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U.S. expands medical checks after Guatemala boy dies

FILE PHOTO: U.S. Customs and Border Protection (CBP) officials in San Diego County, U.S., are seen through a hole on the metallic border wall between United States and Mexico, photographed through the border wall in Tijuana, Mexico, Dec. 17, 2018. REUTERS/Mohammed Salem/File Photo

By Sofia Menchu and Yeganeh Torbati

NENTON, Guatemala/WASHINGTON (Reuters) – Migrant children will receive more thorough medical checks after an 8-year-old Guatemalan boy died in U.S. custody this week, the U.S. government said on Wednesday, and his mother expressed grief and despair over his death.

Felipe Gomez Alonzo, who died on Monday, and his father, Agustin, 47, came from the western municipality of Nenton in Huehuetenango province, Guatemalan Foreign Ministry spokeswoman Marta Larra said. The pair trekked to the Mexico-U.S. border, joining thousands of others who have left their remote area.

Gomez, belonged to a family of indigenous Maya, was the second child to die this month in U.S. custody after crossing from Mexico, following the Dec. 8 death of Jakelin Caal, a 7-year-old girl also from Guatemala.

“I’m sad and in despair over the death of my son,” the boy’s 32-year-old mother, Catarina Alonzo, told Reuters by phone from her home in the tiny village of Yalambojoch, speaking through a translator because of her limited Spanish.

The latest fatality prompted sharp criticism from some Democrats, and U.S. Department of Homeland Security Secretary Kirstjen Nielsen announced policy changes on Wednesday aimed at preventing future deaths of children in custody.

All children in Border Patrol custody have been given a “thorough medical screening,” and moving forward all children will receive “a more thorough hands on assessment” as soon as possible after being apprehended, whether or not the adult with them asks for one, Nielsen said in a statement.

Gomez’s parents, who speak a Maya language called Chuj and little Spanish, have requested an autopsy be done as quickly as possible so their son’s body can be repatriated to Guatemala, Larra said. The results are expected in about a week, she added.

The U.S. Customs and Border Protection (CBP) agency has not released an official cause of death.

Most families in Nenton, a mountainous area near the Mexican border, are of indigenous origin and subsist on corn and beans, as well as money sent back from relatives working in the United States and Mexico, according to a local government report.

Huehuetenango sends the highest number of migrants abroad from Guatemala every year, Larra at the foreign ministry said.

Nielsen said the death of migrant children in U.S. custody is rare, noting that in the fiscal year ending Sept. 30, six migrants died under the CBP’s auspices, none of whom were children. It had been more than a decade since a child died in CBP custody, she added.

“It is now clear that migrants, particularly children, are increasingly facing medical challenges and harboring illness caused by their long and dangerous journey,” Nielsen said, noting she would travel to the border later this week to observe the medical screenings and conditions at Border Patrol stations.

She placed some blame for the risks faced by migrant children on their families. “Smugglers, traffickers, and their own parents put these minors at risk by embarking on the dangerous and arduous journey north,” Nielsen said.

INVESTIGATION DEMANDED

Gomez and his father were detained on Dec. 18 in El Paso, Texas, for illegally entering the country, the agency said.

They were given hot food, snacks, juice and water, and two days later, were transferred to the El Paso Border Patrol Station, CBP said. On Dec. 23, they were moved to the Alamogordo Border Patrol Station in New Mexico.

On the morning of Dec. 24, an agent noticed Gomez “was coughing and appeared to have glossy eyes,” CBP said, and the father and son were transferred to a nearby hospital.

The boy was found to have a fever and cold and was released with a prescription for an antibiotic and Ibuprofen. That evening, Gomez started vomiting, and his father declined medical help because his son had been feeling better, CBP said.

A few hours later, Gomez again began feeling nauseous and was taken back to the hospital, where he died just before midnight. CBP previously said he had died early on Tuesday.

U.S. House of Representatives Democratic leader Nancy Pelosi called on Wednesday for the DHS internal watchdog, the Inspector General’s office, to investigate Gomez’s death.

Other Democrats expressed outrage.

U.S. Representative Raul Ruiz of California said on a conference call that CBP facilities he had visited last week near El Paso were “dehumanizing” and not equipped to handle emergencies in remote areas of the Mexico-U.S. border.

“This is under the care and the responsibility and the custody of the United States government, and they do not meet the most minimal basic standards of humanitarian health,” he said.

(Reporting by Sofia Menchu in Nenton, Guatemala, and Yeganeh Torbati in Washington Additional reporting by Daina Beth Solomon in Mexico City and David Morgan in Washington, Editing by Dave Graham, Cynthia Osterman and Leslie Adler)

Special Report: As their owner and landlord profits, soldiers battle unsafe Army homes

Chloe Tuttle, 2, drinks from a sippy cup as her brother Weston Tuttle, 5, does a nebulizer treatment while watching "Frosty the Snowman" at their home in Steilacoom, Washington, U.S. November 28, 2018.REUTERS/Lindsey Wasson

By Joshua Schneyer and Andrea Januta

FORT BRAGG, North Carolina (Reuters) – One set of photographs, posted on Instagram, captures a grand, crimson-colored banquet hall at a 100-acre Irish estate with two 18th Century mansions. The owner has redecorated the residence in gilded mirrors and blue damask wallpaper with the help of a renowned interior designer and is having a personal golf course installed on the verdant grounds.

Another set of pictures, taken by tenants, shows homes across the Atlantic in North Carolina, Maryland and Louisiana, plagued by flooding, bursting pipes, mold blooms, collapsed ceilings, exposed lead paint and tap water as brown as tea.

The same man is behind all these dwellings.

Ireland’s historic Capard House is among the vacation properties owned by Rhode Island real estate developer John Picerne. He purchased the estate in 2015 after emerging as one of the largest private landlords on U.S. military bases. The others are the homes of his warrior-tenants, who pay hundreds of millions of dollars a year in rent to live in housing run by Corvias Group, Picerne’s closely held company.

Since 2002, Corvias has acquired control of more than 26,000 houses and apartments across 13 military bases. Picerne’s company runs this lucrative enterprise in partnership with the Army and Air Force through a program that enlists private-sector operators to build new dwellings, upgrade others, and manage the properties for 50 years.

The Corvias homes are among 206,000 now under private management in the 22-year-old U.S. Military Housing Privatization Initiative, the largest-ever corporate takeover of federal housing. The military says the effort has enhanced the lives of service members and their families.

Some of Corvias’ tenants strongly disagree. They accuse Picerne’s company of renting them poorly maintained homes riddled with health hazards that can trigger illness or childhood developmental delays.

Reporters visited three of the largest bases where Corvias operates and interviewed 30 current or recent residents who documented their battles with the landlord. At Fort Bragg, the largest military base in the United States, a tenant petition https://www.change.org/p/fort-bragg-hold-corvias-accountable to “hold Corvias accountable” for neglecting homes has gained more than 2,000 signatures.

John Picerne declined to comment for this story. His company declined to address questions about its earnings or specific tenant complaints at its Army bases.

“While there are always several sides to a story, out of respect for our residents we will not comment on or communicate with our residents through Reuters,” William Culton Jr., the company’s general counsel, wrote in an email.

After Reuters detailed the findings of this article to the Army and Corvias, the company set up a phone hotline for tenants with complaints and pledged to respond within 24 hours. Kelly Douglas, a Corvias spokeswoman, said the company is launching a “comprehensive review” of its service request and resolution process.

