EN:
CARACAS,
Venezuela—The Venezuelan government is investigating alleged corruption
in a $1.3 billion contract between the state oil company and a private
contractor co-founded by a Saudi prince, according to law-enforcement
officials and related documents.
Venezuela’s
inspector general’s office on March 6 recommended that the Public
Prosecutor’s Office investigate and charge five current and former
executives at Petróleos de Venezuela SA, or PdVSA, for allegedly
embezzling public funds by paying inflated fees for the lease of an oil
rig, according to a copy of the request seen by The Wall Street Journal.
The
rig, the PetroSaudi Saturn, was the second drillship leased by PdVSA
from PetroSaudi International Ltd. to develop natural-gas reserves that
the Venezuelan company said would make the country a global gas
superpower.
The
entire offshore project, Mariscal Sucre, has yet to produce any gas.
“Mariscal Sucre is PdVSA’s eternal white elephant,” said Antero
Alvarado, Caracas-based analyst at consultancy GasEnergy Latin America.
“They sank billions on it with nothing to show for it.”
A PdVSA spokesman declined to comment on the contracts with PetroSaudi, citing legal disputes between the two companies.
Mariscal Sucre’s troubles are amplified by thecountry’s economic crisis. U.S. law-enforcement officials say PdVSA wasted billions of dollars during the oil boom of the past decade. When the boom turned to bust in 2014, production crumbled, triggering the deepest recession in Venezuela’s history.
The meltdown has brought food shortages, rampant crime andwidespread unrest. PdVSA didn’t respond to accusations of waste and corruption.
The
Public Prosecutor’s Office and Venezuelan Congress in the past month
launched separate investigations into the Saturn contract, said
officials at both entities.
The
offices of inspector general, whose role is to ensure the proper use of
state assets, and the public prosecutor, which would be responsible for
bringing charges, didn’t respond to requests for comment.
The
inspector general’s probe is focused on state-owned PdVSA, and neither
PetroSaudi nor any of its employees are accused of wrongdoing.
Lawyers
for PetroSaudi said they weren’t aware of any investigation of their
client in Venezuela. The lawyers said Venezuelan government probes into
the contracts are politically motivated and aimed at damaging its client
in its commercial disputes with PdVSA.
A
London court on Monday ordered PdVSA to pay PetroSaudi $130 million in
unpaid bills, according to PetroSaudi lawyers. PdVSA had said prior to
the decision that it would appeal the case in the U.K. Supreme Court.
Separately, PdVSA is suing PetroSaudi in the United Nations arbitration
court in Paris for allegedly failing to meet the terms of the Saturn
contract.
PetroSaudi financed the purchase of the first rig, the Neptune Discoverer, with money it received from 1Malaysia Development Bhd,
or 1MDB, the embattled Malaysian state investment fund, according to
financial records and people familiar with the transactions.
The
U.S. Justice Department alleges that $700 million that 1MDB sent in
September 2009 to a joint venture with PetroSaudi was diverted, and
never arrived at PetroSaudi. The Justice Department didn’t accuse
PetroSaudi of any crime, and PetroSaudi’s lawyers said the company has
done nothing wrong. The Malaysian fund hasn’t been accused, denies any
wrongdoing and pledged to cooperate with any lawful investigation.
Lawyers
for PetroSaudi, which was founded in 2005 by a member of the Saudi
royal family, Turki Bin Abdullah Al Saud, and a Saudi citizen,Tarek
Obaid, said no one in the company has been charged in connection to the
1MDB case.
PetroSaudi
entered Venezuela in 2009 when it bought the Discoverer, a ship built
in 1977 that was already in use drilling for PdVSA. PetroSaudi took over
the contract leasing the ship to PdVSA for $490,000 a day until 2012.
The
Saudi company, which at the time had no experience operating rigs, took
over the operation of the Discoverer. When another of PdVSA’s rigs sank
in 2010, the company tapped PetroSaudi without going through a bidding
process, according to the inspector general’s March 6 request.
