Venezuelan Gov't. Expropriates Petroleum Related Activities

"Venezuelan Government Expropriates Petroleum Related Activities
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May 9th 2009, by Tamara Pearson – Venezuelanalysis.com
Oil processing and extraction in Venezuela (PDVSA Press)
Oil processing and extraction in Venezuela (PDVSA Press)

Mérida, May 9th 2009 (Venezuelanalysis.com) - The National Assembly passed a law on Thursday assigning goods and services connected to the petroleum industry to the state. The law re-establishes government control over a range of activities that were previously contracted out to foreign transnationals, and transfers the corresponding contract workers to the state oil company PDVSA or its affiliates.

Activities that are fundamental for producing petroleum, such as the injection of water, steam, or gas to increase energy reserves and the amount of petroleum extracted, or the compression of gas, the boats used for transportation of staff and divers, the cranes that transport material, ship and pipe maintenance and so on, are now legally under state control.

On Friday, the government expropriated 300 boats, 30 barges, 39 terminals and docks, 5 dams and 13 workshops on Lake Maracaibo, where there are large crude oil reserves. Chavez said that next week they will also start expropriating some petroleum complexes in Monagas state.

According to the Venezuelan newspaper El Universal, among the companies to be affected is US-based Williams Company, which is in charge of the project High Pressure Gas Injection. The newspaper says that PDVSA has a large debt to the company for its operations for the first quarter of this year. The Woodgroup consortium will also be affected.

Through the law, the government has the right to partially or completely expropriate any petroleum related activities, and Venezuelan President Hugo Chavez said, "We are going to have a liberating battle" in Lake Maracaibo.

The National Assembly's statement motivating the law says, "such activities, which are of strategic character and necessary for the principle industry of the country and that are carried out by Petroleum of Venezuela (PDVSA) and its affiliates, were during the Fourth Republic with the consequent loss of direct control and vulnerability of the Venezuelan state."

Further, the minister for energy and petroleum, Rafael Ramirez, pointed out that the law is fulfilling Article 302 of Venezuela's constitution, which establishes that "primary activities are reserved for the absolute control of the Venezuelan state through its national company, Petroleum of Venezuela."

Ramirez also estimated that the government will save $700 million annually for expropriating the various goods and services today, out of what it was previously paying for the contracts.

"At the start of the year we denounced that there was a surcharge in the rates that were charging for their services, but as there was a monopoly we didn't have any choice. We can't extract the petroleum in the lake if we don't have control of the launches, of the terminals, likewise with the extraction of the gas, in the north of Monagas 500,000 barrels daily depended on an injection that was in the hands of a North American transnational," Ramirez said.

The president of the National Assembly's commission for energy and mines, Angel Rodriguez, said that the new law corrects the breaking up of essential areas of the petroleum industry when in 1992 the "old PDVSA" started a large scale process of subcontracting, leaving a large part of the exploitation of oil in hands of foreign companies.

The new law is also about Venezuelan sovereignty, said Ramirez. "These companies were speculating and controlling a large part of the oil industry and now we are going to correct anything that is improper, safeguarding our sovereignty and reducing costs in the production of oil."

The law stipulates that to expropriate such goods and services, future loss of profit or damages will not be considered. The value will be determined according to the norms, with labour and environmental liabilities deducted. Any disputes over the application of the law can only be settled in Venezuelan courts.

Ramirez also explained that workers who are affected by the change will now work for PDVSA or its affiliates. In the appropriations that occurred today, he said 8,056 workers will now be "absorbed" into PDVSA.

The minister for work and social security, Maria Cristina Iglesias, also noted that in the last four years, PDVSA has incorporated over 21,000 workers that were previously contract workers.

Yesterday the price of oil rose to $58 per barrel, the highest price since last November. "
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