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Journal Article
Venezuelan Oil: Free Gift of Nature or Wealth of a Nation?
2006
Overview
PDVSA sought to attract large infusions of foreign capital through joint ventures and operating agreements. Critics charged that the apertura effectively privatized activities that in past would have been regarded as concessions, and some of their concerns were later borne out. For example, under cover of operating agreements for reactivating marginal fields, foreign companies often drilled into more productive reserves farther below. Companies were not paid a straightforward fee for services, but were paid on a sliding scale pegged to the market price of oil, relieved of any obligation to pay a royalty (which was shifted to PDVSA) and taxed at the lower rate (34 percent instead of 67 percent). Joint-risk exploration contracts offered access to two percent of Venezuela's total land area, but fees were less than half of what was offered in concessions offered for merely 8.2 sq. kilometres by the military dictatorship in 1957. \"Strategic associations\" to develop heavy oil in the Orinoco would pay royalties at only one percent, justified because of the high cost of production. Critics contend that the real purpose of boosting production was to provoke a crisis with OPEC. Technically, \"Orimulsion\" would not count against Venezuela's OPEC quota, but as it would compete with lighter grade crudes on the market, inevitably OPEC would object.1 After 1935, when the dictator Juan Vicente Gomez died, conservative elites in Venezuela claimed that democracy could be viable only after a period of social modernization lifted the civic capacity of the majority poor. Advocates of mass, universal suffrage, and direct election insisted on immediate democracy. Only such a state would demand from foreign companies a \"just share\" of oil profits to the nation; only such a state would \"sow the oil\" in a developmental project to lift living standards and create a modern, inclusive society, one sustainable after the nation's \"natural wealth\" was exhausted. This latter vision, articulated by [Romulo Betancourt] and AD, prevailed and was institutionalized after the fall of the military dictatorship in 1958 in the constitution of 1961. A series of elite pacts, especially the power-sharing \"pact of Punto Fijo\" among non-Communist political parties, signed just before the first post-dictatorship elections of December 1958, laid the basis for a populist system, known as puntofijismo. However, the same system of pacts attenuated popular influence over elected officials. As long as oil fuelled economic growth and opportunities for social mobility, this mattered little. [Luis E. Giusti] and many of his acutele in the company began their careers in the pre-nationalization era working for the Shell subsidiary (Maraven); they became known as the generation de Shell.7 Their first steps were to widen a loophole in the nationalization law, which otherwise reserved the oil industry to the state. Article 5 allows for \"associations\" between PDVSA and private entities in \"special cases and when it suits the public interest,\" requiring that the state company retain control over such associations. In addition, the 1943 law required that congress and the president review and approve such contracts. In 1990, the company (not the ministry) obtained a supreme court ruling that not only cleared away that requirement but also all pre-nationalization legislation that might conflict with the apertura under article 5. This removed legal bases for critics to challenge reductions of royalty, international arbitration of contract disputes, sliding rates of taxation, etc. PDVSA executives then \"satisfied\" the legal obligation for state control with ineffectual joint committees of control instead of majority ownership of shares. To further cement the apertura, PDVSA's contracts for services and partnership made the company legally responsible to absorb any additional costs imposed as a result of new government regulation or changes in the tax and royalty regime. Effectively, the company had abrogated the ministry function of managing relations between the nation and foreign capital, and to consolidate its role it made itself hostage to its partners.
