left at least 48 people dead. To this day, it is unclear if those comments justify the lack of attention that has been given to the country’s refining sector even now under the leadership of Stanford-trained Eulogio Del Pino.

Venezuela’s Information Ministry, the clearing house for questions for all of the country’s ministries, and media officials with PDVSA and the Venezuelan Oil Ministry did not reply to emails seeking comment on the company’s refining sector strategy or general comments for this article. Venezuela’s newly elected Petroleum Chamber President was also unavailable to comment on this article.

“Our refineries have always produced products to cover demand in the domestic market as well as the Caribbean. To export to the US and Europe we really don’t need to have refineries,” said Carlos Rossi, president of Caracas-based consulting firm EnergyNomics and formerly an economist with the Venezuelan Hydrocarbons Association or AVHI, in an interview in Caracas.

“Because the refineries have been seen as a low priority, PDVSA has focused more attention on the Faja,” said Rossi referring to the Hugo Chávez Oil Belt, formerly known as the Orinoco Heavy Oil Belt, home to one of the largest non-conventional oil deposits in the world.

PDVSA’s total hydrocarbon workforce mushroomed during 2000-2015 as the company stressed more importance on political affiliation and less on university or technical experience, said Eddie Ramírez, the director of Gente del Petróleo and a former PDVSA employee, in a phone interview from Caracas. At year-end 2015, PDVSA employed 114,259 direct hydrocarbon sector workers, up from just 42,267 when Chávez rose to power in 1999, according to PDVSA data.

PDVSA’s refining sector, which employed 9,391 workers in 2015, represented just 8.2 percent of the company’s total workforce in that year. In 2010, just 3,584 workers were employed in the refining sector, which represented a mere 3.8 percent of PDVSA’s total workforce.

Given PDVSA’s cash problems and its inability to generate positive free cash flow, the company’s plans to build six new multi-billion dollar upgraders, boost oil production and refining capacity to 6,000,000 barrels per day and 1,800,000 barrels per day respectively by 2019 seem to be optimistic and represent a major challenge for the state oil company.

REFINING CAPACITY

PDVSA owns six refineries in Venezuela, which the company reports are strategically located to supply refined products to its major consumers. The refineries – which had a total combined processing capacity of 1,303,000 barrels per day, as of year-end 2015 – produce a product slate including but limited to: 91 and 95 grade gasolines, jet and diesel fuel, light naphtha, liquefied petroleum gas, solvents and residuals.

Due to a combination of problems, the six refineries were just processing a combined 616,000 barrels per day in August 2016, translating into an average utilization for PDVSA’s domestic refineries of 47.3 percent, said Ivan Freites, an oil union official with the United Federation of Venezuelan Oil Workers or FUTPV, which represents a large portion of PDVSA’s workers, during an interview in Punto Fijo.

Two refineries are located in Venezuela’s western Falcon state including: Amuay, with a 645,000 barrel-a-day processing capacity; Cardón, with a 310,000 barrel-a-day capacity; while the smaller Bajo Grande is located in Zulia state, with a 16,000 barrel-a-day capacity. Together, the three refineries make up the CRP, according to PDVSA’s annual report for 2015, with a product slate destined 55 percent for the domestic market and 45 percent for the export market.

More centrally located is the El Palito refinery in Carabobo state with a 140,000 barrel-a-day capacity while the remaining two refineries located in Venezuela’s eastern Anzoátegui state include Puerto La Cruz, with an 187,000 barrel-a-day capacity and the smaller San Roque, with a 5,000 barrel-a-day capacity.

In 2015, Venezuela’s domestic refining sector reported average utilization rates of 66.2 percent, according to PDVSA’s operational and financial data from last year. This compares to an average utilization rate of 70.6 percent in 2014 and an average utilization rate of 72.8 percent during 2011-2014.

The CRP has suffered much more deterioration and lower utilization rates than the other refineries. Average utilization rates at the complex reached just 60.5 percent in 2015, down compared to 72 percent in 2011 and an average 67.7 percent during 2011-2014, according to PDVSA data, which differs to what oil union officials report.

“Average utilization rates at the CRP were just 53 percent in 2015,” said Freites, a stocky, long-time oil union official. “The complex is damaged to the point that it almost makes better sense to build new refineries than to fix the incalculable problems that exist.”

In contrast, average utilization rates at El Palito reached 71.4 percent in 2015, down from 90.7 percent in 2011 and an average 89.5 percent during 2011-2014 while at Puerto La Cruz rates reached 93.2 percent in 2015, up from 88 percent in 2011 and an average 88.6 percent during 2011-2014, according to PDVSA.

Figures reported by PDVSA are always overly positive and extremely optimistic, said Freites, 53, during an early happy hour brunch which included Venezuelan ‘tequeños’, a special mix here of fried cornmeal with cheese on the inside accompanied with another popular import here: whisky.

