Privatizing Oil in Venezuela? A Conversation with Victor Hugo Majano

A researcher examines the political and economic issues surrounding the current trend towards privatizations in a besieged Venezuela.

victor_hugo_majano_0.jpg

Researcher and blogger Victor Hugo Majano of la-tabla.blogspot.com. (TeleSUR)
Researcher and blogger Victor Hugo Majano of la-tabla.blogspot.com. (TeleSUR)
By Cira Pascual Marquina – Venezuelanalysis
Topics
Short URL

Victor Hugo Majano is a blogger who has maintained the La Tabla website, a reference for critical-but-committed Chavismo, since its founding in 2012. In an epoch in which serious investigative journalism can seem as rare as the ivory-billed woodpecker, Majano has doggedly sought out hard-to-get information about Venezuela’s politics and economy. In this interview, we asked him about the taboo subject of privatizations taking place in Venezuela’s cherished oil sector. It is an extremely sensitive issue since oil constitutes the backbone of the nation’s economy and also the basis of its population’s well being for the foreseeable future.

There is a profound crisis in the Venezuelan oil industry, and the government has chosen the “orthodox solution,” by creating favorable conditions for foreign investors (such as the Law of Foreign Investment[1] and lifting taxes). Recently, the government has promoted “Joint Services Agreements,” which seem to resemble the “Open Oilfield” policy (Apertura Petrolera) of the 1990s[2]. What are the similarities and differences between the privatizations taking place today and those of that decade?

We can see similarities, for example, in the very words used to frame the contracts. The term “Operating Agreements” used in the 1990s can seem a lot like the current “Joint Services Agreements.” There are also similarities in the sense that both aim to avoid legislative and constitutional control over private investment in the oil sector.

The Bolivarian Constitution’s Articles 302 and 303 prevent the oil industry from being privatized. For that reason, the oil sector’s operation has generally been transparent, especially during the last decade. It has been based fundamentally on the concept of “Full Oil Sovereignty” that was laid out in 2008 and led to the practice of shifting all the “Joint Agreements” or similar contracts in the oil industry to “Joint Ventures.” Joint Ventures are simply a scheme in which the Venezuelan state takes over 60 percent of the company’s stock, whereas 40 percent is in the hands of private investors.

Obviously, the current scheme changes things completely, and for this reason, it resonates with the 1990s Open Oilfield policy. The big difference is that it is not so public and transparent as the agreements signed during that decade. It’s more furtive and complex from a legal standpoint, while the financial and contractual schemes that are being employed increase the level of opacity[3].

The original formula for joint ventures under Chavez targeted the Orinoco Oil Belt, where there is a lot of dependence on foreign assistance, especially in the area of technology. The oil there is an extra-heavy crude that needs improvement processes to make it suitable for exporting to foreign refineries. Those processes require many imported inputs, diluents and other chemicals, including naphtha. So the kind of oil exploitation that happens in the Oil Belt generates a big dependence on foreign actors, both in a logistical and financial sense.

Evidently, the logistical and financial problems have become more serious in the recent economic war years. This is one of the reasons for the large fall off in production in that zone [Orinoco Belt]. And in a way, this fall-off begins to justify (perhaps even deliberately) agreements with foreign investors addressing the problems associated with the improvement of extra-heavy crude oil.

oil.jpg

Graph of oil production in Venezuela over the last 101 years. (OPEP data)
Graph of oil production in Venezuela over the last 101 years. (OPEP data)

Who has participated in these privatizations? Are we talking mostly about foreign companies or national ones, big players or small ones?

In this last phase, one has to look at two issues. One is the emergence of a new set of Joint Ventures. There is a very interesting joint venture that was established last year in the midst of the political and legislative turmoil, which is PetroSur. It’s a mixed enterprise for the Orinoco Oil Belt involving stockholders of the Derwick group: they are shady investors of Venezuelan origin who have close relations with a set of Spanish counterparts. The process of founding PetroSur was carried out with a high degree of opacity, mostly because the Supreme Court’s Constitutional Chamber issued Sentence No. 31, with which they took away the opposition-controlled National Assembly’s power to control mixed enterprises.

That step led to the institutional crisis and the violent conflicts that took place in April, May, and June of 2017. The conflict lasted until July when the National Constituent Assembly was launched. The Supreme Court’s decision to take away that power from the National Assembly was the main motive for the conflict, since the decision seemed to be designed just for the purpose of making such Joint Ventures. For that reason, it raised suspicion. That is to say, it appeared that the decision was specifically aimed at allowing the entry of such business groups into the oil sector, which is certainly one of the main historical ambitions of Venezuela’s traditional bourgeoisie.

