Venezuela's Revolution and the Oil Company Inside

September 25, 2007

In a drab industrial suburb outside Caracas lies the Guatire gasoline distribution facility, property of the state-owned oil company, Petróleos de Venezuela, Sociedad Anónima (PDVSA). The plant isn't much to look at—a few flat buildings, a series of larger spherical tanks and four loading bays where petrol trucks fill up under an awning of pipes and valves. Despite its unremarkable appearance, it was here at the Guatire plant that Hugo Chávez's left-leaning Bolivarian revolution faced one of its gravest tests.

Guatire is the sole gasoline and fuel distribution center for the entire Caracas region, serving at least seven million people. Its strategic position made it the linchpin of the crippling, management-led oil strike in the winter of 2002-2003 that brought Venezuela's economy to its knees. If no fuel moved in or out of this little distribution center, Caracas would have fallen into anarchy, and Hugo Chávez's revolution would have likely been swept away.

In the end, Chávez would break the oil strike, just as he has survived a U.S.-backed coup d'état and beaten the opposition at the ballot box on six occasions. But the oil strike was only one stage in a continuing struggle that will determine the future of PDVSA—and thus, of Venezuela.

In Venezuela oil is everything, and PDVSA is the central institution of the oil economy. Created in 1975 when the entire Venezuelan petroleum industry was nationalized, PDVSA has operated as "a state within a state," never fully controlled by any of the governments that technically owned it. The engineers, geologists and managers who traditionally ran the company constituted a class unto themselves—petroleros—the cream of the Venezuelan elite. In all previous governments the top petroleros held a quiet veto power over key political matters, including ministerial appointments and investment policy. They kept this power because PDVSA was both a rich and well-run megafirm, considered a First World corporation in a Third World country—innovative, technologically savvy and aggressive.

Today PDVSA makes at least $40 billion a year in revenues and sits on the second largest hydrocarbon reserves in the world—78 billion barrels of oil with an estimated 238 billion barrels of tar oil (super-thick, asphalt-laden petroleum). It is one of the largest companies in Latin America and the fourth largest supplier of petroleum to the U.S. market, where it distributes via its subsidiary Citgo's eight refineries and 14,000 gas stations. All of Venezuela is financially dependent on PDVSA: petroleum sales provide half of state income and make up 80% of all Venezuelan exports. PDVSA is the only part of the Venezuelan economy that creates any significant economic surplus.

Yet oil has also been a curse. Its profitability has boosted the value of Venezuela's currency, making imports cheap and exports uncompetitive, thus killing off much local industry. Agriculture is practically dead, employing a mere 3% of the workforce and accounting for only 7% of GDP. Massive oil wealth has also left the country with an administrative culture of dependency, corruption, incompetence and bureaucratic ossification.

Since coming to office in 1999, Chávez has attempted to fundamentally reform Venezuela's political culture and economy. To address Venezuela's widespread poverty, his government has spent billions on new social programs: millions of people now receive free medical care, 1.3 million have learned to read and an estimated 35 to 40% of the population now shops at the price-subsidized government-owned markets. Elementary school enrollment has increased by more than a million because schools now offer free food to students. Land reform is underway in both the countryside and the slums. In short, Chávez is attempting to relaunch socialism as a viable economic model, a goal becoming increasingly explicit in his discourse of "building a socialism for the twenty-first century." But to really transform Venezuela, to move away from oil dependency and create development alternatives, Chávez must first control PDVSA—something no previous president has managed to do.

During the early years of his presidency, Chávez appointed a series of loyalists to run the company, and each attempted a house- cleaning, dismissing layer after layer of top executives. But these firings did not transform the hostile anti-government culture of the engineers and technically powerful frontline managers who actually ran PDVSA's operations and accounts. The company remained a black box at best; at worst, a staging ground for saboteurs. That is, until the strike.

