June 2008
Energy Tribune
Mercedes De Freitas is the director of Transparency International's office in Caracas. In late April, Transparency International released a report that looked at 42 leading national and international oil companies worldwide, three of which are in Latin America: Pemex, Petrobras, and PDVSA. It found that of the three, PDVSA was the worst in terms of transparency.

When compared with the broader group, PDVSA's transparency rating was below even Iran's NIOC and Nigeria's NNPC. The problems with PDVSA include poor disclosure policies regarding revenues, payments, anti-corruption efforts, and other areas. De Freitas has been active in the reform effort in Venezuela for many years. She was a founder of Mirador Democratico, a group designed to citizens secure more accountability from government. She studied history at the Universidad Central de Venezuela.

ET: The April Transparency International report rates PDVSA as one of the worst energy companies in the world in terms of openness. Why has the company become so guarded about releasing fairly common information, including things like reliable production data?

MDF: There are three reasons: first, the official excuse always goes back to the oil industry shutdown in 2002, and the government and the industry’s need to be protected from the “saboteurs” and “conspirators.” Second, the government’s propaganda efforts, in which they insist that their management capability was and is so stupendous that they could easily overcome the dismissal of 16,000 PDVSA employees and continue to produce just as much or more. The lack of accurate, clear, complete, and timely information raises doubts and mistrust in some sectors about the positive version of the government, but also prevents anyone from finding out whether what they say is true. Disinformation is a strategy used by almost all of the state apparatus. And third, thepossibility of discretional handling of large funds by the President. More than half of the petroleum income is “handled” outside the national budget, without the constitutional and legal mechanisms of control contemplated for the national budget. This fast track allows the president to respond to popular demands, without the distractions required by democratic institutionality.

ET: Does PDVSA and/or Hugo Chávez benefit by preventing transparency at PDVSA?

MDF: Transparency produces benefits, and is vital for sustainable success. We are convinced that this is a vital factor so that organizations and companies may improve their effectiveness, development, and profitability; and that the confidence and safety generated by a regime of disclosure generates tangible political benefits for the leadership. However, in the short term there can be no evaluation or criticism by the people of the decisions, policies, and results of management, because they’re not known.

PDVSA does not benefit from the level of opacity in management by the current government. PDVSA’s resources have allowed President Chávez to govern with a great deal of money and freedom of decision regarding its use. Is this a benefit?

ET: How has PDVSA changed since Chávez came to power?

MDF: I would say that we used to see PDVSA as a distinguished company, run with excellence, but distant, where humble mortals did not dare to participate or to understand those levels of complexity. Today PDVSA resembles a boarding house in a tragic novel, inhabited by friends of the owner, and we humble mortals have no right to participate or to be informed.

Previously, it was managed using business criteria, such as profitability, preventive maintenance, and long-term investment; today it is an instrument of the government. Its decisions are based on the necessities of the revolution and money is spent on assistance to its operatives.

ET: One of the points made in the T.I. report on oil companies was that under Chávez, the boundaries between PDVSA and the government have largely disappeared. Meanwhile, companies like Petrobras have instituted strong controls to allow the energy company to be independent of the political process. What should be done to restore some measure of autonomy to PDVSA?

MDF: The duties and responsibilities of the state as owner and administrator of the company must be clearly defined. The Minister of Energy cannot perform the task of controlling the petroleum industry if he is [also] president of PDVSA at the same time. PDVSA should conduct and publish independent audits; publish what they receive, what they pay, [and disclose its] contracts. International companies should be required to divulge what they pay PDVSA. That would be a revolution.

In addition, PDVSA lacks an anti-corruption system, which should begin with [the following]: 1) Provide an internal system of checks and balances to prevent company abuses before they begin. 2) Support integrity and accountability of companies and encourage sound management practices. To function effectively, transparency is required in corporate structures and key policies, which act as deterrents to corrupt practices. 3) Strong corporate governance structures [should be] an essential element in reducing corruption and responding to abuses when they are discovered. 4) Make companies accountable for decisions regarding the remuneration of senior executives; set out ethical business practices (for employees, vendors, and suppliers); publicly report on what they are doing and formally [incorporate] stakeholders into decision-making. Governance measures can also encompass a company’s administrative management and involve setting standards for employees, communities, and product quality.

