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sharing in governance of extractive industries

Venezuela: 21st century socialism & Paradise Lost

Heads turned on global oil markets when news hit the press earlier this year that Venezuela had snook past Saudi to top the table of global oil reserves, with a staggering 296.5 billion of proven reserves. And as the soap opera over Hugo Chavez’ illness continues and speculation over the future of these resources under a new leader has hotted up, it was difficult to resist paying a visit on the way back from a conference in Peru last month, where the contrast between Venezuela’s opacity and Peru’s noisy transparency crowd couldn’t have been starker.

Like others before me I was keen to get behind the filter of international media coverage and partisan babble around the politics of this petroleum powerhouse. Chavez is such a divisive figure that you must delve deep to find reliable analysis that amounts to more than propaganda either for or against the man who has transformed Venezuelan politics since toppling the government in a 1998 coup. Discerning the truth behind the bluster becomes a challenge. Of course I wanted to see with my own eyes a tank filled up for less than what I spend on a pint of milk. But mainly I wanted to get a sense of what expectations Venezuelans have of their oil industry. I was in the country for just just a couple of days, but I did get the briefest glimpse of what it feels like to live the surreal daily reality of a country caught between two worlds, the once Chavez thinks exists and the one lived daily by the country’s 29 million inhabitants.

What I found was a land of contradictions – a pack of smarties at the airport doesn’t in fact cost $20 as the official exchange rate would have you think, but a third of the price when changing money on the black market as every local would. Despite the anti-Yankee rhetoric, the country is increasingly reliant on fuel imports from its arch enemy to the north, and despite the daily invoking of Simon Bolivar as the spirit behind the Chavez brand of socialism, the authors of the pithy Caracas Chronicles blog welcome visitors with a fitting quote from the independence hero: “Flee from the country where a single man holds all the power: it is a country of slaves.”

Oil really runs in the veins in Venezuela, not just as the century-old beating heart of the economy but as something that has truly suffused the consciousness of the Venezuelan people. But while there is chatter around kitchen tables, this noise is not replicated and amplified in civil society organisations, either national or international. Don’t expect to find here the armies of transparency activists, conferences, workshops and eager chasing of international transparency standards you might encounter in Peru. It may be a crude measure (pun only partially intended) but if we look at the World Bank’s GOXI project (which brings together together those with an interest in governance of the extractive industries across the globe) the Peru-based ‘Goxians’ number 21 (in a country with 0.1% of the world’s oil reserves and a mining sector than represents 63% of export revenues), Ecuadorian Goxians (0.4% of global oil reserves, and 50% of export earnings) number 9. Even in Colombia, where the transparency debate is very much in its infancy, 5 brave souls have signed up. Yet in Venezuela, holder of 17.9% of the world’s petroleum reserves and where oil represents 94% of export revenues, there is not a single ‘Goxian’ to be found.

The obvious conclusion is to put this down to fear of persecution and political harassment, a valid point and ugly reality. The ‘chavernmentleaves little space for dissenting voices. Is pessimism and pure exhaustion at play? According to Proaccesoof 316 Freedom of Information Requests in 2012, only 11 were answered and four were deemed satisfactory. Or just the recognition that while Chavez is at the helm, the ship cannot change course? With the big man about to go under the knife again in Cuba following a period ofscarce public appearances since his victory in October’s elections, opposition-minded Venezuelans might be playing the waiting game.

One thing for certain is that there is much to be concerned about. Gargantuan reserves mean little when production itself is falling year on year (a pitiful 2.7 million barrels per day in 2011 compared to Saudi’s 10.1 million). TheRevenue Watch Transparency Index places Venezuela improbably high on its global rankings, but with the important caveat that no one actually believes a word that PDVSA says when reporting those figures. Most worrying is the absence of data on the subsequent use of petro-dollars, housed in a cluster of extra-budgetary funds subject to no parliamentary oversight. Partly as a result of the ‘windfall tax’ introduced in 2011, over 60% of oil revenues are now allocated to such funds and used at the discretion of the executive.

