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Sustainable Value Creation: VENEZUELAN PDVSA

Research · July 2015

DOI: 10.13140/RG.2.1.3441.0087

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 VENEZUELAN PDVSA

Sustainable Value Creation

DATE: 9 FEBRUARY 2007 PERSPECTIVE: PDVSA

NAME NUMBER PROGRAM

BEN, 20061772 MAISM

MERDIAN, 20060726 MAIRM
RAI UTAMA, 20053649 MAILTS
CONG YI ( JADE) 20061588 MAIHM

School of Graduated Studies

CHN University Netherlands
2006-2007
We are forced to choose, for the processes we have initiated in our lifetime

cannot continue in the lifetime of our children

Whatever we do either creates the framework for continuing the supreme

adventure of life and consciousness on the planet or sets the stage for its

termination

The choice before us is urgent and important: it can neither be postponed nor

ignored

Ervin Laszlo – The Choice: Evolution or extinction

(Extracted from: The natural step for business by Brian Nattrass and Mary Altomare)

1
Introduction
Private Companies has the responsibility to their shareholders to generate profit. The
employees of the company also play an important role in generating profit, but they also
generate extra costs for the company. These facts provide a company with a dilemma for
making a decision. This case presents the stakeholders to the decision process in which
each stakeholder have their own different interests.

The refinery in Curacao has brought economic growth to the area and employment for the
people. Oil spill, waste and land exploitation are part of the refinery activities that have a
negative effect for Curacao’s environment. The environment group makes a lot of effort to
assure that someone will take the responsibility for the massive environmental pollution in
Curacao. The refinery started to lose its capability to support the economy. The number of
unemployment is increasing because the economy can not support the population explosion
in Curacao.

Tourism as the alternative source of economy has difficult to develop caused by the activities
from the refinery. These related facts all provide a serious dilemma that is faced by key
stakeholders in this case but in many other cases usually the contradiction between values
provide key stakeholders with a very difficult choice. Key stakeholders will be analysed to
rank their position in this case using Van Luijk’s seven questions.

Question 1: What is the moral problem in the case described?

What is the situation? (Descriptive ethics)
What is ethics? According to Velasquez (1998 p.7), ethics means “the principles of conduct
governing an individual or a group”. He also refers to ethics as “the study of morality” but
implies that although ethics deals with morality, it is not quite the same as morality. A study
of descriptive ethics is one that does not try to reach any conclusions about whether things
are truly good or bad or right or wrong. It attempts to describe or explain the world without
reaching any conclusions about whether the world is as it ought to be (Velasquez, 1998).
The situation in this case is that Shell has a refinery operation in Curacao. The refinery isn’t
as profitable as it used to be. They were facing different internal and external challenges on
the island of Curacao (A less favourable tax regime and the first attempt by the government
to enforce anti-pollution legislation, the oil crisis, the nationalization of the Shell oil production
activities in Venezuela and the US policy to become less dependent on international
suppliers). This has led them to review the terms of doing business on the island.
The Government on the other hand, is dealing with a great decline in economic resources
while unemployment has sky rocketed in the past years due to automatization in the refinery.
They also have no other major source of income to minimize or replace the dependence on
neither the tax income nor employment from Shell. The island has also suffered great
environmental damages (pollution) from all the past years of operations of Shell on the
island. While unemployment strains the advancement of the social economic situation on the
island.

What actions should or should not be taken? (Prescriptive or normative ethics)

Normative ethics is the study that aims “to discover what ought to be” (Velasquez, 1998).
This is where you can separate right from wrong or when a person deserves blame, reward
or neither ([Link])
In this case one should put the facts next to each other to differentiate them from each other.
The oil refinery of Shell has attracted thousands of people to the island from all different
regions of the world. Now that Shell is revising their terms of doing business on the island
and firing employees while reducing the wages, they are only looking for their own survival
and not for other stakeholders. They are also trying to elude their responsibilities regarding
the environmental pollution.
The Government of Curacao (GOC) is allowing all this pollution because they have no other
alternative. They need the refinery on the island to support the job market and the economy.
When analysing both situations, one can conclude that both groups are to blame regarding
the environmental pollution. First Shell, because they know that their practices are not up to
international standards ([Link]) and second the GOC because they have
allowed this practice to go on for such a long time without using strict measures to prevent
1
further damages. Also the unemployment is to blame on the government, because they
should have a backup plan in case a situation as this occurs. That is one of the main tasks of
the government anyway, to ensure economic and social stability for the population of
Curacao.
From these perspectives above one can identify the values that are clashing against each
other in this case: Profit (Shell) versus Social development and Environment (Curacao)

Question 2: Who are the people involved?

