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Reshuffle pushes Ramirez out of PdV leadership

Rafael Ramirez no longer head of PdV or minister for petroleum and mining, after a cabinet reshuffle

After more than a decade at the apex of Venezuela’s vast oil industry, Rafael Ramirez has been pushed out of his roles as the head of state oil company PdV and as the country’s petroleum and mining minister by president Nicolas Maduro amid a cabinet reshuffle. 

Ramirez, who had also taken on a senior economic policymaking role, appears to have lost a battle within the government over the direction of the country’s ailing economy. Ramirez had pushed Maduro in recent weeks to adopt more free-market measures to help ease the country’s economic crisis such as unifying the country’s unwieldy exchange rate system and decreasing the country’s money supply to help tame inflation. While seen by economists as pragmatic steps to right the Venezuelan economy, carrying out those policies would inflict short-term economic pain and would likely prove politically costly for Maduro and the ruling United Socialist Party.

Ramirez had also helped spark a national conversation in recent weeks about the need to raise Venezuela’s heavily subsidised petrol prices. Petrol sells for just around $0.05 a gallon in Venezuela, cheaper than water. Many Venezuelans see the cheap fuel as a right of citizenship in a country that boasts the world’s largest proven oil reserves. But the cost of the subsidy has risen sharply in recent years and it has become an unbearable financial burden on the state and PdV. The government is giving away more around $30 billion of fuel a year, according to some estimates. 

The subsidy also fuels a cross-border petrol smuggling racket that sees as much as 100,000 barrels a day (b/d) of gasoline and diesel sneaked across the frontier with Colombia, where it is sold at a steep profit. In August, Venezuela started closing its border with Colombia every night to fight the smuggling. 

Maduro initially supported the idea of raising fuel prices, but appears to have backed away from that support. In a three-hour speech in which he announced the cabinet shuffle and charted the country’s economic course, he did not mention the issue. Any move to increase fuel prices would spark a backlash, particularly among Venezuela’s poor, which Maduro counts on as his base of support. With elections a year away and Maduro’s support wavering, any move to increase fuel prices looks less likely by the day.

Maduro offered some praise for the outgoing Ramirez’s role in re-shaping the oil industry. “He was at the front line for 12 years of revolutionary oil politics, rescuing our industry from the clutches of oligarchical and imperialist meritocracy,” Maduro said.

Ramirez, along with late president Hugo Chávez, will leave behind a disastrous legacy in Venezuela’s oil industry. Under his watch, Venezuela’s oil production has fallen from 3.3m b/d in 2004 to around 2.6m b/d last year, according BP. The production decline has seen the country’s importance as a regional and global supplier, as well as its clout within Opec, severely diminished. 

Under Ramirez, PdV has also failed to make progress developing the Orinoco Belt’s vast heavy-oil deposits, the company’s most important strategic objective. The company has consistently fallen short of Ramirez’s rosy predictions for investment and output.

Ramirez also leaves behind a company that is in a financial mess. Debt has soared to $48bn dollars and the company owes its suppliers billions more. US oilfield services company Halliburton said in recent regulatory filing that PdV owes it $577m. Schlumberger, another oilfield services company, has said it is owed at least $584m. Chinese oilfield service company was forced to issue a profit warning to investors, which it blamed on troubles in its Venezuela business caused by PdV’s late payments. 

Ramirez will be replaced at PdV by Eulogio del Pino, the longtime head of the company’s exploration and production business. Asdrubal Chávez, late-president Hugo Chávez’s cousin and long-time PdV worker, will take over as the new energy minister. The move will once again split the state oil company and energy ministry after a decade in which Ramirez held both positions and diminished the energy ministry’s independence and authority to regulate PdV.

Stanford-educated Del Pino’s ascension to the head of PdV is not a surprise as his role at the head of the company’s most important business has made him Ramirez’s most likely successor for a number of years. He is also a familiar face for foreign companies operating in Venezuela’s oil patch. Del Pino played a central role in some of the industry’s most important events over the past decade, including as a lead negotiator for PdV during the wave of oil nationalisations. He even won praise from some counterparts. The Venezuela head of Holcim, a major global cement manufacturer that supplied the oil industry, told a US official in 2009 that he believed Del Pino was “nearly the only person in the [Venezuelan government] capable of handling complex negotiations with multinationals,” according to a diplomatic cable released by Wikileaks.

Still, del Pino faces a difficult task. He has a deep understanding of PdV’s business and knows better than anyone what the company needs to do to steady the ship. Whether he has the will and political muscle to push the major changes the company needs to right the ship is another matter.

With no end in sight for Venezuela’s economic crisis, Maduro will need to continue to rely on the state oil company to fund not only his generous social programmes but also much of the government’s day-to-day operations. PdV accounts for around 97% of the country’s foreign earnings.

That will make it difficult for PdV to make the substantial new oil investments needed to boost oil production and help shore up its finances. In a sign of how bad things have gotten for PdV, the company was forced to import its first cargo of Algerian light crude this month to use as diluent needed to make the country’s heavy-oil production marketable. The company’s creaky and underfunded refining infrastructure can no longer produce enough diluent for the Orinoco oil belt, which the company is counting on for future production increases. 

PdV will also continue to see little cash for much of its production because of subsidies at home, discounted shipments to Venezuelan allies in the Caribbean and hundreds of barrels a day of exports to China that are used to pay down oil-for-loans deals. 

Declining oil prices will only make things more difficult for del Pino and PdV. In spite of troubles in Iraq and Ukraine, oil prices have declined in recent weeks on rising supplies, particularly from the US, and weak demand. The price Venezuela gets for its crude has fallen about 7% from an average of $99.11 per barrel in June to $92.58/b in the first week of September. Deutsche Bank has estimated that Venezuela needs an oil price of around $120/b to balance its budget.

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