Scrap metal sales fueling Venezuelan patronage

Venezuela's once-informal scrap metals industry derived from neglected oil and heavy industrial assets has evolved into a state-sanctioned black market controlled by governors and regional military commanders.

An August 2018 presidential decree gave state-owned oil, electricity steel, iron, aluminum, cement and even paper companies the exclusive authority to buy, sell and export metallic and non-metallic scrap, with the aim of creating a new hard currency revenue stream for the central government.

In practice, modest revenue from nominally state-controlled scrap metals exports flows mainly to regional political and military authorities and a handful of intermediaries that handle transport and export logistics through Maracaibo, Puerto Cabello and Puerto La Cruz, according to officials in Anzoategui, Carabobo and Zulia states.

The proceeds are part of a vast local patronage system that helps to maintain support for President Nicolas Maduro in far corners of Venezuela. The central government at best gets only a small share of the scrap revenue, relying instead on more lucrative wildcat mining and smuggling.

"Venezuela has a very large but finite supply of scrap metals but an unlimited supply of gold, diamonds and other more valuable minerals," an official at state-owned iron ore mining company Ferrominera Orinoco tells Argus.

Informal scrap collectors who still operate now face pushback from National Guard personnel deployed by regional authorities to locate, seize and stockpile metals.

Companies that used to buy scrap metal from scroungers are now bound by Maduro's decree to transact only through state-owned companies or approved export logistics firms.

Contractors that state-owned oil company PdV has paid this year partly with scrap metal are also obligated on paper to transact only with the state, though in practice they export through the small number of approved brokers.

"The regional authority in the zone where the exports originate gets a cut," a state government official in Anzoategui said. "Basically, it's now a legally state-sanctioned black market."

Maduro's takeover of the scrap metals sector has fostered a profit-motivated tendency in some state-owned companies of classifying as scrap equipment that fell into disuse due to years of neglect but could still be repaired and salvaged, "particularly in the oil and other strategic basic industries," a senior oil union official in Monagas state said.

PdV's scrap metals potential is significant, the union official said. "Much industrial infrastructure especially in Zulia is more than 60 years old and two decades of neglect first under (late former president) Hugo Chavez and now Maduro have ruined PdV's infrastructure."

The state-owned aluminum and steel industries are another major potential source of scrap. Idle state-owned aluminum smelter Alcasa's 170,000 t/yr Line 4 reduction line is currently being dismantled for separation and export of its aluminum and ferrous parts.

The industry and economy ministry, which is nominally responsible for overseeing the state-controlled scrap metals industry, declined to provide any scrap information.