US embassy cable - 04CARACAS3638

C O N F I D E N T I A L  CARACAS 003638 
 
SIPDIS 
 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR DPUMPHREY AND ALOCKWOOD 
COMMERCE FOR ITA/MAC/WH/OLA-SOUTHERN DIV/MCAMERON 
SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: DECL: 11/18/2014 
TAGS: ENRG, PGOV, VE 
SUBJECT: Ramirez_ TAKES OVER PDVSA WHILE KEEPING ENERGY 
MINISTRY 
 
Classified By: Economic Counselor Richard M. Sanders.  Reasons 1.4 (B) 
AND (D) 
 
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Summary 
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1. (C)  Minister of Energy and Mines Rafael Ramirez_ has been 
sworn in as President of state oil corporation PDVSA, while 
maintaining his ministerial position.  Energy experts who 
have opposed Chavez publicly assert that his appointment 
marks the definitive end to PDVSA as a commercial (vice 
political/developmental) institution. Private reaction among 
our energy contacts is somewhat more nuanced.  Ramirez_, 
originally viewed as a mere protege of outgoing PDVSA 
President Ali Rodriguez, had already become an important 
figure in his own right as Minister, and has been prepared to 
use Venezuela's oil resources to Chavez's direct political 
advantage.  He takes over a firm which is being subjected to 
ever greater demands for resources to fund Chavez's 
"revolution," including, according to recent press reports, a 
tasking to provide an additional USD two billion for 
infrastructure projects.   End summary. 
 
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Announcement Not a Surprise 
--------------------------- 
 
2.  (C)  On November 20, President Chavez swore in Minister 
of Energy and Mines Rafael Ramirez_ as President of "Petroleos 
de Venezuela, S.A." (PDVSA), the state oil enterprise.  He 
replaces Ali Rodriguez Araque, who leaves to take over the 
Foreign Ministry.  Rumors about Ramirez_ assuming the position 
had circulated for the previous week.  He will retain his 
Ministerial position.  In a subsequent statement issued by 
GOV state press agency Venpres, Ramirez_ asserted that he 
would keep in mind the necessary separation between these two 
functions, saying:  "We will be very scrupulous in this.  To 
the Ministry that which is for the Ministry, to PDVSA, that 
which is for PDVSA." 
 
3.  (C)  Unsurprisingly, petroleum experts opposed to Chavez 
took a dim view of his keeping the two positions.  Alberto 
Quiros, former head of MARAVEN, a nationalized oil company 
ultimately folded into PDVSA, and later of Shell's Venezuelan 
operations, said that in having the energy minister head the 
state oil corporation, the GOV was following the "Saudi 
model,... which is applied by authoritarian governments to 
guarantee control of economic resources."  Former Energy 
Minister and OPEC Secretary General Humberto Calderon Berti 
described the decision as "the formalization of the 
subordination of PDVSA to the desires of the executive 
branch." 
 
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Mixed Reactions from Industry 
----------------------------- 
 
4. (C)  Private reactions from local energy community are 
more nuanced.  One well-connected local energy analyst 
reacted very positively to the (then) possibility that 
Ramirez_ would assume the presidency of PDVSA in a November 18 
conversation with econoff.  This analyst pointed to the 
stature that Ramirez_ has gained, both within the GOV and 
internationally, since he was named as Minister and posited 
that Ramirez_ would be able to put a stop to the continuing 
in-fighting within PDVSA and get the company going again. 
This would, he said, be a positive move for international oil 
companies trying to advance projects in Venezuela. 
 
5. (C)  However, other industry observers were less positive 
about Ramirez_, saying he has proven himself a good soldier 
who will do whatever Chavez orders him to do.  A leading 
energy attorney in Caracas commented to econoff November 19 
that there would probably be very little change since the 
Ministr already has total control over PDVSA.  In fact, she 
said, things could be worse because Ramirez_ doe not have 
time to be Minister, much less both Miister and PDVSA 
President, because of the politial responsibilities levied 
 
 
on him by Chavez.  ExxonMobil de Venezuela President Mark 
Ward also commented to econoff on November 18 that he 
believed that Ramirez_ would, in fact, continue "to play the 
political side of things," and that the relationship of the 
international oil companies with PDVSA would not improve. 
 
