VENEZUELA-OIL: Experts Push Opening Rather than Privatisation

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, Nov 8 1994 (IPS) - New and existing non-essential activities of Venezuela’s state-run oil company should be opened to private capital rather than the entire firm being privatised, experts said during the initial debates of the Fifth Venezuelan Oil Congress.

“An opening to private capital within the existing legal framework is emerging as the best option,” said Juan Szabo, principal exponent of the privatisation of the industry.

Venezuela’s oil industry became a state monopoly in 1976, “when conditions in the country and the global economy were different,” said the President of ‘Petroleos de Venezuela’ (PDVSA), Luis Giusti, who added that existing laws “cannot act as a straight jacket.”

Former PDVSA president Andres Sosa proposed selling 49 percent of shares to private hands. The consortium currently has over 22 billion dollars worth of assets in America and Europe, and gross sales in 1993 of 19 billion dollars.

“Between the two extreme positions there is a range of formulas and options with which to move forward,” said former oil industry executive and principal organiser of the congress Alberto Quiros.

Szabo added that “PDVSA’s activities, and the legal and fiscal framework within which they take place (the company pays over 70 percent of its earnings in taxes) make it difficult to think of privatising the firm as a practical option.”

Miguel Bocco with Venezuela’s private oil chamber said the PDVSA should keep carrying out business “as it has been doing” in traditional areas, but that new activities, petrochemicals and services needed by the industry should be in private hands.

Up to now, the state-run Pequiven company has carried out two thirds of petrochemical production, while contracts have been granted to foreign companies to operate secondary oilfields based on existing laws, and joint ventures have been formed for the exploitation of gas and heavy crude oils.

Venezuela’s deep-lying light and medium crude oil deposits are the “last frontier” to be exploited by joint ventures after 1995, if the Venezuelan parliament gives the go-ahead to PDVSA projects.

During the conference, Szabo listed arguments for the opening of the oil sector to private capital, starting with the country’s “abundant base of resources to be discovered and exploited.”

He pointed out that Venezuela has 64 billion barrels of proven reserves, over 40 billion to be located by means of joint venture contracts and 270,000 barrels of non-conventional crude oil in the ‘Faja del Orinoco’.

The second reason he mentioned is the opportunity provided by growing demand, expected to increase from one to two percent a year until 2003 when the world will use from 76 to 83 million barrels of oil a day, compared to the current 67 million being consumed.

Meanwhile, the production of non-OPEC (Organisation of Petroleum Exporting Countries) nations is expected to drop, and within the organisation, offer will be restricted to those countries that have large reserves and the ability to respond to increases in demand, such as Saudi Arabia, Kuwait, Iran, Iraq, United Arab Emirates and Venezuela.

With current OPEC quotas, Venezuela would be able to place over four million barrels, compared to the 2.6 million which it currently extracts.

Another reason is that PDVSA’s financial, technological and administrative capacity is limited. Szabo stressed that at the current rate of investment – 200 million dollars a year – the company would take 35 years to locate the 40 billion barrels which it proposes exploring through joint ventures.

The specialist also praised the joint ventures and contracts to share risks and earnings which PDVSA has entered into, while he is studying two additional formulas for the inflow of private capital to the firm.

The first is the selling of shares, which would favour national development, but would have negative effects if the last buyer is a rival company of PDVSA with only short-term vision and interests.

Another option is the participation of independent private companies in PDVSA, the advantage of which would be a maximisation of efficiency, but Szabo warned that “multinational companies could operate as a foreign enclave as occurred” prior to 1976.

The congress – the fifth of its kind since 1962 – will end on Friday and present its recommendations to the Venezuelan government and parliament.