6-23-07, 10:19 am
In January of 2007, President Chavez announced plans for the partial nationalization of oil reserves in Venezuela's Orinoco River region. These strategic oil operations were selected for increased state participation, along with the electricity and telecommunications industries in Venezuela, in order to bring greater equity to the domestic distribution of the resources that are among those essential to national development. Because Venezuela's oil industry was nationalized in 1976, this most recent buyback is not without precedent. Nor does it demonstrate the radicalism that some have claimed marks Chavez's oil policy. Time Magazine has reported that TK% of the world's oil reserves are currently the property of state-owned companies, and that Venezuela's approach to nationalization is significantly less stringent than that of many other oil producers. [1] Despite exaggerated claims about threats to private property, a Houston Chronicle op-ed by Bart Jones explained: 'Chavez… is not nationalizing the entire economy without compensation to companies… but rather is buying back a few key strategic utilities such as the CANTV telecommunications company or taking a majority government share in four heavy oil projects in the eastern Orinoco River basin…[Chavez] insisted Venezuela does not plan to copy the Soviet or Cuban model of complete state dominance of the economy.' [2]
Economists and development experts recognize that the switch from private to state ownership can improve efficiency and broaden access to services. Joseph Stiglitz, former World Bank chief economist, said in an interview that 'national industries can be very successful.' [3] In many countries, state-owned companies participate in economic sectors such as utilities, transportation, and other essential services. The recognition that globalization – including foreign investment – is harmful for the world's poor has become common. [4]
The Lessons of History
State control of key sectors of the economy and companies providing basic services is not a new phenomenon in Venezuela. In fact, privatizations are the more recent trend. For example, the phone company CANTV became privately run for the first time as recently as 1991, and the steel industry ended 23 years of national control with its privatization in 1998. Unfortunately, policy-makers and executives too often favor prevailing trends as the only acceptable policy options. The Venezuelan oil industry was nationalized in 1976, at which point the state oil company PDVSA was created to direct natural resource revenues toward national development. However, as former PDVSA advisor Bernard Mommer has pointed out, oil executives deviated from state mandates soon after nationalization. Investments in non-oil development projects benefiting the national population dropped off, and by the time Chavez was elected in 1998, PDVSA’s directors were aiming to re-privatize the company and cut ties with the government. [5] Now, the partial nationalization of Orinoco region reserves guarantees PDVSA's long-term and large-scale redistribution of state profits through increased social services and public aid programs. In the U.S., fears about the 'rise of oil nationalism' have surfaced in response to the partial nationalization of Venezuela's Orinoco region reserves. [6] However, similar rumors surrounded the events of Venezuela's first oil nationalization in 1975, under Carlos Andres Perez. Time Magazine, for example, warned of 'the progress that producing countries are making in wresting control of drilling an dumping operations away from the major Western oil companies. Exxon and Shell, Time added, 'reluctantly accepted' government compensation in order of hundreds of millions of dollars each. [7] Both companies, along with many others, have since maintained investments in Venezuela.
The Legal Framework
The nationalizations will occur during the 18- month period in which Venezuela's Enabling Law is in effect. This law grants the president the power to issue decrees in 11 specific areas of government policy and was approved in a public session of the National Assembly in January 2007, with the stipulation that all decrees issued under the law must be approved by the legislature and may be rescinded in popular referendums called by 5% of the voting public. Enabling powers are a frequently used executive mechanism that have been employed by Chavez and his predecessors in accordance with Venezuelan constitutional law. Venezuela's nationalization plan is founded upon due respect for private property and investor rights. Though it has often mischaracterized as a government expropriation campaign, the nationalizations are limited in scope and tailored to the needs of a country that has long welcomed foreign investment. A member of the National Assembly Finance Committee member stated that, 'Confiscation, expropriation are banned words in our dictionary… We will be tough but fair negotiators. There are legal mechanisms in the Constitution that give support to our plan.' [8] Moving Forward Through Negotiations
Negotiated settlements with all private companies involved in oil operations along the Orinoco Belt are expected to be complete by June 26th. This way, PDVSA will assume a roughly 60% majority share of the reserves without putting an end to private investment in this profitable region. Negotiations have thus far been successful with four of five multinationals, with only the Conoco Phillips deal pending. In April, a ConocoPhillips executive expressed confidence that his company can count on full compensation from PDVSA. [9] Similarly, oil industry analyst Patrick Esteruelas has said that, ' investors in Venezuela's heavy oil projects are expected to abide by new tougher terms to ensure future revenues… the incentives to remain are still strong.' [10] 1 'Chavez's Not-So-Radical Oil Move,' by Tim Padgett, Time Magazine, May 1, 2007. http://www.time.com/time/world/article/0,8599,1616644,00.html
2 “Chavez as Castro? It’s not that simple in Venezuela,” Houston Chronicle, February 6, 2007. http://www.chron.com/disp/story.mpl/editorial/outlook/4532139.html
3 'El TLC no es libre ni justo para Colombia, dice el Nobel de Economia a Radio Caracol,' February 2, 2007. http://www.caracol.com.co/noticias/386302.asp?id=386302
4 'Globalization's Gains Come With a Price,' By Bob Davis, John Lyons, Andrew Batson, Wall Street Journal, June 3, 2007. http://online.wsj.com/article/SB117994581454912387search.html?KEYWORDS=venezuela&COLLECTION=wsjie/6month
5 Bernard Mommer, 'Subversive Oil,' in Venezuelan Politics in the Chavez Era: Class, Polarization, and Conflict, Ellner and Hellinger eds. (Lynne Rienner, 2003).
6 'Risks of rising oil nationalism,' By Mark Trumbull, Christian Science Monitor, April 3, 2007. http://www.csmonitor.com/2007/0403/p04s01-usec.html
7 'Buying out the wells,' Time, Dec 15, 1975. http://www.time.com/time/magazine/article/0,9171,879539,00.html
8 'Venezuela to Pay Companies in Nationalization Plan,' Bloomberg, April 16, 2007.
9 'No threat to Venezuela compensation, says ConocoPhillips chief,' Houston Business Journal, April 18, 2007.
10 'Venezuela: Orinoco's Future,' Latin Business Chronicle, May 19, 2007.
From Venezuela Information Office