“If there’s an area where we can improve or an unmet resident need, we want to make it better,” Douglas said.

The exterior view of a home in a neigbourhood of older worn-down Corvias-managed homes at Fort Polk, Louisiana, U.S. November 14, 2018. REUTERS/Joshua Schneyer

CONFIDENTIAL FINANCIAL DOCUMENTS

Nearly a third of U.S. military families, some 700,000 people, live in rented accommodation on bases. Their living conditions have come into the spotlight since Reuters revealed lead poisoning risks Those reports have prompted Congress and the Department of Defense to order at least three investigations.

Despite that new scrutiny, the finances of privatized military housing have remained hidden. The Pentagon has never disclosed the precise terms offered to developers and property managers such as Picerne, deeming them confidential business transactions.

Reuters has now learned how the arrangements work for one leading private developer, obtaining thousands of pages of proprietary documents that lay out the fees and responsibilities that Picerne’s business negotiated with the Army. These documents show that the landlord received iron-clad assurances of profit, often while putting up little initial cash of his own.

To grow his business, the scion of a wealthy Rhode Island real estate family has cultivated ties with military brass and politicians. Corvias has spent millions on lobbying, and Picerne has enlisted the help of his state’s powerful Democratic senator, Jack Reed, an Army veteran and ranking member of the Senate Armed Services Committee.

The profits have helped afford Picerne, 56, a yacht, private jet travel, and mansions renovated by celebrity decorator Martyn Lawrence Bullard, known for his work with the Kardashian family and fashion designer Tommy Hilfiger.

Reporters reviewed the confidential framework agreements between Corvias and the U.S. Army for six of the 13 military bases where the company operates. These agreements, hundreds of pages each, known as Community Development and Management Plans laid out Corvias’ plans, responsibilities and projected earnings at bases.

Mold covers a kitchen range fan inside a Corvias-managed military housing unit in Fort Polk, Louisiana, U.S. November 14, 2018. REUTERS/Joshua Schneyer

From those six Army housing partnerships alone, Picerne’s business stood to collect more than $254 million in fees for construction, development and management of the homes during the first decade of the deals, a Reuters analysis of the terms showed. Over the projects’ 50-year duration, the fees were projected to top $1 billion. Nearly all of those fees are pure profit for Corvias, according to people familiar with the deals, because most of the projects’ expenses are covered by rent income from soldiers.

Corvias also stands to earn hundreds of millions more in equity returns, the agreements show: It can share with the Army any cash left over from rental revenues after the projects’ expenses have been covered. And Corvias gets additional fees from thousands of other homes it operates on six Air Force bases and one other Army post. Reuters was unable to review the operating agreements needed to analyze the profitability of those contracts.

The company has been able to enjoy these returns without taking on much risk. The government put hundreds of millions of dollars and thousands of existing homes into the ventures. In all but one of the six Army projects Reuters reviewed, Corvias didn’t have to invest a penny in equity until around a decade later, and the company kicked in less than a fifth of the money the military contributed. The Corvias contributions correspond to about 3 percent of the projects’ planned development costs, which were largely funded by loans.

Corvias is shielded from risk in another way: It isn’t obligated to repay nearly $1.9 billion in bank loans its military housing projects have received. The loans – like the salaries of most Corvias workers on bases – are paid off from the housing rental stipends soldiers and airmen receive from the federal government.

The Army declined to comment on Corvias, the projects’ finances or specific tenant complaints. “The Army is committed to providing safe and secure housing for our soldiers and their families,” spokeswoman Colonel Kathleen Turner said in a statement. “We work daily with the privatized housing companies to ensure that residents’ concerns regarding their housing are addressed.”

Corvias said it is committed to quality housing for the troops. “Our core mission at Corvias is clear: put service members and their families first,” wrote spokeswoman Douglas. “That means providing a safe, comfortable home to those in the military who choose our housing.”

‘NIRVANA’ AT FORT MEADE

Maryland’s Fort George G. Meade, home to the secretive National Security Agency, is where Picerne laid the cornerstone of his military housing empire.

Like most of the Army’s family housing, the nearly 2,900 homes at Meade had fallen into disrepair under decades of government management. In official project documents from 2002, Corvias promised Meade families a better future. It would replace “obsolescent housing and catch-as-catch-can maintenance” with “a nirvana of planned Neighborhoods.” During a 10-year development phase, from 2002 to 2011, Corvias pledged to demolish all but a few hundred of the existing Meade homes and build 2,799 new ones.

Only 856 new homes were built, a nearly 70 percent reduction, Department of Defense figures show. The Army signed off on the skinnied-down target after the developer said construction costs had surged, revised plans from 2006 show.

The Corvias website features gleaming new homes at Meade and promises military families “upscale residential communities, all while saving you money.”

Some units fail to meet these promises. During an October visit to Meade, reporters saw some areas of handsome new and historic homes, but also others filled with eyesores and safety hazards.

Reuters interviewed eight Meade families and reviewed photos and documents from several others. Among the problems in the homes were a ceiling that collapsed onto a child’s bed, roofs riddled with leaks, peeling lead paint, a wasp infestation, mold blooms, waterlogged drywall and a kitchen gas leak.

By the time she left a $2,500-a-month rental home at Fort Meade this year, Emily Swinarski was chronically ill, medical records show. A physician documented her shortness of breath, chest pain and mold allergies and blamed conditions in the home, built in 1959. When Corvias tested the air quality indoors, according to a copy of the results, it showed mold counts up to 350-fold the levels found outside.

Corvias found a partially rotted wooden roof was the likely source of the fungus, Swinarski said, but told her it wasn’t willing to conduct the extensive repairs needed to rid the home of mold.

Following her doctor’s written order to “remove herself” from the home, she and her Air Force major husband moved off post, throwing out nearly $5,000 in personal belongings – a tainted new bed, a sofa and a closet-full of reeking clothes.

“We chose to just bite the bullet,” she said.

Corvias’ development plan for Fort Meade said residents would be on a “first name basis” with maintenance personnel. Last year, citing tight budgets, Corvias reduced housing staff and shuttered at least one of its five neighborhood community centers at Meade. Residents say they are now referred to a call center to submit work requests.

Maintenance crews are pressured to quickly close residents’ work orders, a Corvias employee told one Meade family in October. The family made an audio recording of the conversation with the employee. Some staff, the worker is heard saying, refer to Meade as “Section 8 behind the gate” a barbed reference to the U.S. federal system of housing projects for the poor. Corvias declined to comment.

In a Meade neighborhood where Picerne’s business pledged to build stylish new housing for officers, debris-strewn concrete foundation pads lie between two schools. An abandoned playground is overgrown with weeds.

The reason: The Army signed off on “re-scoping” the Meade project in 2006, scaling back the improvement plans after Corvias cited lower-than-expected occupancy rates, rising construction costs and costly renovation of historic homes. To save costs, the original plans had already deferred building a $1.2 million bridge over a busy thoroughfare – viewed as necessary for children’s safety, planning documents say. Children use a crosswalk instead.

Corvias and the Army didn’t address questions about conditions at Meade or the re-scoping of the housing ventures.

DESIGNER TOUCH

At his own homes, Picerne has employed British designer Martyn Lawrence Bullard, a star of the cable TV show Million Dollar Decorators.

