SINCOR'S ROCKY TRANSITION TO PETROCEDENO

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001655 SIPDIS SIPDIS ENERGY FOR CDAY AND ALOCKWOOD NSC FOR JCARDENAS AND JSHRIER E.O. 12958: DECL: 01/12/2017 TAGS: EPET ENRG EINV ECON VE SUBJECT: SINCOR'S ROCKY TRANSITION TO PETROCEDENO REF: A. CARACAS 1481 ¶B. CARACAS 1314 Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) ¶1. (C) SUMMARY: Strategic association Sincor's transition to Petrocedeno, a PDVSA-controlled joint venture, has been fraught with labor problems. Labor union members have blocked the road to the upgrader 33 days so far this year. Approximately 100 employees have quit their jobs. A work plan is in place with several major projects. PDVSA has tried to cover up accidents and may be hiding information from its partners. END SUMMARY -------------- A SOMEWHAT ROCKY TRANSITION -------------- ¶2. (C) Petroleum Attache met with Sincor Deputy General Manager Jane Nagy (strictly protect throughout) on August 20 to discuss Sincor's migration from strategic association to a PDVSA-controlled joint venture, Petrocedeno. Sincor is one of four strategic associations in the Faja. Nagy is an employee of Statoil, the Norwegian state oil company, which seconded her to Sincor. Statoil will have a 9.677% stake in the Petrocedeno joint venture. PDVSA will control 60% of the joint venture and the French oil company Total will hold the remaining shares. Nagy sits on the transition committee tasked with handling all of the major issues arising from the migration. She began by noting that Sincor has had several labor-related problems. She stated labor union members, upset over the fact that they do not have a collective contract, have blocked the road to the Sincor upgrader 33 days so far this year. The blockages have kept employees from arriving at work and had a disruptive effect on operations. ¶3. (C) In addition to the protests, approximately 100 employees have resigned their positions following the announcement that Sincor would migrate to a PDVSA-controlled joint venture. Nagy stated 80% of the departing employees had six to twenty years experience. Among the departing employees were senior engineers and technicians. Nagy stated the Faja is full of headhunters who are hoping to pick up experiences employees. She stated almost all of the departing employees are looking for overseas positions. When asked if Sincor employees had received their new Petrocedeno compensation package, Nagy replied that they were still �A;waiting to receive it. (COMMENT: As reported in Reftel A, compensation packages at other strategic associations have contained pay cuts of over 30 percent. We expect the packages that Sincor employees receive to contain similar cuts. END COMMENT) ¶4. (C) Nagy also stated the recent firing of four new employees was the most difficult situation she has had to face in her career. The employees, recent graduates who were recruited for a prestigious training program, were fired due to their political leanings. The opposition newspaper Tal Cual interviewed some of the fired employees and printed a large story with plenty of details. Nagy said Sincor employees placed considerable pressure on her to do something about the situation but there was little that she could do. She stated PDVSA's actions in the case and labor policies in general were the subject of an acrimonious transition committee meeting. She stated she never received minutes from the meeting and it is not clear if PDVSA will ever pass them to Total and Statoil, its two private sector partners. -------------- ON THE BRIGHT SIDE CARACAS 00001655 002 OF 002 -------------- ¶5. (C) On the positive side, Nagy stated Sincor's work plan is in place and includes major improvements in upstream facilities. In addition, the Sincor upgrader is scheduled for major maintenance shutdown in February 2008. Sincor will also go ahead with an enhanced recovery pilot project. Nagy stated it is not clear at this point if Sincor will carry out a major debottlenecking project in the near future. ¶6. (C) Nagy also confirmed that Sincor's block size will remain the same after the migration to the joint venture. Senior BRV officials repeatedly stated during the migration negotiations that they would reduce the size of the strategic associations' blocks. Nagy added that Statoil retained control of marketing in the new joint venture. (COMMENT: Chevron also stated that the block size in the Hamaca strategic association was not reduced as a result of the migration and that Chevron retained control of marketing (Reftel B). END COMMENT). -------------- PDVSA PLAYS FAST AND LOOSE -------------- ¶7. (C) Nagy complained that PDVSA tries to hide accidents and other negative information from the outside world. She stated Sincor recently had an accident at one of its wells. She stated the accident was not a blowout but rather an overflow. Although the accident was not major in nature, Nagy stated she promptly reported it to Statoil's headquarters. However, she stated PDVSA did not want to acknowledge the accident on the grounds that it was not that serious. She attributed PDVSA's attitude to a desire to keep down accident statistics. Nagy added she was concerned that PDVSA was hiding information from its private sector partners. -------------- PORT FACILITIES ARE A MAJOR CONCERN -------------- ¶8. (C) Nagy ended the meeting by opining that the USG should keep its eye on Venezuela's port facilities. She claimed the BRV has not spent any money on port facilities or carried out basic maintenance in years. She stated one of Sincor's berths is inoperable. As a result, Sincor may have to reduce production in the next several weeks due to problems shipping its production. FRENCH