Destruction of Oil Industry by Chavez Continues

Chavez, being a leftist has finally is now in full looting mode. As the economic failures of his plans come to fruition he needs to steal more and more to keep his supporters happy and his opponents fearful. Having destroyed the Venezuelan oil industry he has moved on to another aspect of the Venezuelan petroleum sector:

UNTIL a few weeks ago, the Venezuelan government was encouraging private investment in oil services. But in a sudden about-turn, President Hugo Chávez changed the law to make the whole industry a preserve of the state. On May 8th the National Guard began to occupy dozens of drilling rigs, docks and boats operated by private contractors, both local and foreign, hired by PDVSA, the state oil company.

Mr Chávez invoked national security. PDVSA complains that the oil-services firms did not cut their prices when the oil price plummeted last year. But the real reason seems to be that PDVSA has run out of cash. At the end of last year it owed contractors $14 billion, according to a report to the National Assembly.

In reality Chavez lacks the funds to pay the 14 billion, so he destroyed the contractors as a shortcut. Technically they will be compensated, but in reality they will receive government bonds in exchange for their holdings, and the value of those holdings will be determined by Chavez after he has deducted environmental and labor liabilities. So how bad has it gotten for Venezuela's oil industry:

Despite years of record oil revenues, PDVSA accumulated liabilities of almost $70 billion by last September, up from less than $30 billion in 2006, according to the company’s financial reports. The company is itself owed more than $24 billion, mostly by Cuba and other neighbours to whom Mr Chávez supplies oil on easy terms.

PDVSA’s decline stems in part from the fact that Mr Chávez has turned what was an efficient oil company into an all-purpose vehicle for implementing “21st-century socialism”. PDVSA, whose workforce has more than doubled since 2003, now builds houses, imports food, runs farms and pays for adult-education projects.

Don't hold your breath on that 24 billion, Morales, Castro, and associated won't be paying that back. In reality you have the people of Venezuela see their oil wealth funneled to boost the power of other Latin American authoritarians. A criminal and shameful waste to say the least. And its getting worse

The cash crunch in the oil industry has a wider impact. “We don’t supply PDVSA directly,” says the owner of a small office-supplies company in the eastern city of Maturín. “But most of our clients do. We’re owed 120,000 bolívares [about $56,000 at the official exchange rate] in overdue payments, and we’re down to 12,000 bolívares in the bank.” So goes Venezuela.

Right after Chavez won his dictatorship referendum I wrote about Juan Peron and Argentina, it appears the collapse is happening even quicker then imagined.