Ramirez asks companies for 'respect,' 'goodwill'
Jens Erik Gould
July 6, 2005
Transitional contracts drafted by the Venezuelan Ministry of Energy and Petroleum declare current operating agreements with foreign oil companies illegal and would reduce company rights and benefits.
A draft of the transitional contract obtained by The Daily Journal calls the operating agreements "incongruent with legal framework" and gives companies a period of six months to convert their operations to joint ventures.
"The companies have enough ability to understand that there is a legal framework that has to be respected, and that if they want to be exploiting petroleum in a country with one of the biggest reserves on the planet, they have to respect our laws," Energy and Petroleum minister Rafael Ramirez in an interview with The Daily Journal on Sunday. Companies that signed the transitional contracts would show "a sign of goodwill," he added.
The government argues that the 32 operating agreements signed with foreign companies in the 1990s are oil producing agreements rather than service contracts and therefore violate Venezuelan law prohibiting private participation.
The transitional contracts are meant to govern the operating agreements while Venezuelan authorities define the legal framework for joint ventures required under the stricter 2001 Hydrocarbons Law. The law stipulates 30 percent royalty payments and majority participation by the state-run oil company PetrÛleos de Venezuela (PDVSA).
As of yet, no companies have announced plans to sign any transitional agreements.
The draft makes no mention of company rights to international arbitration, a benefit enjoyed under current contracts. Instead, it states that all contract disputes would fall under the jurisdiction of Venezuelan courts.
The government would also put an annual limit on capital fees, operation fees and interest paid to companies under the operating agreements, the draft states. Payment by PDVSA would not exceed 66.67 percent of the total value of crude produced in each operating area.
The document explains that fees exceeding this annual limit could not be transferred to another calendar year, revoking the contractor's "right to receive any compensation" for unpaid fees.
The annual limit would prevent PDVSA from accumulating losses, which the company argues is occurring under the current payment scheme that calculates fees based on the high price of oil.
Despite the condensed benefits, Ramirez offered assurances that the companies were not apprehensive about the transitional contracts. "Various" companies were interested and all companies were negotiating with the government, he said.
Asked if he expected companies to sign the transitional contracts, Ramirez said, "with some, yes; with some, no."
Shell Venezuela president Sean Rooney said last week that his company was in favor of converting to joint ventures.
"Shell was proactive in approaching the government to talk about converting our operating agreement to a joint venture because we felt it was the right thing to do," Rooney told reporters.
Joint ventures are expected to allow companies to own and market oil, rather than the current arrangement in which they are hired to pump PDVSA's crude.
While Rooney declined to say last week whether his company had received a draft of the transitional contract, he admitted there was a possibility that Shell would sign a transitional agreement.
U.S. ambassador to Venezuela William Brownfield said in an interview on Monday that while Venezuela had a sovereign right to govern its natural resources, it also had an "obligation to respect the contracts that it has already signed and voluntarily entered into."
Henrique RodrÌguez, president of the small Venezuelan oil firm Suelopetrol, told reporters last week that his company had received a draft of the transitional proposal, but he called it a mere "proposal for negotiations."
The anticipated regulations for the new joint ventures are expected to resolve uncertainty surrounding how much managerial control the companies will have given their minority participation.
While the government takes an increasingly nationalist stance, some major foreign companies have reiterated a willingness to keep doing business in the country.
"With a company like Chevron being in Venezuela for over 60 years, we are committed to Venezuela," said Ali Moshiri, president of Chevron Latin America, in an interview last week. "We just need to work out some of these issues."
Other companies who have operating agreements in the country include ExxonMobil, British Petroleum, Repsol YPF, Petrobras and China National Petroleum Corp.
JENS ERIK GOULD
Jens Erik Gould is a political, business and entertainment writer and editor who has reported from a dozen countries for media outlets including The New York Times, National Public Radio and Bloomberg News.