Restrictive government rules hurt oil industry in Latin America

Latin America's prospects for attracting substantial new foreign capital to its oil industries is "mixed to poor" due to restrictive laws and regulations in the region, according to petroleum consultant David L. Goldwyn, head of Goldwyn International Strategies and formerly US Assistant Secretary of Energy.
Speaking on opportunities for energy businesses in Latin America, Goldwyn pointed out that worldwide demand for oil and natural gas is growing rapidly, creating new opportunities for several Latin American nations.

But while the region has enormous potential to develop and market its petroleum reserves -- especially for export to the nearby US market, government policies have set up roadblocks. For example, the two Latin American nations with the region's largest petroleum reserves, Mexico and Venezuela, are not competitive, he said. Mexico will not allow direct foreign investment in the oil sector and Venezuela has legal and regulatory barriers that force foreign companies to absorb all the risk and give them a limited share of profits.
But he and other speakers in Coral Gables, who participated in the first day of a business forum organized by Poder, a Miami-based business magazine, pointed out that two countries -- Colombia and Trinidad and Tobago -- have been very successful in obtaining foreign investment because they designed legal and regulatory frameworks that make them attractive to multinational energy companies.

Colombia's Minister of Mines and Energy, Luis Ernesto Mejia, described a series of reforms enacted over the past several years that helped attract new foreign investment to his country and boost oil exploration and production. Among the most important reforms were changing the royalties foreign oil companies are obliged to pay the government, adjusting the depreciation period for oil fields, eliminating red tape for companies seeking official permits, and changing the role of the national oil company, Ecopetrol, so that it no longer regulates the petroleum industry at the same time that it competes with foreign oil concerns.
"In past governments, the state had a larger participation in the hydrocarbons sector," Mejia said, noting that this policy led to less foreign investment. "We have modified this policy and are trying to make investors feel more confident."

Another speaker, Ali Moshiri, vice president for exploration and production in Latin America for ChevronTexaco, said that Latin America made progress in the 1990s in privatising its economies, but stressed that governments over the long term "need a true commitment to open markets."
Moshiri, whose company has large investments in the region, said that some countries have shown a "troublesome lack of commitment to privatisation" and warned that increasing taxes to boost treasury income could make these countries "uneconomic" for international oil companies.