In Picerne’s six-bedroom neo-Georgian brick house in Providence, the designer installed black-and-white marble floors. Bullard told Australia’s Belle Magazine the floor design was inspired by Rome’s Pantheon. The home features chrome and jade accents, a Murano-glass chandelier and a faux-zebra rug.

Bullard also redecorated a $6 million Rhode Island beach home across Narragansett Bay from Newport, where Picerne docks his 49-foot Italian-made yacht, the Under My Skin. In the living room, the designer hung a gilded chandelier, sheathed the walls in black seagrass and added chairs clad in turquoise-hued leather. “I took my inspiration from the Victorians,” he told another magazine. On Instagram, John Picerne lauded Bullard’s “genius design.”

Bullard recounted in an essay that he installed an exotic work of taxidermy for Picerne in a Palm Beach villa: an alligator locked in battle with a snake, mounted on a 20-foot vaulted ceiling. He called the family “wonderfully adventurous and highly discerning collectors.”

In Ireland, the designer spent months procuring finishes such as petrol-blue damask silk wallpaper and a mix of Regency and William IV antique furniture for the drawing room of Picerne’s Capard House. In September, Bullard posted a photo of the banquet hall. The long dining table was set with white linen, white roses, crystal goblets and formal place cards for 33 guests. Bullard tagged the photo ‘#Mytablesbiggerthanyours.’

Through his agent, Bullard declined to be interviewed, citing his confidentiality agreement with Picerne.

Corvias said it was unfair to draw attention to Picerne’s homes. “In too many instances, Reuters veers from reporting to tabloid-style inference,” wrote Culton, the general counsel. “Reuters’ use of personal information about someone’s private residence is more of a stunt than actual reporting.”

He added, “We welcome the opportunity to focus on the real issues, like how our nation can provide the best possible home for those who serve in uniform.”

LOW RISK, HIGH REWARD

Picerne once told a Rhode Island TV station that his military housing business is “recession-resistant.” As civilian real estate markets sputtered a decade ago amid the U.S. financial crisis, the rental revenue streams on military bases kept flowing steadily. Defense Department rent stipends to families are transferred automatically to base landlords.

The Picerne family has been in real estate for nearly a century, building a national portfolio. By the early 2000s, John Picerne struck out on his own. Known in the industry for his intelligence and deft marketing, he turned Corvias into one of the largest private operators of U.S. military homes.

Many of the dozen-plus other real estate firms with military housing contracts partner together on projects, sharing income. Picerne’s firm takes on all aspects of development, construction and management, avoiding the need to split fees.

In five of the six projects reviewed for this article, Corvias wasn’t required to invest any cash at first. At Fort Polk in Louisiana, for instance, Corvias stood to collect $43 million in fees before having to stump up its share of equity cash, $6 million, and then only 10 years into the venture.

Picerne has also been able to take out cash he hasn’t earned yet. In late 2013, according to Corvias financial statements prepared in 2015, Corvias obtained a$127 million loan from an affiliate of investment bank Guggenheim Partners. As collateral, Corvias pledged future fees from military housing.

Corvias, Guggenheim and the Army declined to comment.

GETTING AIRBORNE

Picerne’s rise into the first rank of Army landlords followed a pivotal trip he made to North Carolina’s Fort Bragg 17 years ago.

Bragg was the crown jewel of the Army’s housing privatization program. The country’s most populous military base, it includes nearly 6,500 family homes.

Picerne set out to pitch his services to Army brass. He chartered a private jet to visit Bragg in August 2001, and brought along a distinguished guest, Democratic Senator Jack Reed. A family acquaintance and fellow Rhode Islander, Reed sat on the Senate Armed Services Committee, which oversees military spending. He is now the committee’s ranking member.

Reed was once a Bragg resident himself, as an officer in the base’s famed 82nd Airborne Division, before entering politics. A spokesman for the senator, Chip Unruh, confirmed that Reed made the trip. Reed flew to Bragg with Picerne because the senator “wanted him to understand the importance of serving soldiers and see firsthand what they do, the challenges they face, the sacrifices they make, and the importance of taking good care of them,” Unruh said.

“Senator Reed respects John Picerne and his work on behalf of military families,” Unruh said. “There is no stronger advocate for military families than Senator Reed.”

Reed reimbursed Picerne for the cost of the flight, Corvias said.

At Bragg, Picerne wooed General Dan K. McNeill, at the time one of the base’s commanding generals.

One night, the two sat in the back of an Army vehicle on a live-fire shooting range during a field exercise, recalled McNeill, a retired four-star general. McNeill says he was doubtful a private developer could manage the housing better than the military. Picerne’s earnest manner and business expertise won him over.

“I was quite the cynic about it, but I basically realized I didn’t know what the hell I was talking about” when it came to managing homes, recalled the general, who retired a decade ago. “I was fairly certain he knew what he was doing and his intentions were good.”

When McNeill asked what was in it for Picerne, the general recalled, the businessman was frank. Automatic, first-of-the-month rent payments for soldiers by the military would eliminate a landlord’s biggest headache: deadbeat tenants.

Over the years, Picerne’s businesses have spent $2.8 million on lobbying, mostly of Congress and the Defense Department on issues related to military housing or Corvias contracts. Picerne has given at least another $500,000 in political contributions, mostly to Democratic politicians or committees, including about $10,000 to Reed.

Picerne has been a generous donor to charitable causes. Corvias said its foundation has awarded more than $13 million in scholarships to more than 400 military children and spouses. The foundation, which also supports other charities, from the YMCA to adopt-a-highway programs, was honored in a 2012 White House ceremony.

BIG CONTRACT, MOUNTING PROBLEMS

Corvias won the Bragg contract and took over housing there in 2003.

The company built most of the new homes it pledged to construct at Bragg. Fifteen years into the venture, however, a growing number of tenants are up in arms.

In October, Army Specialist Rachael Kilpatrick started an online petition decrying Corvias’ home maintenance. A doctor attributed her husband’s worsening health problems to mold in their home, medical documents show Corvias, she says, didn’t fix the problems despite months of requests, and complained to her commander about her maintenance demands. The petition seeks to “Hold Corvias accountable” for serious maintenance lapses in homes base-wide. She hoped it would draw 50 signatures. So far more than 2,000 have signed.

Jennifer Wade says her problems began the day she moved to Fort Bragg in March 2017. Wade, a piano teacher with a soft southern drawl, has Ehlers-Danlos syndrome. The genetic condition afflicts her body’s soft tissue, causing chronic pain. She has needed several major surgeries, spending long periods in a wheelchair.

Corvias had promised Wade a home equipped for her wheelchair, but there was no ramp or bathroom handrails when she moved in, leaving her dependent on her husband, an Army sergeant.”It was pretty degrading,” Wade said.

It took Corvias four months to install the fixtures, she said. Wade’s husband and two small children soon developed breathing problems, which their doctors attributed to mold. The doctors submitted three reports to Corvias, recommending it clean the air ducts and replace the carpet. Corvias let months go by before cleaning the ducts and declined to replace the carpet, according to notes a maintenance employee marked on Wade’s work request.

Wade’s husband now requires inhalers and wears a breathing device to assist him when he sleeps, his medical records show. He no longer meets Army fitness requirements, and is in the process of obtaining a medical discharge. Last month, an Army board recommended him for disability, citing his recent asthma, Army records reviewed by Reuters show.

Corvias and the Army declined to comment about the petition and other tenant complaints.

