Venezuela’s oil under new management?

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Five days ago, the government of Venezuela designated the members of the board of directors of CAMIMPEG. On June 2, the Ministry of Defense made the announcement via the Gazeta Oficial, where all official government actions are recorded daily. What is CAMIMPEG, you may ask? CAMIMPEG stands for C.A. Militar de Industrias Mineral, Petrolíferas y de Gas and is a new state-military company dedicated to any and all activities related to the extraction and production oil, gas and minerals in Venezuela.

CAMIMPEG was created via the same official channel in February of this year. Like all news coming out of Venezuela it has generated speculation and interpretations of various kinds. Some business observers, such as Latinvest in Miami, think it is a vehicle to transfer assets and revenue from PDVSA and to act in lieu of the national oil company in the event it runs into problems with its creditors.

From inside Venezuela many see with alarm the increasing role of the military in the country’s public affairs. Some are skeptical of the company’s chances of success given the dismal record of other, military-run enterprises. Others, in the opposition, see it as yet another delegation of power aimed at securing military support for the government. Since Maduro became president, the cabinet has been reshuffled twice with a third of ministries, including key positions, occupied by the military. He has also created single-handedly a military-industrial complex with now 11 enterprises under military command in diverse areas such as agriculture, transportation, banking and communication.

Companies under military control created during Maduro’s presidency

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Source: runrun.es

Is CAMIMPEG the answer?

Not all interpretations are conspiratorial. The government of Venezuela claims CAMIMPEG will provide support services to PDVSA and poses no threat to anyone. Jorge Piedrahita, of Torino Capital of New York, told Bloomberg they see this as a positive measure aimed at developing Venezuela’s mineral resources and generating badly needed foreign exchange. In any case, CAMIMPEG is one step closer to becoming real. It now has a president, a board of directors, treasurer, legal counsel and administrator. All are members of the military, and the Ministry of Defense is officially contributing 20% of the company’s founding capital.

Mining activity in Venezuela has been declining steadily in the past decade, outpacing the decline in the rest of the economy. Official numbers on mining production are not available, but finanzasdigital.com reports a decline of 16% in mining in 2013 alone, even when the economy as a whole was still growing at 1.34%.

Venezuela’s Gross Domestic Product, IV Trimester 2013, by sector

Thousands of Bolivares constant 1997 prices

Thousands of Bolivares constant 1997 prices

Like the oil industry, mining requires huge amounts of capital, and in the present economic context, with low oil prices and insufficient domestic reserve to even cover food imports, it is unlikely that the military, or anyone else, can revive Venezuela’s extractive sector.

The reasons behind the creation of CAMIMPEG are not clear, but the consequences will be longlasting. The extent of the military presence in the economy is unheard of in the context of a democratically governed country. And it will continue to grow as long as the ability of the government to provide public goods continues to deteriorate and the military are the only institution able to deliver. But Maduro’s government too shall pass, and the military will remain with power and attributions that will be very difficult to roll back.

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