The payroll of PDVSA, the engine of Chavez’ socialist revolution, swelled by 27% last year. But more hands on deck seem to be having little impact on operational efficiency. The recovery rate at Venezuelan fields in 2010 was only 9% (against an industry average of around 35%), raising the question of whether this is an oil company or a job creation scheme

However much you mistrust official figures and press reports on both sides, systematic mismanagement of the industry since the turn of the century is clear to see for those of all political stripes. A falling production profile, chronic under-investment in exploration and production, rusting infrastructure (leading to an explosion at Amuay refinery that killed 42) and rampant corruption. But despite all of this, what I heard over and over again in Caracas and in writing on Venezuela is a deep pride for the ‘golden age’ of the industry, when production last peaked in the 1970s. A reminder that Venezuelans know what it feels like to have a functioning oil industry making waves on the world stage. But the narrative of ‘imperialist’ transnationals looting the country, promoted by Chavez during marathon television monologues, has made the prospect of much-needed investment on any scale politically unpopular.

As time goes on, as Venezuelans begin to forget what life was like before 2 cents/litre petrol, as a combination of ‘Dutch Disease’ and the impact of government price c... further cripples Venezuela’s non-oil sectors, the prospect of change becomes ever more painful to ordinary Venezuelans. But being the pawns in Chavez’ political games is no fun when the lifelines get cut back.

Oil subsidies may have cost the country a sweet $20 billion in 2010, more than was spent on education. All in a country where public debt has risen by110% over the last eight years. But as Juan Cristobal Nagel points out, after fourteen years of populist politics, convincing a Venezuelan with a fifth grade education that allowing the price of gasoline to rise will benefit them is no mean feat. The electorate is unsurprisingly less worried about refinery output than the fate of subsidies that allow them to buy staple goods at knock-down prices. But could’ t access to the basic facts, stripped of political agenda, have a transformational effect? To start building a constituency of citizens who evolve from being mere receptors of government handouts to engaged citizens demanding more information from their state around what actually happens with the revenues from an industry that accounts for 50% of their economy.

Chavez’ ‘socialism for the 21st century’, made possible by unprecedented levels oil revenues, is precariously based. Change, no matter under whom’s leadership, will be necessary but could be painful. But a more realistic understanding of the foundations of the industry will make a good start.

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Comment by Lucy Wallwork on January 3, 2013 at 10:51

Miles thanks for the comment - as I point out, I couldn't agree more that the Western press is as guilty as any for demonising rhetoric on someone who is essentially a democratically elected leader, as you quite rightly highlight. And Chavez' initial popularity owed much to the sense of genuine fury over unjust transnational activity over the country's history. However despite isolated successes such as the Sistema, I have two objections to those who praise how Chavez has led the country over the past decade.

Firstly Chavez' election and re-election, while complying with all the usual international standards, have not been based on true accountability to Venezuelans but instead on creating a dangerous dependency on hand-outs and fuel subsidies, and I would argue that it is the fear of withdrawal of such benefits that drives many to Chavez at the polling stations rather than a true belief in his policies. I think the Venezuelan populace deserve a little more respect. 

Secondly, just as I don't believe Putin can be praised for the 'gains' he achieved for Russia based on pure luck and good timing in coming to power in 2000 just as commodity prices began rocketing, I don't think Chavez can claim to have used windfall revenues from finite resources in a sustainable way for future generations, based on the concerns I outline above. 

Comment by Miles Litvinoff on January 2, 2013 at 12:08

I am no fan of Chavez's cult of personality. He appears to have clung to power for too long but has in fact been democratically re-elected a good number of times. Let's not ignore Latin America's long history of being asset-stripped by TNCs as well as by its own corrupt rulers. By all accounts, social programmes in Venezuela have achieved some real gains for the poor (including the music Sistema Venezuela, which has been copied in parts of the UK). This is more than can be said for several other major developing country oil exporters whose industries are probably in little better shape.  

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