It’s crazy numbers day at Caracas Chronicles

So I realize it’s Friday night and nobody’s reading blogs right now, but I couldn’t let this item pass un-commented…

Venezuelan oil firm to inject $45 billion into refineries

Venezuela’s state owned oil company, PDVSA, announced it will invest $45 billion this decade maintaining its existing refineries and building new ones…

You’ll note the article tracks back to EFE, which hasn’t exactly been covering itself in glory in its Venezuela oil reporting recently. Still, you have to wonder, do these people realize how crazy that number is?

PDVSA is now a company sitting on the world’s biggest untapped oil reserves, yet it can’t even raise project finance to develop them. And that’s crude extraction, by far the most profitable segment in the oil industry. Refining, which is an industrial rather than an extractive industry, tends to generate much more ‘normal’ profits. If PDVSA can’t raise the money it needs to finance the Golden Goose-ish Faja projects, how the heck is it supposed to raise $45 billion to fix up its creaky old refineries?

Again, nowhere in the article does EFE’s flunkie give any indication that s/he is in any way aware that s/he’s reporting a crazy impossibility. Worse, the PDVSA manager making the announcement just tosses out the number all casual like, like it’s the most natural thing in the world, never pausing to reflect that these days it costs PDVSA more to borrow money than some first world credit card holders.

Sorry to get curmodgeonly about this, but it’s maddening. There’s no sense of scale in our public conversation about these topics. As soon as a big number is thrown out people cower in awe at it, leaving their BS filters on standby. Grrrr…

58 thoughts on “It’s crazy numbers day at Caracas Chronicles

    • You know, I don’t expect most, or even many, people to be deeply numerate.

      But I do think we have the right to expect that the 0.1% or so of the population who run our major institutions, edit our newspapers and participate in public debates on the way we are governed should have a gut feeling for what’s a crazy number and what’s a reasonable number.

      It’s an expectation I’m disabused of practically every day.


      • I hear you. You know first hand the lengths I go to try to get things across, and more often than not I’m the one who gets shunned many times, not the other guy.

        So I may be way ahead of you; I’ve come to stop expecting much, even of mathematicians and statisticians and economists, let alone people who run venezuelan journalistic institutions…


    • The article explains with utter simplicity what I have felt for many years. Most people can’t simply relate numbers and context. No wonder politicians – even in the U.S. – can get away with the nonsense they usually sputter to the ignorant mob. Thanks for bringing it to the post.


  1. It is just another symptom of the complete lack of accountability within Chavismo. It has been repeatedly demonstrated that no one in the government will be held responsible fulfilling their promises. So, why be “pichire” with mere numbers?


  2. Quico, for some reason, I can’t link to the external sites noted in your post. Your first takes me to my gmail inbox. Your second takes me to your post on Arevenca. And your third hits the bull’s eye: your post on credit card rates, directly related to your comment.

    That said, I have difficulty comparing three financing mechanisms that have, for the most part, wildly different variables of risk that, in turn, yield their interest. O no?

    After all, sovereign risk ≠ corporate risk ≠ personal risk.

    (don’t know if the symbol for ‘not equal to’ will be visible ..)


    • Sorry, Syd, there was a mistake in the first link. It’s fixed now.

      Anyway, sovereign risk certainly should be ≠ corporate risk. But as the institutional firewalls between PDVSA’s accounts and the republic’s have broken down in the Chávez era, the two increasingly move in lockstep these days.

      As to the Credit Card thing, well, it’s a fun comparison precisely because it’s so preposterous: personal Credit Card rates are normally high even compared to personal lines of credit, which are pretty expensive types of debt in most cases anyway. Debt for massive oil companies that controls almost a third of a trillion barrels underground should, by any conventional reckoning, be extremely low. Yet if you have a good credit record in Canada, you can borrow money with a credit card cheaper than PDVSA can with a bond. That’s crazy!…and that’s the point…


      • What would you do If you were a bank representative and you were told by the company you are about to give a loan that you fired 20,000 of your most skilled workers, that you are spending close to $50 million a day in fuel subsidies, that you have hired thousands of employees than know nothing about the oil business and are working in PDVAL giving away food and appliances or working for some PDVSA department in charge of building houses for the poor… and that your CEO is Rafael Ramirez and his boss is Hugo Chavez?
        Of course they are sitting on billions of barrel of oil, but the real question is how quickly they can convert those barrels of oil into cash. It’s the simple principle of the time value of money. For the banks this translates into risk as it is foreseeable that Venezuela will face very serious cash flow problems in the near future (as a matter of fact they are already experiencing them) and that they are basically acquiring new debt to pay old debt.


