London 03.02.05 | My journey into writing and reporting on the Venezuela crisis began in October 2002 when I discovered that Hugo Chavez had been invited by Oxford’s Center for Socio-Legal Studies to speak at a human rights seminar. Later, I found that the seminar’s convener, William F. Pepper, received a significant payment of $137,527.42 from the Venezuelan government through the Venezuelan Information Office in Washington DC. I was shocked to learn that a visiting scholar at one of Oxford University’s colleges could be bribed so easily and cheaply by Chavez.
Now, my focus has shifted to the Oxford Institute for Energy Studies (OIES). Given the unsettling precedent mentioned earlier, I have begun investigating several individuals associated with that Institute who also serve on the board of directors of PDVSA, specifically Bernard Mommer and Juan Carlos Boué.
Bernard Mommer
Platt’s Oilgram News reported on December 22, 1994, about the “fallout regarding PDVSA’s foreign investment plan.” The summary stated:
“The first signs of internal conflict in PDVSA over its highly publicized profit-sharing agreements emerged with the unexpected resignation of senior strategic planning advisor, Bernard Mommer. PDVSA Vice President Claus Graf admitted on December 15 that Mommer’s departure stemmed from his disagreement with how the oil industry was being opened to foreign investment. However, he believed that Mommer’s views were not widespread and would not impact the initiative. While Mommer, who would remain at PDVSA until January 15, declined to provide detailed comments on the matter, he hinted that his opinions had been articulated in a paper presented at the Fifth Petroleum Conference in November.
This indicates that Mommer was already a senior strategic planning advisor at PDVSA in 1994. It’s perplexing to consider how such a leftist radical ascended to a senior position within the company. Reports suggest that he was asked to resign and subsequently sought other opportunities. The Times referred to him as an Andres Bello fellow of St. Anthony’s College on October 20, 1993, and again on October 4, 1996. His name first appeared in connection with the OIES in 1994 in a paper titled “The Political Role of National Oil Companies in Exporting Countries: The Venezuelan Case.” In 1998, he authored another paper under the OIES, named “The New Governance of Venezuelan Oil.” Both works reflect Mommer’s views on how the relationship between the State, via PDVSA, and foreign firms should be structured. He contends that Venezuela has an abysmal record regarding public administration and openly acknowledges that PDVSA was “…the only profitable, stable, and dynamic institution” [sic] in the nation. Alarmingly, Mommer critiques the oil giant’s leadership for effectively removing control from Venezuela’s Minister of Mines concerning energy policies and associated activities. He coined the term rent-capitalism, seemingly unaware of its mercantilist roots.
The FT Energy Newsletter – Energy Economist on June 1, 1998, featured an article arguing that Venezuela’s policy of opening up to foreign firms (Apertura Petrolera) to rejuvenate marginal oil fields, increase production, and initiate some exploration activities was a significant success:
“PDVSA began in 1991 to tender various marginal or low-yield fields to domestic and foreign firms to activate under operating contracts. Proven reserves in these marginal fields, mainly located in western Venezuela, are estimated at close to 2 billion barrels of light and medium crude oil. Alongside a second round in 1993, a total of 15 contracts were awarded to companies, though one was later canceled.
A third round of 18 marginal fields offered last year saw an overwhelming response, with a record 240 investors expressing interest. PDVSA ultimately garnered GBP 2.1bn, more than double what the company had expected. The total investment for these fields alone is projected between GBP 8bn and GBP 10bn. Venezuela stands to gain from foreign expertise and technology; foreign operators now anticipate boosting production from these 18 fields from 150,000 bpd to 500,000 bpd—far surpassing PDVSA’s initial forecast of 350,000 bpd.
However, Mommer disagreed from the outset, arguing that the internationalization strategy of PDVSA was fundamentally flawed, unprofitable, and against Venezuela’s best interests. He became an advisor to OPEC Secretary-General Ali Rodriguez, then returned to managerial roles at PDVSA. In 2002, Mery Mogollon published an article titled “VENEZUELA: ‘PARALLEL’ PDVSA LEADERSHIP SEEKS ALI RODRIGUEZ’S REMOVAL,” which detailed the tactics Mommer, alongside Boué, employed to oust PDVSA’s leadership and replace it with a group of Chavez’s revolutionary supporters. This faction, organized by Mommer, included Adina Bastidas, Gustavo Perez Issa, Vladimir Lazo, Carmen Romero, Yolanda Vetencourt, Victor Poleo, Gaston Parra, Carlos Mendoza Potella, Alfreda Riera, Argenis Rodriguez, and Felix Rodríguez.
Juan Carlos Boué
The current version of the OIES website features Juan Carlos Boué’s profile.
Dr. Boué is portrayed as an expert in “Microeconomic and logistical aspects of oil markets and trading, oil geopolitics, oil and gas taxation, oil and development, OPEC, and the political economy of oil in Latin and North America.” His professional background appears closely tied to PEMEX, the national oil company of Mexico. Boué has written extensively on Venezuela’s petroleum industry, including a 1993 book titled “Venezuela: The Political Economy of Oil,” and more recently, a paper titled “The Internationalization Programme of PDVSA.” Boué’s views largely echo those of Mommer and are strikingly similar to Mark Weisbrot’s. Essentially, they argue that PDVSA’s internationalization efforts diverted revenues that should have filled Venezuela’s treasury coffers as taxes into U.S. hands. This is why Chavez, seemingly oblivious to oil industry norms, insists CITGO is “financing” Bush. According to these experts, the chemical makeup and characteristics of Venezuelan crude are inconsequential; the real issue lies in the unpatriotic actions of former PDVSA management juxtaposed with the ideological clash between market-oriented practices and outdated socialist ideals.
