3.1 Introduction
The aim of this chapter is to answer the first sub question. It explores what are the inter-firm interactions among state-owned firms in Ciudad Guayana’s I&S industry. It seeks to answer to whom do they relate? What do they exchange? What nature of co-operation do they have? The chapter is divided into four sections that show how firms interrelate through the chain of production of I&S industry in Ciudad Guayana: mining, pelletizing, briquetting and steel-making.
3.2 Mining
The mining activity represents the starting point of I&S value chain in Ciudad Guayana. Ferrominera del Orinoco, CA (FMO) is the state-owned firm that has the exclusive right to mine iron ore deposits in Venezuela; the totality of those ore deposits are concentrated in Bolívar State, around 130 kilometres from Ciudad Guayana. FMO constitutes the second state-owned hub of the district because of its labour force, production capacity and networks. FMO stood at 6600 workers by 2010 and is expected to have 6700 by the end of 2011 (Ministerio del Poder Popular para las Industrias Básicas y Minería. 2010) representing the second largest firm in the locality in terms of employment. Figure 3.1 shows the chain of production state-owned firms in Ciudad Guayana’s I&S industry. Arrows represent flow of output inside and outside the locality estimated by the end of 2011. Figure 3.1 also presents production capacity of firms.
Interactions between mining and pelletizing sector
As seen in Figure 3.1, production chain of I&S industry goes from mining to pelletizing processes. In these processes are involved FMO and SIDOR which would exchange 72% of iron ore fines production by the end of 2011. It can be argued that FMO iron ore fines production has led to a thick relationship with SIDOR, the other hub of the district. This relationship was created by the state since the outset of SIDOR giving rise to a SIDOR technology production designed to use fine material as input. The nature of this relationship can be regarded as coerced as it is implied by one respondent:
FMO was used to develop SIDOR…the two firms were always seen as totally integrated…the state was fixing everything in such a way the two firms (were integrated), actually SIDOR’s iron ore courtyard was constructed in FMO…FMO had to make SIDOR a train, FMO did it, had to support to develop SIDOR, FMO did it. Because FMO was the first firm in the locality it owned the land…and it was the only income-generating firm as it exported mineral, so the revenues it generated were used to develop everything, of course, along with state grants since FMO alone could not do it, but it was to develop SIDOR (Interview 15, emphases added).
Figure 3.1
I&S industry chain of production 2011
(Million tonnes)
Source: (Ministerio del Poder Popular para las Industrias Básicas y Minería. 2011),
own elaboration.
The second local user of iron ore fines is FMO itself which owns a pelletizing plant. Here the relationship is sort of transferring of costs from one unit of production to the other. Iron in pellet shape is a form of value added from iron ore fines and represents one of the inputs used in direct reduction processes2.
FMO exchange iron ore fines production with O.IRON which is the only world-wide briquetting plant that uses fines material as input. The reduction technology (FINMET) was actually developed in the locality through a partnership between FMO and the private-owned Group SIVENSA as from the late 1970s (Interview 08, Interview 15). One respondent elaborated:
FIOR gave birth O.IRON…FIOR was a laboratory that created FMO jointly (with private sector), FMO was 50% of FIOR, private sector and us made a laboratory to use fine material to produce briquettes, that generated what is O.IRON nowadays…that laboratory lasted for 20 years…the research development (R&D) lasted for 20 years to create O.IRON (Interview 15, emphases added).
This co-operation between the state and private sector can be regarded as negotiated. Actually, briquetting sector seems to have grown up with deliberate support of the state. According to one manager:
If you saw the financial statement of those briquetting firms you might see FMO as shareholder…the command at that time, I am talking about the 1990s, was the state as a promoter not as producer (Interview 15).
This example illustrates how the state through FMO functions as a promoter of I&S industry upgrading. When it comes to what do they exchange, the relationship between FMO and O.IRON seems to be very thick since FMO is the only supplier of mineral fines, albeit this relationship appears to be coerced as one manager complained:
We have been facing problems with dispatches and reception (of fine material) leading us to lagging behind, basically, we have lost a lot of production, the contract between FMO and O.IRON was handled with biased, very reserved, the firm might have had good reasons for doing that, I don’t know, but it was little known…the issue of mineral provision has been very hard, since we have got just one supplier (Interview 08, emphases added)
On the other hand, FMO exchange iron ore lumps with briquetting plants: FMO briquetting plant, VENPRECAR, COMSIGUA and BRIQVEN. Similarly to the case of O.RION, FMO has actively participated in promoting these briquetting plants (Dam et al. 1998: 10) which exemplifies FMO’s role in district upgrading, somewhat fostering local embedded networks. The relationship between FMO and its briquetting plant can be considered as a transferring of costs. However, the relationship between FMO and VENPRECAR, COMSIGUA and BRIQVEN can be regarded as coerced, in the same meaning as in the relationship with O.IRON.
The raw material you are asking, is basically pellets and iron ore lumps supplied by FMO (Interview 06)
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