At Louisiana’s Fort Polk, Corvias took over operations in 2004. It inherited poor housing stock but pledged to transform the base into “state-of-the-art Neighborhoods of Excellence.”

Picerne’s firm committed to building 1,123 new homes within 11 years. Only 678 have been built, Corvias figures show. Many others were renovated.

Today, some Polk areas feature new housing. Others have worn 1970s and 1980s units. One neighborhood contains fenced-off housing foundations that have sat idle for years. A reporter entered several Polk homes, invited in by tenants, and observed mold growths, rodent-gnawed furniture, leaky roofs and brown bath water.

After Reuters informed Corvias of its findings at Polk, the company sent a December 13 holiday email to residents. Corvias told them it strives to serve tenants, but had “fallen short of that promise” in some cases. “We can do better and will make it happen.”

Leigh Tuttle, a major’s wife, said when her family moved into a renovated 1980s duplex in 2016, the place smelled like a “wet dog.” Corvias told her the stains on the floors and the air ducts were “just dust,” she said. After testing confirmed mold, staff replaced carpets but didn’t keep the air ducts clean, Tuttle said.

Her son Weston, now 5, developed breathing difficulties, his medical records show. The family moved across the country last year to a new post and live in civilian housing off base. Weston still needs inhalers and frequent nebulizer treatments.

“The mold was the worst in his room,” Tuttle said. “He wouldn’t have these problems if they’d done things right.”

The family struggles to pay for Weston’s visits to respiratory specialists, some of which aren’t covered by their military health insurance, Tuttle said. When Reuters showed her pictures of John Picerne’s estates, she took a moment to collect herself.

“I find it appalling that he’s able to have that lifestyle while service families are suffering in his homes,” Tuttle said. “I bet he doesn’t have mold growing in those mansions.”

(Editing by Ronnie Greene and Michael Williams)

Dramatic stock market rally runs out of steam

A screen displays the Dow Jones Industrial Average after the close of trading on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 26, 2018. REUTERS/Jeenah Moon

By Trevor Hunnicutt

(Reuters) – A dramatic global stock rally faded on Thursday after a fall in Chinese industrial profits offered a reminder of the pressures on the world economy.

Still, an index of world stocks stayed off near two-year lows hit earlier this week before Wednesday’s 1,000 point-plus surge on the U.S. Dow Jones index, which was attributed to the strongest holiday sales in years.

“Yesterday was a blowout day for U.S. equity markets which triggered optimism that this could be a key reversal day but the upward momentum has not really followed through,” said Lee Hardman, an analyst at MUFG in London.

“One reason is that maybe the sharp move higher was driven by year-end rebalancing, which exaggerated the scale of the rebound, and now we have reverted to the trend which has been in place most of this month.”

That trend is toward weaker stocks, U.S. dollar and oil prices along with stronger demand for safe-haven government bonds, gold and Japanese yen.

MSCI’s gauge of stocks across the globe shed 0.95 percent and U.S. crude fell 2.01 percent to $45.29 per barrel after each staged big rallies the day prior. [O/R]

Markets in mainland China, as well as Hong Kong, closed weaker after data showed earnings at China’s industrial firms dropped in November for the first time in nearly three years.

A Reuters report added to the gloom around the world’s second-biggest economy, saying the White House was considering barring U.S. firms from buying telecoms equipment from China’s Huawei and ZTE.

That and an ongoing partial U.S. government shutdown overshadowed positive noises from the U.S. government on trade talks with Beijing, its efforts to temper the White House’s recent broadsides against the Federal Reserve and a report showing the number of Americans filing applications for jobless benefits fell marginally last week in a sign of labor market strength.

The Dow Jones Industrial Average fell 394.04 points, or 1.72 percent, to 22,484.41, the S&P 500 lost 42.07 points, or 1.70 percent, to 2,425.63 and the Nasdaq Composite dropped 134.06 points, or 2.05 percent, to 6,420.29. [.N]

“So far, we don’t see a shift in fundamentals. Trade tensions between the U.S. and China remain the biggest unknown factor for 2019,” said Hussein Sayed, a strategist at online brokerage FXTM.

There were also renewed concerns in Italy, where troubled lender Banca Carige was denied a cash call by its largest shareholder, pushing its shares down 12.5 percent.

The concerns over a faltering global economy and signs of an oil glut pressured crude prices a day after their 8 percent rally. U.S. Treasury prices also reversed direction after falling sharply on Wednesday, with the 10-year note last rising 15/32 in price to yield 2.7452 percent. [US/]

Another safe-haven, gold, was up 0.6 percent to $1,274.52 an ounce, remaining just below a six-month peak hit earlier this week. [GOL/]

Investors also bought yen, strengthening that currency 0.56 percent against the greenback at 110.74 per dollar. Against a basket of trading partners’ currencies, the dollar was down 0.35 percent. [FRX/]

“We have started to see the yen regain its place as the safe haven of choice,” MUFG’s Hardman said.

(Additional reporting by Abhinav Ramnarayan and Sujata Rao in London; Editing by Chizu Nomiyama)

How partial shutdown of U.S. government could play out

FILE PHOTO: Clouds pass over the U.S. Capitol at the start of the third day of a shut down of the federal government in Washington, U.S., January 22, 2018. REUTERS/Joshua Roberts

WASHINGTON (Reuters) – A partial U.S. government shutdown was widely expected to continue after Congress reconvenes on Thursday, with lawmakers split over President Donald Trump’s demand for $5 billion in taxpayer funding for a proposed Mexican border wall.

The Senate and the House of Representatives were set to meet at 4 p.m. EST on the sixth day of the shutdown and resume debating ways to end it. That will include Senate consideration of a measure already approved by the Republican-controlled House that meets Trump’s wall-funding demand.

For that bill to move forward in the 100-seat Senate, it would need 60 votes. Republicans have only 51 seats, so they will need to try to persuade some Democrats to back the measure.

But Democrats largely oppose Trump’s proposed wall, which he had initially said would be financed by Mexico. They have offered support for $1.3 billion in general border security funding. It was not clear if some compromise could be struck between that offer and Trump’s demand.

Over the weekend, Mick Mulvaney, the acting White House chief of staff, said the White House had made a counter-offer to Democrats on border security. Media reports said Vice President Mike Pence had proposed $2.1 billion in funding.

Last week Trump said his administration was prepared for a lengthy shutdown.

After weeks of failed talks between Trump and congressional leaders, parts of the U.S. government shut down on Saturday, affecting about 800,000 employees of the Departments of Homeland Security, Justice, Agriculture, Commerce and other agencies.

Most of the federal government, which directly employs almost 4 million people, is unaffected. The Defense, Energy, Labor and other departments are funded through Sept. 30.

Even agencies that are affected never totally close, with workers deemed “essential” still performing their duties.

“Non-essential” federal workers at unfunded agencies are on furlough and staying home. Both they and essential employees will not get paychecks after December until the shutdown ends.

“We continue to believe that it is unlikely that Congress will come up with a deal to end the current partial shutdown until well into January,” financial firm Height Securities said in a commentary note on Wednesday.

The 435-seat House was set to reopen on Thursday but on Jan. 3, the 2017-18 Congress will be replaced by the 2019-20 Congress and control of the House will switch to the Democrats from the Republicans. At that time, Representative Nancy Pelosi is expected to take over as House speaker.

She has vowed swift action to fully reopen the government. Barring some sort of deal in the interim, House Democrats expect to vote on a funding bill on Jan. 3, a Democratic aide said.

