by Brian Ellsworth

06-06-05

The courtyard inside Venezuela's legislative palace rumbled like a baseball stadium on opening day. Hundreds of demonstrators, bussed in from the farthest reaches of the country, surrounded the congress, holding banners and chanting pro-government slogans.

But when a towering suit-clad figure stepped from a vehicle and headed towards the entrance, the crowd burst into an uproar befitting an all-star pitcher. This passion was reserved for none other than Rafael Ramirez, energy minister and president of Venezuela's state oil company.

"We are here at the gates of the assembly supporting you. We will never forget that you helped us," intoned one bullhorn-bearing demonstrator, as crowds repeated.

Under the leadership of President Hugo Chavez, Venezuela's oil industry has gone from being a big business to something more like a national passion. With oil now the centrepiece of national politics, the intricacies of state oil giant Petroleos de Venezuela, or PdVSA, have become front-page news and dinner table conversation.

Energy authorities, once treated as boring technocrats, are now being accorded the status of celebrities. These displays are a sign of the powerful political backing for policies confronting oil companies with huge demands. The throng, clad in signature red T-shirts emblazoned with the logo of the energy ministry, spent the next seven hours watching testimony on wide-screen TVs. On the screen, Ramirez delivered a condemnation of the opening of Venezuela's oil fields in the 1990s to international oil companies.

The minister's nationalist sound bites were greeted with hearty cheers. Opposition deputies who grilled Ramirez on widely reported declines in oil production were booed like umpires on the take.
"The people have to show their commitment to Minister Ramirez. He has done so much for the development of this country," Rogelio Bautista, 43, a student of Mision Ribas, a high school completion program financed by PdVSA. Packed between a throng ofdemonstrators thick with the unmistakable smell of newly printed T-shirts, Bautista cheered outside the congressional hearings next to a 10-foot-long banner that read "Bush, get your claws out of PdVSA."

The end of an era

While Ramirez is a hero to millions of Venezuelans, for foreign investors he symbolizes the closing of an era in which many international oil companies made billions off Venezuelan crude.
Venezuela is leading a crusade to bring more oil revenue into government coffers by raising royalties, charging back taxes, reducing cost write-offs and hiking mandatory government ownership.

Other nations follow

Venezuela is not alone in this drive. Soaring energy prices have tipped the balance in favour of oil producers, leading countries like Nigeria, Kazakhstan and Russia to join the campaign for a greater slice of the pie. Bolivia just passed legislation boosting a tax on gas production to 50 %, and some activists are demanding nothing less than the nationalization of the country's enormous gas reserves.
"Across the board, countries seem to be rediscovering the idea that taxing companies is one of the easiest ways to increase government revenue from natural resources and take advantage of higher prices," says Michelle Billig of PIRA Energy Group, a New York-based consulting firm. "What's unusual in Venezuela versus other oil producers is that this has become a cause célèbre. It's become the central political platform."

Venezuela's oil industry has undergone a wrenching transformation under Chavez. First he quashed an oil strike launched in late 2002 and sacked over half the company's management elite. Then he turned PdVSA into the financial engine for his social reforms program.

The company now spends upwards of $ 4 bn, about 20 % of its budget, on social programs ranging from agricultural development to high school completion programs.

A recent study by the market research firm Datos Information Resources indicates that Venezuela's poorest residents have seen a 33 % rise in incomes, largely as a result of government social programs. In a country where poverty is rampant, this approach is understandably popular.
Antonio Perez, 64, joined a recent demonstration of hundreds of thousands of Chavez supporters who marched halfway across Caracas as part of an effort to denounce terrorism and celebrate PdVSA.

Venezuela in the 1990s brought in foreign investment through a process known as the apertutra, or opening, which helped boost Venezuela's oil output by more than 1 mm bpd.

The Venezuelan left sneered when energy giants, such as Houston-based ConocoPhillips, profited while boosting the country's oil output. But with the leftist Chavez now solidly in power -- ratified by a resounding victory in a recall referendum last August -- the government is doing everything possible to roll them back.

Last October, it pushed up the royalty it collects on four multibillion-$ heavy crude projects from 1 % to 16.6 %. Thirty-two operating service contracts -- wherethe international oil company is reimbursed for investment and production costs -- have been given six months to convert to joint ventures with PdVSA under the tougher terms of the Hydrocarbons Law decreed by Chavez in 2001.

Those agreements have faced an income tax hike of 34 % to 50 %, which will be applied retroactively for four years.

Taxation excitement

Oil taxation is such a technical issue that it frequently produces yawns and glazed eyes. In Venezuela the crusade to bring home the bacon is artfully woven into fiery rhetoric about the need to fight the imperial dominance of foreign countries and global corporations.

''This was a veritable assault on Venezuela's oil, coordinated by international institutions and transnational corporations against the Venezuelan people," intoned Ramirez, standing in the assembly's elegant chamber.

Despite cheers from the demonstrators, PdVSA is facing questions about how much oil it is producing and how it is handling its money. Venezuela's energy authorities say the country is producing an average of 3.2 mm bpd. But foreign observers, including the OPEC, say Venezuela's output is only 2.6 mm bpd.

Industry analysts say the enormous shift to social spending has led to administrative and accounting chaos at PdVSA and has diverted much needed investment from the oil fields.

But such criticisms mean little to Chavez supporters. Standing outside the Congress with a group of demonstrators who travelled 18 hours from the Venezuelan Amazon to support Ramirez, Ana Fuenmayor said the company is in the right hands.

"We can't allow a small group of vagabonds to continue swindling the country out of its riches," said Fuenmayor, 42.

Around her neck she wore a set of elaborate tropical necklaces made from dark tropical seeds, macaw feathers, alligator teeth and bones of freshwater dolphins. She said the necklaces had been specially made for this event by a shaman of the Venezuelan Yanomami tribe.

"I'm going to give one to the minister," she said, peeking through the wrought-iron gates into the assembly courtyard. "It will make him powerful so he can defend PdVSA."

Source: The Chronicle