ET: How do ordinary Venezuelans view PDVSA these days? Do they still look at it with pride?

MDF: The whole country would like to have information about PDVSA, and more and more sectors are demanding a statement of accounts, although as with everything else in this polarized Venezuela there are two opinions. There are many people to whom the lack of transparency is not important, who do not feel affected by the risk of corruption or the weakness of the institution. There are groups that feel that “finally” they have benefits or at least the hope of receiving the benefits of a “rich country.” PDVSA has a social presence in the country: it was assigned the task of food distribution, to overcome the shortages that we have had since last year, and to coordinate several of the “missions” (social programs). But, proud of PDVSA? I don’t know.

ET: Venezuela now ranks below Cuba – and nearly every other country in Latin America – when it comes to perceptions of corruption. Why has the country fallen so far, so fast, in terms of corruption?

MDF: It is not so much that Venezuela has dropped in the Corruption Perception Index, but that other countries, except Haiti, have improved. Venezuela has maintained a score between 2.7 and 2.0 out of 10, from 1995 to 2007. Why? What is public is being managed with the secrecy and the privacy that only corresponds to what is private. The common citizen regularly confronts small, medium, or large corruption. However, we rarely see justice done, or the corrupt being punished. Regrettably, neither corruption nor impunity [is] strange to us. We have no state institutions to provide balance, control, evaluation, and punishment.

ET: Do transparency and democracy always correlate? In other words, are countries with free markets and free people less corrupt than those that are ruled by authoritarians?

MDF: That is an old discussion. In democracy, countries with free people are generally more transparent, because democracy implies separation of powers, checks and balances, and systems of justice with autonomy and independence; [and they have] citizens who demand their rights and [can] monitor what is public. I look at it from another angle: transparency is vital to reduce corruption in democracies. Not so in authoritarian regimes, in which having control of the state produces neither consequences nor sanctions. In countries with authoritarian regimes, corruption is directly related to policy and power. Punishments are exacted when society overcomes authoritarianism, and openness becomes a part of the historical democratic process. Or when the dictator changes, of course.

ET: The T.I. report discusses the need for PDVSA and other national oil companies to reveal the amounts of money they are paid by foreign energy companies. This reform has been discussed for a long time but never seems to gain much traction. Why not?

MDF: Because there are many powerful interests defending customs, privileges, and ideas. People live in fear of being discovered. They must have a lot of stories to hide, for them to defend their opacity with such bitterness. However, throughout history, important changes have taken a lot of time. For those who work at this every day, changes seem very slow to us. But in historical or sociological terms, not much time has passed. The first Convention against Corruption came from the Organization of American States only 12 years ago, while the United Nations Convention against Corruption was issued only 3 years ago. The Extractive Industries Transparency Initiative is almost 5 years old.

ET: The T.I. report mentioned that PDVSA is now involved in food purchasing and distribution. Have the recent price controls on food in Venezuela reduced corruption or increased it? What effect have the price controls had regarding food availability?

MDF: During the past few months ([for] milk, etc.) and days ([for] chicken, corn flour, etc.) the government has increased the price of several regulated products. The price of chicken was increased 85 percent and eggs by 60 percent.

ET: A recent Reuters report said that PDVSA’s profits actually fell last year by 32 percent. Do you agree with that assessment?

MDF: Here at Transparency we do not even have our own calculations. We want to prepare several reports for the second half of the year.

ET: What is the atmosphere like in Venezuela today for groups like Transparency International? Can you operate with autonomy? Have NGOs like yours had any harassment from the Chavistas?

MDF: Some officials, such as the Comptroller General of the Republic, do not want us here. They accuse Transparency International and Transparency Venezuela of being imperialists, CIA agents, oligarchs, and other appellations. These terms are used to disqualify, without offering an argument. We had some difficult times during the year, where we were prevented from presenting reports to the O.A.S., for example, and we are the target of attacks when we present a study or a proposal. NGOs are regularly attacked. There are repeated attempts to limit access to international resources, [and] attacks and campaigns that seek to generate fear and self-censorship. But our purposes are not against any government, nor do we intend to control anything in particular. We have worked with difficulties under previous governments and we will work with the difficulties presented by the next one.