Venezuela and Brazil Strengthen Cooperation via Refinery and 7 Other Agreements

Mérida, March 27, 2008 (venezuelanalysis.com)- Brazilian President Luiz Inacio Lula da Silva and Venezuelan President Hugo Chávez signed eight bilateral cooperation accords in the areas of energy, education, and agriculture Wednesday, including a preliminary agreement for the new José Inacio Abreu e Lima oil refinery, a joint project of the two countries in the Brazilian city of Recife.

"The idea is to have a large refinery as part of the project of making South America a pole of strength. With this, we see real progress being made on what we have proposed as PetroSur: a South American energy alliance," Chávez stated to the press during a visit to the construction site of the refinery.

The Brazilian oil company Petroleo Brazileiro, known as Petrobras, began the construction of the Abreu e Lima Refinery over a year ago and said it could finish the $4.5 billion project alone. Wednesday, Chávez announced that Venezuela intends to invest $4 billion in the refinery over the next three years.

Although investment contracts have not been finalized, Lula and Chávez signed an association contract Wednesday to prepare the legal framework for the formation of a mixed enterprise between Petrobras and the Venezuelan state oil company PDVSA.

Past talks of a mixed enterprise reserved the 60% controlling share of the refinery for Petrobras, according to Bloomberg news, while the Bolivarian News Agency reported Wednesday that Abreu e Lima oil will be divided equally between the two nations.

It is projected that by the start of 2011, the refinery will churn out 200,000 barrels per day of mostly diesel oil from Brazil's northeast region.

Venezuela currently extracts 3.3 million barrels of crude per day, but Chávez said in a press conference in Brazil Thursday that Venezuela will increase its daily production to 5 million barrels by 2010 in order to provide oil to new refineries in Cuba, Bolivia, Nicaragua, Jamaica, Ecuador, and now Brazil.

The two presidents scheduled a June meeting to discuss Petrobras's role in the Venezuelan Orinoco Oil Belt, some of whose projects were were nationalized in 2007. A recent statement released by Petrobras indicated that the company may take on a 10% role in the heavy crude project called Carabobo I in the Orinoco, according to the Venezuelan daily El Nacional.

By law, PDVSA must control at least 60% of the shares in mixed contracts with foreign companies to extract Venezuelan oil.

President Chávez thanked the Brazilian leader for helping turn Petrobras and PDVSA into companies that "don't just think about profit, but what they can do for the South American Continent."

The two leaders also discussed Venezuela's bid for membership in MERCOSUR, which lacks the approval of the Brazilian and Paraguayan congresses, but which enjoys the support of the presidents of the two countries. Chávez expressed that Venezuela's contributions to the Abreu e Lima refinery reflect the spirit of cooperation that MERCOSUR and other regional integration initiatives compel.

Another item on the agenda was the proposal to form a South American Defense Council to arbitrate military relations and potential conflicts in the region, which grabbed attention after a regional crisis sparked by Colombian attacks on a guerrilla encampment in Ecuadoran territory in early March.

Chávez compared the proposal with South American liberator Simón Bolívar`s vision nearly two centuries ago, which Chávez said was for southern nations to "form an alliance that is not only economic and political, but also military, in order to defend ourselves and secure our sovereignty in this world of imperialism and pre-emptive warfare."

Also with regard to military matters, the Brazilian and Venezuelan air forces worked out details for joint aerial vigilance of illicit drug trading across the border between the two countries. The plan is known as Operation Venbra V and is planned for late August, according to the Venezuelan daily El Universal.

In addition to energy and military issues, Lula and Chávez created a bilateral commission to monitor food reserves in an effort to insure against food shortages.

To diversify the Venezuelan economy and boost national food production, a $51 million technological cooperation agreement was signed between Venezuela's National Agricultural Research Institute (INIA) and the Brazilian agricultural company Pesquisa Agropecuaria that will enhance soy, sheep, cattle, and buffalo production in the Venezuelan agricultural states of Anzoátegui, Monagas, Bolívar, and Zulia.

Chávez expressed admiration at how the Brazilian economy has "detached itself from dependence on the United States" by diversifying its exports, affirming that Brazil has the largest economy in Latin America and could potentially out-compete the U.S.

Venezuela, which exports nearly half its oil to its northern neighbor and suffers from rural exodus, could suffer adverse effects of a U.S. recession, Chávez said. "But we have our own economic defense mechanisms," he added.

In the area of education, a memorandum of understanding was signed between the Brazilian and Venezuelan higher education ministries, laying the groundwork for joint research, cooperation in graduate work, short-term academic exchanges, and curriculum and technology sharing.

During Wednesday's visit, Lula said that enhanced cooperation between Venezuela and Brazil is a sign to "the rest of the world that we, despite being poor, have pride and conscience of our sovereignty, and we have conscience of our potential."