US embassy cable - 04CARACAS366

C O N F I D E N T I A L  CARACAS 000366 
 
SIPDIS 
 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR D. PUMPHREY AND A. LOCKWOOD 
 
E.O. 12958: DECL: 01/29/2014 
TAGS: EPET, ECON, PGOV, VE 
SUBJECT: PDVSA POWER STRUGGLES: THE REVOLUTION DEVOURS ITS 
CHILDREN 
 
REF: A. 03 CARACAS 4379 
 
     B. CARACAS 101 
 
Classified By: CDA STEPHEN G. MCFARLAND; REASONS 1.4 (B) and (D) 
 
------ 
SUMMARY 
------- 
 
1. (C)  With street battles between opposing labor groups, 
mass protests to force the removal of managers, new 
allegations of corruption in internal product sales, and 
rumors of yet another new Petroleos de Venezuela (PDVSA) 
board, January has demonstrated yet again the disarray in the 
Venezuelan energy sector.  Rumors that Ali Rodriguez will 
leave the presidency of PDVSA or be replaced are also spiking 
once again.  Vice Minister for Hydrocarbons Luis Vierma, who 
has been seen as an advocate for more involvement by private 
sector firms, is also now the subject of rumors that he will 
be dismissed.  End Summary. 
 
----------------------------- 
THE REVOLUTION IN THE STREETS 
----------------------------- 
 
2. (U) After a holiday calm, evidence of the battles that 
continue to rage within Petroleos de Venezuela (PDVSA), 
between PDVSA and the rest of the government, and in the 
Venezuelan energy sector in general have once again erupted 
into public view in January.  Violence broke out in western 
Venezuela the week of January 19 as workers fighting over 
jobs and control of PDVSA's Cabimas plant began shooting at 
each other.  Five people were wounded as workers from the 
"Bolivarian Workers Front" clashed with those from the "Che 
Guevara Trade Union of Unemployed Workers."  In eastern 
Venezuela, the situation was less violent but still tense as 
protestors massed outside PDVSA's Maturin offices to demand 
the removal of regional managers who had allegedly 
participated in the December 2002-February 2003 general 
strike.  The entire PDVSA Board traveled to Puerto La Cruz to 
discuss this incident that was apparently resolved on Janary 
21 with the appointment of a new district manager. 
 
3. (C) These two incidents appear more bizarre when one 
realizes that, in the case of Cabimas, the violence was 
between two pro-Chavez unions squabbling over control of the 
jobs in a PDVSA facility, while in Maturin the protestors 
were actually led by a member of the PDVSA Board, himself a 
union leader.  More seriously, a U.S. executive reported to 
econoff on January 22 that the PDVSA manager who was removed 
had worked well with international companies.  He added that 
another senior eastern area manager, with whom his company 
has worked most effectively since the strike, was also 
targeted by the protestors.  So far, this manager has been 
protected but he may yet be removed. 
 
---------------------------- 
THE REVOLUTION FIRES ITS OWN 
---------------------------- 
 
4. (C) In yet another bizarre episode, Fabian Chacon, a 
Chavez loyalist who lasted as a legal counsel in PDVSA for 
ten months between February and November 2003 when he was 
reportedly fired by PDVSA President Ali Rodriguez, went 
public the week of January 26 with charges that PDVSA has 
lost millions of dollars by selling products at low domestic 
market prices to firms that then re-sold the products abroad 
at international prices.  Although such allegations should 
not come as a surprise to any observer of the chaos of the 
current Venezuelan energy scene, they have spurred PDVSA, the 
Ministry of Energy and Mines, and the National Assembly into 
saying they will investigate irregularities in the sales of 
crude and oil products.  Chacon himself has been accused of 
trying to funnel the legal business associated with the 
severance claims of ex-PDVSA employees to lawyer friends. 
(Note:  Stories of corruption in PDVSA's international 
marketing are rife.  The former commercial manager of PDVSA 
told econoff January 20 that he has received material from 
within the company that could send people to jail.  The only 
new thing here is the allegation of corruption in the 
internal market which would be very much in the trend 
 
 
described in reftel A.  End note.) 
 