  3. It has become matter-of-fact that Chavistas make empty announcements. I’m still waiting for the groundbreaking of the nuclear power station.

    FYI: Yes, it’s a Friday night but this lurker and fellow Montrealer follows your blog faithfully. Keep it up.


  4. I guess that the journalists responsible for these press releases don’t think that a bit of analysis of such claims is in order. In their minds, they are just reporting what was said by the main actors, and they don’t want to lose their supposed impartiality and objectivity by doing something deemed “counterrevolutionary”, like analyzing a claim or being skeptical about it.

    I also guess that a sentence to the effect that “…PDVSA has not yet released the details of it’s plans, particularly regarding financing…” would be enough. Or noting that PDVSA has issued quite a lot of debt at a high interest rate, and that it could not possibly raise $45 billion that way. Just to add some context.

    Of course, you don’t really need an education in economics to know that PDVSA could not come up with the money, and the most cursory look at past announcements would tell you about the high BS percent of the last one, in case you didn’t notice that where they are supposed to give details, they talk about miscellanea like “social programs”, or about the Red Apertura Petrolera.

    Of course, we know these announcements should earn the same treatment as Idi Amin’s announcement of an Ugandan manned Space Program. But you can do that if you are outside Uganda, not reporting from Kampala.

    No, this will make a nice half of a footnote to a first edition of Decline and Fall of PDVSA.


  5. Quico: The EFE guy came up short!!!!!

    I read the original numbers somewhere reasonable that I can’t find, but here it is:

    The actual number is US$ 83 billion, according to Mr. Luongo, PDVSA’s refinin Director.

    Of these, US$ 20.6 billion will be for refineries outside Venezuela, the rest, US$ 60-plus (Who cares about decimals!!) will be in Venezuela.

    It’s just like 6 million barrels by, take your pick, next year (PDVSA site), 2019, Chavez dixit, 2050 (Miguel thunks)


  6. BTW, speaking of risk, note that Chavez’ complaint yesterday about the Pernambuco refinery is that PDVSA’s guarantees are not accepted.Of course they aren’t! Venezuela’s credit risk stands at 12.5%, 3% of which is Giordani, 2% the stupid exchange mechanism and 1% not talking to markets.

    Dump the Dominican monje from San Pedro de Macoriz!!!!


  7. One recalls Everett Dirksen’s depiction of his awe at the way Washington committeedom blithely threw around numbers with an unparalled nonchalance, “A billion here, a billion there and, pretty soon, you’re into serious money”. And old Everett, born in 1896, left for ‘home’ in 1969 so his tongue-in-cheeking compares to your ‘flunkey’s’ sloppily presented ‘facts’. Nice guy, old Everett.


  8. I don’t know if you guys have already covered this, but the Faja reserve is not all it’s cracked up to be, at least according to my exiled, grizzled, oil-vet friends. As they explain, it was originally divided into four different extraction regions to four companies, as the reserves are very low yield, and in order for an extraction project to be profitable it needs to cover a vast expanse.

    What Chavez and co. did was divide it into a gazillion companies who will in the end have very little profit margin, hence the lack of current investment. Outside from the fact that the reserve estimate is given by PDVSA itself and thought to be widely exaggerated.

    I’d love to find out more about it from my friends, but every time we talk we go through a significant amount of black labels.


    • My older son, a petroleum engineer, tells me that the newer fields are heavier oil and require more skilled man-power. He says there is a world-wide shortage of experienced workers that is causing big problems. He says that as the bigger deposits deplete, they need more rigs and more personnel to keep production up. So, even with good management, planning, accountability, etc…… it is going to get tough!


