Ramirez_ TAKES OVER PDVSA WHILE KEEPING ENERGY

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
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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
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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
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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