In December 2002—amid a general work stoppage called by business and union leaders, and the chaos of daily Caracas street battles between pro- and anti-Chavista supporters—the oil strike started out slowly at first, with managers and engineers leaving key offices and production facilities. But affairs quickly turned grim as PDVSA's fleet of tankers refused to move, headquarters staff walked off the job, and the whole system began backing up and shutting down—oil wells, refineries, tankers, terminals and finally gas stations. Within days, gas supplies had begun to run out, and chaos seemed imminent.

To cover for the mounting gasoline shortages, the government started burning through its hard-won foreign currency reserves and development funds to import fuel from abroad. At the highest levels of the government, desperation soon set in: how would they get production flowing again? Many top Chavistas felt that accommodation with the strikers had to be reached at almost any cost. But one particularly strong voice dissented.

Alí Rodríguez—a former guerrilla, close ally of the president, current Foreign Minister and possible future successor to Chávez—was then head of PDVSA. Where others saw catastrophe and verged on panic, the taciturn Rodríguez saw opportunity: the chance to extirpate the source of sabotage and corruption in one bold maneuver. He recommended firing the strikers—all 18,000 managers, engineers and workers who had left their posts, nearly 45% of PDVSA's personnel. Over the objections of other ministers, Chávez went with Rodríguez. The firings would be either a stroke of brilliance or the first step toward disaster.

"Those workers took with them tens of thousands of years of experience—types of embedded experiential knowledge that cannot simply be purchased," explained one former president of PDVSA. "That is something that PDVSA will never recover from." PDVSA's production and investment have indeed dropped sharply—Venezuela now pumps only 2.6 million barrels a day when its real capacity should be at least 3.1 million a day. In October, PDVSA filed its financial statements with the U.S. Securities and Exchange Commission (SEC) for the first time in three years, after being forced to admit that it had inflated production numbers.

But in the government's view, Rodríguez's harsh counterassault on the strikers succeeded in flushing out an entire class of entrenched saboteurs and counterrevolutionaries who would have been impossible to purge one by one. Rodríguez's radical surgery went beyond battling the top management; he broke open the "techno-structure" where power is exercised. And in rebuilding PDVSA, the Chávez government has sought to transform it into something more than an oil company—an engine of alternative development.

Back at the guatire distribution plant, the new manager, a bespectacled Naval Captain named Alejandro Castelo Rodríquez, describes how the strike played out for Chavistas on the ground: "Our first task was to take control of the plant, set up security," explains Castelo. When the military arrived on the third day of the strike, all the managers and engineers had already left the plant, and only a few Chavista laborers remained camped inside to prevent sabotage.

When imported gas finally started reaching Guatire, Castelo faced a new problem: all of the plant's computers had suspiciously crashed. "Nothing worked. Everything from valves to pressure gauges are computerized and none of it worked," explains Castelo. "None of us knew about the informatics here." Castelo grins as the meaning of his story sinks in.

At Guatire, even simple things are complicated. For example, the three types of fuel—diesel, gasoline and liquefied natural gas—all flow together, floating on top of each other according to their densities, down a single pipeline from the loading terminal to Guatire, where they have to be separated into different storage tanks. The mechanism to perform this routine yet essential task had been shut down during the strike. "We had to read the manuals and then develop new systems of control. We had to reverse engineer complex processes. It was very stressful. We stayed awake around the clock," he says proudly.

Next came rebuilding the distribution network. In the early 1990s PDVSA had privatized its fleet of gasoline distribution trucks. Now the owners of these trucking firms were on strike; their yards locked, their trucks partially dismantled. Castelo turned to a trucker named Alexis Marco for help. Marco had already been organizing with a few other drivers to form trucking cooperatives.

"We had heard Chávez on his TV show, Aló Presidente, talking about how we should form cooperatives, get organized, redistribute the wealth," explains Marco, standing in a gravel yard now shared by three small trucking co-ops. "We read about the cooperatives in Mondragón, Spain. When the strike came we had to move fast."

Luckily, PDVSA had some mothballed tanker trucks that it sold on credit to the hastily formed transport co-ops. "We fixed up the trucks and drove all night," explains Marco. "We were attacked by anti-government mobs—our tires were shot out, drivers were beaten. One soldier who was riding for security with us was killed in Caricuao. He was only 22."

