December 2018 – @alvaroriosroca – Corruption scandals, poor management and the constant practice of investing in non-economic and unprofitable projects by our state-owned energy companies continue to go public throughout Latin America.
A large number of governments over the last decades have used these companies to: 1) Source of employment for political associates and relatives, 2) Make them subsidize and win votes via populism, 3) Force them to invest in projects little or nothing profitable and visible in an electoral eagerness; 4) for fundraising to maintain the political machinery of current governments 5) political spoil for governors and officials in office, 6) et cetera.
The aforementioned makes them uncompetitive, leaving them without corporate governance, without management, without technology and ultimately poor results. State coffers should then go to bail them out and/or to privatize or sell them at ridiculously cheap prices. We definitely do not want that to happen.
On this road, for example, Petrobras is selling and privatizing part of its assets and business units after everything that has happened. Not to mention PDVSA that has a large amount of its reserves (oil and gas) and assets committed to creditors, suppliers and partners (disguised privatization) when it cannot pay its debts. We could follow so many other companies but space is limited.
We Latin Americans do not want to privatize our state energy companies and we join the feeling that exists in the region to maintain them. However, if we decide to maintain them, it is to turn them into solid economic and strategic pillars for our countries. For this to happen we must necessarily shield them from the current political government.
Shielded and letting them act in a corporate way, with competitiveness and independence they bring a high value for the countries and can: 1) Break market control agreements that are often agreed by the private sector. 2) Study strategic projects for the country and support very fragile Energy Ministries. 3) Participate in projects that are considered profitable, alone or associated and where the private do not wish to participate. 4) Generate profits and taxes for the countries, 5) Et cetera.
How to shield them? There are mechanisms for shielding and they do work in the region and international scope. Here is an example. The directories of the state companies must be composed of members of the State (Ministries, etc.) and also by independent institutions (College of Engineers, etc.) and the professional requirements and responsibilities clearly established for their selection and appointment.
This directory must then raise to the Congress or President of the country, a short list so that the president of the company can be elected. This triad must be entrusted to a talent hunting company (human resources), which must make the selection based on clearly established professional, experience and ethics requirements, including the end of its mandate.
This president, in turn, must select his trusted collaborators with whom he has to align the company to the mandates of his board of directors and be transparent to the citizens. The foregoing gives corporate governance to the company and does not necessarily respond to the designs and whims of the political power in office and is the only way to make them sustainable.
Ineptitude and corruption when facing administration and investment in projects managed by state energy companies are detrimental to the economic well-being of our countries in the long term. Does entrepreneurial state not work? Will we be able to shield our companies from the political power in office? Our readers have the last word.
*Former Hydrocarbons Minister of Bolivia and Current Managing Partner of Gas Energy Latin America.