July 19 (Bloomberg) — Petroleos de Venezuela SA, the state oil company that controls the biggest reserves in South America, may begin making shoes, building ships and farming soybeans as President Hugo Chavez widens the government role in the economy.
Chavez has approved the creation of seven subsidiaries that range from oil services to agriculture, according to a written report to the company’s management. The plan would make Petroleos de Venezuela an even bigger force in the country’s daily life and put it in competition against companies from around the world.
Petroleos de Venezuela already controls the oil production that accounts for 90 percent of Venezuelan foreign trade and about half of government revenue. The effort to expand into other businesses may siphon off managers and capital, hobbling efforts to reverse a slide in energy production.
“Having more of the economy under one roof, you’re more and more vulnerable,” said Robert Bottome, an analyst at Caracas- based research company Veneconomia. “The state is taking over everything. Maybe that wouldn’t be a bad idea if they knew what they were doing.” Declining oil output “suggests they don’t know what they’re doing,” he said.
The document, “New Subsidiaries and Orinoco Oil Belt: Direction of Special Projects and Report to Management,” records a June 28 meeting among 13 company employees, including Ramon Key, who works for the new oilfield services unit, and Leida Martinez of the purchasing unit. The author isn’t identified.
The new subsidiaries will provide necessities ranging from construction to oilfield services to social projects, furthering Chavez’s effort to create “21st Century Socialism” in Venezuela, the document says.
“There’s no private company that can compete with a state company with an unlimited budget” and the government’s favor, said David Mares, a professor at the University of California, San Diego, who specializes in South American energy. Expanding Petroleos de Venezuela won’t be good for the economy, because “under Chavez there’s no reason for them to be efficient.”
Petroleos de Venezuela’s communications office said none of the participants could speak to the press and declined to make Energy and Oil Minister Rafael Ramirez available. Ramirez has a dual role as energy minister and the head of Petroleos de Venezuela, and he is one of Chavez’s closest aides.
The document also mentions plans to carve out a new federal territory in the Faja del Orinoco, site of heavy oil deposits that are among the world’s largest, without providing details.
While the government and the oil company face hurdles to implementing the wide-ranging activities described in the plan, Chavez has shown he can make sweeping changes in the economy.
Chavez bought out foreign owners of telephone and electric companies, and he forced international oil companies to cede control of their ventures to Petroleos de Venezuela. Exxon Mobil Corp. and ConocoPhillips last month chose to leave the country rather than submit to lesser roles in the joint venture companies that extract and process crude oil in the Faja del Orinoco.
The report offers details on Chavez’s plan, announced earlier this year, for the company to provide oilfield services, industrial machines and farm aid. The new industrial unit will make oil rigs, valves, pumps, tubes, industrial chemicals and telecommunications equipment.
The engineering and construction wing would work both within and outside Venezuela on refineries, the so-called upgraders that process heavy crude in the Faja, gas plants, filling stations and pipelines, according to the document. The services unit would do drilling projects, stimulate oilfield output, shut abandoned wells, conduct reservoir surveys and supply chemicals and fluids.
The planned units of Petroleos de Venezuela, commonly known as Pdvsa, may compete with suppliers from outside the country. Venezuela gets oil services and equipment from companies such as Halliburton Co., Schlumberger Ltd., Baker Hughes Inc. and Pride International Inc.
Starting a new oilfield services company will require the company to attract skilled labor that is in short supply worldwide, Stuart Glickman, an equities analyst at Standard & Poor’s in New York, said in an interview.
“I can understand the motivation,” Glickman said, citing Chavez’s wish to be more independent from international companies. “But it may not be easy.”
Fluor Corp. and Bechtel Group Inc. have, in the past, done engineering and construction on petroleum facilities for Petroleos de Venezuela. Venezuela has promised new refineries to Nicaragua and Paraguay and has plans to build at least one new upgrader to convert extra-heavy crude from the Faja.
The agricultural unit will plant 1,000 square kilometers (386 square miles) of soybeans, develop ethanol production and design and build food processing plants. Chavez in a June 13 speech called U.S. ethanol policy “insane” because it uses food crops to power cars.
The new Pdvsa Naval shipbuilding subsidiary discussed in the document will establish shipyards to build tankers and oil platforms and construct ports. Venezuela on June 13 announced the creation of a state shipbuilding company, Bogesa, that is not part of Petroleos de Venezuela.
A proposed unit that hasn’t been approved by Chavez will take part in industries including lumber, furniture, light bulbs, windows, bedding, shoes, clothes, tools, bricks, appliances, televisions and radios, according to the document.
Homebuilding, urban planning and non-industrial infrastructure will be the job of the Pdvsa-Urban Development unit. The oil company already builds low-income housing and paves roads as part of its social development program.
The document doesn’t include estimated revenues or profits from the new enterprises.