Opinion and Analysis: Economy | Oil and Gas | Participation | Social Programs
Interview: New Petrol Law Will Ensure that Profits from Crude-Oil Exports are Distributed to the People
The president of the state-run oil company “Petroleos de Venezuela Sociedad Anonima” (Pdvsa), guaranteed that the new oil law will ensure that the profits received from the exportation of oil will go directly to the various social projects which improve living standards for the Venezuelan people.
This Wednesday the Minister of Energy and Oil, Rafael Ramirez, certified that the “Special Contribution Law for the Extraordinary and Exorbitant Prices of Oil”, which came into effect in the South American country on 18 April 2011, will promote the fair distribution of profits from the oil industry in the social areas that require a higher level of investment.
“This law seeks to maintain and have strict control over natural resources in order to direct the profits to the Venezuelan people…oil is an essential resource in our economy and the income from this industry was underestimated, decreased and devalued by the legislation of previous governments,” he stated.
He specified that some of the principal social missions to benefit from the law will be the housing mission, as well as health and education projects amongst others.
Meanwhile, he indicated that the goals outlined in the new housing mission are to build 153,000 houses in 2011, 200,000 in 2012 and a total of 350,000 houses each year after that until 2017.
These figures are a record in Venezuela, where the most houses ever built in single year were 90,000.
“For this reason, the Bolivarian government realises how important the mission is, in order to pay off the debt accumulated by previous governments” he said.
Below is a full transcription of an interview that television news channel teleSUR conducted with Venezuelan Minister, Rafael Ramirez:
With regards to the new “Special Contribution Law for the Extraordinary and Exorbitant Prices for Hydrocarbons in the International Market” – Why has this law been created? What is the objective behind it?
We’re leaving for Cabimas (Zulia state), the Eastern coast , with regards to oil, the housing issue, which is an extensive mission that president Chávez has launched and which we are coordinating.
Why the Special Contribution Law for the Extraordinary and Exorbitant Prices for Hydrocarbons in the International Market? We’ve outlined almost what you could call doctrines in terms of oil, which is a natural resource; we’re countries that produce oil and gas, and as a consequence, we claim the right to be the owners of these resources, the owners of the natural resource.
As a result, when we see that there is an extraordinary increase in the price of oil, for whatever reason, like what is happening at the moment – unfortunately due to the tensions and the aggressions that are taking place against our brother nation Libya; we know and understand that our natural resource is going through a process of revaluation. As a consequence, although companies contribute to producing and exporting oil with their industrial activity – and I’m including Pdvsa and our associated companies when I say this – we understand that it is the oil itself which is going through a process of revaluation and consequently we demand that an important part of this profit be reserved for the benefit of the Venezuelan people.
This law is an apparatus that has been consistent with this strategic orientation – set out by Venezuelan President Hugo Chavez – in terms of maintaining and having strict control over our natural resources in order to steer the profits towards the benefit of the Venezuelan people.
Minister, which institution is going to administer this income and when will the law come into effect?
This law already came into effect on the 18th of April. We were working throughout the Easter period here in Venezuela and it was made public via the government’s official gazette – effective as of the 18th of April. This means that it’s already in effect and we are going to start seeing the first results through the coming month and the positive results will be obvious straight away.
This is a law that will affect all the oil companies in the country; due to our hydrocarbon legislation here in Venezuela; Pdvsa – our national company – has the monopoly over activity. However, we have a body of mixed companies; meaning that we are the largest share-holders, so all the companies, the mixed companies just as much as the ones that are 100% state-owned, must participate in this extraordinary prices contribution.
In order to put this into context I also wanted to mention that our government has been consistent since the very beginning (I know that our brother countries throughout South America are watching us via teleSUR) and it’s always important to explain where we are coming from and why this has been a fundamental aspect of our oil policy.
Consider this. The oil industry, which is essential to the Venezuelan economy, had gone through a process of liberalisation – which was applauded in Latin America throughout the 80s and 90s and had terrible consequences for our brother countries. The Venezuelan oil industry had also been subject to this kind of economic liberalisation and you could say that throughout the final years of the 4th Republic – in 1999 our commander and president Hugo Chávez took power – the income from the oil industry was nderestimated, decreased and devalued as a result of a series of legislations that relaxed taxation within the Venezuelan oil industry.
During those years two features were coalescing: massive violation of the OPEP quotas, meaning that the crude-oil market was completely inundated and the price even dropped to levels such as in 1999 when Venezuelan crude oil was worth between 7 and 9 dollars a barrel. Simultaneously, taxation was also massively reduced – petroleum royalties were eliminated, with taxation on the oil industry eliminated and regalia reduced to just 1% and extremely favourable conditions were established for transnational companies.
