How Venezuela Plans to Run Guardian’s Glass Plant

August 25th, 2016 by Trey Barrineau

Venezuela’s socialist government has revealed how it will manage the Guardian glass plant its military seized a month ago — and it resembles the way it’s now running the Kimberly-Clark diaper-making facility it took over in early July.
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A web post from Actualidad Laboral, a labor-law website run by the Littler Global international law firm, gives a glimpse into Venezuela’s bureaucratic process for turning foreign-owned facilities into state-run operations.

On August 10, Venezuelan officials held a big press event at the Guardian facility in which they claimed to have “restarted” operations there. On August 19, the Ministry of Labor published a decree in the Official Gazette (Gaceta Oficial), which is similar to the U.S. Federal Register, that “certifies” the seizure of the glass plant. The proclamation orders the “immediate occupation” and restarting of production at the facility in Monagas state, in the northeast part of Venezuela. It also directs the workers there and the Syndicate of Float Glass of the State of Monagas (Sinviflo) to name a Special Administrative Council within ten days. The council, which will serve for one year, will have three worker representatives and one from the Ministry of Industry and Commerce. They will be assisted by another person to be named by the Ministry of Labor.

Another decree in the Official Gazette, also dated August 19, notes that a similar council is now in full control of the former Kimberly-Clark plant in Venezuela — and that edict shows how much power the official from the Ministry of Industry and Commerce will wield. He “will be in charge of representing the Kimberly-Clark plant in dealing with banks, will grant and revoke the powers of lawyers dealing with the firm’s interests, and will be in charge of all administrative functions,” according to the proclamation.

The decree also claims that Guardian’s plant was taken over after the union there complained about the company’s “contemptible behavior” in shutting it down. Those harsh words echo other statements from Venezuela’s government, which has accused Guardian of being part of a U.S. “economic war” against the country and of conducting “boycott and sabotage” at the glass plant in Maturin.

Guardian, which has declined to comment to DWM about the factory takeover, issued a single statement on August 1 that rejects those charges.

“Guardian has operated proudly in Venezuela for decades,” the statement reads. “We have been fully committed to ensuring the safety of our employees, and have acted in compliance with all applicable laws and with respect for the community.”

From Glass to Diapers

Despite the conspiratorial rhetoric from Venezuela’s leaders about why Guardian closed the plant, the truth is the country’s currency problems and runaway inflation, fueled by its socialist economic policies and the global collapse in oil prices, probably kept the company from accessing materials to make glass. That’s exactly what happened to Kimberly-Clark, which accounted for 41 percent of the diaper market in Venezuela in 2015, according to Euromonitor International. It shut down a facility near Caracas because of “the inability to buy raw materials,” the company said in a release. But after seizing the plant, President Nicolas Maduro blamed Kimberly-Clark executives and threatened to jail them, calling them liars and criminals who “violated the rights of workers,” according to a report from UPI.

Government takeovers or not, Venezuela’s escalating economic problems could mean that very few diapers — or sheets of glass — are ever produced at these state-run facilities.

“It doesn’t matter who’s running the factory,” Henkel Garcia, director of the Venezuelan business consultancy Econometrica, told the Wall Street Journal in July after the Kimberly-Clark seizure. “The bottom line is that there are no raw materials that anyone can afford to import. It’s impossible to restart the factory given the conditions in the country.”

“Certain disaster,” says this tweet about Venezuela’s takeover of the Guardian glass plant.

As Venezuela’s economy grows more unfriendly to foreign investors, it’s also becoming physically dangerous for them as well. Last week, Bank of America canceled a September trip to Venezuela for investors because of security concerns, according to a report from Bloomberg News.

The bank’s sales staff sent clients e-mails that said “the situation has deteriorated in Venezuela in the last few weeks as the economic and political crisis has deepened. As a result, the perceived safety risks have increased significantly beyond what we are willing to tolerate at the moment.”

Appropriation and Accountants

DWM recently reported on Guardian’s slim chances of ever receiving direct compensation from Venezuela for the plant seizure. The story also focused on accounting methods that could allow the glass-making giant to write off the facility there.

Mike Collins, the managing director of  Building Industry Advisors, which does extensive work with the glass industry, says Guardian should have no problem writing off the takeover.

“There are encyclopedia volumes of accounting rules, but one key general guideline is that you should present financials in a way that gives the most meaningful (i.e. not misleading) view of the company,” he said. “Thus, I don’t think an auditor would have a problem with putting a bright circle around financials from such an unstable part of the world, with maybe the No. 1 track record globally of nationalizing foreign businesses.”

While Maduro’s regime has made news in recent weeks with the Guardian and Kimberly-Clark plant seizures, so far it’s nothing like the government of his predecessor, Hugo Chavez. As Reuters points out, he took over dozens of foreign companies during his 14-year reign from 1999 until his death in 2013.

“I saw a video once of Hugo Chavez walking down the street with his economic advisors and literally pointing to foreign-owned companies saying ‘take that, take that one, nationalize that,’ and he nationalized ten companies in about five minutes,” Collins said.

William Nicholson, a former foreign correspondent and bureau chief for The Associated Press in Latin America, translated sources cited in this story.

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