A
PdVSA official said the lack of a tender for the rig wasn’t unusual, as
the search took place a year after late President Hugo
Chávezexpropriated hundreds of oil barges and boats, and no major
foreign drilling companies were interested in bidding for PdVSA tenders
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That
September, PdVSA struck a deal with PetroSaudi for the Saturn rig,
which was built in 1983, at $485,000 a day for seven years, according to
a copy of the contract reviewed by The Wall Street Journal.
Opposition
lawmaker Luis Parra said in the February congressional report that the
rig should have cost about $230,000 a day. “There’s no reason whatsoever
to justify the difference between the average price and the exorbitant
price PetroSaudi charged PdVSA” for the Saturn, he said.
PetroSaudi’s
lawyers said the rate was justified by Venezuela’s difficult working
conditions. The rate was almost 20% more than the average for a similar
rig signed in the adjacent Gulf of Mexico that year, according to the
RigLogix database.
In
2010, one of the accused former executives, Romer Valdez, said
PetroSaudi was the only company that was able to provide the right type
of rig for the required period, according to minutes seen by The Wall
Street Journal of the state company’s meeting on Aug. 21, 2010. Mr.
Valdez has since retired from PdVSA and left Venezuela, according to
company officials, and wasn’t reachable for comment.
PdVSA documents show five available rigs with similar characteristics in that period.
The
inspector general’s office also recommended charges against a sixth
official for allegedly peddling influence to sway PdVSA into signing the
contract for the PetroSaudi Saturn.
PetroSaudi
had no relationship with the official, never used him to peddle
influence and wasn’t aware that he had any influence in the decision,
its lawyers said.
While
PetroSaudi was negotiating the contract, it didn’t have a rig to rent.
It paid $260 million for the Songa Saturn 10 days before signing the
contract, according to the contract and the seller’s corporate filings.
The
Discoverer and the Saturn were “barely adequate for the job” and
completed fewer than 10 wells out of about 70 planned, oil workers
involved in the drilling told The Wall Street Journal. The Discoverer
spent most of its contract term in repairs, according to former workers.
PdVSA said in the Saturn contract that the rig had been inspected and was in perfect condition.
After
the Saturn collided with a ferry in April 2011, the rig spent most of
the following year in repairs, according to a report on the collision by
PdVSA’s investigation committee. The committee declared the rig to be
“obsolete” and said that damage to the well resulting from the collision
was caused by faulty equipment on the Saturn.
The
committee absolved PetroSaudi of fault in the collision but said the
company “couldn’t present most of the required [safety] documents” and
that the rig lacked some basic working equipment.
PetroSaudi’s
lawyers said the Saturn had its required international certifications,
that both rigs were in good working order and accepted by PdVSA, and
that drilling delays were caused by “PdVSA’s operational failures and
cash-flow difficulties.”
The
Saturn rig drilled three of 16 planned wells in almost seven years,
slowed by repairs and lack of supplies from PdVSA, according to former
workers. An average rig working in similar conditions and depths
completes a well in two months, said Tony Paul, managing director of
Association of Caribbean Energy Specialists.
The
Saturn is now laid up indefinitely off the Venezuelan coast, according
to Mariscal Sucre workers. The Discoverer is being scrapped at an Indian
junkyard.
Venezuelan
President Nicolás Maduro, facing empty public coffers and low
popularity, in January started an anticorruption campaign.
“The restructuring will cure from corruption all the parts that are rotten in PdVSA,” he said.
The
purge is aimed at Mr. Maduro’s detractors and will do nothing to
address endemic corruption, said Anabella Abadi, a public policy analyst
at Caracas-based ODH Grupo Consultor.
“You can’t fight corruption without transparency,” she said.
— Mayela Armas in Caracas and Maria Ramirez in Puerto Ordaz contributed to this article.
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