When Chávez assumed the presidency in 1999 he began a series of initiatives directed at reversing this situation. The first was within the international arena; the Summit for the OPEC Heads of State was created in 2000, we regained our control, our protagonistic role at the heart of OPEC, and oil prices started to recover. Yet this wasn’t enough, it wasn’t just about the price of oil, but rather how the Venezuelan state took part in this recovery. For this reason a law was decreed, the new Organic Hydrocarbons Law, which was one of the reasons that – as well as the creation of certain other enabling laws – the oligarchy went on the offensive and the (2002) coup d’état was attempted. A whole set of laws were instituted, with the goal of creating what we have called oil sovereignty, in which royalties were re-established at 33.33% and tax on oil profits was put back up to 50%, mostly put into action in Pdvsa.
This series of laws has contributed 295,400 million dollars to the Venezuelan government over the past 10 years, as opposed to the 23,486 million dollars that was produced during the liberalization period.
As a result this law - which President Chávez signed within the framework of the enabling laws, that’s to say in conjunction with revolutionary laws that went into effect on April 18th – there is a precise orientation guided by these principles which are about making sure that these resources belong to all Venezuelans. In short, a product of the exploitation of their natural resource will be converted into houses, into agriculture, into work, infrastructure, health, education and social inclusion.
What happens if NATO and the countries in the first world manage to achieve the outcome that they are looking for in Libya – oil prices? What would happen according to your view?
The international oil market has come to be dramatically affected by a permanent conflict – the issue of oil is basically an international conflict between the large industrialized economies with an insatiable appetite for natural resources: the North American, European and Asian economies that require natural resources, not just oil and gas, but also forests, rivers, everything, concomitant to their system of capitalist production. It’s a predatory system.
In this sense, a conflict between the large consumer countries (I’m talking about the large consumer countries, about economies such as that of North America which uses 19 million barrels of oil a day whereas a country in the Eastern Caribbean uses 500 thousand daily, there is a tremendous disparity within the international oil market; however, those that control it are the large consumer countries). There’s this greed that I just mentioned and then there’s also this collection of oil-producing countries, the majority of us at the heart of the OPEC group, that are defending our resource, defending our right to value it, defending our right to administer it and to establish a fair rate of exploitation.
We have seen how the invasion of Iraq happened, how tremendous and permanent pressure has been put on Iran – another large producer of oil – there was a coup d’état and destabilisation in Venezuela, and now this horrendous situation that our brother nation Libya is having to endure, an attack that our government, as well as others, has condemned, an attack with no justification, a situation with no restrictions in place, in which certain European powers have decided to overthrow the legitimately constituted government and come for the oil.
So, what is involved in stabilising the situation; the large consumer countries have launched a terrible destabilisation campaign in oil-producing countries, because the situation in Iraq remains volatile. Iraq is occupied by North American forces. There is still no stability within the oil market. Quite the contrary, there is a constant tension, a violent situation, more than 600,000 Iraqis have died during this occupation. The pressure on Iran is still unabated, they are constantly threatening; constantly on the attack, so what could be an answer to what’s happening in Libya, the solution that might be transpiring (and nobody can establish whether it’s a short or long term solution) – and it is a concrete fact that the intervention of Western European powers, essentially, has provoked a terrible destabilisation effect in North Africa. A member of OPEP, a large producer of light oil which supplies crude oil to the European market, has been destabilised, and the Libyan people are fighting, and the government of President Gadaffi is fighting, and it’s a situation that – like our comrade Walter Martinez says – is constantly unfolding.
Minister, this new “Special Contribution Law for the Extraordinary and Exorbitant Prices for Hydrocarbons in the International Market,” How will this be reflected in the development plans that Venezuela has underway?
Ok, well, we are going to explain how it works. First of all, look, we’ve established a pricing hierarchy, and here this is a really important issue, which is that us countries who produce oil are always subject to cycles and if we don’t make appropriate decisions, that income will go straight into current expenditure. So here what we want is to get the income, but not so it goes into current expenditure but so it goes into structural projects, investment projects for the whole nation, and from what we gain from extraordinary prices, because what we say is that we work on the premise that we sell at $40+ to the barrel, so resources from that will go to railway, housing and agricultural projects, but look how it works.
We have a range, different levels that we set when the price is between $40 and $70 a barrel. We gave them a previous law because an extraordinary price law that was announced in 2008 was repealed, when there was also a situation in which prices were very high - $140 WTI (West Texas Intermediate). But in the new law, when the price is between $40 and $70, companies; as well as paying royalties of 33.33% and standard tax, will pay an extra 20% as an additional contribution on anything above this $30 margin.
When oil prices are between $70 and $90, anything within the $20 within this range, that’s to say in this difference of $20, companies will pay 80% of it to the state. When the price is between $90 and $100, companies, will pay 90% of anything over this $10 difference and when the price of oil is over $100, imagine that it’s between $100 and $110, $10 more, companies will pay 95%. All this will provide an extraordinary contribution to the Venezuelan state.
