Figure 5.3 Hot briquetted iron production in the district 1991-2010

Source: (Briquetera de Venezuela. 2011, Complejo Siderúrgico de Guayana. 2011, Venezolana de Prerreducidos Caroní. 2011, Orinoco Iron. 2011, Instituto Venezolano de Siderurgia.)

It is worth mentioning that HBI production experienced a decline in the early 2000s due to worldwide steel crisis. One respondent (Interview 07) observed that Venezuela positioned as the first producer of HBI in the world. However, as from 2006 briquette production has decreased 16% between 2006 and 2010³. Briquetting firms reported as main explanation of poorly perform: pellets and mineral (fines and lumps) shortages, worldwide steel crisis starting in 2008, prices to fall in competitor products (metal scrap) in 2008 and transition from private to state ownership starting in 2009 (Interview 06, Interview 07, Interview 08, Interview 09).

Change in ownership structure as from 2009 appears to be just one among other factors that influenced briquetting sector performance. But it may not be the case. The change from private to state ownership seems to have created an environment of uncertainty among briquetting firms:

Currently we are in process of transition from private to public, but we are not yet a state-owned firm…because negotiation between the state and SIVENSA has not been completed yet (Interview 08, emphases added)

Moreover, private owned firm could have anticipated potential nationalization that could have reduced necessary investment leading to poor performance of firms:

In its (O.IRON’s) SWOT (strengthens, weaknesses, opportunities and threatens) analysis, there was threat of nationalization…they stop investing because they thought they were going to be nationalized (Interview 08, emphases added)

Additionally, exchanges to customers are likely to change due to change in ownership structure as it was stressed by respondents, leading to coerced co-operation. The potential creation of an Iron and Steel Corporation, that would coordinate the whole I&S industry may induce coerce co-operation. One respondent from briquetting sector speculated about the influence of nationalization on interactions:

Let’s talk hypothetically, the fact that briquetting firms have been nationalized to integrate them into the so called Iron and Steel Corporation, it was, for instance, to make COMSIGUA to produce and send products to SNAC in Ciudad Piar for them to make slabs, so in theory, it would change the purpose of the firm (Interview 06)

One respondent from a firm that had been inoperative in 2009 and started operations in 2010 after central government financial support, reacted to the question whether they would keep exporting their products:

There is a particular situation: the government wants us to satisfy local market, which is our priority now, but we face a reality, namely, our reality is that SIDOR is our local market (Interview 09)

When the researcher asked about potential changes in industry due to implementation of workers’ self-management respondents from briquetting sector stated:

We don’t know what workers’ self-management is all about (Interview 07).

That makes me feel uneasy an uncertainty about (Interview 08)

Along with nationalization of briquetting firms other forms of co-operation between them and the hubs were observed that led to integration of district. For example, one respondent mentioned:

Due to steel crisis in 2008 the briquette prices fell down. FMO financed VENPRECAR through dispatching pellets for a whole year without any compensation, thus subsidizing raw material (Interview 07)

It appears that when state ownership is prevalent, interaction tends to strengthen local embeddedness leading to integration of district.

8. 5.2.3 Steel-making sector

As seen above, interactions between SIDOR and FMO seem to have changed due to changes in ownership. The trend appears to show a coerced interaction under state ownership as FMO had the mandate to develop SIDOR. However, the trend seems to have changed as a result of change in ownership: when SIDOR was privatised they could no longer continue to be as integrated as before:

FMO’s directors used to be SIDOR’s presidents and vice versa…the Management and Board of Directors were all integrated, that was normal because it was a sole vision directed by CVG…that was created from the beginning, but that relationship obviously started to break down. When? When it (SIDOR) was privatized…the relationship was different because private sector has different goals than the state. The state needs to think about the forest while private firms generally see the tree which is normal (Interview 15, emphases added)

However, the respondent stated that when SIDOR was private-owned, negotiated co-operation gave rise in terms of setting iron ore prices:

Private-owned SIDOR accepted our (FMO’s) price rise, while as a state-owned firm it was much more difficult…the private tries to negotiate the prices, it tries to get the best price possible…but they accepted price to rise…however, state-owned SIDOR did not (Interview 15, emphases added)

The respondent speculated on the change in interactions due to re-nationalization of SIDOR and the eventual creation of Iron and Steel Corporation:

The (I&S) corporation is different, because SIDOR, We, everyone will become a centre of cost, that would be another thing (Interview 15, emphases added)

On the other hand, interactions between SIDOR and briquetting sector seem to be weak under private-owned SIDOR but it appears to be somewhat strengthening under new state-ownership with workers’ self-management, as seen in this example:

We started to supply SIDOR a bit more volume as compared to what we used to supply (before nationalization). We are dispatching now almost 1000 tonnes per weak, thus there was a negotiation which I am not fully aware of, but I do know the volume I managed it statistically (Interview 08, emphases added)

Interactions between SIDOR and CASIMA seem to be voluntary as mentioned in chapter 3. As in the case of briquetting sector, these firms within the same sector seem to have developed co-operative behaviour. Apparently, this behaviour has not changed significantly due to changes in ownership. One respondent from CASIMA stated:

We have maintained a relationship with SIDOR more as associates rather than as competitors. I can tell you, if SIDOR is lacking something and we has it, no in excess, but enough quantity…we have lent SIDOR many things as well as SIDOR has lent us many things when we have needed them, because we are in the same business. That was true when SIDOR was state-owned in its first stage, when it was private-owned by Ternium too, and now (re-nationalized SIDOR) it is the same (Interview 14, emphases added).

However, SIDOR commitment to the district seems to have changed due to changes in ownership. Figure 5.4 shows destiny of steel production in the three distinct periods starting in 1968⁴. These figures correspond to a large extent to SIDOR since according to data given by the firm it accounted for 90% of steel production in Venezuela from 1990 to 2010. Prior 1990 CASIMA did not exist and SIZUCA has been always a small firm nowadays accounting for only 2% of steel production capacity in Venezuela. As can be seen in Figure 5.4, steel production seems to be committed to non-local domestic market throughout the series. Nonetheless, it is observed that the pattern of share changes when ownership structure changes.

Source: (World Steel Association.). Own elaboration

During the period 1968-97 when SIDOR was a state-owned firm, 70% of steel production was exchanged to non-local domestic markets on average, but during the period 1998-07 when SIDOR was a private-foreign-owned firm, it tended to lower the level of exchange with non-local producers to favor external markets. As can be seen, the share of exchange with external markets increased 12% between 1998 and 2007, somewhat resembling a growing export-oriented strategy during this period. This argument was mentioned by respondents.

When SIDOR bought HYLSA (in Mexico) they already had steel mills abroad; they were interested in exporting slabs; they satisfied local market and the remaining they could export it, they played at saturating local markets and exporting. The external prices were good and the costs of production were very low: the labour, other inputs. They sent slabs to their own steel mills abroad to produce more value added abroad (Interview 12, emphases added)

The product that they (SIDOR) sold the most…- and I can tell you because at that time I was not in Human Resources Department but in a technical-productive area - was the steel slabs that they sold at briquette price, namely as if they did not have any transformation…logically they (SIDOR) were transferring (the slabs) to Mexico to add value (Interview 13, emphases added

SIDOR increased its productivity with privatisation, that’s not a secret, they invested money, and they had comparatives advantages because they had many firms (abroad) to which they could trade and make business plans, they could purchase many things at lower prices and they focused on exports (Interview 14, emphases added)

This pattern of interaction with external markets changed when SIDOR was nationalized in 2008. As can be seen in Figure 5.4, during the years 2008 and 2010 the share of exchange with non-local domestic market increased by 23% somewhat resembling a substantial change towards an increase in district commitment to domestic market rather than to external market. One Respondent’ reaction supported this argument.

SIDOR has changed from being an export-oriented firm to increase what exchange domestically, nowadays is 70% domestic markets and 30% exports (Interview 11a)

We (SIDOR) do have competitor abroad, but because we are not exporting now, they are taking over those markets (Interview 12, emphases added)

Another respondent elaborated on the new plan for state-owned firms:

Socialist Guayana Plan established a new scheme for the firms towards integrated value chains; we started that at MIBAM in 2006. It was thought creating value chains and those value chains led us to design productive trains, every single wagon represented one process linked to another and a single locomotive, one orientation, one purpose…then came up the idea of creating an Iron and Steel Corporation…I do believe in that to make possible a national development, a national value added, a downstream transformation of raw material to import-substitute products and generate wealth and employment down here (Interview 11b)

This Plan seems to be the main explanation to the extent state-ownership is likely to change SIDOR’s interactions. The way it would relate with other state-owned firms would largely depend on a deliberated policy to integrate firms around a corporation ultimately accountable to central government. Thus, coerced co-operation would lead to integration of the district.

Patterns of SIDOR’s labour and steel production seem to have been influenced by changes in ownership. Figure 5.5 shows SIDOR’s labour and steel production from 1990 and 2010. Left axis shows numbers of employees and right axis level of production. The vertical dotted lines advert changes in ownership

Figure 5.5

Source: (Siderúrgica del Orinoco "Alfredo Maneiro". 2011). Own elaboration