------------------------ 
YET ANOTHER PDVSA BOARD? 
------------------------ 
 
5. (C) VenEconomy, a respected local consulting service, 
published a story in its newsletter on January 29 stating 
that Chacon"s allegations "are thought to be part of a 
campaign to unseat Ali Rodriguez" and other members of his 
Patria Para Todos (PPT) Party from PDVSA.  This follows 
public announcements by Rodriguez and Energy Minister Ramirez 
that President Chavez will soon announce yet another 
restructuring of the industry and yet another board of 
directors.  The press reports that the PDVSA Board will be 
expanded to eleven from its current eight members. 
Representatives from the Finance, Production and Commerce, 
and Planning Ministries will reportedly be added to the board 
to give the government more control over the company.  There 
is also speculation that the military will become more 
overtly involved in the running of the company. 
 
6. (C) The ever fertile Caracas rumor mill is once again 
seething with rumors that Ali Rodriguez himself is on the way 
out.  A staffer of the Permanent Energy Commission of the 
National Assembly informed econoff on January 15 that he 
believes Rodriguez and other PPT party members will pull out 
of the Chavez government when they think it will go down so 
as not to be associated with a failure.  This source, who 
claims to know Rodriguez well from his time in the National 
Assembly, believes Rodriguez will ultimately be more 
interested in advancing his own political career than in 
setting Venezuelan energy policy.  ChevronTexaco de Venezuela 
President Ali Moshiri commented to econoff on January 22 that 
Rodriguez is indeed less "hands on" than he had been a year 
ago.  Moshiri noted that everything to do with crude trading 
and lifting has been turned over to Senior VP Aires Barreto. 
Another oil company source, however, commented to econoff on 
January 29 that ultimately Rodriguez's most effective 
advocate with Chavez is Fidel Castro.  According to this 
source, Castro depends on Ali Rodriguez to keep the oil 
flowing to Cuba. 
 
7. (C) Some of the candidates rumored to be in line to fill 
Rodriguez's shoes include Energy and Mines Minister Rafael 
Ramirez; General Francisco Rangel Gomez, currently President 
of the state-owned Corporacion Venezuelano de Guyana (CVG); 
CITGO President Luis Marin; and Gustavo Perez Issa, the 
controversial former PDVSA internal security manager. 
Rumored candidates for new board members include Carlos 
Mendoza Potela, formerly Venezuelan Ambassador to Saudi 
Arabia and a member of the controversial Gaston Parra PDVSA 
Board in 2002; and Alfredo Rivera, currently a CITGO VP and 
said to be leading the charge to move the company from Tulsa 
to Houston because he would prefer to live in Houston.  One 
particularly cynical industry source commented to econoff 
that those now in control of PDVSA know they are "on the way 
out" and are fighting to get onto the board because of the 
excellent pension benefits they would receive. 
 
8. (C) And Rodriguez is not the only person whose imminent 
departure is rumored.  Vice Minister for Hydrocarbons Luis 
Vierma, who has other important positions in PDVSA, is also 
said to be on shaky ground because of his support for more 
involvement by private firms in Venezuela's energy sector. 
 
------- 
COMMENT 
------- 
 
9. (C) PDVSA continues to be an almost dysfunctional 
organization with different groups struggling for power, 
jobs, control of its budget, and, of course, opportunities to 
make money.  But a larger stuggle may be looming in the 
Chavez government between the nationalists and those who 
support giving more operational freedom to the private 
sector.  This kind of managerial disarray only strenghtens 
our suspicions (reftel B) that the firm's production is 
likely to drift downward in 2004. 
MCFARLAND 
 
 
NNNN