Venezuela re-privatizing oil resources

Venezuela has agreed to open at least seven oil-fields to private companies in contracts "similar to ones rolled back under late socialist leader Hugo Chávez," Reuters reported Sept. 10. The plan was revealed in a televized ceremony Aug. 28 in which representatives of the companies met with President Nicolás Maduro to sign "joint service agreements" with the state oil company PDVSA. Terms of the deals were not disclosed. But in a draft contract obtained by Reuters, PDVSA offers to turn over the fields for six years on condition that the companies provide the required investment to boost production. PDVSA president Manuel Quevedo said at the ceremony that the plan would require $430 million for an increase of 641,000 barrels per day. Quevedo said the plan involves 14 companies, although only seven were present for the ceremony and the others were unnamed. The seven include five Venezuelan firms: Petrokariña, Enfriadores de Venezuela, Consorcio Rinoca Centauro Kariña, Consorcio Petrolero Tomoporo and Well Services Cavallino. The remaining two are Helios Petroleum Services of Panama and Shandong Kerui Holding Group of China. The fields in question were formerly operated by Italy's Eni and the French Total.

Hopefully, this development will put an end to the nearly universal perception that Venezuela's oil industry was nationalized under Hugo Chávez. Even mainstream sources like McClatchy Newspapers ran headlines like "Chávez finishes nationalizing Venezuela oil" in 2007. But if you actually (imagine!) read the stories, it becomes clear that private companies (including foreign industry majors) were allowed to stay on in Venezuela if they agreed to become minority partners with PDVSA. Exxon would not accept these terms and quit Venezuela, opening a long legal dispute. Others would follow. But this was not true "nationalization," such as took place in Mexico in 1938—or in Venezuela itself in 1976. Some history is in order here.

Venezuela's oil industry exploded in the 1920s and '30s, leading to what economists call "Dutch Disease"—when overwhelming reliance on one sector, particularly natural resources, leads to stagnation or decline in other sectors. Venezuela's agricultural production plunged precipitously as the oil sector expanded, and the country fell behind in industrializing, relative to other Latin American nations. This began to change with the establishment of the "petro-state" under President Carlos Andrés Perez in the '70s. This democratic socialist did what the "socialist" Hugo Chávez never actually attempted—he fully nationalized the oil in 1976. At this time, Petroleos de Venezuela (PDVSA) was created—as a state monopoly, on the model of Mexico's Pemex. The New York Times headline of Jan. 1, 1976—"Venezuela's Oil Industry Is Formally Nationalized"—was accurate.

But with the oil slump of the 1980s, Perez, having returned to the presidency, aceded to IMF demands for a neoliberal economic program—resulting in popular protests put down in the bloody Caracazo of March 1989. As a part of this reform, private oil companies returned to Venezuela in what was called the apertura petrolera, or "oil opening," of the 1990s. When Chávez came to power in 1999, he began rebuilding the petro-state—but never went as far as the now-hated Perez had in 1976. (VenezuelAnalysis, Lexology)

Venezuela is now in something of a vicious cycle. Oil prices remain depressed in a long slump that began a full decade ago. And Venezuela's economy only became more oil-dependent in the Chávez years. So there is less money available to address declining production. Venezuelan oil production saw a 29% decline in 2017—part of an overall decline of 53% since Chávez was first elected in 1998. (OilPrice.com)

We expected the worst when we saw the Reuters headline Sept. 12, "Venezuela's Maduro travels to China in search of fresh funds." Would the supposed nationalist Maduro turn the country's oil resources over to China in exchange for foriegn aid and debt foregiveness, like his buddy Rafael Correa did in Ecuador?

Our fears seemed to be vindicated by the Reuters story of two days later, reporting that Maduro struck a deal in Beijing to sell a further 9.9% stake in Sinovensa, a joint venture between PDVSA and the China National Petroleum Corporation (CNPC). The deal will increase CNPC's share in the company to 49.9%—keeping it just barely a minority partner, in conformity with Venezuelan policy. (CNPC also has operations in Brazil and Boliiva.) 

The statement released on the Beijing meeting also said China and Venezuela signed a "memorandum for cooperation in Ayacucho bloc 6," located in Venezuela's Orinoco Belt—the same oil-rich region that Exxon quit in 2007, but the China National Offshore Oil Corporation (CNOOC) entered in 2009. China is to drill 300 wells in Ayacucho and extend $184 million in financing for the joint venture Petrozumano. In a separate meeting with Chinese President Xi Jinping, Maduro said Venezuela is willing to "explore effective financing methods" with China and strengthen cooperation in the energy sector.

A CBC analysis sees this all as another example of China's "debt-trap diplomacy."

Sorry, but it smells to us like Venezuela has again got a whopping case of Dutch Disease, and the oil is again being turned over to foreign hands—only this time Chinese instead of gringo.

Photo via OilPrice.com