In effect, the Venezuelan bourgeoisie has always wanted to put its hands on the oil industry. Eighty years ago Arturo Uslar Pietri, the famous editor of the newspaper Ahora, coined the phrase “sembrar petróleo” (sow petroleum). “Sembrar petróleo” meant simply passing resources from the oil industry to the traditional agricultural and livestock sector, which was the main Venezuelan bourgeoisie at that time. So it seems as if we are going back to that old scheme, except that we have some new players too.

The second set of issues associated with the privatizations is a lot more recent. It has to do with the current orientation of the oil industry and the forming of Joint Service Agreements. A series of relatively unknown actors (except for the Chinese corporation Shandong Kerui Petroleum and [Brazil’s] Petrobras, which are participating in Petrokariña). However, a large number of business groups have popped up, outfits that we have never heard of, new players on the field.

In August of this year, Energy Minister Manuel Quevedo presented a list of seven business involved in Joint Services Agreements. He stated that private participation aims to recoup oil production mostly in the west of the country, which is where the oil is easiest to exploit because it is light oil. However, of those seven companies, only two, the earlier mentioned Kerui and Petrobras, are well‐known ones!

So we are talking about businesses that are mostly unknown or, to the degree that they are known, they are linked to sectors that historically have had nothing to do with the oil industry. One of them, for instance, is connected to shipping, with Conferry which is the Venezuelan ferry company. It, in turn, has ties with Venezuelan Navy officers. It would seem that this is simply a process in which those contractors that have operated in the shadow of the state by offering services and supplies for public projects are now trying to gain direct access to the oil industry.

The privatizing tendency goes hand on hand with a discourse, within Chavismo, that aims to justify it alleging the inefficiency of public enterprises. That way of thinking, however, overlooks the fact that the private sector’s “efficiency” relies in a great measure on subsidies from the Venezuelan state. If privatizing means transferring the state’s and the citizens’ property to private hands, what does it tell us about the government’s current direction?

First, let’s look at the justification for the privatization processes that has been picking up speed recently. The verbal disparaging of the public sphere has been going on for a while from within [the Bolivarian Process]. It seems as if this libretto crept in over the years precisely to prepare the way, that is, to reach the point where basically nobody can say no to privatizations since many state enterprises are in a profound crisis or have simply come to a halt.

In other words, the process of privatization is not only accompanied by a discourse that justifies shifting away from the public sphere, but the truth is that there are now material conditions that justify the privatizations underway. That is what we are seeing in most publicly-owned companies: a disregard for production that has generated a crisis. This includes the oil industry, where the collapse of production is extraordinary, having gone from three million barrels per day to one million in six years.

So, in addition to the discourse, there has been a purposeful neglect of the most basic oil operations in Venezuela’s west, both in Lake Maracaibo in Zulia State, and in the western plains region (Barinas and Apure States). It’s there that the problematic alliances with shady firms such as those with Derwick Associates are taking shape.

The light oil there [in the west] is very easily extracted, but production is slagging. Yet it is also an area where we had recent positive experiences with [joint venture] Petrozamora involving PDVSA in a coherent partnership with Rosneft. The results have been very good, especially after the elimination of some criminal behavior that was associated with the earlier drop in production. In other words, we are not destined to fail! There are options! Looking at the big picture, it would seem that falling production in those areas is the result of deliberate steps that justify the entrance of the private sector in altogether new conditions.

I think it’s important to point out that, from the oil industry to other public enterprises, there has been a process that hasn't only happened in the discourse but also, and especially, in material reality. The current situation is not only characterized by the oil price drop and the whole issue regarding financial instability due to the sanctions imposed last year by the US. There is also ample evidence that points to a deliberate effort to generate the collapse of public enterprises.

Obviously, if we recognize the complexity and purposefulness of all this, the alarms should sound. We must ask who the actors are behind all these maneuvers. For instance, if we look closely at the food sector, then we have to inquire: who are the actors deciding to privatize, and who managed the enterprises until recently? Is there a direct relationship between these two parties? Yes, in some cases it’s even the same people! The same person who acted deliberately so that the production would fall is now recommending privatization. There is hard evidence for this. There are many people who were directors of public enterprises and now are managing their transference to the private sphere.

venezuela-map-oilfields.gif

Map of oil fields in Venezuela. (Archive)
Map of oil fields in Venezuela. (Archive)

How are privatizations being carried out? Under what legal framework and corporate model?

In the oil industry, the decisions are made at the national level. They are somewhat more transparent because it is open to public scrutiny and there is a need to attract foreign investment. But we must also consider that some of the agreements may fall outside of the established legal framework. We should really take a look at the Joint Services Agreements and Strategic Associations which are partnering with existing Joint Ventures.

In other words, an enterprise that is supposedly a state business but that has external participation enters into an agreement with another private enterprise. In this way, private participation in the endeavor goes beyond what is established by law, and you have a Trojan horse inside. That is to say, existing Joint Ventures are bringing in new partners, and nobody knows on what terms.