Today, with the initial emergency stage now over, the truckers' co-ops have become a reality, and are in their own autonomous way transforming PDVSA. "The co-ops have changed our lives," say José Carmona, another trucker who works in the same yard as Marco. "Before the strike we had no social security. We were only paid per trip. We had no sick pay. We had to work 10 and 12 hours a day just to survive. Now we can live on eight hours a day. We have time to be with our families and money to fund youth baseball teams."

In many ways these co-ops, found throughout the economy, embody what is best and most natural about the Venezuelan experiment. Here the revolution is pragmatic, not ideological. It is simply a better way to meet peoples' needs. "This is not 'Castro-Communism,' this is Bolivarian," says Carmona, mocking the opposition's favorite pejorative for Chávez's policies. Then as the fleet of trucks starts pulling in, he points out that the co-ops have painted the tankers with a new slogan: "La Nueva PDVSA, es del pueblo."

The "new pdvsa" may indeed "belong to the people," as the slogan says, but its inner sanctums are still controlled by typical Latin American bureaucrats with petty agendas and Byzantine procedures—even if they are Chavistas. Neither oil minister Raúl Ramírez nor anyone else will speak publicly to the issue of the 18,000 fired employees, the delayed SEC filings and PDVSA's sagging production.

Eventually some attenuated personal contacts get me into the small windowless office of a young Chavista named Daniel Nuñez Gleynzes, who works at PDVSA headquarters, La Campiña. There Nuñez and one of his older, supervising comrades, Ángel Vere, unfold the tale of their work and how they arrived at PDVSA.

During the strike, anti-government mobs had stormed PDVSA's central offices. Leftist community organizations responded. "La Campiña is like the White House of PDVSA. We couldn't let them have it," explains Vere, who worked with a coalition of Caracas community organizations during the oil strike.

The fight for control of La Campiña became a medieval-style pitched battle between mobs, with fists and clubs occasionally giving way to pistols. The opposition mayor of Caracas at that time, Alfredo Peña, sent his cops against the Chavistas. Eventually the Chavistas occupied La Campiña's office tower and set up vigilance committees to monitor the white-collar workers who stayed behind. Vere, Nuñez and others were hired as part of the "Restructuring Committee," a type of political commissariat tasked with purging the opposition from PDVSA.

Just as at the Guatire plant, La Campiña's computers froze. The company was unable to transfer data, keep inventory, process orders, pay bills and so on. More disturbing still was the strange behavior of electrical components at various oil facilities, where crucial remote-controlled valves and pumps in the far-flung pipeline system would open and close without warning, causing small accidents: the main pipeline in Guatire almost exploded.

"We had to hire hackers to battle the escualidos—they were dueling in cyberspace," says Nuñez, using the pejorative term ("weaklings") for anti-Chavistas. "We actually had to break into our own system." The successful computer sabotage caused the strike to be vastly more damaging than it would have been otherwise.

With the worst of the crisis over, the Restructuring Committee turned to other tasks. "Now we're changing the culture here," explains Nuñez in a more philosophical tone. "There are still many people who do nothing but collect a check. We want them out. All the escualidos should go. We want to hire revolutionaries, not just Chavistas. Within the committee, we are all Marxist, but we are open to radical thinkers of every sort."

The task of pumping and selling oil begins to seem far away. Vere has to get back to work, but before going he tries to bring the conversation back down to earth: "We are consolidating and deepening the revolution here at PDVSA and in the society at large through social projects and education. Now we hire as many cooperatives as possible; and we try to spread the work around. We have to make PDVSA function for all and in new ways."