In the new Congress, Senate Republicans will increase their number of seats to 53 but still will need Democratic support to pass any legislation requiring a 60-vote majority.

Details of the upcoming House bill were unclear but it was unlikely to include wall funding, like an earlier Senate measure. If such a bill were to pass the House and again win support in the Senate, it would then go to Trump.

At that point, he could face a politically difficult choice – back down on his full wall-funding demand or veto the bill and single-handedly extend the partial shutdown.

If he chose the latter, putting his personal stamp on the shutdown, Congress might then move to override his veto, but that would take a two-thirds vote in both the Senate and the House, a challenging hurdle for lawmakers.

(Reporting by Kevin Drawbaugh and David Morgan; Editing by Richard Chang and Bill Trott)

Israeli ex-general, polling closest to Netanyahu, joins 2019 election race

FILE PHOTO: Israeli military chief Lieutenant-General Benny Gantz attends a news conference in Tel Aviv, Israel July 28, 2014. REUTERS/Nir Elias/File Photo

JERUSALEM (Reuters) – A former Israeli armed forces chief who opinion polls show poses the toughest challenge to Prime Minister Benjamin Netanyahu’s bid for reelection next year formally established a political party on Thursday.

Details about Benny Gantz’s Israel Resilience Party, leaked to local media after it was registered, gave little indication of its ideological tilt.

Along with preserving Israel as “a Jewish and democratic country”, the party pledged unspecified changes to priorities in national security and the economy.

Polling has predicted an easy win for Netanyahu in the April 9 election, with his rightist Likud party taking around 30 of parliament’s 120 seats and on course to form a right-wing coalition government similar to the current cabinet.

The surveys, published after Netanyahu announced on Monday an election some seven months before one was due by law, gave second place to a then-hypothetical Gantz party. The polls forecast it would take around 15 seats.

Netanyahu is running for a fifth term under the shadow of three corruption investigations in which police have recommended his indictment. He has denied any wrongdoing.

Israel’s attorney-general has still to decide whether to charge Netanyahu and it is unclear whether he will make his announcement before the election.

Should Gantz emerge as a center-left candidate, that could work in Netanyahu’s favor by further fracturing an already disparate opposition bloc.

Gantz, 59, became Israel’s top general in 2011 after stints as commander of forces on the combustible northern frontier with Syria and Lebanon and as military attache in Washington. During his four-year term, he oversaw two wars in the Hamas-ruled Gaza Strip.

(Writing by Dan Williams; Editing by Jeffrey Heller and Gareth Jones)

Indonesia orders flights to steer clear of erupting Anak Krakatau volcano

An aerial view of Anak Krakatau volcano during an eruption at Sunda strait in South Lampung, Indonesia, December 23, 2018 in this photo taken by Antara Foto. Antara Foto/Bisnis Indonesia/Nurul Hidayat/ via REUTERS/File Photo

By Fergus Jensen

LABUAN, Indonesia (Reuters) – Indonesia on Thursday raised the alert level for the erupting Anak Krakatau volcano to the second-highest and ordered all flights to steer clear, days after it triggered a tsunami that killed at least 430 people.

A crater collapse on the volcanic island at high tide on Saturday sent waves up to 5 meters (16 feet) high smashing into the coast on the Sunda Strait, between the islands of Java and Sumatra.

Residents walk among debris after the tsunami at Labuan in Pandeglang, Banten province, Indonesia December 26, 2018, in this photo taken by Antara Foto. Antara Foto/Akbar Nugroho Gumay/via REUTERS

Authorities have warned that the crater of Anak Krakatau, or child of Krakatau, remains fragile, raising fears of another collapse and tsunami, and have urged residents to stay away from the coast.

The volcano has been rumbling on and off since June but has been particularly active since Sunday, spewing lava and rocks, and sending huge clouds of ash up to 3,000 meters into heavily overcast skies.

The national geological agency, in raising the alert level to the second-highest, set a 5-km exclusion zone around the island.

“Since December 23, activity has not stopped … We anticipate a further escalation,” said Antonius Ratdomopurbo, secretary of the geological agency.

A thin layer of volcanic ash has been settling on buildings, vehicles and vegetation along the west coast of Java since late on Wednesday, according to images shared by the national disaster mitigation agency.

Authorities said the ash was not dangerous, but advised residents to wear masks and goggles when outside, while aircraft were ordered away.

“All flights are rerouted due to Krakatau volcano ash on red alert,” Indonesia’s air traffic control agency AirNav said in a release.

AirNav’s corporate secretary, Didiet K.S. Radityo, told Reuters there were no disruptions to any international or domestic flights.

The civil aviation authority said no airports would be affected. The capital, Jakarta, is about 155 km east of the volcano.

Indonesia is a vast archipelago that sits on the Pacific “Ring of Fire”.

In 1883, the volcano then known as Krakatoa erupted in one of the biggest blasts in recorded history, killing more than 36,000 people in a series of tsunamis and lowering the global surface temperature by one degree Celsius with its ash.

Anak Krakatau is the island that emerged from the area in 1927 and has been growing ever since.

This year, Indonesia has suffered its worst annual death toll from disasters in more than a decade.

‘NO PREPARATIONS’

The latest tsunami, coming during the Christmas season, evoked memories of the Indian Ocean tsunami triggered by an earthquake on Dec. 26, 2004, which killed 226,000 people in 14 countries, including more than 120,000 in Indonesia.

Tsunami warning systems were set up after 2004 but they have failed to prevent subsequent disasters, often because apparatus has not been maintained, while public education and disaster preparation efforts have been patchy at best.

Ramdi Tualfredi, a teacher in the village of Cigondong, on Java’s west coast, said he had never got any instructions on safety steps and efforts to prepare communities for tsunami had “totally failed”.

“There were no preparations. I didn’t get information from anywhere,” he said, adding there had been little help for residents since disaster struck.

Nearly 22,000 people were displaced by the tsunami, while 1,495 were injured and 159 are missing.

Thousands of displaced are staying in tents and crowded into public buildings.

Hamad Suhaimi, a teacher working as a volunteer at a school being used as an emergency shelter, said the numbers of displaced needing help had surged as authorities expanded the area deemed unsafe.

Volunteers and displaced villagers told Reuters that conditions in the shelters were getting difficult, especially for new mothers and their babies.

“We’re breastfeeding. We have to eat in the morning but food only comes at midday and there are no vegetables,” said Siti Sayaroh, 24.

The government has declared a state of emergency until Jan. 4, to help with the distribution of aid.

(Additional reporting by Bernadette Christina Munthe, Cindy Silviana, Nilufar Rizki, Jessica Damiana, Tabita Diela; Writing by Kanupriya Kapoor; Editing by Robert Birsel)

Authorities must do more to meet airport drone threat: UK police chief

FILE PHOTO: Passengers wait around in the South Terminal building at Gatwick Airport after drones flying illegally over the airfield forced the closure of the airport, in Gatwick, Britain, December 20, 2018. REUTERS/Peter Nicholls

LONDON (Reuters) – Government and security officials must “up their game” to tackle the illegal use of drones at airports which brought chaos to London’s Gatwick airport in the run-up to Christmas, Britain’s most senior police officer said on Thursday.

Three days of drone sightings at Britain’s second busiest airport lead to about 1,000 flight cancellations and disrupted the travel of 140,000 passengers in what is thought to be the most disruptive incident of its kind.

