PdV board upended, revenue shifted to central bank

Venezuelan president Nicolas Maduro restructured state-owned PdV's board of directors and ordered the firm to deliver all revenue to the central bank, sacrificing the shrinking portion that it traditionally retained for investment.

The board shake-up appears to be an accommodation among political factions that support the government.

The new board features two powerful government officials sanctioned by the US Treasury.

Current economy vice president and industrial production minister Tareck El Aissami, who was sanctioned in February 2017 for alleged ties to drug trafficking, was named an external board director. El Aissami is widely considered one of the top three government officials, second only to Maduro himself and a rival of constituent assembly president Diosdado Cabello.

Economy and finance minister Simon Zerpa, who was sanctioned in July 2017 while serving as PdV's chief finance executive, was also named an external director. Zerpa is close to Maduro's wife Cilia Flores, another influential government figure.

The appointments of El Aissami and Zerpa suggest that Maduro is drawing closer to co-ruling political factions headed by El Aissami, Flores and the national guard – possibly at the expense of Cabello, who is viewed as the most confrontational member of the ruling United Socialist Party (PSUV) hierarchy.

PdV's new 12-member board, named on 7 September, also includes upstream vice president Nelson Ferrer, marketing and supply vice president Guillermo Blanco, gas vice president Nemrod Contreras, finance vice president Iris Medina, international affairs vice president Marcos Rojas, and planning and engineering vice president Miguel Quintana.

Several board members reappointed by Maduro have some oil industry experience. Ferrer was a senior executive with PdV's eastern division until he was first named to the board in November 2017. Retired army officer Blanco worked at the energy ministry before he was named to the board in early 2018, but union officials tell Argus he has no professional experience in marketing and supply.

Contreras, PdV's new vice president and head of the gas sector, worked with PdV subsidiary PdV Gas under former board member Cesar Triana, who currently is under investigation by the acting attorney general's office for allegedly rigging gas infrastructure contracts.

Maduro also reappointed finance vice president Medina, a former banker with close ties to Zerpa as well as the president's cousin-in-law and former PdV finance chief Erick Malpica Flores. Medina and Zerpa are expected to focus on the thorny issue of PdV´s debt, which is almost all in default.

Also reappointed to PdV's board were international affairs vice president Rojas and planning and engineering vice president Quintana. Quintana heads a new five-member technical committee tasked with drawing up a plan to reorganize PdV before the end of 2018. One of the issues that he was charged with addressing is protecting PdV from legal offensives by local and international creditors, an energy ministry official tells Argus.

Three other external directors reappointed by Maduro on 7 September include

planning minister Ricardo Menendez, federation of oil unions (FUTPV) president Wills Rangel, and PSUV union activist Yurbis Gomez.

Maduro ratified national guard general Manuel Quevedo in the twin posts of energy minister and PdV chief executive that he has held since November 2017 when then-energy minister Eulogio Del Pino and then-PdV chief executive Nelson Martinez were fired and subsequently arrested on corruption charges.

Effective immediately, PdV is to sell all of its current and future hard currency revenues to the central bank, at the government-set exchange rate, instead of retaining a portion of those revenues for investment. Zerpa said the measure is part of a broader government decision to liberalize strict government exchange controls in effect since at least 2003.

Zerpa said state-owned and private banks would be allowed to buy and sell dollars immediately at the current official government exchange rate of 60 sovereign bolivars (BsS) per dollar. Currency exchange houses approved and regulated by the finance ministry also will be allowed to buy and sell dollars freely at the official government rate, he added.

Two former central bank economists who currently are elected members of the opposition-controlled national assembly tell Argus that the tightly controlled currency exchange system has not been liberalized.

"Banks and government-approved currency exchange houses can only trade dollars at the official exchange rate, but private currency trading outside government-approved channels and exchange rates remains a criminal offense," one economist said.

"It's a government scheme to capture hard currency inflows that now has been expanded to include PdV's dollar revenues because private citizens and corporations transacting dollars continue to do so offshore instead of physically remitting dollars and euros to Venezuela," the second economist said.

"The government has realized belatedly that it cannot capture the remittances of private citizens and corporations, so now it's going after PdV's dollars, but this will have repercussions on PdV's day-to-day ability to operate if it can't legally retain some of its dollar oil revenues to pay for imported crude and products, charter tankers, import equipment and things of that nature," the second economist added.