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Venezuela's petroleum industry: When principles are involved.

By Gustavo Coronel

08.04.06 | Many years ago I was working for Shell in Lagunillas, as a Production Engineer in charge of a lake area. My English supervisor asked me to accompany him to a meeting with the Ministry Inspector in Maracaibo. When we arrived to the meeting the Inspector told us that they wanted the company to increase production in the area I was in charge of. My supervisor remarked that to increase production of oil we had to produce more associated gas and would have to flare it, probably decreasing ultimate recovery and shortening the life of the reservoir. The inspector insisted that these were his instructions. My supervisor refused to do it.

That day I found out, not for the first time, that not all petroleum heroes were Venezuelan and not all the villains were foreigners. Sometimes it was the opposite, as this meeting evidenced. This is why I was always very careful to assign roles of good guys-bad guys in a preconceived manner. I think that my English supervisor acted that day in the best interests of my country and that the Ministry bureaucrat acted in a politically motivated manner, against national interests.

Many times in my oil industry career I would corroborate this need to examine the true motivations of people and the nature of their actions, to establish if I was dealing with heroes or villains. The years of the debate on Venezuelan oil nationalization (1972-1976) and the history of the development (and involution) of Petroleos de Venezuela (1976-2006) have given me ample opportunity to reaffirm this need for an unprejudiced and honest evaluation.

Today there is new drama unfolding in the Venezuelan petroleum industry. As a result of the increasingly ideological stance of the Hugo Chavez socialist revolution, Petroleos de Venezuela is being used as a political weapon to punish “enemies” and reward “friends”. One of the major components of this strategy has to do with the unilateral change in terms made by Petroleos de Venezuela in the contracts that regulate the work of international companies active in the country as production contractors. The Chavez regime decided to increase taxes paid by these contractors, on the grounds that they were not “contractors” but “producers”, although they had no title to the oil production they generated. Furthermore the regime imposed a “migration” of these contracts (or else) to new joint ventures in which the foreign companies would have minority participation, although the manner in which PDVSA will put up their share of the money and the mechanisms of compensation for the investments already made by the foreign companies remain to be seen. When some companies objected to what they perceived as a high-handed treatment, they were publicly chastised by Rafael Ramirez, the person who serves as Minister of the sector and president of Petroleos de Venezuela, (A duality that says it all about the lack of managerial independence of PDVSA).

Today ExxonMobil has been “politically” expelled from the country. ENI, the Italian company, has seen its producing field Dacion intervened by the regime and is now threatening with legal actions. Total, the French company and small U.S. Company Harvest are being strongly harassed. Statoil, the state Norwegian Oil Company, is trying to sell some of its interests in the country. Repsol and Teikoku, companies from Spain and Japan must be currently thinking of how to react. In parallel, the regime is flooding the press with news about having 1.3 trillion barrels of oil reserves (see article in BBC News “Chavez rules out return to cheap oil, Meirion Jones, April 3, 2006) in the Orinoco Basin. This claim is both inaccurate (recoverable reserves are estimated to be in the order of 270 billion barrels) and old (this estimate of recoverable reserves from the Orinoco heavy oil deposits has been known for at least 30 years). Through this sensationalistic claim, made by Chavez to BBC with the help of non-oil expert Greg Palast, the Chavez regime pretends to scare the oil world into obedience.

These actions by the Chavez regime are contrary to the national interest. They are guided by ideology and resentment against the first world. Chavez believes the first world is to blame for his personal deficiencies and frustrations.

Worse still, the employees of the contractors, which are members of the opposition to Chavez, are being persecuted. According to newspaper reports the foreign companies are being requested by PDVSA to dismiss many of them. If this is true, then we are going beyond commercial or political issues, into the realm of human rights. In Dacion (ENI) and Boscan (Chevron), the National Guard has taken position at the doors and former PDVSA employees are being singled out. In the case of Vincler-Harvest the employees are reportedly being expelled from the workplace. If these actions are truly taking place, I think that the foreign companies will have to take a stand on principles. We are no longer talking about extra money payments or legal manipulations. We are talking about open violations of human rights, about fascist acts by the Chavez regime. International companies have to adhere to civilized codes of conduct and cannot go along with this. We are not in the XIX century anymore. We are not in Cuba, Zimbabwe or North Korea, although the regime is trying to lead us in that direction. We are in Venezuela, where most people are still loyal to democracy and resent the abuses of power and the violations to the Constitution and the laws, which this regime has committed.

As a former member of the Board of PDVSA and as a democracy-loving Venezuelan I ask the international companies working in the country to stand up for principles. I cannot side, in the name of a false patriotism, with an authoritarian, abusive regime like the one Chavez has installed in Venezuela. To kneel before him now will cost Venezuelans and foreigners alike very dearly in terms of a long–term commercial and political relationship.

I say: stand up for decency!



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