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Financial Times: Petróleos de Venezuela

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By Carola Hoyos
Published: March 11 2007 19:05 | Last updated: March 11 2007 19:05

Hugo Chávez, Venezuela’s president, this year signed a law that allows Pdvsa to seize control of the $30bn Orinoco Belt heavy crude oil projects from a handful of the world’s biggest international energy groups. By doing so he accelerated the speed with which he has turned Pdvsa from a foreigner-friendly national oil company of competent technocrats into a pawn of his nationalist agenda.

Though in technical and managerial terms it is a shell of a company, Pdvsa is still hugely influential, not least to the fortunes of international oil groups such as Repsol of Spain, ChevronTexaco and ExxonMobil of the US and Total of France, to name but a few.

Pdvsa’s battle with Mr Chávez, which began with a general strike in 2002 and the subsequent firing of 17,000 workers, drastically cut Venezuelan production, damaged its fields and helped international oil prices begin their record climb. Venezuela turned from being one of Opec’s most undisciplined members, gunning for market share rather than price control, to one of its most hawkish ones.

The country now produces less than 3m barrels of oil a day, half the amount Luis Giusti, Pdvsa’s former chief executive, set as a target in the 1990s when he opened the sector to foreign investment and set up many of the contracts now being rewritten. Instead of growing, Venezuela’s production is expected to continue shrinking, prompting concerns that Pdvsa will go the way of Pemex, Mexico’s national oil company. Pemex’s coffers are so heavily mined by the government that it is unable to invest and stem the natural decline of its fields. Venezuela and Mexico are two of the US’s most important oil suppliers, but if politicians continue to use their national oil companies as bottomless piggy banks, both could lose that status within a decade.

As Mr Chávez and the loyalists that now run Pdvsa wrest-back control over Orinoco,Venezuela’s vast long-term potential also looks in doubt. Its heavy oil deposits are said to be the globe’s biggest and, with the world’s hungriest consumer at its doorstep, Pdvsa has the potential to be one of the world’s biggest international energy players. But under Mr Chávez, Pdvsa’s short-term influence in driving international oil prices higher and international oil company revenues lower means that achieving the country’s vast potential becomes an ever more distant possibility.

Copyright The Financial Times Limited 2007

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