Nicolas Maduro is cracking down on rivals and Venezuela’s oil industry could take a big hit

venezuelaCarlos Garcia Rawlins/Reuters
  • Venezuela has arrested former senior officials in what it has called a crackdown on corruption.
  • But other seen a politically motivated campaign against rivals behind the arrests.
  • Efforts by President Nicolas Maduro to consolidate power and eliminate rivals may end up harming the country’s oil industry and economy as a whole.

Authorities in Venezuela arrested two former senior officials on Thursday in what has been called a crackdown on corruption in the country’s state-run oil industry.

Many, though, see it as an effort by President Nicolas Maduro to shore up his political power base.

Venezuela’s former oil minister, Eulogio del Pino, and Nestor Martinez, the former president of state oil company PDVSA, were arrested just four days after Maduro removed them from office during a reshuffle of his cabinet.

Both have been accused of embezzling state funds, conspiracy, and money laundering. Martinez was also accused of signing a contract to refinance the debt of PDVSA subsidiary Citgo, offering part ownership of the Houston-based company as collateral, without government approval.

Del Pino was accused of altering production data from a joint Russian-Venezuela oil venture in 2007, when he was chief of PDVSA’s western operations, according to attorney general Tarek William Saab, who said the alleged scam cost the country $500 million in revenue between 2015 and 2017.

In a video made before his arrest and released afterward, Del Pino said he was a “victim” of an “unjustified attack.”

FILE PHOTO: The logo of the Venezuelan state oil company PDVSA is seen next to a mural depicting Venezuela's late President Hugo Chavez at a gas station in Caracas, Venezuela March 2, 2017. REUTERS/Carlos Garcia Rawlins/File PhotoThe logo of the Venezuelan state oil company PDVSA is seen next to a mural of late Venezuelan President Hugo Chavez at a gas station in Caracas, March 2, 2017.Thomson Reuters

Their arrests, along with 15 other PDVSA managers and officials, bring the total arrested in relation to oil-industry corruption to 65.

“This shouldn’t be seen as an isolated act,” said Saab, who was appointed in August by Venezuela’s constituent assembly, an legislative body viewed by many as illegitimate. “What we’re doing will boost the people’s morale.”

‘Fingers in the pie’

Corruption in Venezuela’s oil industry — which taps the world’s largest oil reserves — has been pervasive for some time, and there is suggestion some of it may have been ordered by the government. Punishment for the wrongdoing has been scant.

That impunity has raised public ire as many in the country struggle to afford food and other basics, but Maduro’s crackdown has been seen as politically motivated — an effort to chill dissent within his own party and to find a scapegoat for Venezuela’s myriad economic and political problems. Rhetoric about cracking down on corruption in state industries appears to be a continuation of Maduro’s claims of an “economic war” being waged on Venezuela.

“My impression of the investigation is that it’s part of a two-pronged strategy,” said Geoff Ramsey, the assistant director for Venezuela at the Washington Office on Latin America.

“The government is making a show of cracking down on corruption that it hopes will give it a much-needed boost in popularity domestically, or at least play well with the base,” Ramsey told Business Insider. “But it’s also about ensuring that the government is retaining control over the people who have fingers in the pie.”

Venezuela's President Nicolas Maduro gestures as he arrives for an event with supporters in Caracas, Venezuela July 20, 2017. Miraflores Palace/Handout via REUTERS Venezuelan President Nicolas Maduro at an event with supporters in Caracas, July 20, 2017.Thomson Reuters

One of the most high-profile targets has been Rafael Ramirez, who Maduro reportedly ordered removed from his post as Venezuela’s UN representative this week. Ramirez, who has also been oil minister and PDVSA chief, arrived at the UN in 2014 after fellow socialists revolted against his attempts at economic reform.

Ramirez is seen by some as a potential rival for Maduro in the upcoming presidential election. Del Pino and Martinez, who were both arrested Thursday, are proteges of Ramirez.

Reuters reported on Wednesday that Caracas had ordered Ramirez to return to Venezuela “in coming days,” though a Ramirez aide told Bloomberg on Thursday that he was still at his post in New York.

