Financial Pressure Forces PDVSA to Embraces Pragmatism

By Alexandra Ulmer and Marianna Parraga

CARACAS/HOUSTON, March 13 (Reuters) - A subtle change in office attire may be the most telling symbol of a quiet revolution taking place inside Venezuela's troubled economic engine, giant oil firm PDVSA.

For years, PDVSA employees were encouraged to wear red shirts in support of late President Hugo Chavez's socialist movement. Rafael Ramirez, the former oil czar famously vowed the state-owned firm would be "redder than red" and sent workers to state rallies.

Over the past few months, however, the company's new management - led by president Eulogio del Pino, a low-profile Stanford-educated engineer - has eased up on revolutionary garb and attendance at militant gatherings, according to sources within and outside the company.

New posters inside its Caracas headquarters request employees don normal office wear, visitors say, a telltale sign of what could be the most sweeping changes in over a decade at a firm that controls the world's largest crude reserves and generated some $78 billion in exports in 2013 - 96 percent of Venezuela's hard currency revenue.

The sartorial shift symbolizes the new management's effort to regain focus at a firm that has become a haven for political friends and operatives, according to people familiar with the strategy.

It marks a sharp pivot after a decade under the helm of Ramirez as shoring up the nation's main cash cow trumps ideology in the face of the collapse in global crude prices.

The changes go well beyond the symbolic: PDVSA is granting its minority partners more financial and operational sway in joint ventures, according to sources close to the company. A dozen of those foreign oil companies are also poised to tap the most favorable exchange rate of Venezuela's complex three-tiered currency system.

Some of the firm's roughly 150,000 employees have been laid off, particularly those with overt political roles, and hundreds of oil ministry staffers have also been let go, according to a union leader and a source close to the government.

"They're trying to find mechanisms to give people confidence in investing, and also trying to increase production," said one foreigner close to joint ventures.

To be sure, success is by no means guaranteed, given that oil prices have halved in the past year, currency controls complicate even the most basic operations and the nation is stuck in an economic crisis.

Del Pino walks a tightrope between managing government involvement and ploughing on with his business plans, and some industry analysts fear his hands may ultimately be tied.

PDVSA and the oil ministry did not respond to requests for comments about changes in the sector's management.

OUT WITH THE OLD

The first sign that PDVSA might be in for a revamp came last September when Ramirez, a former confidant of Chavez, was demoted from his triple role as head of PDVSA and the Oil Ministry, and vice-president for the economy.

Asdrubal Chavez, the former president's cousin and oil industry veteran, took over the oil portfolio, but Ramirez remain the head of Venezuela's OPEC delegation until late December when President Nicolas Maduro sent him off to New York as U.N. envoy.

Away from the limelight, Del Pino, until September in charge of PDVSA's exploration and production, has been revamping joint ventures' and refineries' operations, sources say.

Minority partners are to garner more control over their oil fields, including hiring rigs themselves instead of relying on a PDVSA service unit, possibly saving tens of millions of dollars, people familiar with the matter say.

PDVSA holds 60 percent stakes in joint ventures, and minority partners have long complained of delays in dividend payouts as well as complicated operations, in part due to lack of dollars for imports.

The company is now offering some partners an increase in ownership, which could attract more much-needed capital.

PDVSA holds majority stakes in joint ventures with energy majors including Chevron (CVX), Repsol, Eni, Rosneft, Total, ONGC, Statoil (STO) , and China National Petroleum Co (CNPC).

The government says production has already risen in the heavy-crude Orinoco region, where the joint ventures operate, and forecasts output to reach 1.37 million barrels per day (bpd) by the end of the year compared with 1.25 million in 2014.

ARRESTS AND LAYOFFS

The new management has also started trimming PDVSA's workforce, which, including contractors, tripled between 2001 and 2013 to nearly 157,000 even as Venezuela's crude production has fallen to 2.899 million bpd from around 3.1 million, according to annual company reports.

"There are more arrests and layoffs coming. That's what we hear in all the offices," said Ivan Freites, a leader of the oil workers' union and a government critic.

For example, there had been layoffs of people technically employed at the massive Paraguana refinery, but who actually performed political duties, Freites said.

Hundreds of employees close to Ramirez are also being shown the door at the Oil Ministry and the oil giant, according to a former ministry employee and other people familiar with the matter.

The most striking case of what some call a witch hunt is the arrest of PDVSA's regional production boss Jose Luis Parada and his sister Gladys Nubia Parada, a senior oil ministry official, for alleged corruption in distribution of highly-subsidized gasoline.

The powerful siblings were close to Ramirez, according to company insiders.

Some recent appointments at the company also suggest Del Pino does not enjoy full autonomy.

New Chief Financial Officer Carlos Malpica is a relative of Cilia Flores, Maduro's wife and close adviser, while some former members of the military have been tapped for posts in the supply and trade departments.

Some experts also warn that despite his best intentions Del Pino's mission is doomed as low oil export prices depress the revenues and Maduro will look to tap the oil giant's resources to spend on parliamentary election campaigns this year.

"The strong pressure on PDVSA to generate resources is increasing," said Richard Obuchi, local economist and energy specialist. "Actually, I think it would almost be a big success if they managed to maintain current production levels."