Chavez generosity costing state oil firm in Venezuela

Venezuelan President Hugo Chavez has won friends at home and abroad with his generous spending on social programs ranging from his support for Venezuela's single mothers to deals on fuel for its energy-hungry neighbors in Latin America and the Caribbean.

But Chavez's cash cow, the state oil company Petroleos de Venezuela SA (PDVSA), cannot keep paying the price forever.

The long-term capacity of the world's eighth-largest oil exporter to keep pumping crude is under threat because it is spending more on Chavez's ideological agenda than on badly needed investments, industry analysts say, as the company on Tuesday saw a sharp fall in profits for last year.

PDVSA "is overstretched to capacity with a number of needs," said Patrick Esteruelas, an analyst at the New York-based Eurasia Group. "It simply can't cope at this stage."

The company is borrowing billions from international lenders, while independent estimates show its output falling. US government data shows imports from Venezuela, the US' No. 4 oil supplier, last year hit a 12-year low after dropping 8.2 percent from 2005.

Chavez says exports to the US are dropping because Venezuela is diversifying its oil buyers.

Oil Minister Rafael Ramirez, who is also president of PDVSA, also notes that Venezuela, home to the largest reserves outside the Mideast, is making production cuts ordered by OPEC.

But the decline may also partly reflect the strain put on PDVSA by Chavez's spending.

The health of PDVSA's finances is a subject of debate, mainly because audited financial results have not been publicly released for the past two years.

On Tuesday, PDVSA released unaudited financial results, which showed net earnings fell 26 percent to US$4.77 billion last year -- a year when most major oil companies posted record profits.

During a windfall year when crude prices hit record highs, PDVSA's gross revenues surged to US$101.84 billion, of which PDVSA handed over 36 percent to the state in taxes, royalties and social spending.

PDVSA attributed its loss in profitability to rising costs, including skyrocketing spending on social programs backed by Chavez.