Venezuela refinery disaster spotlights Chavez’s mismanagement

Chavez's anti-American agenda, oil giveaway programmes, and general mismanagement are badly hurting state-run PDVSA's performance

Fire continues on August 27th after explosion at the Amuay refinery
Ray Walser
On 29 August 2012 10:39

Early on August 25, a gas leak in a storage facility at Venezuela’s largest refinery led to a deadly explosion that so far has claimed 48 lives and injured at least 80 others. The horrific accident took place in the Amuay refinery, part of the Paraguaná refinery complex, one of the world’s largest. It has the ability to process about 900,000 barrels of crude oil a day and represents 75 percent of Venezuela’s domestic refining capacity.

Many argue that Chavez and his populist Bolivarian Revolution are virtually unsinkable given Venezuela’s enormous energy resources and the regime’s ready access to the national oil company’s (PDVSA)  revenues to sustain social programmes.

Yet, difficult questions arise, especially in the disaster’s aftermath. José Bodas, an oil union leader, declared the accident was a consequence of PDVSA’s failure to invest in maintenance. Caracas Chronicle blogger Francisco Toro recalled 20 prior mishaps that plagued PDVSA. The Wall Street Journal noted: “politicization…and a drive to nationalize most private oil projects…has caused the country’s overall oil output to drop to about 2.7 million barrels a day now from an estimated 3.5 million before” 1999.

Because Chavez’s “socialism of the 21st century” and lack of economic freedom [174th out of 179 ranked economies] is destroying the private sector, Venezuela increasingly depends on Chavez’s ability to keep PDVSA on a lucrative course. Yet his anti-American agenda, oil giveaway programmes, corruption, cronyism, and general mismanagement are badly hurting PDVSA’s performance and drawing resources away to serve political ends.

Christopher Helman of Forbes argued: “a rational leadership willing to invest for the long run (and honor contracts with foreign investors) could easily double Venezuela’s crude production within a decade.”

On October 7, in an increasingly tight presidential contest, Venezuelans have a chance to change pilots at the helm of the ship of state. Opposition candidate Henrique Capriles vows to restore discipline, transparency, and accountability to PDVSA. Chavez promises to stay the course toward socialism of the 21st century and future disasters.

Ray Walser is a Senior Policy Analyst at the Douglas and Sarah Allison Center for Foreign Policy Studies, the Heritage Foundation. This post originally appeared in The Foundry and is used here with permission

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