This case involve five significant stakeholders which chosen based on power, urgency and
legitimacy. Purpose in this second question is to identify stakeholders. Stakeholder analysis
is easier to compare if method used for comparison are in the same level. Therefore PEST
model will be partly used to identify interests and dilemmas for each stakeholder in order to
scrutiny their power and interest.

Identification of Stakeholder, and Stakeholder Mapping 1

 Government of Curacao (GOC)
GOC have an important role in this case to make the best decision to satisfy all the key
stakeholders. GOC want to maintain relationship with Netherlands government because
Shell is partly Netherlands biggest company (Politic). GOC want improvement in Curacao
area (Economic) and secure also safe environment for the society (Social). GOC also does
not have enough expertise to operate the refinery (Technological). Power from the GOC is
consider high. Level of interest is high because GOC are responsible for the economic
growth, political stability, social condition and technology development for the area.
Government has power, urgency and legitimacy and consider as definitive stakeholder.

 Shell Management (SM)

Shell management also as the most important role in this case because they are the
decision maker similar to GOC. SM has Netherlands government to support their activities in
Curacao because if the refinery goes to PDVSA than Netherlands can not make profit out of
it (Politic). As an oil company SM has profit as the most important criterion of success
(Economic). SM must provide their employee with sufficient wage to support their daily live to
preserve social stability (Social). SM has the technology and experience in operating refinery
(Technological). High power from SM is because they have the expertise to operate the
refinery and provide them with control over Curacao area. SM has a high level of interest
because they want to make profit from Curacao refinery. Shell management has power,
urgency and legitimacy and they are definitive stakeholder.

 Environment group (EG)

This stakeholder is not exactly a decision maker in this case, but they have low power to
force Shell and Government to act according to their goal. They have no Politic significance
to this case but their actions might influence other key stakeholders Politically (Politic). EG
does not related to economic activities but their actions might influence economic activities in
the area (Economic). Their main activities are to provide healthy environment for the society
within the Curacao area (Social). They have the expertise about healthy environment
(Technology). EG has a low power because they can not directly make decisions in this
situation. EG has a high level of interest caused by their demand of the clean environment.
Environment group has power and urgency but no legitimacy which place them as
dangerous stakeholder.

 Labour Union (LU)

This stakeholder directly influence by SM decision because they work under the SM
Company. They have neither Politic power nor interest but their actions might influence
Politic condition (Politic). They have power to organize “labour strike” that surely will affect
the economic condition of SM but they need wages from SM to support their life (Economic).
LU also influences social condition of Curacao directly because they are part of the society in
Curacao (Social). LU could provide the calculation for minimum income each employee to
help SM and GOC to make a decision (Technology). LU has a low power because they are

1
See Appendix for the different tables used in this analysis
2
already satisfied with the decision made by other stakeholders. LU also has a high interest
because it is their source of income. Labour Union has power and urgency which make them
dangerous stakeholder.

 PDVSA (Government of Venezuela)

This stakeholder might consider as the most powerful one. As Venezuelan company they
want to expand their influence in Curacao area if they can take over the refinery (Politic).
They will gain more profit if they succeed in take over the refinery (Economic). PDVSA have
no direct connection with Curacao social condition at present time, but if they plan to take
over the refinery than they must take the social condition in Curacao into account (Social).
They also have the technology and expertise that needed to operate the refinery in Curacao
(Technology). PDVSA has a low power because they will supply oil to Curacao refinery.
PDVSA has low level of interest. PDVSA has power only that makes them a dormant
stakeholder.

Question 3: Who is morally responsible?

According to Velasquez (1998), the term “moral responsibility” is sometimes used as
equivalent to “moral duty or “moral obligation”. It is used to direct the blame to a person or
entity for his/her actions or from others. Depending on one’s perspective justice is used to
rationalize the actions and blame is the consequence of their actions as seen by others.
The key stakeholder is held morally responsible in most situations. Government of Curacao
has power to govern the area of Curacao, legitimacy to issue regulations and urgency to
protect their resources from future damage. Shell management has power in form of
financial power, legitimacy to operate the business according to the regional law and
urgency to reduce their costs and increase their profit. The Government of Curacao and
Shell management are key stakeholders in this case therefore both of them are morally
responsible in this case.
Even though the key stakeholders in this case are responsible to do something about this
situation, all the other stakeholders (PDVSA, Environmental Group, Labor Union) have a
moral responsibility toward this situation but cannot be held morally responsible as Shell and
the Government of Curacao.