From oil towns in Midland, Texas to Maracaibo to Monagas and Punto Fijo in Venezuela, oil men have at least one thing in common: their love for food and the typical companions Grants, Chivas, and the rest of the supporting cast. However, the economic crisis here has forced many oilmen to settle for whatever is available at the kitchen table. With bottled water sometimes unavailable, Johnnie Walker becomes a name to trust.

PDVSA data differs significantly from that provided by oil union officials here and other international agencies due to the opaque operating and reporting nature of the state oil company. A quick comparison of Venezuela’s production figures as reported by PDVSA and Venezuela’s Oil Ministry as compared to figures reported by OPEC in its monthly reports or even BP in its yearly statistical review serve to prove the point.

Cash-strapped PDVSA recently reiterated plans to boost its domestic refining capacity to 1,800,000 barrels per day by 2019 but has not detailed plans for its existing refineries – which continue to process at less than optimal levels – and has been quiet about plans to build new refining capacity. Only the Puerto La Cruz refinery is known to be undergoing a deep conversion process aimed at boosting its ability to process heavier Venezuelan crudes, according to PDVSA.

Recent agreements signed by PDVSA with authorities from the governments of Aruba, Venezuela and Citgo Aruba related to the restart of a 209,000 barrel-per-day refinery located in San Nicolas, Aruba point to potential issues PDVSA may have building new refineries or even six planned new upgraders, a special type of refinery, due to financial constraints whereby at first glance it appears easier to buy refining capacity than build it from scratch.

It is not a priority to build refineries since it is much better to invest in upstream activities to maximize your limited resources, said Monaldi, also the founding director and a professor at the Center for Energy and the Environment at IESA in Venezuela. New refineries are not great moneymakers and require low capital cost to make any money, he said.

CRP REALITIES

Just a handful of streets separate the Amuay refinery from the Las Piedras fishing neighborhood. Not far away, rusted out American gas-guzzlers like the Ford Maverick and even the Ford F-1, seemly pulled straight off the set of the 1970’s U.S. television show Sanford and Son, can be seen littering the narrow streets here as well as the ones behind Cardón refinery in the neighborhood that bears its name, Punta Cardón. Residents of the latter neighborhood, basically live under the constant flare of gas and whatever else might come from the refinery that is practically in their backyards.

All of PDVSA’s Venezuelan refineries seem to suffer from some type of operational deficiency. At any given time and sometimes at the same various units from different refineries are down for unplanned repairs ranging from the Amuay flexicoker, alkylation, and catalytic units; the Cardón distillation units; the three Puerto La Cruz atmospheric distillation units to the El Palito FCC unit, thus, drastically reducing domestic processing capacity and output, said Frietes. On a number of occasions in the past two years complete operations at PDVSA’s principal refineries have been halted due to operational issues.

Reduced utilization rates at the CRP have created shortages of oil derivatives including unfinished oils, lubricants, finished motor gasoline and special naphthas. As a result, Venezuela is importing more derivatives such as products for gasoline as well as light oils from the U.S. and even far off countries such as Russia and Algeria to mix with its heavy and extra-heavy crude oils produced in the Faja, even as it continues to offer oil to regional neighbors ranging from Cuba to Nicaragua under attractive financing terms.

Despite the need to import oil and products, Venezuelan oil exports continued to member countries belonging to regional initiatives ranging from the Cuba-Venezuela Cooperation Agreement (CIC) to PetroCaribe but declined 6.6 percent to 185,000 barrels per day in 2015 compared to 198,000 barrels per day in 2014, according to PDVSA data. The volumes in 2015 were down 27.3 percent compared to 255,000 barrels per day supplied to member countries in 2009.

“PDVSA continues to give away oil while in Venezuela inventories of gasoline, gasoil, diesel, LPG and lubricants are insufficient to cover domestic demand,” said Freites, a stern critic of PDVSA.

Operating deficiencies in Venezuela have created export opportunities for refiners along the North American Gulf Coast. U.S. net imports of oil and refined products from Venezuela ranging from distillate fuel oil to MTBE (oxygenate) averaged 751,000 barrels a day in the 12-month period ended June 2016 compared to 711,000 barrels a day in the same year-ago period, according to data posted to the U.S.-based Energy Information Administration’s website. However, U.S. net imports of the same products from Venezuela averaged 1,590,000 barrels-a-day in the 12-month period ended June 2001 in the early years of the Chávez government.

Productivity at the CRP is down due to the increase in workers and the decline in output, said a former PDVSA refinery safety manager who worked for 29-years at the company. He didn’t want to reveal his name since he still does contract work for PDVSA in Punto Fijo and feared retaliation from the company. Oil workers must be oil workers and not politically divided like today as it is affecting the productivity of the employees and the company, he said during an interview at a small building in downtown Punto Fijo which serves as the local office of the FUTPV.

