The observation has recently been made that the contractual aspect of the Orinoco Oil Belt exploitation has changed. Instead of being an agreement between a State oil company and private oil companies--PDVSA and Lukoil, Gazprom, Rosneft, et al--the latest contract has been between Russia and Venezuela as sovereign nations. It has been said this change means Russia will be protected from any expropriations by the present and future governments during the 40 years the contract has to run.
I question this belief since a tenet of constitutional law, certainly in those countries with an Anglo-Saxon tradition, basically ones where English is spoken, is that "No government may bind a successor government" or, as sometimes expressed, "No parliament may bind its successor." You may say this principle only holds good in those countries but, when push comes to shove, it applies to all countries. So, for instance, one government will nationalise companies and another will privatise them. One government will expropriate assets and another restore them to the previous owner. One government will create a royalty rate on oil of 15% and another will double it to 30%.
Russia is no more protected by a nation to nation agreement than from a company to company agreement. PDVSA is a state company and changing the contracting party to the Venezuelan nation has little practical significance. Indeed, if things turned sour, it would be easier for a Russian company to seek international arbitration against PDVSA than it would be for Russia to take its case against Venezuela to the International Court of Justice.
Forty years is a long time and, as in all contracts, it is the goodwill and mutual benefit accruing to both parties that will ensure the agreement lasts that long. But the fact remains no government can guarantee that a successor will not change, or even undo, what it has done. Russia is well aware of that fact, knows it has considerable leverage, and has obviously decided it can do business with Venezuela.
Oliver L Campbell , MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Petroleumworld does not necessarily share these views.
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Petroleumworld News 04/12/2010
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