There are several enterprises in the oil sector that have entered in this way. One would be Southern Procurement Services (SPS), which is operating in the Maracaibo Lake area and in Venezuela’s eastern region, in the lighter petroleum wells. SPS is a very new company formed precisely to operate in this new context, and it is not alone: there are several “new players” made-to-order for the current situation.

In other areas, the privatization processes are even more opaque and far more sordid. A while ago, many state enterprises that were centrally-managed were decentralized. They began to be transferred to governorships and townships. Following that, processes of privatization were initiated at local levels without any kind of supervision or public bidding and notice. Thus, “perfect” alliances between the local authorities and the local bourgeoisie begin to take shape in ways that cannot be audited or even made public. When you move around the country, you find out that this plant or that enterprise, which used to be state-owned and operated, now belongs to a local businessperson.

Lacteos Los Andes [dairy company], which the state expropriated from its owners in 2008 with a very generous indemnification, is being handed over in an agreement where there is likely to be no payment to the state. Thus the private sector enters the picture as a kind of “savior” to recover production levels and to “help” the state, which has been incapable of managing the plants.

lacteos.jpg

A Lacteos Los Andes plant in Lara State. When the dairy company stopped producing in 2008, the Venezuelan state expropriated it, fully indemnifying the former owners. The plants were then renovated, with a large capital investment to reinitiate production. (Lacteos Los Andes)
A Lacteos Los Andes plant in Lara State. When the dairy company stopped producing in 2008, the Venezuelan state expropriated it, fully indemnifying the former owners. The plants were then renovated, with a large capital investment to reinitiate production. (Lacteos Los Andes)

The Bolivarian Process has been highly democratic. Substantive democracy, however, depends on access to information about government and state’s decisions in the economic arena. Yet there has been a great deal of opacity with the recent privatizations. How should we understand this, and what is to be done?

That’s the biggest threat that we face. Given the situation, some concessions must be made, but in a transparent way and within the legal framework. I’m not sure why the debate is not out there, but it needs to happen! It seems as if, from the left, since we are supposed to be in a socialist revolution, we cannot talk about privatizations. Clearly, however, if we have decided to make alliances with the private sector, they must be transparent.

This is important so that “crony capitalism” doesn’t take over: the logic of friends dividing up the pie. That cannot be! When there is no other option, privatizations must be done publicly and through a process that indemnifies the state for the infrastructure, the share of the market, etc. Otherwise, the private sector enters freely and, like birds of prey, seizes the little that is left. They privately appropriate the nation’s resources, and the nation gets nothing in return.

Moreover, in the oil industry, the new players are obtaining concessions such as access to subsidized dollars, use of state infrastructure, special concessions to import and privileged control of the market. This sort of thing doesn’t usually result in a sound productive scenario, even within the logic of capitalism. It is an opaque system where deals are made behind closed doors, and there are no limits nor pursuit of efficiency in the most basic capitalist terms! It is not going to work. It's not going to help increase production, which is absolutely necessary now.

This brings us to Agriculture Minister Castro Soteldo’s recent comments [about the need for a “revolutionary bourgeoisie” in Venezuela]. We must have a frank debate about the bourgeoisie now. What is the bourgeoisie that has emerged in the last twenty years? What sectors of the bourgeoisie have grown with Chavismo’s economic policies? Who had (and has) access to subsidized dollars and made fortunes through different mechanisms?

Thus we come back full circle to the issue of privatizations. Who are they benefiting? Who are the players? Obviously, these privatizations respond to the interests of a certain part of the emerging bourgeoisie, aiming to get fresh assets and revitalize themselves financially and technologically. Many of the privatizations underway don’t make sense from a productive point of view. Often, the only argument has been labor issues, but in those cases, the best solution would have been retraining programs for the workers.

So the question that we should be asking is, what kind of bourgeoisie do we have, and if, how and with whom should we establish alliances?

NOTES

[1] The National Constitutional Assembly passed, on December 28, 2017, a law that gives the executive the power to exonerate foreign investors from paying taxes as well as from territorial and environmental regulations, etc. The objective is to create favorable conditions for foreign investment. The full text can be downloaded here.

[2] Between 1994 and 1999, Venezuela underwent a shift towards privatization of the oil industry both upstream and downstream. This process was triggered by a drop in production and prices, which legitimated the process in the public eye. PDVSA, the state company, entered into unfavorable partnerships, as a minority partner, with foreign transnational companies such as ExxonMobil, Royal Dutch Shell, ConocoPhillips, Chevron and Total.

[3] An example of this would be a Joint Venture (60 percent state, 40 percent private), entering into another Joint Venture with a foreign corporation. Thus, the actual share of PDVSA in the enterprise drops well below 50 percent.

Contributions as of 12/06/2019

$10,000
4.4% $443

Break the media blockade!
Venezuelanalysis is the only independent Venezuela-based English language media outlet. Please donate to keep us online in 2020!

Donate now