    • “… we go through a significant amount of black labels.”

      Well, we can’t fault you for that. One should always strive to be spiritual …


  9. Well, it’s probably about $10B that somebody smart figured they should spend. But you have to take into consideration the PDVSA overpricing: refineries, food, gas turbines, offshore drilling rigs, …


  10. Remember that this is leading up to an election.
    There will be exaggerated promises flowing out of the mouths of all the ministers.

    Of course none will have a completion date before Sept. 2012 because none are real.

    It’s all smoke & mirrors for the VTV faithful.


    • So, you are saying that the Venezuelan mob is exquisitely stupid. No, that can’t be it. Wouldn’t it be that that Chavez has been extremely skilled at deceiving people for 13 years?


  11. The difference in monetary value of this announcement from others is symptomatic of the fact that everyone is now so immune to the general level of BS they need to raise it up a notch.


  12. The opposition needs a promise that trumps all their promises, but making sure it’s one that can be kept. How about zero poverty? Chavismo won’t be able to trash the concept, so they’ll have to challenge it. By challenging it, they’d be advertising it in the government media. When chavismo gets all their followers repeating, “yeah, how are you going to do that?” That’s when you explain. They’ll get it. And we’ll get them on our side, or at least wondering why their side isn’t doing the same thing. After all, it’s for the poor.


    • The opposition, sadly, needs to lie their butts off. They cannot compete with the prospects of free money Chavez is currently offering. There are tons of people through “consejos comunales” and other ventures that depend on the corruption of the institutions for their daily bread. The subsidized PDVAL markets, although irrational in an economic sense, actually convince a lot of people that the real price of mayo is the one they offer, and everyone else is an “especulador.” The opposition needs to promise that they’ll keep the teat full of milk and open to everyone if they wanna get votes. Extremely sad, but I fear it is the only way they’ll win.

      The great majority of voters here don’t care about the rampant insecurity or blackouts or decaying infrastructure. They don’t want jobs. They want the handouts Chavez has given for 13 years. I was recently in Bogota, where I spoke with a shoe polisher in a town square. He gets up to work everyday shining shoes, knows his craft well, and puts his kids through school. I spoke with a cab driver who put his daughter through grad school and is currently a lawyer in Boston. Both of these guys are well-educated people who are aware of what a country needs in order to grow, and it is a sharp contrast to what I saw in Venezuela.


      • Before resorting to lies, as is the norm among most politicians, no matter what their stripe, someone from the oppo should demand accountability on where these millions are coming from.
        Speaking of oppo, today HCR affirmed his candidacy. Pretty good speech. Favourite line: “No se trata de quien habla más, se trata de quien hace más, se trata de quien construye, no de quien destruye.”


      • Maracaiburgh, There is no need to lie. The opposition can offer getting everyone out of poverty and keeping them out of poverty for life without lying, while at the same time eliminating most of the current corruption and mismanagement, while also reactivating the local market. That is no lie.

        By achieving this, thus eliminating the Petro-State model, you create a society in which education is the way to get ahead, so education starts growing a grassroots priority. As things are now, education gets you out of the country…


        • I like what you say- except the last paragraph.
          Venezuela is going to take a long time to move beyond
          being a “petro-state” and Venezuela could have been
          diversifying for the past 12 years -but instead were going down, backwards…


          • CharlesC, it doesn’t take long at all end the petro-state model. It’s achieved by just distributing the oil money to the citizens rather than to the handfull of government folk who decide what to do with it now. Once in the hands of the citizens, the money goes into the market, then back to the government through taxation. End of Petro-state model.


            • Extorres, I respect you and your intellect. I remember this discussion from past-and I made a joke- and everyone ignored it..Point it- to be serious(-oh gosh- I am tired-long day very busy-1st of month)- just a simple equation on paper -looks perfect- and adds up.
              As an ecomomic model- do you believe it will really work? Call me -whatever-but, I
              believe people should work toward a productive, peaceful society and not be given
              any handouts- yes, money should go toward all necessities for all-and none for weapons and none for supporting dictatorships-Cuba for example. There is no doubt in my mind and has never been -that Venezuela can be- should be on par with any country in the world with money in the hands of the right people who will invest wisely for the country and the people – scattering money about in bucket loads on the streets will not achieve
              this. Never.


