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

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A SOMEWHAT ROCKY TRANSITION
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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
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.

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ON THE BRIGHT SIDE

CARACAS 00001655 002 OF 002


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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).

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PDVSA PLAYS FAST AND LOOSE
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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.

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PORT FACILITIES ARE A MAJOR CONCERN
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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