“It is still politically hard to justify massive Imports. But the economics are very clear. In the long run, if you can sustain international market prices in the domestic market you may be able to open the downstream to private investment,” said Monaldi.

REPLACEMENT PARTS

Grade school kids and university students blend into the scenery of an oil town gone bust. Many will never reach PDVSA’s professional ranks unless they have connections within the company and/or support the socialist ideas, or at least those expressed by Maduro and his government. More than anything, PDVSA refinery workers in faded red work overalls dominate the landscape in Punto Fijo and the surrounding towns seemingly unaffected by hot weather, strong wind gusts and refineries constantly emitting gas and other substances into the air. What has affected them is the continued economic crisis and low wages, many say here.

Under the sweltering sun, improvisations are the order of the day at the CRP for many refining workers frequently forced to scramble to solve recurring small problems turned into major ones due to the lack of basic replacement parts. The practice of using emergency stapling techniques to fix routine vapor leaks at processing units, or product leaks along pipelines, is commonplace nowadays, says Freites, who is the spokesperson for many refining and oil union workers not willing to go on record due to fear of retaliation or work dismissal from PDVSA.

Similar scenes are said to resonate at the Puerto La Cruz and El Palito refineries, said José Bodas, another oil union official, in a telephone interview from Carabobo state.

PDVSA is using stapling methods to fix pipeline and unit leaks instead of properly fixing or repairing them due to a lack of funds to procure the necessary replacement parts, said the former PDVSA safety manager. PDVSA is more reactive than preventative and is conducting more corrective maintenance than preventative maintenance due to the lack of financial resources. It’s not necessarily a money thing but just the way PDVSA works today, he said.

Lackluster security measures to protect the PDVSA refineries and workers have allowed crime incidents to edge up within the complexes’ gates. Stolen work bags and purses, missing clothing and other personal items and car break-ins are daily work hazards beyond those related to working in a domestic refining sector where accidents, sadly enough, are more the norm than in many other countries with refining operations. In the country with the highest murder rate in the world, according to the website WorldAtlas.com, not even the confines of the refinery complex are safe enough to shield workers from the realities on the streets in Punto Fijo, Ciudad Ojeda, Anaco and other major oil and gas towns across Venezuela.

Safety is no longer a priority for PDVSA as funds are being spent haphazardly on non-necessary projects, said the former PDVSA safety manager with his salt-and-pepper mustache and Italian surname. He says many current PDVSA bosses only respond to accidents when they are officially reported by the media.

On its part, PDVSA claims there were just 154 total injuries at the CRP, El Palito and Puerto La Cruz refineries in 2015. This compares to 173 in 2014, 276 in 2012, and 298 in 2010, according to PDVSA data in its social and environmental statements on its website. Still, union officials here say the numbers don’t reflect the real case scenario since a lot of accidents and injuries go undocumented.

As the sun falls over the horizon, workers use their mobile phones in some areas of the CRP seemly unaware of the work hazards. Thieves that regularly enter the complex via the various gate openings to rob copper, bronze, nickel as well as other materials and equipment, also rob workers of their mobile phones whenever possible. The resale market for mobile phone parts is big in Venezuela amid an economic crisis that has impacted not just food importers, but the telecommunications and airline industries as well, among others.

MULTIPLIER EFFECT

The multiplier effect on this town and surrounding communities can visibly be seen in the fishing regions of Punto Fijo from Las Piedras to Los Taques where white and blue collar oil workers in the good ole days would be seen almost everywhere eating and taking in the sun with family and coworkers or clients. That’s not the scene here anymore. Local mayors have for years promised money to fishing communities and fishermen in the region but many, like other family members, remain unemployed. Many have turned to crime to rob and steal things they can resell to get basics like food or medicines for their families.

“Whatever was taken over from the transnational companies doesn’t work here,” said Jaime Antonio Diaz, 44, during an interview at a lightless restaurant in Los Taques. “If the Fourth Republic was bad, then the Fifth Republic is the worst,” he said as a stray cat entered the premise through an entrance door kept open to let in fresh air and natural light.

Diaz’s comments refer to the two most recent republics in Venezuela. The Fourth Republic was the period in Venezuelan history marked by the Punto Fijo Pact in 1958 for the acceptance of democratic elections in that year. Nationalization of Venezuela’s oil industry was a point frequently criticized by Chávez as a one of many failures of the Fourth Republic. The Fifth Republic Movement (MVR by its Spanish acronym) was a leftist political party founded in the late 1990s by then-presidential candidate Chávez. It was later dissolved in 2007 to give way to Chávez’s new political party the United Socialist Party of Venezuela (PSUV).

From refinery workers fleeing low pay and increased worksite accidents to unemployed fishermen and engineers driving taxis, Punto Fijo is going through what many say is one of its worst periods in decades.