London’s Metropolitan Police Commissioner Cressida Dick said no police force around the world could be sure of preventing the problem posed by drones at airports.

“I think the whole country and certainly the government will have watched what’s gone on and said we need to up our game here,” Dick told BBC radio.

“You won’t find a police service in the world I think who would be sitting complacently thinking: ‘well we could always deal with a drone’.”

The drones were first spotted at Gatwick on Dec. 19. Every time the airport sought to reopen the runway, the drones returned and authorities only regained control over the airfield after the army deployed military technology to guard the area.

Security Minister Ben Wallace said on Monday that Britain’s security forces now had detection systems that could be deployed across the country to combat the drone threat.

“The drone technology is always changing. We have to keep up with that. There are a whole variety of tactics and technologies that we are now using, can use and in the future they will have to change again I’m sure,” said Dick.

“I’ve been talking to colleagues around the world. I can tell you this is not an easy problem. We are doing our very best here and going into the future I’m sure working closely with others we will get better and better.”

The police investigation into the Gatwick incident is ongoing. Detectives on Sunday released without charge two people they had suspected of flying the drones.

Flying drones within 1 km (0.6 mile) of a British airport boundary is punishable by up to five years in prison.

“We need to work even more closely with the private companies, we need to work even more closely with the military, we need to try to be able to prevent the criminal use of drones for whatever motivation near our airports,” Dick said.

(Reporting by Michael Holden; Editing by William Schomberg)

In a first, Trump makes surprise visit to U.S. troops in Iraq

U.S. President Donald Trump and First Lady Melania Trump greet military personnel at the dining facility during an unannounced visit to Al Asad Air Base, Iraq December 26, 2018. REUTERS/Jonathan Ernst TPX IMAGES OF THE DAY

By Steve Holland

AL ASAD AIR BASE, Iraq (Reuters) – President Donald Trump made a surprise Christmas visit to U.S. troops in Iraq on Wednesday, his first trip to a conflict zone nearly two years into his presidency and days after announcing a pullout of American troops from Syria.

Air Force One touched down at the Al Asad Air Base west of Baghdad after an overnight flight from Washington with first lady Melania Trump, a small group of aides and Secret Service agents, and a pool of reporters. He was expected to stay for around three hours.

U.S. President Donald Trump delivers remarks to U.S. troops in an unannounced visit to Al Asad Air Base, Iraq December 26, 2018. REUTERS/Jonathan Ernst

Trump has drawn fire from some in the U.S. military for not having visited U.S. troops in conflict zones since taking office in January 2017, particularly after he canceled a trip to a World War One cemetery in France last month due to rain.

While there has been no full-scale violence in Iraq since Islamic State suffered a series of defeats last year, U.S. troops train and advise Iraqi forces still waging a campaign against the militant group.

On his way home from Iraq, he will also stop to visit troops at Ramstein Air Base in Germany.

Trump was looking for some positive headlines after days of turmoil over his decisions to withdraw all U.S. troops from Syria, pull out half of the 14,000-strong contingent in Afghanistan, and push out Defense Secretary James Mattis two months earlier than planned for criticizing his policies.

Many Republican and Democratic lawmakers have heaped scorn on Trump for his sudden order last week to withdraw from Syria.

On his stop in Iraq, he defended his decision to pull out the 2,000 troops from Syria, which he has said was made possible by the defeat of Islamic State militants.

His critics have said that fight is far from over and the withdrawal leaves allies in the lurch.

One of those critics was Mattis, who said in a candid resignation letter last week that his views did not align with the president’s, particularly in regard to the treatment of U.S. allies. Mattis had planned to leave at the end of February but Trump forced him to go on Jan. 1 after his resignation letter.

Trump has also faced negative headlines for wanting to pull troops from Afghanistan where they have been since 2001. Trump has questioned how long troops there should have to remain in what has become America’s longest war.

Trump’s unannounced visit to Iraq followed in the footsteps of two of his predecessors, Republican George W. Bush and Democrat Barack Obama, who both made surprise trips to see troops.

The U.S. military says it has about 5,200 troops in Iraq, focused on training and advising Iraqi troops to ensure that Islamic State does not re-emerge.

NATO defense ministers agreed in February to a bigger “train-and-advise” mission in Iraq after a U.S. call for the alliance to help stabilize the country after three years of war against Islamic State.

Trump has had an uneven relationship with America’s military. He did not have to serve during the Vietnam War after being diagnosed with bone spurs in his heels.

As president-elect, Trump was drawn to the brawn of the armed forces and stacked his first Cabinet with generals, many of whom have since left his administration.

Trump has also wanted to end protracted U.S. involvement in overseas conflicts, and to force allies to pay more for the costs that he says fall disproportionately on American taxpayers.

(Reporting By Steve Holland; Editing by Mary Milliken and Alistair Bell)

Belgian judge orders repatriation of six children of Islamic State militants

FILE PHOTO: Kurdish-led militiamen ride atop military vehicles as they celebrate victory over Islamic State in Raqqa, Syria, October 17, 2017. REUTERS/Erik De Castro/File Photo

By Charlotte Steenackers

BRUSSELS (Reuters) – A Belgian judge has ordered the government to repatriate six children of Islamic State (IS) militants and their mothers who have been detained in a camp in Kurdish-controlled Syria, the national news agency Belga said on Wednesday.

Tatiana Wielandt, 26, and Bouchra Abouallal, 25, both Belgian citizens, and their children have been held in the Al-Hol camp in since the defeat of IS in nearly all territory it once held in Syria and Iraq.

Belga quoted the court ruling as ordering the Brussels government to take all necessary and possible measures to ensure the six children and their mothers can return to Belgium.

It must do so within 40 days after being notified of the decision or pay a daily penalty of 5,000 euros for each child, up to a maximum 1 million euros, newspaper De Tijd said. The Belgian government can appeal the ruling.

No comment was available from the court on Wednesday due to a public holiday. A lawyer for the two women was not immediately available for comment.

A spokesman for the foreign ministry said it would “analyze the situation together” with the justice and interior ministries.

Hundreds of European citizens, many of them babies, are being kept by U.S.-backed Kurdish militias in three camps since IS was ousted last year from almost all the large swathes of territory it seized in 2014-15, according to Kurdish sources.

European nations have been reluctant to take them back, regarding children of jihadists both as victims and threats – difficult to reintegrate into schools and homes.

European diplomats say they cannot act in a region where Kurdish control is not internationally recognized. Moreover, there is little popular sympathy for militants’ families after a spate of deadly IS attacks across western Europe.

The Kurd say it is not their job to prosecute or hold them indefinitely, leaving the women and children in legal limbo.

However, mounting concern over the apparent abandonment of hundreds of children with a claim to EU citizenship – most of them under six – is pushing governments to quietly explore how to tackle the complexities of bringing them back.

(Reporting by Charlotte Steenackers; Editing by Mark Heinrich)

Special Report: Oil output goes AWOL in Venezuela as soldiers run PDVSA

FILE PHOTO: (L-R) OPEC Secretary General Mohammed Barkindo, Venezuela's President Nicolas Maduro and Venezuela's Oil Minister and President of the Venezuelan state oil company PDVSA Manuel Quevedo, shake hands during their meeting at Miraflores Palace in Caracas, Venezuela February 5, 2018.Miraflores Palace/Handout via REUTERS/File Photo

By Alexandra Ulmer and Marianna Parraga

CARACAS (Reuters) – Last July 6, Major General Manuel Quevedo joined his wife, a Catholic priest and a gathering of oil workers in prayer in a conference room at the headquarters of Petroleos de Venezuela SA, or PDVSA.

