The Financial Times has a great piece on Venezuelan dictator Hugo Chavez’s military-backed seizure of assets belonging to 60 companies servicing PDVSA oil company, a state-owned enterprise (SOE). 

Deadbeat PDVSA owes an astonishing $12 billion to these companies for services performed at or on “at least a dozen rigs, more than 30 oil terminals and some 300 boats.”  The service companies signaled they would halt operations until PDVSA payments resume, but in response to the threat Chavez and socialist lawmakers planned a nationalization of the companies’ assets.  Invoking the Creator and quoting the Bible, godless socialist Chavez who demands worship from his people personally presided over the assets’ seizure.

Chavez states that international oil prices are low and thus service contracts should now be paid at a discount rate.  However, years of mismanagement at PDVSA, commingling with general revenue to subsidize social programs and politicized branching out to non-oil sectors are the genuine cause of company decline.  PDVSA has been failing so long and steadily under Chavez that many Venezuelan oil engineers have taken their ambitions and skills to Canada, as the Los Angeles Times reported in 2005.  This mirrors the overall exodus of productive Venezuelans to the United States, Canada, Spain, Australia, Panama, Portugal and other countries. 

Concerning their exodus to the United States, many Venezuelans of Cuban ancestry are exploiting an immigration law loophole by requesting official papers from the Cuban embassy in Venezuela, only to present them to American officials to take advantage of resettlement privileges the United States gives to Cuban refugees. 

As long as some communist dictator somewhere is losing an economically active person or family, FreeMarketeros.com is not complaining. 

With the nationalization, PDVSA under Chavez is seeking to maintain its abysmal level of oil production – currently far less than the country’s potential under market conditions.  Latin American SOEs, like SOEs everywhere, are notoriously inefficient in sectors such as oil production, healthcare, electricity and telecommunications.  No wonder this revered Latin American tradition – amplified by Chavez’s trademark ignorance – harms productivity.

At this time in Venezuela’s unfortunate history, one would guess that only authoritarian governments and those shameless enough to look the other way would choose to deal with the captive nation.  This is partly true: The Wall Street Journal is reporting that China National Petroleum Corp. and France’s Total SA are in talks to begin a joint venture with Venezuela.

However, the FT report notes that companies looking to bid on concessions to develop Venezuela’s oil-rich Orinoco belt also include BP (UK), Chevron (US), Shell (multinational) and StatoilHydro (Norway).   These firms should understand that a stink jurisdiction warrants a stink bid: under Chavez, Venezuela and PDVSA are going absolutely nowhere—fast.