In the tale of the strike one name keeps resurfacing: INTESA. Established in 1996, this technology firm was a joint venture between PDVSA and a U.S. Fortune 500 company called Science Applications International Corp., or SAIC. Much to the consternation of the Chávez government—which inherited the INTESA contracts from previous administrations—SAIC turned out to be deeply connected to the U.S. intelligence community. The firm's recent board members include: John Deutsch and Robert Gates, both former Directors of the CIA; William Perry, former U.S. Secretary of Defense; Bobby Inman, former head of the National Security Agency (NSA); and William B. Black, Jr., who after retiring from the NSA in 1997 became Assistant Vice President at SAIC, only to return to the NSA as Deputy Director in 2000. Other board members include former commander of the U.S. Special Forces, Wayne Downing, and former coordinator of the National Security Council, Jasper Welch. PDVSA charges that INTESA/SAIC aided the strike by stealing equipment, access codes and critical information, wrecking essential operating systems and using remote electrical means to disrupt the flow of oil.

I want to see pdvsa's production facilities so I head out to Ciudad Ojeda, a small, languid oil town dotted with empty bars and stalked by prostitutes, that looks out at Lake Maracaibo. This is the traditional heart of the petroleum industry from which over one million barrels of oil flow every day. The lake around Ojeda is scattered with rusting oil derricks and other floating industrial platforms. An invasion of non-native duckweed—little plants about the size and shape of lentils with tentacles that the locals call lemna—gets so thick at the edges of the lake that it forms an almost dry floating, bright-green mat.

Locals here say work is slow. Janneth Nuñez, an adult student of Misión Rivas, a PDVSA-funded literacy program, is waiting outside a bank for her monthly stipends. She says that PDVSA is contracting with small cooperatives to perform manual labor on the oil wells like cleaning, painting and repairs, but that there still isn't enough work. "Now the hiring is all done in Caracas," says Nuñez approvingly. "When the local managers were in charge they sold the jobs."

The whole oil industry is on edge. Just before I showed up, 120 PDVSA managers in these parts were fired for corruption and sabotage. Halliburton, the oil services firm once run by Dick Cheney, still has contracts and offices here (none of their reps were available for interviews). PDVSA will not let me visit the oil rigs and the foreign oil companies are also very edgy, as they are being threatened with huge bills for tax arrears. A few weeks earlier two U.S. journalists were arrested for photographing PDVSA facilities.

Choosing to just explore the lake on our own, two friends and I decide to rent a boat. But down on a polluted and lily pad-choked slip, some young fishermen are not too eager to take us out.

"Can't go out. Too many pirates," says one young man.


"They kill fishermen and take their engines and boats. It's too dangerous to go out in the afternoon." He lifts his pant leg and shows off a gunshot scar. On his shoulder there's another. All his friends wear serious expressions. This is not a negotiation strategy: there really are lake pirates and these guys really won't go out in the afternoon no matter what we offer. Finally, a fisherman named Américo agrees to take us out the next day at dawn.

At sunrise, we glide slowly through a thick, twisted mangrove swamp, then past the duckweed and into open water. Before us the lake spreads out as far as the eye can see, rippling black, grey and silver under low overcast sky. And from the gloom begins to emerge a veritable city of floating, industrial junk—derricks, electrical towers, derelict oil wells, half-submerged buoys the size of cars, messy service barges, here and there a giant pumping or drilling station with a few lights burning.

There's no way we will be allowed to land on any of these rigs, so we weave in and out between the structures. My photographer friend shoots photos as I try to soak up the vibe of the industry. If Lake Maracaibo is the Venezuelan oil industry's heart, its pulse seems dismally flat.

On the east side of caracas on a hilltop in the huge slum of Catia sits an old gasoline distribution plant, almost identical in its layout to the Guatire plant. But this one was decommissioned 12 years ago and has recently been turned into the Fabricio Ojeda Endogenous Development Nucleus. It is a sort of socialist business park, a model for future growth and the perfect symbol of PDVSA's transformation into something more than an oil company.

Chávez is massively excited about these endogenous development centers and hundreds are planned; this one includes cooperative shoe and apparel factories, a large clinic, a school to train new cooperatives and a series of terraced hillside gardens for training in alternative agriculture. Known by their Spanish acronym as NUDEs, these focal points of industrial training, social services and investment are supposed to become the motors of the new egalitarian, geographically decentralized, non-petroleum dependent economy that Chávez hopes to construct. All government ministries will be required to fund and organize NUDEs, but so far only PDVSA's Nucleo Fabricio Ojeda is up and running.