            • Charles,

              All these shoulds and should nots, to put it politely, are not your fucking problem (and if you replace “your” with “the government’s,” well now you are respecting the mutual agreement that is political unity).

              Keep your morals in your house or in your church, and out of the agenda of the people who are supposed to be taking care of crime, poverty and other concrete problems.


            • CharlesC:

              “As an ecomomic model- do you believe it will really work?” Yes, resoundingly yes.

              “I believe people should work toward a productive, peaceful society…” Utopic thought. As technology continues to improve, some needs will completely go away (e.g., many medical ones), or it will take fewer people to provide them (e.g., industrial or agricultural production). This implies that fewer and fewer people will be able to provide goods of value for, or be chosen for their services of value to, the few productive ones.

              “…and not be given any handouts…” Agreed, but oil money is not handouts. Oil money belongs to Venezuelans already. The government is simply deciding to take it for its use instead of giving it to its rightful owners. Note that you don’t want to give people handouts, yet you support giving the government the very same handouts.

              “…yes, money should go toward all necessities for all…” Who is in a better position to decide your necessities, you or me? How are your necessities better determined, assessing your individual needs, or grouping you by, say, all the people living in your area? Note that spending oil money, even if only to pay for necessities of the most needy, is very, very regressive. For every barrel of oil spent on even food, the richest Venezuelan would be providing the same number of drops of oil than the poorest Venezuelan. Are you honestly supporting that the poor provide a greater percentage of the government spending than the rich?!

              “…Cuba for example.” Hmmm. Cuba may be putting its money toward all necessities for all, but it’s failing at providing enough, which a typical problem in countries with little personal incentive to produce new and/or more and/or better. Also, when you mention necessities, it seems that you are only referring to physical needs, which in a society is fail, as in a zoo.

              “with money in the hands of the right people who will invest wisely for the country and the people” Agreed, but only taxed money, not other people’s oil money.

              “…scattering money about in bucket loads on the streets will not achieve this. Never.” That “Never” indicates to me that you are not even willing to consider being reasonable about this. What I am proposing has never been done at the scale I propose. At the smaller scales at which similar things have been tried, it works better than expected. The logic, the economic, and –most importantly– the human basis is very, very sound. Giving each person in the nation a fixed amount of cash per day, eliminates poverty, by definition; it reduces inequality linearly proportional to the amount of cash; puts the consumer market into high gear, necessities first; and takes that very same cash out of the hands of the few who are mismanaging or misappropriating the money now.

              Keep in mind:

              a) oil money is not taxed money; it’s government graft.

              b) distributing oil money is not handouts; it belongs to us.

              c) spending oil money is not progressive; it’s extremely regressive.

              d) handouts, regardless, will become necessary in the future as technology continues to progress.

              e) no adult has the right to impose his ways on another adult of sound mind.

              f) consumer markets rock.


        • I’m sorry, and I hope you’re right, but I just don’t see it. I think a large majority just doesn’t care as long as they get their paycheck, and it is a paycheck that they firmly believe won’t arrive without Chavez.

          Again, I hope you’re right.


          • They don’t know better. Nobody has told them the truth. Nobody has told Venezuelans to grow up. Ever. E-ver!
            We are told Venezuela is a rich country and it is all about distribution.
            Venezuela is NOT a rich country. It needs to produce and for it to produce its citizens need to produce something that can be transformed into products.

            The government in power now is working swiftly to worse this situation even worse: no al consumismo, aprendan de sus hermanos cubanos.


      • “The great majority of voters here don’t care about the rampant insecurity or blackouts or decaying infrastructure. They don’t want jobs”-
        maybe this IS TRUE FOR GANGSTERS, but, normal people I know think
        the opposite.


          • lol, sorry. For that 50% the explanation is shorter:

            Ten tu plata, todos los dias para toda la vida, para tí y para cada uno de los tuyos.


