SOUTH AMERICA: Brazil and Venezuela, the Motors of Integration

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 30 2005 (IPS) - Brazil and Venezuela, whose leaders have been the driving forces behind the creation of the new South American Community of Nations, took advantage of the group’s first summit meeting to reinforce their economic ties.

The signing of agreements by the Brazilian oil giant Petrobras and its Venezuelan counterpart, Petróleos de Venezuela (PDVSA), for the construction of a refinery in Brazil and joint exploration of Venezuelan oilfields was the latest step in the forging of closer relations between the two South American nations, a process that has been ongoing for several years.

The five agreements between the two state-owned oil companies, signed on the occasion of the first meeting of heads of state of the South American Community of Nations, which took place Thursday and Friday, will involve investments totalling 4.7 billion dollars in the two countries.

The main joint initiative is the refinery to be built in Porto Suape, in the northeastern Brazilian state of Pernambuco, at a cost of 2.5 billion dollars. The refinery will be able to process 200,000 barrels of oil a day as of 2011.

In addition to the economic factors behind the decision to build the refinery in Pernambuco, Venezuelan President Hugo Chávez expressed a particular preference for this state because it was the birthplace of José de Abreu e Lima, who fought alongside liberation hero Simón Bolívar for 14 years in the struggle for the independence of Venezuela and Colombia.

The new refinery, for which Petrobras and PDVSA will each provide one half of the initial capital, will be located halfway between Venezuela and the main oil producing area of Brazil, the Campos basin off the southeastern coast, near Rio de Janeiro.

Once it is in operation, the new installation will increase Brazil’s oil refining capacity by 10 percent, and will also facilitate the supply of oil to the Brazilian northeast, the country’s poorest region.

It will also serve the essential function of processing heavy crude from both countries to produce diesel fuel for motor vehicles as well as liquefied gas, which Brazil currently imports, although it produces enough gasoline to export the surplus.

Heavy crude sells at lower prices than light crude on the international market, which means it is preferable to refine it and export the resulting by-products, said Petrobras president Sergio Gabrielli.

The 10 existing Petrobras refineries, all built before 1980, do not completely process heavy crude.

The Brazilian-Venezuelan oil partnership has come “200 years late” as an assertion of South American autonomy, said Brazilian President Luiz Inácio Lula da Silva.

Actually, this cooperation would have been more useful in past decades, since Brazil is now close to being self-sufficient in oil production, Argemiro Procopio, a professor of international relations at the University of Brasilia, commented to IPS.

But it is in the last few years that economic ties between the two countries have been significantly boosted in a wide range of sectors, owing to the ideological affinity between the left-leaning Lula and Chávez administrations.

Brazilian exports to Venezuela, which totalled 1.09 billion dollars in 2001, fell by close to 40 percent over the two following years due to Venezuela’s economic recession triggered by political upheaval – including a failed coup against Chávez – and a two-month general strike by the opposition that brought the oil industry virtually to a halt.

Nevertheless, exports rallied, reaching 1.464 billion dollars in 2004, and totalling 1.37 billion dollars in the first eight months of this year alone.

The rise in Brazilian exports to Venezuela has been fuelled primarily through sales of motor vehicles and automotive parts, cellular phones and foodstuffs.

More recently, however, goods required for the modernisation or redevelopment of agriculture have come to make up a growing share of Venezuela’s purchases, reflecting a process currently underway in the country.

With an economy based almost exclusively on oil, agriculture was largely abandoned, and Venezuela imported 88 percent of the food consumed there until Chávez came to power, explained Joao Pedro Stédile, a coordinator of Brazil’s Landless Workers Movement (MST) who recently visited Venezuela.

The MST is supporting the agricultural recovery in Venezuela, where “everything is lacking,” from seeds, equipment and technology to small farmers and rural workers needed to farm the land, said Stédile.

The Brazilian farm machinery industry has experienced a boom in sales thanks to this Venezuelan initiative, with a tenfold increase in exports of combines between 2003 and 2004 and a fourfold increase in exports of tractors.

At the same time, Venezuela’s windfall profits from sky-high international oil prices have led to an upsurge in investment in infrastructure, in which Brazilian companies are also playing an expanding role.

For instance, the Odebrecht construction firm is building two subway lines in Caracas and another in Teques, as well as bridges spanning the Orinoco River and an irrigation system near the northwestern city of Maracaibo.

Meanwhile, Venezuela has emerged as an alternative although distant source of natural gas for Brazil, given the uncertainties surrounding its current main supplier, Bolivia.

Petrobras has made major investments in natural gas exploration and production in Bolivia, but was hit hard by recent tax and royalty hikes there.

The Brazilian newspaper O Estado de Sao Paulo recently reported a possible long-term project for an 8,000-km gas pipeline that would run from Venezuela through Brazil and on to Argentina and Uruguay.

A Petrobras spokesperson said that for the moment, the pipeline is only an idea in the initial phases of study.

Giuseppe Bacóccoli, an expert on energy issues at the Federal University of Río de Janeiro, told IPS that the project is not feasible in the short or medium-term, but that it would likely become inevitable at some point, when South America has a broad network of national gas pipelines, like Europe’s.

Reliable energy supplies require broad networks and varied sources of imports, and Brazil cannot depend, for example, on a single large supplier as is the case today with Bolivia, he argued.