You were asking were these resources were going to go? They’ll go to the “Fonden”, which is a national development fund that was created in 2005 by the Venezuelan government as a savings and investment mechanism. So when you look at Venezuela and you see that it is a country that is investing in itself, that it is making important investments in railways, important investments in agriculture, important investments in the industrial sector, that it is a country making a great effort to overcome a philosophy, a structure, an oil system based on extractive mining, a country that only lived off of this income because agricultural activity was displaced in the 1930s; when you see that in this country which is making this huge effort to change the model of production and move towards socialism, that needs to create material bases in order to build socialism, then you’ll realise that these type of laws, legislation orientated towards the Venezuelan state is one of the fundamental tools that will enable us and our country to change this model. It will enable us to have sufficient resources to write off the tremendous social debt that existed, because that’s the manner in which we have been investing throughout the 10 years of this revolution. $300,000 million on projects linked to health – finally we are providing a public health system, free for the people. We are providing an education system, where exclusion and illiteracy have been eliminated, where hundreds of thousands of young people that didn’t have the opportunity to go to university are now able. When you see that the government is making these efforts, well, we have to make use of all the tools available to us, and this is only one of them, there are lots of other tools, but this one is really important.
This is also one of the bases in order to start the new housing mission, which also has the function of fulfilling that social debt owed Venezuelans, a deficit of more than 700,000 houses, and the possibility of boosting our national economy. The housing mission, which you’re in charge of, tell us, what stage are you in now?
Ok, well quickly, the great mission, which has the characteristics of a great mission because it has the President at the head of it.
It’s extremely important, we did an evaluation, a revision, an amendment, gave a new impulse to all of the things we are managing. Last year we worked a lot in this matter and well the issue of housing is still an issue that we haven’t resolved yet, although we’ve resolved the issue of sovereignty in the area of oil, we’ve resolved the issue of political instability, which is an extremely important factor for growth. We’ve resolved the issue of education, of health; we’ve made important headway through a whole collection of missions. We couldn’t keep approaching the housing problem from a departmental perspective, the situation that had arisen, which is inherited, was overwhelming. Anyone who knows the capital city knows that there we have a build up of poverty in our barrios, a product of a specifically rentier petrol model, where our economy fluctuated around oil and oil related services, everyone in the cities, in such a way that this problem, that is a severe build-up, a result of the situation that I’ve just described, we have to tackle it as a responsibility of the state.
President Chávez has taken charge of the mission and a team has been created which we coordinate, but this is a collection of ministers, ministries and ministers who are involved in this mission and as such we have made it this huge mission.
The mission in numerical terms: We estimate a deficit of more than 1,700,000 houses, we want to build close to 2 million houses. Registration is beginning on Saturday the 7th (of May) in order to determine exactly, not only the deficit in terms of the need for houses, but also the social behaviour of our family groups that require housing, that’s one.
Two – the financial issue, we have put money aside like never before, the Venezuelan state stocked up 60,000 million bolivars, as well as 4,000 million dollars, which gives a year on year average of 10 million dollars just for this issue.
We have an output goal in terms of housing, which is 153,000 houses this year – in 2011, 200,000 houses in 2012 and after that until 2017, an average of 350,000 houses.
We have worked on the question of materials. The Venezuelan state now has control of the production of cement and steel, which had become bottle necks for the industrial production of houses, but we are working with our private sector in order to increase the production of ceramics, electrical products, cylinder blocks, all of that.
The other fundamental element of the mission is the people who carry it out, those who build the houses. State public institutions through state companies, their ministers, international agreements – and this is where it’s very important in terms of what has been our foreign policy. Under direct management of President Chavez we have companies here from Belarus, Russian businesses, businesses from Turkey and China, and we are going to have Argentinean businesses. That means we’re going to have important international support with regards to technology, machinery, a constructive system which promotes industrialisation.
We also have the most important thing, which is the participation of the people; popular power, communal councils, self-construction, substitution of huts for housing, construction brigades, voluntary worker brigades, an organised people. At the end of the day, you can’t resolve this issue without the participation of the people. And we’ve also approved a series of laws, already in the last area associated to the framework of the revolutionary laws. With the enabling law as much as the contributions law for extraordinary and exorbitant resources we established two laws within the area of housing related the elements needed to resolve the land problem, since one of the fundamental elements in the construction of housing in Venezuela is that within capitalism land acquires a value rate and as a result, is subject to a lot of speculation.
In the capital city, for example, they left the people hung out on the unstable hilltops and the land in the better zones has been used in an exclusive manner. So we are going to redistribute this, we are going to use a quantity of land that the state has and put it into use, another element related to the law is property, we are giving property rights to the people on the land they posses as well as to their apartments.
Translated by Rachael Boothroyd for Venezuelanalysis.com