Question 4: What information do I need?

(Minimum 1 source from hard copy and 1 from internet)

The information needed to analyze this case should be categorized in order to optimally view
the situation from all perspectives possible.
Starting with the principles perspective, this is when “actions are morally just if they are
guided by (universal) principles as e.g. the principles contained in the Universal Declaration
of Human Rights, regardless of the consequences” (Cavagnaro, 2007).
Then one has to continue with the ethics of consequences which is “the actions are morally
just if the consequences of different paths of actions are taken into account and the best
possible solution is chosen (the greatest degree of happiness / utility for the largest number
of people) (Cavagnaro, 2007).

Also when analyzing the situation in Curacao one should ask the following: Is ethics
applicable to business? In order to answer this question one should look up literature about
Corporate Social Responsibility (CSR). “Corporate social responsibility (CSR) promotes a
vision of business accountability to a wide range of stakeholders, besides shareholders and
investors” (Cavagnaro, 2007). CRS is a guideline for businesses “to consider the economic,
social and environmental impacts of their activities” ([Link]).
According to Fritzsche (2005), more and more companies are shifting their organizational
goals in order to make way for ethical decision making instead of a profit oriented mentality.

There are two types of ethics that can help one structuralize the arguments presented,
namely the principle ethics and the consequence ethics (consequentialism).
The principle ethics can be defined as “the ethical conduct of those who remain faithful to a
specific principle regardless of the consequences arising from this” (Cavagnaro, 2001), while

3
the consequence ethics can be defined as “acting morally and ensuring the greatest degree
of happiness for the largest number of people” (Cavagnaro, 2001).

One should also look up information about PDVSA, “PDVSA is the world’s fifth-largest oil
exporter and its oil reserves are among the top ten in the world” ([Link]).
It also has a lot of environmental issues that needs resolving because of the oil extraction
that has contributed significantly to the degradation of Venezuela's natural environment and
oil pollution along the country's Caribbean coast is particularly bad ([Link]).
Even though this case is about sustainability, the parameters will be set to limit the attention
to the island of Curacao.

The statement of the stakeholders

 New statement from PDVSA:

PDVSA would like to help Curacao economic development by supplying more oil on a long
term contract with Shell Company (25 years) at the then current market price which
translated into more jobs in the refinery. If Curacao manages to improve their environment
condition using the expertise they had, we will hired them to solve some of the environment
problem in Venezuela.
 Shell New Statement:
Shell wanted Government of Curacao to have one third of the company share in order to
work together to improve the environment condition. PDVSA must guaranteed 50,000 extra
barrels per day to support Curacao refinery. Shell will invest in innovation to reduce pollution
and will publish an ethical audit in the near future. Shell will give 5% of their annual profit for
the health care and well being of their employees.
 Government of Curacao New Statement:
GOC will take full responsibility of cleaning the environment with the money it receives from
Shell Corporation. They will also invest in personnel for a specialization on the subject of
cleaning, maintaining and monitoring the pollution.
 Labour Union New Statement:
Fluctuations with the rate of employment in refinery sector have been part and parcel of
Curacao history and now the situation arises and need for survival demands job security or a
reliable source of income to the employees.
 Environment New Statement:
Shell has to gradually reduce its activities on the island, the government should stimulate
other sources of income e.g. tourism, offshore banking. Shell should close the refinery
after15 years. Shell is responsible for cleaning. The environmental group is pleased with the
outcome of the discussion. They also want an environmental report produced annually.

Question 5: What arguments can I present in considering the case?

Use the ethical theories and concepts to the case.
Which arguments can be put forward?

As the Shell case is concerned, there are many routes that the discussions can take. From
the perspective of the PDVSA, the company has great stakes involved in the developments
taking place in Curacao. PDVSA is the only supplier of oil for the refinery in Curacao. It has a
lot to lose if the refinery stops with its operations because it will lose a big client which will in
turn translate in less oil output for the company.
This would surely lead to losses in revenue for PDVSA because the company is currently
trying to export as much oil as possible because it earns ten times more on the international
market than it does domestically ([Link]).
Based on these probable consequences one would be inclined to choose for the
consequentialism approach.