The career military officer, who for the past year has been boss at the troubled state-owned oil company, was at no ordinary mass. The gathering, rather, was a ceremony at which he and other senior oil ministry officials asked God to boost oil output.

“This place of peace and spirituality,” read a release by the Oil Ministry that was later scrubbed from its web site, “was the site of prayer by workers for the recovery of production of the industry.”

President Nicolas Maduro turned heads in November 2017 when he named a National Guard general with no oil experience to lead PDVSA [PDVSA.UL]. Quevedo’s actions since have raised even more doubts that he and the other military brass now running the company have a viable plan to rescue it from crushing debt, an exodus of workers and withering production now at its lowest in almost seven decades.

Aside from beseeching heaven, Quevedo in recent months has enacted a series of controversial measures that oil industry experts, PDVSA employees and contractors, and even everyday citizens say are pushing the once-profitable and respected company towards ruin.

Soldiers with AK-47s, under orders to prevent cheating on manifests, now board tankers to accompany cargo inspectors, rattling foreign captains and crews.

Workers who make mistakes operating increasingly dilapidated PDVSA equipment now face the risk of arrest and charges of sabotage or corruption. Military chieftains, moonlighting in the private sector, are elbowing past other contractors for lucrative service and supply business with PDVSA.

In a little-noted reversal of the Socialist government’s two-decade drive to nationalize the industry, the lack of expertise among military managers is leading PDVSA to hire outsiders to keep afloat even basic operations, like drilling and pumping oil. To the dismay of many familiar with Venezuela’s oil industry, some of the contracts are going to small, little-known firms with no experience in the sector.

Combined, industry veterans say, the steps leave Venezuela’s most important company – which accounts for over 90 percent of export revenue – with even fewer means to rebuild the nation’s coffers, pay its many creditors and regain self-sufficiency as an oil producer.

“What we are witnessing is a policy of destroying the oil industry,” said Jose Bodas, general secretary of the Oil Workers Federation, a national labor union. “The military officials don’t listen to workers. They want to give orders, but they don’t understand this complicated work.”

Maduro defends the military managers, arguing they are more in synch with his Socialist worldview than capitalist industry professionals who exploit the country for personal profit. “I want a Socialist PDVSA,” the president told allied legislators earlier this year. “An ethical, sovereign and productive PDVSA. We must break this model of the rentier oil company.”

Quevedo, who holds the title of oil minister as well as president of PDVSA, didn’t respond to requests for comment for this story. Neither Venezuela’s Information Ministry, responsible for communications for the government and senior officials nor PDVSA’s press office returned phone calls or emails from Reuters.

PDVSA and the Oil Ministry disclose scant information about Quevedo, who is 51, according to his social security registration. He seldom makes public speeches. But at an industry event in Vienna last June, Quevedo told journalists PDVSA is aware of its challenges and hoped within months to make up for plummeting output.

“We hope by year end to recover the lost production,” he said in a forecast that has been missed. “We have the capacity and we have summoned the strength of the workers.”

Nearly 20 years after the late Hugo Chavez launched his “Bolivarian revolution,” much of Venezuela is in tatters. Food and medicines are scarce, hyperinflation has gutted purchasing power for increasingly desperate citizens and roughly three million Venezuelans have fled the country in search of a better life.

At PDVSA, managers long sought to keep the company running, even if the economic meltdown and falling oil prices meant they had fewer resources to invest in exploration, growth and basic maintenance. Despite their efforts, decay led to dwindling production, deteriorating facilities and a progressive loss of skilled workers.

Now, critics say, military officials atop PDVSA have put aside any pretense of running it like a proper business, doing little to stem the fall in production or improve the company’s financial, operational and staffing problems.

A PURGE

No matter the dysfunction, PDVSA remains a rare and crucial source of foreign currency in the enfeebled Andean country. For Maduro, who became president after Chavez died in 2013, handing the company over to the military is seen by many as a calculated move to buy loyalty from officers.

“No one will be able to remove the military from PDVSA now,” said Rafael Ramirez, a former oil minister. Ramirez ran the company for a decade under Chavez before clashing with Maduro, who accuses him and many other former executives of corruption. “PDVSA is a barrack.”

PDVSA is struggling to fulfill supply contracts with buyers, including major creditors from China and Russia who have already advanced billions of dollars in payments in exchange for oil. Last month, the head of Rosneft, the Russian oil company, flew to Venezuela and complained to Maduro about the delays, Reuters reported.

Demand remains healthy for Venezuelan oil. Operational problems under Quevedo, however, have caused production to drop 20 percent to 1.46 million barrels per day, according to the latest figures Caracas reported to OPEC, the oil cartel, of which it is a member.

Quevedo in January will assume OPEC’s rotating presidency for one year. PDVSA’s financial problems are likely to demand much of his attention.

The gross value of PDVSA’s oil exports is expected to fall to $20.9 billion this year compared with $24.9 billion last year, according to a calculation provided to Reuters by the International Energy Center at IESA, a Venezuelan business school. Exports a decade ago were over four times as much, reaching $89 billion, according to PDVSA’s accounts for 2008.

PDVSA didn’t publish a 2017 report and hasn’t released financial results in 2018.

Little has been publicly disclosed by PDVSA or Maduro’s government about the military transformation within its ranks.

A Reuters examination based on confidential PDVSA documents – as well as interviews with dozens of current and former employees, shippers, traders, foreign oil executives and others who do business with the company – shows how Quevedo’s National Guard is seeping into every facet of its operations. The documents include employment records, agreements with contractors and internal staff memos.

Quevedo has appointed more than 100 aides and advisors from the military and from a previous post as a government minister to senior positions, according to a person familiar with PDVSA’s human resource records.

At its shabby concrete Caracas headquarters, once brimming with suited executives, military officers are now in charge of operations. Workers say offices in Quevedo’s penthouse sanctum remain luxurious. But in the run-down halls below, socialist propaganda, including portraits of Fidel Castro and Ernesto “Che” Guevara, is among the scant decor left on the walls.

The shift toward military management was the result of a purge of PDVSA leadership.

Allegations of corruption have been rife across the Venezuelan government in recent years; Maduro himself is the target of U.S. sanctions for graft and human rights violations, which he denies.

In 2017, the president leveled his own accusations against PDVSA, describing it as a den of “thieves.” He accused many former executives of skimming from contracts and laundering money and argued that their graft worsened the country’s crisis.

He ordered the arrest of dozens of top managers, including PDVSA’s two previous presidents, chemist Nelson Martinez and engineer Eulogio Del Pino. Martinez died at a military hospital earlier this month, suffering a heart attack while undergoing kidney dialysis, two people familiar with the circumstances said.

Del Pino remains detained, awaiting trial. Reuters was unable to reach his lawyers for comment. A person familiar with Del Pino’s defense said he has yet, after a year in jail, to have an initial court hearing.

LOYALIST

At the time of the purge, Quevedo had risen from the National Guard ranks to become a prominent government loyalist.

Quevedo’s Twitter profile often features a photo of the general, a stocky and balding man with heavy eyebrows, reviewing paperwork with the president or smiling happily alongside him. His feed consists almost exclusively of retweets of Maduro’s posts.