Venezuela's representative to the United Nations Rafael Ramirez is seen as he attends a meeting with Venezuela's Foreign Minister Jorge Arreaza (not pictured) during a meeting of accredited diplomatic teams in Caracas, Venezuela August 12, 2017. REUTERS/Carlos Garcia Rawlins Venezuela’s UN representative Rafael Ramirez at a meeting in Caracas, August 12, 2017.Thomson Reuters

Many of the executives arrested are thought to be allies of Ramirez, who was close to late Venezuelan President Hugo Chavez.

Ramirez has spoken out against Maduro on several occasions, writing articles criticizing the management of PDVSA for letting oil production fall and taking the government to task for failing to improve the economy.

With the political opposition in disarray, the crackdown on government officials linked to Ramirez appears to be an effort by Maduro to isolate rivals within his own Socialist Party, as it gears up for presidential elections scheduled for next year.

“By arresting these figures, Maduro is sending a message to his patronage network: that their access to kickbacks and perks is in his hands, and contingent on loyalty,” Ramsey told Business Insider.

“As he consolidates the military’s hold on access to nearly every form of revenue, he’ll need to make sure they stay in line. It’s clearly not a true anti-corruption purge, otherwise we would see much more consistency in arrests.”

‘Those who are left should be worried’

A demonstrator is detained at a rally during a strike called to protest against Venezuelan President Nicolas Maduro's government in Caracas, Venezuela, July 27, 2017. Ueslei Marcelino: A demonstrator is detained at a rally during a strike called to protest Venezuelan President Nicolas Maduro’s government in Caracas, July 27, 2017.Thomson Reuters

While swearing in Maj. Gen. Manuel Quevado as the new PDVSA chief and oil minister on Sunday, Maduro made pointed comments that many interpreted as a broadside against Ramirez.

“We’ve witnessed the rise of mafias that controlled important areas of our oil industry,” he said. “They didn’t just steal from the country … they believed themselves to be owners of the oil industry.”

Quevedo, who has no experience in the oil industry, railed against “saboteurs” and a “corrupt bureaucracy” during his inauguration. “We’re going to clean up public finances so that those thieves in PDVSA will finally leave,” he said, offering scant details on how he would address the company’s debt and production problems. “The government’s actions have captured many people who had infiltrated the industry. Those who are left should be worried.”

Quevado is just one military official who holds a government post. Current or retired generals hold 11 of Venezuela’s 23 state governorships and 11 of its 30 government ministries. Reuters reported this week that more military officers are expected to be receive senior management posts.

Venezuela's President Nicolas Maduro (2nd L) attends a military parade, as he is flanked by his wife Cilia Flores (L) and Venezuela's Defence Minister Vladimir Padrino Lopez (C), in Maracay, Venezuela September 26, 2017. Miraflores Palace/Handout via REUTERSVenezuelan President Nicolas Maduro at a military parade with his wife, Cilia Flores, and military personnel, in Maracay, Venezuela.Thomson Reuters

While these maneuvers may be politically expedient for Maduro in the near term, the long-term prospects for the government and PDVSA are dour.

Oil-industry sources told Reuters that Quevedo’s appointment could speed the exit of white-collar talent from PDSVA, exacerbating operational and management issues amid a 30-year low in oil production. (The massive migration of trained professionals out of Venezuela has sucked talent out of the country’s workforce.)

Oil sales account for about 95% of Venezuela’s export revenue — hard currency that the government uses to buy imports of food and medicine, among other things. The country’s oil woes have only exacerbated rampant shortages of those products.

“This is not a move you make to calm the international markets that Pdvsa will need to reverse the collapse,” Francisco Monaldi, a Venezuelan energy expert at Rice University, told The New York Times of Quevado’s appointment. Monaldi also described the charges against Del Pino and Martinez as “largely a political vendetta.”

“It’s hard to see how PDVSA can keep limping along when it is being run by military figures with no experience in the industry,” Ramsey told Business Insider.

“It’s a conundrum for Maduro: He needs to give the military the keys to PDVSA to maintain their loyalty, but at the same time their risk of running it into the ground goes up,” Ramsey added. “In the short term, it appears to be working. But we’ll see whether this gamble plays out in the long term.”

Source: https://www.wola.org/2017/12/nicolas-maduro-cracking-rivals-venezuelas-oil-industry-take-big-hit/