“PDVSA would like to help Curacao’s economic development by supplying more oil on a long
term contract with Shell Company (25 years) at the then current market price which is
translated into more jobs in the refinery. If Curacao manages to improve their environment
condition using the expertise they acquire during their own cleanup, PDVSA will hire their

4
environment cleanup team to solve some of the environment problems in Venezuela” (Role
play official statement)

The main reason why the consequentialism approach was chosen is because PDVSA has a
‘common interest’ at stake which is the risk of losing a key client. Looking at the situation
with the consequentialism lens one would want to weight the actions and its consequences
from the perspective that “the solution would create the highest level of welfare for as many
involved parties as possible” (Cavagnaro, 2001).
This is the basis on which the statement was based on, namely to benefit PDVSA with
continuity in oil output and revenues, more jobs in Venezuela for the output process (benefit
for the Venezuelan workforce), more jobs in Curacao due to the increase in the quantity of oil
import and more income for Shell Curacao (SM).

Corporate Social Responsibility (Shell)

 There are two companies involved in this case that are Shell and PDVSA. These two
companies try to make profit out of the present condition because they have an
economic responsibility.
 Shell is trying to follow the legal responsibility which formulate by government of
Curacao. PDVSA did not have such responsibility because as an oil supplier they are
not operating in Curacao.
 PDVSA did not have direct ethical responsibility in this case because they are not part
of the problem. It is ethical that they do not take advantage from this situation to gain
profit without taking responsibility for environment. Shell ethical responsibility is very high
considering for the past 67 years they operate that refinery and make a lot of profit out of
it.
 Shell philanthropic responsibility is the forgotten part in this case, because Shell
never provides the community with clean up costs. It is their philanthropic responsibility
to give away some of their profit to suppress the impact of their activities.

Question 6: what is my conclusion?

Shell’s code of ethics and Shell’s people, planet and profit
The code of ethics has been known as the statement of general business principles that
include ethical business, honesty, openness and respect for people including employees in
all of its dealings (Wesseling, 1976).

Reassess the problem from triangle concept of sustainable development; people, planet and
profit have to equally and harmonies.
1. People
 Working with governments, vehicle manufacturers and customer. The Shell works
with others to help align incentives raise awareness and promote new energy
options.
 Finding new ways to help the societies and local communities to reduce
unemployment where they operate their business.
2. Planet
 Developing substitutes for oil in the transport sector. The shell become leader
distributor of transport fuel from plants and are investing in a new generation of
transport bio-fuel with lower costs, better performance, and lower carbon dioxide
emissions.
 Developing alternative source of electricity from unlimited resources in wind and
solar power.
 Managing other environmental and social impacts from fossil fuels. The principle of
Shell reducing the local environmental impact of their operations.
 Providing cleaner-burning products such as natural gas and premium transport fuels.
3. Profit
 Increasing investment in production and refining will be needed over the next three
decades to keep up and security of supplies to anticipate growing demand for oil and
natural gas.
 The Shell becomes a leader in carbon trading, increase natural gas production and
LNG.
(The Shell Sustainability Report 2005)
5
 Concept of sustainable development and behaviour of Curacao’s government

Environmental pollution caused by refinery activities but in the same time provides the area
with large amount of jobs. (People vs. Planet)
Shell has a problem with number of labours in the refinery which generate high cost for the
company. (Profit vs. People)
Clean up costs for Curacao environment is very high, responsibility for cleaning up the
environment is eluded. (Profit vs. Planet)
Oil supply is essential to refinery activities and it makes oil supplier consider the costs to take
over the refinery. (Profit vs. People and Planet)

For the sustainability, the government of Curacao still need The Shell Refinery Company to
contribute tax or money to government while it also needs PDVSA as the supplier of the oil
because Curacao has not enough resources to cover employment on the island. So that
positions the refinery as the main sector for employment. The government of Curacao has
legitimacy, urgency and also political power but not powerful enough economically.
In the long term perspective, the government has to develop others sector that will become
leading economic development on this island. There are many alternative sectors which can
be tried such as tourism and trading because the island has been a transitory cruise point
since a hundred years ago.