Since 2001, the general has moved between military and civilian positions. He has a longstanding relationship with Diosdado Cabello, the powerful vice president of the Socialist party: The two were classmates as young men at military school.

Those ties led to senior posts for Quevedo at the Defense Ministry and a program created by Chavez for low-income housing, according to official government gazettes and people who know his trajectory.

In 2014, back in a command role with the National Guard, Quevedo led a unit that clashed with demonstrators during protests that shook Venezuela for four months. At least 43 people, on both sides, died during the demonstrations, sparked by the onset of food shortages.

Quevedo was criticized by many government opponents for using excessive force, which he denied. He appeared frequently on state television at the time, donning an olive-green helmet and bullet-proof vest. “These are terrorist groups,” he said of the protestors, who eventually dissipated, leading him to declare that “the coup has been defeated.”

Pleased with Quevedo’s performance, Maduro in 2015 named him housing minister. In his two years in the post, he again became a fixture on state television, often wearing the red shirt of the Socialist movement and praising Maduro’s “humane” housing policies.

Opposition leaders scoffed at what they saw as Quevedo’s outsized boasts, including an unsubstantiated claim that the government constructed more than 2 million homes, despite widespread shortages of basic building materials. The housing ministry didn’t respond to requests for comment.

In November 2017, intelligence agents arrested former PDVSA chief Del Pino in a predawn raid on unspecified graft charges. By then, Quevedo was Maduro’s choice to lead the all-important company. The announcement prompted widespread skepticism in the industry.

Quevedo said he would need little time to get a handle on the oil businesses. “Give me 10 days,” he told acquaintances, according to one person who spoke with him at the time.

From the start, Maduro made clear the challenge ahead. In a public address during “Powerhouse Venezuela 2018,” a government conference meant to showcase business potential, the president ordered Quevedo to boost oil output by a whopping 1 million barrels per day – roughly a 50 percent increase at the time.

Over the past year, though, Quevedo has failed to reverse the slide.

One of his first challenges, according to people within PDVSA, was to stanch the flow of workers, many of whom deserted the company and Venezuela altogether. PDVSA hasn’t disclosed recent employment figures. But estimates by IPD Latin America, an oil and gas consultancy, indicate PDVSA has about 106,000 workers, 27 percent fewer than in 2016.

Because of cost-of-living increases that now top 1 million percent per year, according to Venezuela’s National Assembly, PDVSA salaries have crumbled to the equivalent of a handful of dollars a month for most workers.

With no money and little real work to do at idle and faulty facilities, some employees only show up to eat at the few company cafeterias that remain open. Shippers told Reuters that PDVSA workers at times board vessels to ask for food.

“MALICE”

To boost manpower, Quevedo has been staffing some jobs, including posts that once required technical knowledge, with National Guard recruits. The terminal of Jose, a Caribbean port in northeast Venezuela, is one of the few remaining facilities from which PDVSA exports crude oil.

The changes are disturbing buyers here. Some tanker captains complain that young soldiers are woefully unprepared to verify technical details, like whether crude density, a crucial attribute of quality, comply with contract specifications, according to three shippers and one PDVSA employee.

Crews fret a stray bullet from the soldiers’ rifles could spark fires and complain that some of the crime afflicting the country is making its way on board. Although Quevedo has tasked the soldiers to help spot graft, some of the low-paid recruits ask for bribes themselves, shippers said, for signing off on paperwork or completing inspections.

“There are many risks,” one captain told Reuters.

Venezuela’s Defense Ministry, which oversees the National Guard, didn’t respond to Reuters phone calls or emails requesting comment.

Even with soldiers as substitutes, PDVSA can’t find the workers it needs to man many posts. From the processing of crude at refineries to contract negotiations with buyers, the shortage of skilled staffers is hobbling the company.

In a recent internal report, PDV Marina, the company’s maritime unit, said staffing was in a “critical state” on PDVSA’s own tankers, forcing some workers to toil far more than allowed by union rules. The “alarming deficit of main staff,” the report read, means “we cannot honor labor agreements.”

Tensions with military managers are causing even more departures, some workers say.

Consider an incident in June, when two tankers docked at Jose. One prepared to take on heavy crude, the other a lighter grade of oil.

As the tankers loaded, PDVSA port employees noticed a mixup – the two crudes had blended. The mistake, the government said later, forced PDVSA to pay the buyers, because of contractual penalties, $2.7 million.

It would also be costly for nine PDVSA employees.

Shortly after the error, soldiers and intelligence agents arrested the workers, and prosecutors charged them with sabotage. “This was premeditated,” said Tarek Saab, Maduro’s chief prosecutor, announcing the arrests on television. “The actions go beyond negligence – there was malice here.”

After three days in an overcrowded military jail, they were released, pending trial. Two workers in the oil industry familiar with their case said poor maintenance, not sabotage, caused the mishap. A faulty valve system, flimsy after years without upkeep, caused the fuels to mix, they said.

Six months later, the government has presented no evidence against the workers.

Reuters was unable to reach the accused or to independently determine the cause of the mishap. Colleagues said the workers are under orders not to speak publicly of the incident.

The arrests have rattled PDVSA employees, especially because soldiers and intelligence agents have also detained workers at other facilities after mistakes.

In July, four PDVSA employees were arrested after crude spilled into a river near an oilfield in the state of Monagas, according to workers and media accounts there. One worker in Monagas told Reuters that faulty turbines caused the spill and that a vehicle shortage kept employees from reaching the site to stem the flow.

“We don’t understand how a lack of resources becomes an excuse to accuse workers of negligence or sabotage,” he said. “They’re being asked to work without safety equipment, tools, even without being able to feed themselves or their families.”

Quevedo has been creating new partnerships that are meant to shore up PDVSA. In August, for instance, the general said the company was “opening its doors” for seven private companies to pursue unspecified “service contracts” across the country.

The move raised eyebrows here, because it ran counter to longstanding efforts to nationalize the entire industry. Chavez himself phased out similar contracts, arguing that they enriched private enterprise for work that the state should do itself.

According to a document seen by Reuters, the companies obtained six-year agreements to operate oilfields on behalf of PDVSA in return for boosting output, financing investments and procuring equipment.

But the companies are unfamiliar even to veterans of Venezuela’s oil industry. None are recognized as having experience operating oilfields. Consorcio Rinoca Centauro Karina, one of those listed on the document, doesn’t appear to have a web site. Reuters was unable to reach it or any of the others.

Critics of the arrangements, and government opponents, say the transactions aren’t transparent. By keeping details from the public, they argue, the company faces little scrutiny over whom it chooses to do business with.

“PDVSA is looking to maintain its confederation of mafias, its quota of looting,” said Jorge Millan, an opposition legislator who in September led a push in the National Assembly to denounce the contracts.

While Quevedo’s militarization of PDVSA hasn’t reversed the company’s decline, the government shows few public signs of displeasure. In October, the government announced a PDVSA board shuffle. Among the changes: Jose Rojas, another National Guard general, replaced a civilian director.

Past executives joke that Quevedo knew what he was doing when he prayed for help.

“He’s right,” said Jose Toro Hardy, an economist who served on PDVSA’s board of directors in the 1990s. “A miracle is needed for an increase in these conditions.”

(Additional reporting by Mayela Armas and Vivian Sequera in Caracas and Ernest Scheyder in Vienna. Editing by Paulo Prada.)

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