Venezuela’s interim government led by congress head Juan Guaido is preparing new legislation to reverse late President Hugo Chavez’s energy industry nationalization, allowing private companies a bigger role in its oilfields and shrinking state-run PDVSA, ONA reports citing Reuters.
The proposal is vital to reverse a collapse of the OPEC-member nation’s oil industry, which provides 90 percent of its export revenue, and aims to win support for Guaido among foreign energy companies that could finance a rebuilding, after crude production has fallen to a seven-decade low.
Under the proposal, which is expected to be released in coming days, private firms could choose to run the day-to-day operations of Venezuelan oilfields, a sharp departure from the Chavez era in which foreign companies could only be minority shareholders and were not granted operational control.
PDVSA would continue existing as a main player in the oil industry - a source of pride for many Venezuelans - but some of its assets would be transferred and auctioned by a new, independent regulator similar to Mexico’s energy reforms, which ended 75 years of monopoly.
Guaido’s team, struggling to form a full cabinet and win broader international recognition, has gained support at home and abroad, but has been unable to shake Socialist Nicolas Maduro’s hold on the reins of the government, the military and PDVSA, the core of the country’s economy.
“The Venezuelan oil industry has collapsed after years of arbitrary policies that turned PDVSA and its subsidiaries into political tools serving the Socialist model,” according to the preamble to the law.
Guaido’s government is proposing a variety of exploration and production contracts that would allow private companies for the first time in decades to operate oilfields individually and in partnership with PDVSA. Private companies could also apply to operate oil refineries and retail service stations under the draft proposal.
The new contracts are expected to be awarded by the new regulator, named the National Hydrocarbon Agency, which would organize a “round zero” and let PDVSA pick its preferred oilfields.
“All hydrocarbon reservoirs can be part of an auction to be decided by Venezuela’s Hydrocarbon Agency,” the draft says.
PDVSA did not immediately reply to a request for comment.
Venezuela’s National Assembly is expected to discuss the draft in the coming months, according to the sources. Once it is approved, there would be additional legislation required to fully reform the oil industry.
Venezuela’s current energy law, the backbone of an economy dependent on oil revenue, was approved by Chavez in 2001 under authority granted to him by the nation’s congress, and was later revised to increase taxation and the government’s control over the industry.
The law was used by Chavez more than a decade ago, following a lengthy strike by PDVSA employees against his government, to force foreign partners to enter into joint ventures controlled by PDVSA.
Chavez led a long nationalization wave that expropriated ConocoPhillips and Exxon Mobil Corp operations. Those two and others have won billions of dollars in international arbitration claims.
The new proposed law would impose a flexible royalty rate with a minimum of 16.67 percent and maximum of 30 percent, depending on oil prices, removing shadow taxes that increase their payments. At present, companies including Chevron Corp are compensated through dividends paid by PDVSA.
PDVSA under the legislation would remain a constitutionally-created state-run oil company, but would no longer be required to be in all oil ventures and operations.
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“The collapse of public finances on top of the demands from a complex humanitarian emergency stop the state from taking responsibility for all the investment,” the proposed law says.
The draft legislation also includes temporary dispositions allowing the government to declare the oil industry in emergency to take control, inspect and audit PDVSA’s assets and facilities to identify corruption and wrongdoing.
It also allows debt re-negotiations, suspension of harmful contracts, PDVSA’s corporate reorganization and negotiations with its current partners to modify joint ventures if agreed by all the parties.
“The state oil industry, controlled by PDVSA, has found itself involved in corruption, money laundering and organized crime, investigated by the National Assembly and by several countries.”