VENEZUELA: PDVSA Official's Comments on Bariven and PDVSA

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000155 SIPDIS ENERGY FOR ALOCKWOOD AND LEINSTEIN, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK COMMERCE FOR 4332/MAC/WH/JLAO NSC FOR DRESTREPO AND LROSSELLO OPIC FOR BSIMONEN-MORENO AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2020/02/05 TAGS: EPET EINV ENRG ECON VE SUBJECT: VENEZUELA: PDVSA Official's Comments on Bariven and PDVSA Naval CLASSIFIED BY: Darnall Steuart, Economic Counselor, DOS, Econ; REASON: 1.4(B),(D) ¶1. (C) SUMMARY: According to George Kabboul, the former President of PDVSA procurement subsidiary Bariven, the Venezuelan national oil company continues to be concerned that the USG might decide to close down its Houston operations. Kabboul maintains that Bariven provides procurement services for all of PDVSA's divisions (including President Chavez's national subsidized grocery store, PDVAL) and other GBRV ministries and agencies (including Mercal, another national subsidized grocery store and Corpolec, the national electricity umbrella corporation) and its U.S. operations account for a majority of all international purchases. END SUMMARY. ¶2. (SBU) On January 14, 2010, Petroleum AttachC) (PetAtt) interviewed Anaisabel Pino Infante (protect). Infante works for PDVSA as the executive assistant to Vice-president of Refining, Trading, and Supply Asdrubal Chavez. Chavez assigned her temporarily to Georges Kabboul, President of PDVSA Naval (PDVSA's tanker and ship construction division). Kabboul learned of the interview and invited PetAtt to pay him a January 20 courtesy call. [NOTE: Georges Kabboul is the older brother of PDVSA Director Fadi Kabboul, formerly Minister Counselor for Energy Affairs at the Venezuelan Embassy in Washington. END NOTE.] BARIVEN: PDVSA's Corruption - err Procurement Arm ¶3. (C) Kabboul was the president of PDVSA Bariven from 2003 to early 2009. Bariven is PDVSA's international procurement division, with overseas offices in Houston (with approximately 120 employees) and the Netherlands. He stated that in 2008, it purchased over $10 billion in goods and services (80% for PDVSA's traditional oil activities). Kabboul said that 55% of Bariven's oil-related purchases are sourced from U.S. suppliers and that Bariven is the Port of Houston's second largest client. [NOTE: Deputy Minister of Energy and Petroleum for Hydrocarbons and PDVSA External Director Ivan Orellana (protect) told PetAtt on January 26 that all Bariven contracts are being signed in the Netherlands, but that Houston remains open as a Bariven logistics center. END NOTE] Kabboul claimed that his greatest achievements during his tenure running Bariven included: greater transparency in the procurement process and an expansion of PDVSA's supplier database (up to 4,000 companies/contractors). Citing the USG ban on selling defense-related material to Venezuela, he mentioned PDVSA's fear that difficulties in the bilateral relationship would lead the USG to close PDVSA's Houston office. PDVSA - Expert Food Procurement Agent ¶4. (C) Since the 2002-2003 petroleum sector strike, Bariven has purchased all imported food on behalf of the GBRV's low cost grocery stores (Mercal was created in 2003 and PDVAL was created in ¶2008. Kabboul admitted that given Bariven's lack of technical expertise in food purchases, its early endeavors to support PDVAL were plagued with mistakes and errors. As Bariven needed to diversify its supplier database in the food industry, its lack of due diligence resulted in mistakenly signing contracts with "briefcase companies" that served as front companies for Panamanian and U.S. companies and defrauded PDVSA. In order to improve its management controls over Bariven, PDVSA contracted with US company AGS to provide quality control services verifying product purchases and supplier data. Kabboul shared that PDVSA Bariven has two on-going court cases pending against U.S. companies in Miami. One CARACAS 00000155 002 OF 002 of the cases involves a delivery of contaminated powdered milk produced in China that received quality control approval from AGS. Another case involves a company that registered multiple times in Bariven's database using different corporate names and attempted to manipulate bidding processes in its favor. PDVSA Naval - Building Boats, None in the U.S. ¶5. (C) Kabboul stated that PDVSA Naval has leased space in several shipyards to permit it to construct a dozen vessels by 2015. Infante told PetAtt that PDV Naval has leased shipyards in Brazil and Argentina while PDVSA's new shipyard near Cumana is under construction. She added that there are on-going discussions with Iran concerning a possible boat construction contract. Kabboul claimed that contrary to some reports, PDVSA has not signed a contract with a Spanish shipyard to construct two oceanographic and seismographic vessels, as PDVSA Naval currently is evaluating Norwegian technology. These vessels will be shared by PDVSA and Venezuela's navy. Kabboul Bio Notes ¶6. (C) Georges Kabboul, born and raised in Lebanon, graduated third in his class from Venezuela's Simon Bolivar University as a mechanical engineer. He claims that he was hired by Procter & Gamble upon graduation, where he worked for two years. He then entered the oil industry, starting with the Creole Corporation. He began his employment with PDVSA in 1985 and has held various positions, including secretary of PDVSA's Board of Directors for four years and as president of PDVSA Bariven. International petroleum service company executives have shared with PetAtt industry suspicions that Georges Kabboul is "Ramirez's bagman" - that he used his position in Bariven to secure lucrative bonuses and kick-backs for the Minister. ¶7. (C) COMMENT: Even though Kabboul emphasized that there are no restrictions against PDVSA executives meeting with Embassy officials, this is the first time in several years that an EmbOff has been invited to a PDVSA office. Kabboul noted the importance of the bilateral economic and petroleum relationship with the U.S. while being critical of the USG. His infrequent digressions into politics raised standard GBRV talking points (e.g. that the U.S. is to blame for the situation in Honduras). PDVSA's fears of a US-initiated blockade of Venezuela are understandable and demonstrate that PDVSA (and Venezuela) depend on the U.S. not only to purchase its oil but to provide many of the petroleum sector inputs needed to produce the oil. END COMMENT. DUDDY