VEN Leader Pressed From All Sides Over Oil Plans

Venezuela’s interim leader is playing to three different audiences with her plans for Venezuela’s oil sector: foreign investors, the Donald Trump administration, and her own socialist supporters. None of them is happy with it. 

Under pressure from Washington, acting President Delcy Rodríguez is seeking to revive the nation’s energy industry by opening it to foreign oil companies. The plans have sparked a backlash from across the political spectrum.  

Some of Rodríguez’s allies in congress and the labor unions see her hydrocarbons law as a betrayal of her mentor, former President Hugo Chávez, who increased state control over the sector. At the same time, some international lawyers say it fails to provide adequate safeguards for investors in a country where they don’t have clear legal protection. And the Trump administration says it doesn’t go far enough in opening up the industry to private capital.  

The law has put Rodríguez in a rare political bind in a country where the ruling party is accustomed to imposing its policies on the nation without significant resistance. Now the government is instead being forced to make difficult tradeoffs to balance demands from competing interests.

Socialist advocacy group Plataforma Ciudadana en Defensa de la Constitución attacked the reform as a “sell-out,” and a demonstration “of the submissive attitude of certain national elites.”

The reform “dismantles sovereignty control over the trading of our resources,” said former national assembly energy committee head William Rodríguez. He called it a measure “to increase the profits of the oppressor’s multinational corporations.”

But the multinational corporations aren’t wild about it either. 

“This is a band-aid approach to a law, not a integral approach,” Miami-based arbitrator and energy specialist Elisabeth Eljuri said. “Partial reforms like this one do not represent the needed legal framework for international investment.” 

The law seeks to entice foreign drillers with contract structures and tax reductions, while allowing them to market their own production and settle any contract disputes through international arbitration, rather than exclusively in Venezuelan courts. But without the rule of law, investment won’t come in the amount needed, especially since the government might change its mind and backtrack at any moment, Eljuri added.

The reform bill was approved on a first reading on Jan. 22 and could include additional changes before a second and final vote to become law. Rodríguez and her brother Jorge, who is the head of congress, have toured facilities of the state oil company across the country to try to shore up support. 

US Secretary of State Marco Rubio flagged the reform’s limits during a Senate hearing on Wednesday.

While the law “eradicates many of the Chavez era restrictions on private investment in the oil industry, it probably doesn’t go far enough to attract sufficient investment,” Rubio said. “But it’s a big step from where they were three weeks ago.”

Not everyone is gloomy about the proposals. Some small to medium-sized local oil service companies have praised the reform for its potential to boost employment. Oswaldo Felizzola, head of the Energy Center at Caracas-based IESA business institute, described it as a “good start” that would “quickly increase production in mature fields, easy-to-add-barrels areas, by the end of the year.”

To contact the editors responsible for this story:

Crayton Harrison at tharrison5@bloomberg.net

Matthew Bristow

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