Venezuelan Government Expropriates Petroleum Related Activities

Mérida,
May 9th 2009 (Venezuelanalysis.com) – The National Assembly passed a law on Thursday
assigning goods and services connected to the petroleum industry to the state.
The law re-establishes government control over a range of activities that were
previously contracted out to foreign transnationals, and transfers the
corresponding contract workers to the state oil company PDVSA or its
affiliates.

Activities
that are fundamental for producing petroleum, such as the injection of water,
steam, or gas to increase energy reserves and the amount of petroleum
extracted, or the compression of gas, the boats used for transportation of
staff and divers, the cranes that transport material, ship and pipe maintenance
and so on, are now legally under state control.

On
Friday, the government expropriated 300 boats, 30 barges, 39 terminals and
docks, 5 dams and 13 workshops on Lake Maracaibo, where there are large crude
oil reserves. Chavez said that next week they will also start expropriating
some petroleum complexes in Monagas state.

According
to the Venezuelan newspaper El Universal, among the companies to be affected is
US-based Williams Company, which is in charge of the project High Pressure Gas
Injection. The newspaper says that PDVSA has a large debt to the company for
its operations for the first quarter of this year. The Woodgroup consortium
will also be affected.

Through
the law, the government has the right to partially or completely expropriate
any petroleum related activities, and Venezuelan President Hugo Chavez said,
"We are going to have a liberating battle" in Lake Maracaibo.

The
National Assembly's statement motivating the law says, "such activities, which
are of strategic character and necessary for the principle industry of the
country and that are carried out by Petroleum of Venezuela (PDVSA) and its
affiliates, were [contracted out] during the Fourth Republic [that is, the
period before the Chavez government] with the consequent loss of direct control
and vulnerability of the Venezuelan state."

Further,
the minister for energy and petroleum, Rafael Ramirez, pointed out that the law
is fulfilling Article 302 of Venezuela's constitution, which establishes that
"primary activities are reserved for the absolute control of the Venezuelan
state through its national company, Petroleum of Venezuela."

Ramirez
also estimated that the government will save $700 million annually for
expropriating the various goods and services today, out of what it was
previously paying for the contracts.

"At
the start of the year we denounced that there was a surcharge in the rates that
[the contract companies] were charging for their services, but as there was a
monopoly we didn't have any choice. We can't extract the petroleum in the lake
if we don't have control of the launches, of the terminals, likewise with the
extraction of the gas, in the north of Monagas 500,000 barrels daily depended
on an injection that was in the hands of a North American transnational,"
Ramirez said.

The
president of the National Assembly's commission for energy and mines, Angel
Rodriguez, said that the new law corrects the breaking up of essential areas of
the petroleum industry when in 1992 the "old PDVSA" started a large scale
process of subcontracting, leaving a large part of the exploitation of oil in
hands of foreign companies.

The
new law is also about Venezuelan sovereignty, said Ramirez. "These [contracted]
companies were speculating and controlling a large part of the oil industry and
now we are going to correct anything that is improper, safeguarding our
sovereignty and reducing costs in the production of oil."

The
law stipulates that to expropriate such goods and services, future loss of
profit or damages will not be considered. The value will be determined
according to the norms, with labour and environmental liabilities deducted. Any
disputes over the application of the law can only be settled in Venezuelan
courts.

Ramirez
also explained that workers who are affected by the change will now work for
PDVSA or its affiliates. In the appropriations that occurred today, he said 8,056
workers will now be "absorbed" into PDVSA.

The
minister for work and social security, Maria Cristina Iglesias, also noted that
in the last four years, PDVSA has incorporated over 21,000 workers that were
previously contract workers.

Yesterday
the price of oil rose to $58 per barrel, the highest price since last November.