            • CharlesC,
              I don’t remember using the exact words, “they’ve got your money”, but what I am repeatedly emphasizing is that the oil belongs to the citizens. That the government is charged with administering does not mean the citizens relinquished their ownership. Taxation is the way governments should receive income for its costs. By using the money obtained from oil sales, the government is fraudulently taking people’s oil for its own use.

              Imagine the government deciding to rent out all the nation’s beaches to Russia, and that Russia decided that it would use the beaches exclusively for Russians, no Venezuelans allowed. Firstly, the beaches belong to the Venezuelans, not the government, so the government has no business making use of them as if they belonged to the government. Secondly, more to the point, the money that the government obtains from the rent of the beaches is not taxed money. It’s money obtained from the beach rental business, but because the beaches belong to all Venezuelans, every 30 million dollars obtained from the beach rental is really 1 dollar for each Venezuelan, including one from the poorest and one from the richest. This implies that, even if the goverment spends it on food stamp programs, most of the money for the spending comes from the poor! Regressive.


    • You are right-in a sense-chavismo is a failure at delivering
      “socialism” promises- but, the answer is not more socialism.


      • It would be difficult to call what I propose more socialism. I am proposing taking the oil tha belongs to Venezuelans, converting it to cash, and giving the cash to its rightful owners so that they can spend it on whatever they want. That’s capitalism, however you look at it, but with zero poverty.


          • Hmmm, in 2008, Las Vegas economy was around the 30th largest of metropolitan economies in USA, and had an over 16% PerCapitaGDP than Paris, France, but I disagree, with this proposal I don’t think Venezuela would become a Las Vegas,

            for starters, Las Vegas has poverty, Venezuela would not.


  13. Hey, Quico:

    Up North here we don’t mess around – we do it all in Trillions.
    $45 million is ONLY 45 MICRO-trillions – 45 millionths of a trillion.
    When we Gringos just as casually drop 10 Trillion into the hopper, it’s about $1400 for every last person on Earth.
    Just imagine what that would mean to most people…

    It’s $40,000 for every last swingin’ Gringo. Hell, I could use that…!

    This is not a leading or political question. I don’t know what it means. Just think of the absurdity in your own quiet context.
    Can Earth even HOLD that much dough (unless it’s inflated)?

    If you’re too young to know Parkinson’s Law, I recommend it for your amusement. A good read. He talks of money-value, too.

    $45 million would go a VERY long way – in innovative hands that are both competent and free.




    • Deedle, greetings and salutations. You seem like a very bright chap!
      Work is good, I believe-not just a time filler…
      “Coming together is a beginning. Keeping together is progress. Working together is success.” quote by Henry Ford.


  14. eXtorres-just want to nab a few things:
    “c.)spending oil money is not progressive; it’s extremely regressive.

    d) handouts, regardless, will become necessary in the future as technology continues to progress.

    e) no adult has the right to impose his ways on another adult of sound mind.”
    Utopia- you mentioned it- about my statements.
    As I stated before -I believe this is a long way off, to say the least..
    Until then, I believe (with moral conviction,Carl) that wise working and investment
    is the true path for all Venezuela. And, gotta stop the military spending.
    And, stop throwing money away in other countries, basically tear up
    most everything Chavez has ever done -because every program is an absurd failure.


    • CharlesC, it’s only a long way off because people, like you, don’t want it to happen. Implementation would be very quick once it got the OK. I personally believe a quick way to get it to happen is to force a referendum on the subject.

      As for wise working and investment, I agree, that is exactly what giving small amounts of cash to people on a daily basis seems to achieve; see the research from the links I posted earlier.

      Think of it from this angle, let’s follow the money: if every citizen has enough cash to survive from day to day, where does the money go. Regardless on what they spend it, someone had to sell them a good or a service. That good or service provider then has to spend it on the goods and services required to provide his good or service. In turn each provider spends their revenue on another provider’s good or service. Along the way, all the ones making enough income pay taxes. So, not only does the market have a constant flux of money in the very goods and services that the population believes are what they most need/want, but the government gets taxation from increased market activity. This gives the government a very strong incentive to help people develop the market: education…

      Oh, and there’s no poverty.


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