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Technician and Pol 
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7.  (C)  Ramirez_ has shown a combination of 
technical/managerial skills and political loyalty that has 
made him a highly valuable to Chavez.  A mechanical engineer 
who worked on natural gas issues for the Ministry, he was 
elevated to run it when Rodriguez left to take over PDVSA in 
2002.  Originally viewed as very much Rodriguez's man, he 
became a figure in his own right, and indeed a "star" within 
the Bolivarian government, when as Minister, he coordinated 
the successful effort to bring PDVSA production back up, thus 
breaking the December 2002-February 2003 general strike which 
threatened to bring the Chavez government down.  Since then, 
he has taken a lead role in making PDVSA the direct 
bankroller and to a considerable extent the executor of the 
"missions" in education and housing which were been so 
crucial to Chavez's August 15 defeat of the effort to recall 
him.  His ministry has increasingly been the center of 
gravity for strategic decisions on hydrocarbons policy. 
While international oil companies have been able to move 
forward on negotiations, as in the case of ChevronTexaco with 
regard to the Deltana Platform natural gas project, they have 
also had to face abrupt, politically motivated decisions, 
such as the recent unilateral increase in royalties the GOV 
requires on production from the Orinoco heavy oil 
installations. 
 
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Chavez Asks for More Money 
-------------------------- 
 
8.  (C)  Almost simultaneous with the naming of Ramirez_ to 
PDVSA has come a requirement that PDVSA replenish a USD two 
billion infrastructure account that it had previously funded, 
according to press reports.  An initial USD two billion had 
been provided to this fund, which is kept at the state-owned 
Bank for Economic and Social Development (BANDES). 
Reportedly, the funds have been designated for major 
projects, such as a highway to eastern Venezuela.  (Comment: 
Our understanding is that while the money may have been 
designated for specific uses, much of it is still unspent. 
Presumably with that process now beginning, the GOV wants to 
top it off again, given that the fund has been described as 
"revolving."  End comment.) 
 
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Comment 
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9. (C)  Ramirez_'s nomination underscores the fact that Chavez 
has little talent - or at least little talent that he trusts 
- to call upon.  It also makes clear the importance he gives 
to direct political control of PDVSA.  Ramirez_'s appointment 
will not have much near-term impact on the problems faced by 
the international oil companies in their dealings with PDVSA, 
i.e., the slowness of decision making, new concerns about 
contract sanctity and so on. 
 
10.  (C)  It is not clear what whether as new president of 
the firm, Ramirez_ will have the go-ahead to resolve the 
constant squabbling over turf (and attendant graft) among the 
factions entrenched at PDVSA.  Since the purges at the 
company following the December 2002-February 2003 general 
strike, the main factions found within PDVSA management are 
made up of officials linked to Ali Rodriguez's "Patria Para 
Todos" (PPT) party, ones linked with the far larger 
"Movimiento Quinta Republica" (MVR), the principal pro-Chavez 
political vehicle, and military officers directly linked to 
Chavez.  Some PDVSA-watchers have also identified a faction 
linked with Hector Ciavaldini, a former PDVSA President who 
later broke with Chavez (though not before tossing some 
 
lucrative PDVSA contracts in the direction of companies 
associated with his own family), and a rump group of 
"institutionalists," who did not actually walk out during the 
strike and hence retained their jobs.  It has also been 
suggested that Ramirez_ will bring his own people, a group of 
fellow graduates of the University of the Andes in Merida, 
into senior positions at PDVSA.  While Ramirez_ was originally 
beholden to Ali Rodriguez, as part of the PPT, to which 
Ambassador to the U.S. Bernardo Alvarez is also affiliated, 
his appointment to PDVSA is recognition of his own 
politico-revolutionary credentials. 
McFarland 
 
 
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      2004CARACA03638 - CONFIDENTIAL