A recent front cover story from The Economist (“Leviathan,” Aug. 7-13 2010) details the creeping advances of state capitalism. Though the article broadly declares the trend toward state-owned enterprises is a threat to democratic governance and long-term economic growth, it does acknowledge the reality that not all state-owned enterprises are the same. Colombia’s Ecopetrol and Venezuela’s PDVSA, for example, are at opposite ends of the spectrum when it comes to corporate governance and their relationships with their respective governments. There’s now a chance they could end up dancing together as business partners.
Carlos Rodado, Colombian Mining and Energy Minister, announced possible joint exploration of the Orinoco basin by Colombia’s Ecopetrol and Venezuela’s PDVSA. According to CIPE’s partner Fedesarrollo, in 2009 Colombia extracted 66.45 percent (425 thousand b/a) of its oil from the fields in its side of the basin, which accounts for 30 percent of the basin’s area with the remaining on Venezuelan territory. Rodado’s statement comes after high-level bilateral meetings that resumed diplomatic and trade relations between the two neighboring countries, stalled after political rifts grounded on evidence of Venezuela’s support and protection of Colombia’s FARC, a left-wing terrorist organization.
Although both companies are state-owned, the motivations behind each company’s management are radically different. Ecopetrol, a majority state-owned company, is a solid and well-governed company. Ecopetrol’s management independently decides about its investments based on project assessment without affecting the Colombian government’s fiscal position. The company is listed on the NYSE (EC) and, most recently, on the Toronto’s Stock Exchange. Ecopetrol’s shares have performed positively, increasing value both in USD and COP, which has not been the case of other players such as Brazil’s Petrobras, whose share has declined since January according to Brooking’s Mauricio Cárdenas Santamaria.
PDVSA is, well, the opposite. It is a fiscal and political linchpin supporting Venezuela’s Hugo Chávez government. The company’s CEO is also the head of the Ministry of Energy and Oil and one of PDVSA’s vice-presidents is Chavez’s brother. The company’s funds support most of Venezuela’s “social” programs, which buy support for Hugo Chávez from Venezuela’s majority living in poverty. PDVSA has also taken over several other nationalized companies in the sector, albeit without much success in running them.
If indeed the joint exploration crystallizes, Ecopetrol should be wary of getting too entangled with its partner.
Published Date: August 26, 2010