Venezuela’s Refinery Explosion: Has Chávez Made Petroleum Too Political?

The Aug. 25 disaster at Paraguaná, the worst refinery accident in Venezuela's history, killed 48 people – and, before a presidential election, revives charges that Hugo Chávez has weakened his oil industry by turning it into a political tool.

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Marife Cuauro / Reuters

A column of smoke rises as fuel storage tanks are seen on fire at Amuay oil refinery in Punto Fijo in the Peninsula of Paraguana, Venezuela, Aug. 27, 2012.

When I visited Venezuela’s Paraguaná oil refinery complex, the world’s second largest, in 2007, anxieties seemed to flare like its burn-off pipes. Employees warned of the plant’s “precarious” state; a major equipment upgrade was a year behind schedule and the refineries were operating well below capacity. Paraguaná “isn’t living up to its original design,” one supervisor told me, because the state-run oil monopoly, Petróleos de Venezuela (PDVSA) “doesn’t want to cover the costs.”

Critics called the refineries, on Venezuela’s western Paraguaná Peninsula, an example of how PDVSA was failing to make meaningful investments under Venezuela’s left-wing President Hugo Chávez, even as he ladled more and more of the company’s revenues (which were $128 billion in 2011) into social projects. Paraguaná was also a safety concern. A year before, three workers had been killed in accidents, part of a string of mishaps during the 2000s, many of them fatal.

Shortly after midnight last Saturday, Aug. 25, a massive gas leak explosion and fire killed 48 people near Paraguaná’s Amuay refinery, with others still missing. It was the worst refinery disaster in the history of Venezuela, which has the western hemisphere’s largest crude reserves, and one of the world’s worst in decades. Chávez and PDVSA again face criticism about their investment in and maintenance of Venezuela’s crucial oil industry – but this time the socialist Chávez, who has ruled for 13 years, also faces re-election in six weeks, and he’s up against his first serious opposition candidate. Venezuelans know how dangerous oil work can be, but last weekend’s ghastly death toll revives the heated debate about whether Chávez has used PDVSA less as an economic development engine and more as a political patronage trough.

Chávez and PDVSA executives, who insist they’ve pumped some $6 billion into refinery maintenance in recent years, are in a panic to dismiss suggestions that faulty security played a role in the Amuay explosion, set off when a large gas cloud ignited near storage tanks. “I recommend we don’t speculate,” said Chávez, who is battling cancer, as he arrived at Paraguaná, “and that we raise the human spirit above any political interest.” Nearby residents told Venezuelan and international media that they smelled an unusually strong and sulfurous gas odor the day before the explosion; but Chávez and PDVSA President and Energy Minister Rafael Ramírez called those reports a “disgraceful” attempt by Chávez opponents to politicize the tragedy.

Oil- and gas-related calamities are hardly unique to Chávez-era Venezuela. The U.S., Chávez’s arch-enemy, has certainly had its share of deadly refinery explosions – not to mention the BP oil rig disaster that killed 11 workers off the Louisiana coast in 2010 and produced one of history’s worst oil spills. But the troubling regularity of incidents in Venezuela over the past decade inevitably stirs accusations that Chávez, in a bid to keep production lower and prices higher, and in an otherwise admirable effort to steer more of Venezuela’s prodigious oil revenue to its poorer citizens, has enfeebled what was one of the 20th-century’s most respected petro-corporations.

Granted, before Chávez took office in 1999, Venezuelans also considered PDVSA a den of arrogant and pampered technocrats – and a cookie jar for the country’s kleptocratic elite, whose epic corruption left more than half the population in poverty. After Chávez took power, a reckless near-shutdown of PDVSA by anti-Chávez workers and managers in 2002 cost the Venezuelan economy some $7 billion.

But Chávez’s subsequent firing of 19,000 PDVSA employees, half the company’s workforce, was just as rash – and sparked a slide in the industry’s productivity and infrastructural health. In those days, PDVSA had been pumping 3.2 million barrels of crude each day; today it produces 2.7 million. (More than 40% of that is exported to the U.S.; Venezuela represents about 10% of U.S. oil imports.) Meanwhile, PDVSA has become as much a social welfare agency as an oil firm, administering as well as funding tens of billions of dollars in anti-poverty programs as part of “our right to set globalization’s terms in our people’s favor for once,” Ramírez once told me.

Which, as I mentioned, is admirable – as long as you’re also adequately attending to the business of oil production and refinement, which most analysts agree is a big problem at PDVSA. Venezuela, where inflation is the world’s highest, needs especially heavy capital layouts to extract and process the especially heavy crude in its southern Orinoco Belt.  But PDVSA invests only 1% of its revenues – that is, when investment projects aren’t on hold – while most large oil firms invest about 3%. At the same time, foreign investment has been alienated if not outright expelled. Charges of corruption are mounting, as is PDVSA’s debt. Refining capacity has dropped so sharply that Venezuela now imports gasoline; and because Chávez so lavishly subsidizes gas prices at home (a gallon costs less than 15 cents) smugglers are trafficking it right back out of the country to snare big profits.

Chávez, meanwhile, has put even more pressure on the energy sector’s finances this year by ratcheting up social spending by a third to curry favor with voters before the Oct. 7 election. It’s a reminder that PDVSA, where Ramírez demands employees declare utter allegiance to Chávez and his Bolivarian Revolution, is as much about politics as it is about petroleum.

So it sounds more than a little hypocritical now to hear Chavistas warn centrist opposition candidate Henrique Capriles and his supporters not to “politicize” the Paraguaná disaster. In an echo of what I heard five years ago, PDVSA’s own files indicate that maintenance slated for Amuay in 2011 was never completed. As if to change the subject, Chávez’s Vice President, Elías Jaua, made one of the rawest political remarks on Monday as Amuay’s flames were being extinguished: The 2002 strike, Jaua asserted, “was the gravest event” to ever hit the refinery.

That anti-Chávez work stoppage a decade ago was admittedly irresponsible. But to compare it to Saturday’s carnage is cynical at best – and a sign that Chavistas realize that last weekend’s grave event is likely to affect events six weekends from now.