Within visible distance of the dirt roads of Los Taques nearly 30 or more towering wind power turbines can be seen off the immediate horizon on the return trip from Los Taques to Punto Fijo. Despite the strong winds here, the turbines are not operational and have yet to generate power for commercial or domestic usage, according to Freites, owing to corrupt deals between Venezuelan government officials and the company that supplied the towers. Venezuela – which has long suffered from a natural gas deficit in its industrialized western Zulia state – has plans to use non-associated natural gas production from the Cardón IV offshore project as well as power generated by these turbines to reduce the need to import costly diesel fuel. From the look of things here, it is quite obvious the latter is not something PDVSA officials want to openly talk or brag about. However, it’s safe to assume somebody made a killing on the turbine deal.

While the wind turbine project – like others envisioned in this small country with a population close to 31 million – looks good on paper in the boardroom, the corruption here more often than not turns the project into a financial bonus for some individuals at the costs of local jobs and wasted resources for a country teetering on the brink of financial default.

One thing continues to thrive here: the contraband of fuels. Contraband of cheap Venezuelan gasoline continues to nearby Colombia, Guyana, Trinidad and Tobago and Aruba despite efforts to deter it and a decision by this government to boost gasoline prices in February of 2016 to 6 bolivars a liter from 9.7 centavos. While demand for gasoline has declined in Venezuela due to economic crisis and a higher cost for gasoline, its elevated price is still quite low compared to nearby markets; thus, making it still very attractive for trade internationally.

Large fishing boats – refitted by the Venezuelan military and now under the control of military officers that pose as fishermen – continue to leave the pier near Las Piedras with domestic fuel. These so-called ‘gasoil mafias’ continue to exchange Venezuelan refined products on the high seas in international waters in seemingly another way the military is kept happy and loyal by Maduro and company, according to Rossi, author of the book ‘The Completion of the Oil Era: The Economic Impact (Energy Policies, Politics and Prices).’

DISMAL FUTURE

Barefoot grade school kids with just shorts on, play baseball on the dirt roads and side streets in numerous poor communities in and around Punto Fijo. Using broomsticks and makeshift baseballs, they can be seen enjoying their game despite the extreme poverty they live in and not having gloves. Despite being a Latin American country, baseball, not soccer is the sport of choice here and seen here as the way to rise out of poverty, at least for many males. On the other side, females here dream of being Ms. Venezuela or Ms. World.

“This government only saves itself by changing the model,” said León, referring to what the Maduro government needs to do to stay in power.

Whether the model change comes tomorrow, next year or in 2019, Venezuela’s hydrocarbon sector is in need of drastic changes. However drastic and radical these changes may have to be, investors will continue to keep Venezuela on their radar screens, hoping for a chance to invest in the country with one of the largest resource bases on the planet. However, from the looks of things, with foreign diplomats and oil men continuing to get kidnapped here, Venezuela is not yet ready for the massive return of foreign companies or better yet the foreign companies aren’t ready to return under the existing circumstances.

The recently announced departure of Schlumberger, the world’s largest oilfield services company, should serve as a reminder to potential investors about the condition of the oil sector here which still contends with a massive brain drain of national and international talent from companies from Halliburton to Total, Chevron, Statoil and a host of smaller companies lacking the deep pockets to survive without quarterly or sometimes monthly cash flow.

“The low wages continue to produce brain drain and that makes worse the operational problems,” said Monaldi.

Top Venezuelan officials and PDVSA executives blame the economic and petroleum sector crisis here on an economic war waged they say by opposition leaders with the backing of persons and institutions from Bogotá, Miami, Washington and even Madrid. The open denial of internal problems created by widespread mismanagement, errored financial and economic decisions as well as a number of actions including asset expropriations have handcuffed the country’s private sector and brought the all-important petroleum sector to a near halt. That hasn’t stopped other countries from stepping in to fill the void when and where it is possible. Case in point: Algeria just started to supply oil to Cuba amid mounting issues at PDVSA.

The Amuay explosion on August 25, 2012, as regrettable as it was, was an early wake-up call about what PDVSA had (and has) become after more than a decade of so-called socialism. Amid continued corruption at PDVSA and a hydrocarbon sector where funds mysteriously disappear, the financial and economic dreams of a handful or more have smashed the hopes of many in Punto Fijo and all across this major oil producing South American country.

“A lot of people here are changing sides due to the mismanagement of resources by the Chávez and now the Maduro government,” said Ali, a 50-year old taxi driver of an old Toyota Corolla, who requested his last name not be used in this article for fear of retaliation from PDVSA or government officials.

Ali’s sentiment resonates across all parts of this country from many petroleum engineers and other professionals that have left the industry to drive a taxi, wait tables or do anything where the wages are better.

“The sad part of all this is that we could have another August 25th,” said Freites.
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(Editing by Peter Wilson)