The action of Government of Curacao to sustainable development has been based on the
real condition or indicators such as:
1. People perspective:
 Labour conditions not health safety, and secure anymore because the refinery was
old and not productive anymore.
 The people ex-refinery labour whose still productive and young generation can be
guided into others sector such as tourism and service industries.
2. Planet perspective:
 The island was polluted as such by Shell operation so that needed clean up the
environment.
 Other sector such as tourism and cruise more safety than refinery industries.
3. Profit perspective:
 The refinery industry not efficient and productive anymore because the refinery was
old.
 The tourism and service industries have been growing sector in this island

Question 7: How do I feel having made this conclusion?

The PDVSA plays a very important role in this case as the supplier of oil for refinery of Shell
Company in Curacao. The PDVSA consider the social stability, environmental protection and
economic development of Curacao as well Venezuela.

Shell Company, Curacao government, labour union and environment group, every part has
different interests but they can run together in harmonies and equality to sustainable
development in Curacao. For these reasons, PDVSA recognize to supply more oil on a long
term contract with Shell Company in case 25 years on the market price rate have been
contracted.

Curacao and Venezuela are located in one region so that for sustainability of the planet, run
together is good interest as a multi-benefit decision for all involved and PDVSA confident to
fulfil the goal by cooperating as partners.

Good will help Government of Curacao maintain cooperation with Shell and it’s the most
practical way for local community to keep social stability as well sustainable employments,
sustainable environment in order as program of clean-up the pollutions, and finally for
sustainable economic of Curacao.

6
Bibliography

Caroll, A.B. (1991), “The pyramid of Corporate Social Responsibility: Toward the moral
management of organizational stakeholders”, Business Horizon pp.39-48

Caroll, A.B. & Buchholtz, A.K. (2003), Business & Society: Ethics and Stakeholders
Management, 5th ed. Thomson South-West, New York

Cavagnaro, E. (2001), Defining the pros and cons: a plan of procedure. Pp 1-8

Cavagnaro, E. (2007), Service Value Creation. Various lectures during January 2007

Fritzsche, D.J. (2005), Business Ethics: A global and managerial perspective. Int. ed. Mc
Graw-Hill, New York. P.97

Harvey, B. (1994), Business Ethics: A European Approach. int. ed., Upper Saddle River,
U.S., Prentice-Hall, Pearson Education International

Mitchell, R.K. et al. (1997),”Toward a theory of stakeholder Identification and salience:

Defining the Principle of Who and What Really Counts,’ Academy of Management Review,
Vol. 22, No 4. Pp. 275-277; 280-281; 284-286;296-308.

Johnson, G. & Scholes, K. (1999), Exploring Corporate Strategy, 5 th edition, Prentice Hall,
London. Pp. 213-224.

Velasquez, M.G. (1998). Business Ethics, concepts and cases, int. ed., Upper Saddle River,
U.S., Prentice-Hall, Pearson Education International

Nattrass B. & Altomare M. (1999), The natural step for business, New Society Publishers

[Link] accessed on the 7th of February 2007

[Link] accessed on the 7th of February 2007

[Link] accessed on the 7th of February 2007

[Link] accessed on the 7th of February 2007

[Link] accessed on
the 7th of February 2007

[Link]
Fissue%2Fpublication_list%3Fid%3D84 accessed on the 7th of February 2007

Shell Sustainability Report 2005: Meeting the energy challenge, acquired at the SGS office

7
Appendix

Stakeholder Typology

Stakeholder Power Urgency Legitimacy

Government of Curacao X X X

Shell Management X X X

Labour Union X X

Environment Group X X

PDVSA X

Final Illustration of the Case

PDVSA

Shell provide Guarantee of extra oil

support to supply for long term from
environment PDVSA to Shell
cleaning
through
cooperation
with
government
SHELL MANAGEMENT

Shell provide
5% of their
profit each year
for health and
wealth of the
employee

ENVIRONMENT LABOUR UNION

GROUPS

Shell
provide 60 Shell give 33.33% shares to
million make Government partners
dollars to in environmental cleaning
initiate an
cleaning
effort
through GOVERNMENT OF
government CURACAO

8
 Stakeholders mapping based on Power and Interest
LOW Level of Interest HIGH
Environment Group
LOW
PDVSA Labor Union
Level
of
Power Government of Curacao

Shell Management
HIGH

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