VenEconomy: Awaiting fairer winds
After years of clobbering private companies, the Venezuelan Government is now saying that it is seriously seeking foreign investment.
The importance this alleged effort has for the government was summed up by Energy and Oil Minister (and president of PDVSA) Rafael Ramírez, when he stated that “2010 is the year for consolidating projects and investments.” Unfortunately, that search for partners has just been so much hot air, so far.
Two years ago, the government announced the opening of bidding on the Orinoco Oil Belt’s Carabobo Block. But, despite the fact that the government has announced on several occasions that the projects for developing Carabobo Block have been “well received” by potential investors, little or nothing concrete has come about. So far, every time the date for opening the bids draws near, it is put off for one reason or another or even for no reason at all.
The same has happened with the offshore gas development in Sucre state.
The $10 million question is: If Venezuela says it’s looking for partners to develop the Orinoco Oil Belt, where the world’s biggest reserves of unconventional oil are located, and to exploit zones where there are huge gas reserves, why don’t the much sought partners appear? The answer is to be found in the draconian conditions that the government is imposing on these alleged future partners.
To begin with, the contributions, royalties, and taxes they will have to pay are extremely onerous. And, despite the fact that there have been adjustments, they continue to pose an obstacle that is difficult to overcome.
An even bigger obstacle to attracting investment is the fact that the government demands that, in any partnership in which the VenezuelanState takes part, it should have the majority shareholding and full administrative and operational control.
Many of the Venezuelan Government’s potential undecided partners will have to face the fact that the Venezuelan Government is a kind of King Midas in reverse: everything it touches, it destroys. One example suffices: the erstwhile flourishing PDVSA has lost more than 1,500,000 b/d in production in the last ten years.
Another sensitive issue for the investor is that the government has established that any disputes may not be taken to international arbitrage but shall be settled in the “impartial” Venezuelan courts.
But the biggest handicap of all is that the companies that accept these conditions will not only have to contribute their 40% of the investment, but also cough up the Venezuelan Government’s 60% share.
In short, any foreign investor that goes into partnership with the VenezuelanState will end up being a minority shareholder of a company in which it will have contributed 100% of the investment but where it will have no power of decision or any possibility of defending its rights in an impartial court.
That is why, when the government announced the signing of a memorandum of understanding with the Italian company ENI involving some $18 for the exploration, production, and upgrading of heavy crude in the Orinoco Oil Belt’s Junín 5 Block, many observers asked themselves, “What game is ENI playing at in this jungle?” The answer seems to be at putting itself in a favorable position for when fairer winds blow.
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Petroleumworld News 01/28/2010
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