Venezuela’s military might will be on full display on Tuesday as Hugo Chávez, the country’s president and a former paratrooper, celebrates winning back Venezuela’s natural resources in the oil-rich Orinoco for the people.
”Venezuela’s privatisation of oil has come to an end,” Mr Chávez said recently, promising to hoist the national flag over installations in the area that boasts the largest heavy oil deposits in the world.
But in spite of the bombast, this “nationalisation” is in fact the start of a renegotiation of contractual terms that will more than likely leave PdVSA with a majority stake.
The international oil companies – ConocoPhillips, ExxonMobil, Chevron, Total, BP and Statoil – are being faced with several key issues: whether they will retain a sufficient stake to make staying worthwhile; how they are to be compensated for their reduced share; and whether they have a hope of exploiting reserves technically owned by Venezuela.
The market value of the companies’ assets in the Orinoco Belt is about $15bn (€11bn, £7.5bn) meaning $4bn-$5bn is at stake, although analysts say compensation is likely to be less given Venezuela’s threat to pay only book value.
ConocoPhillips of the US has the largest exposure to Venezuela and is the only company yet to sign up to the negotiations. It has been sending mixed signals, with Jim Mulva, chief executive, having said the company acknowledged that Pdvsa would take day-to-day control come May 1.
When Total and Eni, the European groups, took a similar stand over different oilfields last year, Total ended up reaching an agreement with Pdvsa and Eni took the issue to international arbitration in New York.
Negotiations over Orinoco will continue for several months after May 1. Mr Chávez wants control of at least 60 per cent of the projects – a vastly different proposition for the oil majors, who carved out attractive fiscal arrangements during the 1990s, when oil prices were low and Venezuela was desperate to attract investment.
”The government was right to change the terms, but it needs to be careful those changes do not lead to a complete loss of interest from the companies to make further investments,” said Roger Tissot, an analyst at PFC Energy.
Analysts question PdVSA’s own ability to shoulder the industry’s investment burden alone.
They say its funds have been directed towards political goals at the expense of exploration and development investment. Spending on social programmes almost doubled in 2006 to $13.3bn, while heavily subsidised domestic oil consumption costs around $9bn a year. PdVSA also sells cheap oil to political allies in the region, such as Cuba, and is financing the nationalisation of telecommunications and electricity companies.
A smooth transition of the Orinoco projects is critical. “If the organisational structure is changed, there is a risk that production could fall or that its regularity or reliability could be affected,” said Enrique Sira, a Caracas-based analyst for Cambridge Energy Research Associates.
Some companies may leave altogether, but are expected to do their utmost to stay. In spite of the hurdles, the Orinoco Belt is one of the few remaining oilfields with great potential for development that is not already wholly in the hands of national oil companies.
Venezuela’s President Hugo Chavez said on Monday he wanted the Opec nation to withdraw from the Washington-based international multilateral lending organisations, the International Monetary Fund and World Bank, reports Reuters. Mr Chavez says the organisations are to blame for continued poverty throughout Latin America and he plans to create an alternative that would be a lending bank run by nations in the region. Leaving the IMF and the World Bank would sever ties between the fifth largest oil supplier to the United States and the world’s leading lenders to emerging nations.
Venezuela seizes last private oil fields
President Hugo Chávez on Tuesday celebrated the “nationalisation” of Venezuela’s last foreign-controlled oilfields, situated in the Orinoco Belt, which could contain the biggest oil reserves in the world.
Mr Chávez has hailed the move as the end of the exploitation of Venezuela’s resources by multinational corporations, although the change, in effect, means only that the state will receive majority control of four heavy oil projects, reducing the stakes of ConocoPhilips, Chevron, ExxonMobil, Total, BP and Statoil, which are worth more than $15bn (£7.5bn, €11bn).
“Welcome to the new PDVSA,” Rafael Ramírez, Venezuela’s energy minister in charge of the state oil company, said to a crowd of workers. The workers had substituted their traditional blue helmets for red ones – the colour favoured by Mr Chávez’s followers – highlighting the increasing politicisation of the company.
Television footage also showed the oil workers raising the flags of Venezuela and PDVSA over a refinery and the four drilling fields.
A fly-over by recently imported Russian-made fighter jets was also planned, as well as a strong military presence. Venezuela was exercising “its right to administer its natural resources in benefit of the people”, said Mr Ramírez.
Mr Chávez also took advantage of international workers’ day to announce a 20 per cent increase in the national minimum wage. He said that the increased wage was equivalent to $286 (€209, £143) a month, “one of the highest levels in the whole of the American continent”.
However, inflation figures released for April showed a rise in prices of 1.4 per cent in the last month, causing year-on-year inflation in the last 12 months to rise to 19.4 per cent from 18.5 per cent a month earlier.
In a further sign of independence from what Mr Chávez called “mechanisms of imperialism”, he announced on Monday his intention to terminate Venezuela’s membership of the International Monetary Fund and the World Bank. This follows a similar show of bravado from Ecuador, which expelled the World Bank’s representative in Quito, after accusing the organisation of “extortion”.
Mr Chávez has also threatened to withdraw from the Organisation of American States if it condemned his decision not to renew the licence of a local television station, RCTV.
Negotiations now officially begin for increasing the state share in the Orinoco Belt oil projects to a minimum of 60 per cent, with a June 26 deadline for an agreement.
Last week, all the large oil groups involved, except ConocoPhilips, signed a memorandum of agreement to hand over control to the state. Venezuela has threatened to expropriate ConocoPhilips’ assets if it fails to comply.
The measure brings “to a definitive end the historic chapter known as the oil ‘opening’, which was no more than handing our oil over to the empire through these companies”, Mr Chávez said at the weekend.
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