Last month, I received the latest appointments for PDVSA’s new board of directors, from a meeting that took place on January 19, 2005. Shockingly, Juan Carlos Boué’s name appears as the Vice President of Commerchamp (a subsidiary of Petróleos de Venezuela S.A. that markets aviation fuel, lubricants, and related services). It’s clear that this appointment was made possible through the influence of longtime friend and now multi-tasked PDVSA executive director Bernard Mommer. Noticing a potential conflict of interest between Boué’s role as a senior research fellow at the supposedly non-partisan OIES and his executive position at Commerchamp, I reached out via email to his OIES address. He graciously replied, but, in my opinion, his reasoning was not only flawed but also painfully naive.
From: A. Boyd
Date: 03/02/05 13.13 GMT
To: Juan Carlos Boué [[email protected]]
Subject: Information request
Dear Dr. Boué,
I was very interested to have read your recent paper titled “The Internationalization Programme of PDVSA.” One particular argument caught my attention:
“…covenants have likely become the best protection for the internationalization program against any interference by the Venezuelan government. For example, in a hypothetical scenario where the Venezuelan government attempts to force the sale of PDVSA’s refining assets in the U.S., the fiscal agent for the special purpose vehicle could declare PDVSA in breach of covenant and retain all accounts receivable generated by designated clients in the U.S. until sufficient funds are raised to pay off creditors (the balance of PDVSA Finance bond issues up to the end of 2001 was 3,300 MMUSD).”
Consequently, does this mean that Hugo Chavez is intending to sell CITGO to safeguard himself against potential actions from the fiscal agent?
Sincerely, A. Boyd
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From: Juan Carlos Boué [[email protected]]
Date: 03/02/05 14.13 GMT
To: A. Boyd
Subject: Re: Information request
Dear Aleksandr:
Actually, this argument is rather outdated, as most of the debt issuance to which these considerations applied (specifically PDVSA Finance) has been settled by PDVSA in the latter part of last year. In any event, selling CITGO wouldn’t have been a hedge against the actions of the fiscal agent. On the contrary, such a sale would be regarded as a breach of covenant, provoking necessary actions from the agent. Remember, the fiscal agent is just a large bank acting on behalf of investors in a special purpose vehicle (in this case, PDVSA Finance).
The President’s reason for wanting to sell CITGO relates to discounts: owning CITGO is poor business as crude oil sold under the supply contracts that CITGO holds brings, on average, $1.10 less per barrel than the same crude sold on the open market. I hope this is useful. JCBoué
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From: A. Boyd
Date: 03/02/05 14.18 GMT
To: Juan Carlos Boué [[email protected]]
Subject: Re: Information request
Dear Dr. Boué,
Thank you very much for your swift reply. Just thinking out loud, wouldn’t it be better, strategically speaking, and considering the network of outlets CITGO has, to adjust the supply contracts between PDV and CITGO instead?
Sincerely, A. Boyd
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From: Juan Carlos Boué [[email protected]]
Date: 03/02/05 14.31 GMT
To: A. Boyd
Subject: Re: Information request
The notion that outlets for refined products are necessary to sell crude oil is a misunderstanding. Product marketing is a low-margin business, a sentiment that was true until very recently for refining too. A company like PDVSA, facing budget limitations, is better off investing its capital solely in exploration and production activities. Notice how, up until only recently, major oil companies worldwide were keen to divest from refining and marketing to focus on exploration and production. Why should it be different for us? Moreover, the internationalization program has cost Venezuelans roughly $20 billion in lost revenues since 1982. Now, recovering a much larger portion of this loss would be feasible compared to the past.
End of messages
Responses to the above exchange have been mixed. Some experts argue that PDVSA’s new policies look similar to those of PEMEX, which, it must be noted, are not examples of success or efficiency. Others feel that the selection processes for investment banks likely to broker CITGO’s sale will provide opportunities for significant profits, fueled by corruption and questionable decisions directing Venezuela’s future. In response to Boué’s comment that “the internationalization programme has cost the Venezuelan people around $20 billion in foregone revenues since 1982,” an expert remarked, “it can easily be shown that Hugo Chavez’s six years in office have cost PDVSA shareholders, including the Venezuelan populace, at least $60 billion in nominal capital value losses.”
Reportedly, concerns are growing that Boué plays a crucial role in instigating Chavez’s sudden eagerness to sell CITGO. It has also been suggested that this harmful move regarding PDVSA’s international holdings may stem from Boué collaborating with his former employer, PEMEX.
My perspective is pragmatic. I see no justification for selling strategic assets due to unworkable supply agreements between a subsidiary and its parent company. Furthermore, I can’t comprehend how refineries, which Boué claims have recently become profitable, need to be sold off. I firmly believe, though this may be interpreted by experts as foolish, that there’s a vital difference between “large oil companies in the world” (which profit from refining and marketing) and PDVSA-type entities whose vertical integration is envied and desired by the former. Imagine if Shell or BP owned, with no time-limited contracts, the reserves PDVSA has, without royalty payments to “rent-capitalist” governments. It’s akin to comparing a supermarket (with overhead costs) purchasing goods from middlemen to a farmer who grows and sells directly to end buyers in a farmer’s market.
Crucial questions arise: Why do Mommer, a German citizen, and Boué, a Mexican citizen, hold so much influence with Venezuela’s current administration? Does the chavista concept of sovereignty only apply to U.S. citizens? How can Boué candidly state, “Why should it be that what is good for them is not good for us?” Boué is not one of us; he’s Mexican, and his actions, in my Venezuelan sovereignty dictionary, amount to treason.
What position would the OIES take, considering the partisan profile of one of its senior fellows? Do PEMEX, Statoil, Saudi Aramco, Total, Shell, Exxon, and others employ ‘autonomous researchers’ at the OIES?