We’ll go Down The Rabbit Hole in a few but first…there was a good piece in Caracas Chronicles about what happened to what was once the Venezuelan opposition’s premier political party. It reminded me of Jimmy Stewart in “Mr. Smith Goes To Washington” where he heads to D.C. with an idealistic fervor only to be sucked into what we refer to these days as “the swamp.”

 Primero Justicia (First Justice) was formed in the early Chavez years as an outsider option to the political elite. Over the years it became more of the status quo that Venezuelans have learned to distrust. It’s a lesson on the prevalence of a certain culture in Venezuelan political organizations where the same mistakes dismantle the spirit of renovation or renewal again and again.

 In the early days Primero Justicia’s membership roster read like a who’s who (although not at the time) of Venezuelan opposition politics including names like Julio Borges, Henrique Capriles, Leopoldo Lopez, and others. Political scientist, Maria Puerta Riera was an early member and remembers those days well. She recounts as follows…

 They started as a small core of like minded individuals that wanted real change but they knew that in order to navigate their way in the world of politics in Venezuela they would need some old school political operators from existing parties. Unfortunately for PJ many of the operators that change parties do so simply to rebrand themselves. These necessary operatives, a necessary evil if you will, bring with them the old political culture and infect the fresh new one.

 There were just too many “bosses.” No real change was implemented. They developed a confused ideology and suffered from a lack of inner democracy which caused Leopoldo Lopez (one of my favorites) to leave the party. He would go on to prove himself,at least in my eyes, when he chose to remain in prison rather than cut a deal with the Maduro regime.

 The constant vying for power has split the party into what is really three parties in one which means no cohesive direction. Just as we have RINOs (Republicans in name only) in the US, they have OPPINOs (Opposition in name only) in Venezuela. Now there’s a Chavista “shadow opposition” party with a similar name, Primero Venezuela, with members from the old Primero Justicia that were recruited by the Maduro regime (OPPINOs). What was once the “fresh,new” Primero Justicia has been devoured by the complexities of survival under Chavismo and the old political culture….Mr. Smith, welcome to Caracas.

 In case you were wondering, on January 21st it will be official and Venezuelans will need a visa to enter Mexico,as reported by FX Empire.

 On the never ending legal/financial front we have Law360 reporting  a federal judge in Delaware has approved another round of special master fees in the Venezuelan government’s case trying to avoid a judgement against them. They say their bill is just getting too high.

 And on the migration front we have another Caracas Chronicles article coming to us from the Berlin Paramo, Colombia which is the highest point on the walking route used by many Venezuelans as they flee the oppression of the Maduro regime. UN agencies estimate over 400 people a day traverse this walking route bringing with them only whatever they can carry. Their out look…”As long as  the government systematically violates  the Venezuelan people’s fundamental rights and fails to address the humanitarian crisis Venezuelans will continue to leave.” (Over 6 million and counting)

 NPR tells us that many Venezuelans are still cooking over wood fires due to the lack of propane which has been going on for years.

 We also have some inflation news from Economic Times. BCV, Venezuela’s Central Bank, says 2021 inflation came in at 686% which is down from 2,959%. If these numbers are correct, Venezuela may be the only country in the world where a 686% inflation rate is good news. Oh, and despite Maduro celebrating this “good news” the minimum wage is still under $2 a month…A MONTH!

 And in other relatively good news we have Reuters reporting that Venezuela will resume exports of diluted crude after a 9 month hiatus. This means they can now ship Orinoco crude which is very heavy and constitutes most of Venezuela’s proven reserves.

 And now…Down The Rabbit Hole we go…

 In the first couple of years of his tenure Chavez allowed PDVSA to continue operating, more or less,autonomously and although he was getting the expropriation train rolling in various sectors he hadn’t yet cranked it into high gear and PDVSA was prospering as was the government.As we saw in the discussion of the hospitals, there was plenty of revenue to address many inequities in a balanced and sustainable manner.In 2002 all that ended and in his third year in power Chavez went off the rails.In 2002 PDVSA workers as well as many others went on strike in Venezuela. Chavez used this as an opportunity to fire a lot of people.Estimates vary from 13,000 to 19,000 but regardless, with a workforce of 40,000 employees,it was a huge number.Then came the really big news.Chavez boisterously announced “PDVSA will be red!”(the color of Chavismo) In no uncertain terms the priority was first and foremost party loyalty which translates to loyalty to Chavez. (Can you say USSR?) Business acumen and technical expertise would be secondary.

 The fired employees left Venezuela for greener pastures in the US, Canada, and around the world, a harbinger of things to come,not just in PDVSA but in all sectors of the economy in Venezuela.The good news was there was a wealth of talent at PDVSA and the upper management was still primarily in the hands of experienced professionals.The bad news was that Chavez got on an expropriations binge in all areas of the economy and PDVSA would be no exception. Over the Chavez years Ecuador,also a socialist country, expropriated just over a hundred companies. In roughly the same time frame Chavez expropriated more than 1,200.

 Important strategic partnerships with large multi-national companies like Exxon Mobil and Conoco Phillips as well as others went by the wayside. The lawsuits surrounding these companies and many others would go on for years and continue to this day.This was another opportunity for Chavez to fill the ranks with party (Chavez) loyalists and over a period of years he tripled the payroll from 40,000 to over 120,000.Normally that might put a strain on cash flow but as this was happening oil prices went on an historic run reaching all time highs and remaining elevated for years.

 It’s important to understand a couple of things about the oil business in general and Venezuela in particular.Oil is a rigorously capital intensive business. It costs a lot of money to keep those existing wells maintained and pumping.It costs even more to keep exploring for sites for new wells and getting them operational once the site is determined.Depending on a number of factors related to accessibility it can take five to ten years to get a new well online.In keeping with our good news/bad news presentation while it’s expensive and time consuming it’s also very lucrative, especially in a rising oil price environment.

 Now that’s the oil business in general. For Venezuela it gets a bit more complicated …and expensive.The existing oilfields in Venezuela are a combination of heavy and less heavy oil but not the light sweet crude found in some areas of the world.Most of the recently discovered reserves are of the heavier variety.They require mixing in dilutents before it’s usable which is expensive and also limits which refineries can receive the oil.If you have been receiving light sweet crude from the Middle East you can’t just switch to Venezuelan crude.That limits the customer base or requires upgrading refineries, a very costly proposition.

 As you might expect, PDVSA exploited the lighter and most easily extracted oil first leading to thousands of existing wells and 95 drilling rigs in operation in 2011. Now most of the existing wells have fallen into disrepair due to lack of maintenance and the rig count has fallen so far that on some days there are ZERO, yes -o- rigs in operation.

 More tomorrow….