Business leaders criticise proposed Venezuelan hydrocarbons law

Sep 07, 2001 02:00 AM

The proposed "hydrocarbons law" in Venezuela has drawn a sharp criticisms of the Venezuelan Chamber of business Consultants -- CAVECON, US oil companies, Venezuelan American Chamber of Commerce-VENAMCHAM, oil executives, oil experts, and others academic and professional business leaders.
The President of CAVECON, Oscar Stopello said that Venezuela is getting itself in a straight jacket to negotiated future oil investments with the propose law.
"The Venezuelan private consultant companies are very worried that it would be impossible for Venezuela to generate interest for big investment projects under the inflexibility of the proposed law, specifically; the majority of the ownership of the projects, the capacity of Venezuela to do business and negotiate the projects with the investment community" The draft has drawn sharp criticism from US energy companies that operate in Venezuela, including ExxonMobil, Texaco, Conoco and Phillips.
The main concerns of the foreign oil companies are the raising of royalties to 30 % from the present 16.6 %, the 51 % stake given to the Venezuelan nation on any oil industry investment, the inflexibility of the law in many of its articles and that the draft law does not contain a grandfather clause for existing agreements with foreign investors.

Despite growing criticism, Venezuela's energy minister Alvaro Silva continues to defend the proposed law. Silva said on a recent speech at Cerro Negro's opening, that the government just wants to simplify the tax regime and guarantee a steady flow of oil revenue. "We don't want laws that give room to double interpretation" Hugo Hernandez Rafalli, the president of the local petroleum chamber, echoed the oil executives concerns.
"The Hydrocarbons Law and the rigid tax regime as proposed could lead to Venezuela being a less attractive place to invest," said Rafalli, who is a member of the presidential commission that has approximately six weeks to hear and evaluate opinions on the draft document.

Venezuela's president Hugo Chavez said during a speech that the Hydrocarbons Law would be "historic" and shape the future of Venezuela's oil industry. A new hydrocarbons law in Venezuela should promote the participation of domestic goods and service companies and revamp the model of "colonization" of the country's primary resource, Chavez added Ali Rodriguez, the current Secretary-general of the Organization of Petroleum Exporting Countries and Venezuela's former oil minister, also maintains the new law would provide greater efficiency in guaranteeing the country's flow of oil revenue.
He labelled criticism that the law would frighten foreign investors as a familiar "litany." Rodriguez opposed Venezuela's oil opening in the mid-1990s, especially tax favours given to foreign oil companies operating under different schemes. The government argues that the increased payments will be offset in part by a lower corporate tax rate. The Finance Ministry is considering reducing the rate to between 30 % and 40 % from the current 67 %.

With vast reserves of oil, Venezuela plans to increase its production capacity to 5.5 mm bpd in five or six years, according to the latest Venezuela's oil company-PdVSA plan and the government has said recently in a conference on US energy policy, that Venezuela could play a key role in helping the United States eliminate energy shortfalls.
The oil executives have said that it may very not feasible to invest in projects under the clauses of the propose law. ExxonMobil's Venezuela president, Mark Ward, warned that the some of the new law provisions could dissuade joint ventures like a $ 2 bn extra-heavy crude oil project that was inaugurated.

"Looking at the investment levels of this venture, (the new law) would make it very difficult to go ahead with a similar project," Ward said previous the Cerro Negro plant's inauguration in Puerto La Cruz. Venezuela's US Ambassador, Ignacio Arcaya, said that the proposed law is far from being finalized and may be changed to satisfy potential investors.
"One of the main objectives is to set a clear set of rules and attract foreign investment," Arcaya said at CITGO Petroleum's headquarters. "If foreign investors say that royalty is too high, then we will have to accommodate that situation."
"Some companies have criticized the 30 % royalty. The government will take into consideration that 30 % is too high." "There are many parts of the industry that will be open to foreign investment that weren't open before," Arcaya said.
US companies also noticed that the draft law does not contain a grandfather clause for existing agreements with foreign investors. But Arcaya expressed assurance that those contracts will be respected. A final draft of the law will be devised by a nine-member commission comprised of officials in public and private sectors. The draft will be finalized in mid-November.

Source: Petroleumworld
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