The physical plant is impressive: all the buildings are red brick, the old loading bay has been turned into a community plaza; the two factories are clean and brightly lit, the clinic is new and well equipped. To spread the wealth, all construction was done by local cooperatives with engineering from PDVSA and the military. Inside the shoe factory, crews of workers are learning their new trade. A first batch of 200 pairs of boots has been ordered for PDVSA, which will give them to schoolchildren who were made homeless in recent flooding. In the textile plant, T-shirts and uniforms are being made for PDVSA.

The whole place—clean, new and happy—exudes success, but is it more than just the power of oil money? The real test for the NUDEs will be to create wealth, rather than consume it. Alejandra Espina, a social psychologist helping to organize this model NUDE, explains that the planners of the center don't actually know how much the factories must sell to make ends meet. "It's all so new," she says apologetically. "We're doing some things backwards, we realize." But so far this experiment can't even cover its costs, let alone generate a surplus. More attention was given to this NUDE's physical layout than to its economic organization.

Although the idea of these development centers is only a year old, the less-than-robust accounting here illustrates a disturbing oil-enabled incompetence that pervades the revolution. In many ways Nucleo Fabricio Ojeda is a Potemkin village where the underlying numbers tell the classically Venezuelan story: grand visionary plans, great modernist enthusiasm, but organizational incompetence papered over with oil wealth.

Many previous governments also tried to kick start non-petroleum development with heavy injections of oil money, but most failed.

Toward the end of my trip, I meet Héctor Ciavaldini in the quiet courtyard of a hotel. He was one of the first truly Chavista presidents of PDVSA. Fit, tense and dressed in a dark four-button jacket, Ciavaldini, now in his late sixties, has a reputation as a pugnacious hothead. It was he who first took on the old-guard petroleros. Now he works as a consultant on alternative regional development. When I ask him about the progress of the revolution he turns the conversation back to PDVSA. Does he think PDVSA can recover from the firings, the strike and the ongoing sabotage?

"It is too soon to know," says Ciavaldini with a shrug. "But I'll tell you this: if we do not get this right, we are doomed. I don't just mean the revolution, or Venezuela. I mean all of Latin America. If we fail, it means another century of misery, violence and hunger."

This is a grand mission, nothing less than a relaunching of the socialist dream. But grand missions run the risk of hyperbole and overheating into ideological froth. And with oil prices well above $50 a barrel, the ongoing crisis at PDVSA, and thus at the heart of the Venezuelan revolution, can easily be overlooked. The tendency is to spend the windfall, to invest in big ideas and talk of even bigger ones.

At times, Chávez encourages this with discourse that veers into messianic mumbo-jumbo. Recently he proclaimed: "Either capitalism, which is the road to hell, or socialism, for those who want to build the kingdom of God here on Earth." One finds similar talk among the revolutionary cadre, the former community organizers who are now vice-ministers and high-level government bureaucrats. But to his credit, Chávez's quasi-millenarian flourishes are often followed in the next breath with pragmatic overtures to local business owners. Chávez's version of socialism is, in practice, a mixed economy.

Ultimately, Venezuela will succeed or fail on the basis of useful, often small-scale policies and on the effective control of institutions like PDVSA—rather than on rhetoric that bathes the state with an aura of progress and dynamism. And among the fishermen and oil workers of Ciudad Ojeda or the women making shoes at the Nucleo Fabricio Ojeda, it's the smaller things that matter most. They want jobs, loans, education and contracts for their new cooperatives. The kingdom of God can wait.

About the Author
Christian Parenti is a correspondent for The Nation and the author of three books, the most recent being The Freedom: Shadows and Hallucination in Occupied Iraq, now available in paperback from the New Press.

Tags: Venezuela, Hugo Chavez, nationalization, oil, PDVSA

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