- The Washington Times - Tuesday, May 12, 2009

SANTA CRUZ, Bolivia — Venezuelan President Hugo Chavez has launched a new round of nationalizations as his nation faces skyrocketing debt in its state-owned oil industry - a potential threat to social programs and regional aid projects, government officials say.

Venezuela, a leading member of the Organization of the Petroleum Exporting Countries (OPEC), relies on oil for 93 percent of its revenues, which have declined drastically owing to the plunge in world oil prices.

The price of Venezuelan crude has shrunk by 55 percent during the past year, and the debt accumulated by government-run oil enterprise PDVSA has grown by 146 percent.

“The oil price is very low; about half the price we budgeted. That is hard and difficult for Venezuela,” said Mr. Chavez.

The National Assembly passed a law Friday allowing the government to take over oil-service contractors, including several American and British firms that are owed up to a year in back fees.

In recent years, Venezuela had taken control of oil projects from such energy giants as British Petroleum, Exxon Mobil and Phillips Conoco.

Mr. Chavez recently has been trying to woo back foreign investors to shore up his ailing oil industry, which is also plagued by inefficiency and mismanagement.

The measures announced last week threaten to undermine the task, said Nestor Borjas, who heads the business chamber, Fedecamaras, in Venezuela’s oil-producing state of Zulia.

“Companies are very afraid,” he said. He also warned that the new law could discourage foreign investors, whom Venezuela is trying to attract to bid on new exploration projects.

The latest nationalizations also run counter to recent speculation about improved ties with the administration of President Obama.

Mr. Chavez refrained from his usually harsh anti-American rhetoric at last month’s summit of hemispheric leaders in Trinidad, where he shook hands with Mr. Obama and gave him a book about purported past U.S. misdeeds in Latin America.

A columnist for the Caracas newspaper El Universal, Nelson Bocaranda, has reported that Venezuelan officials were speaking to the U.S. State Department about encouraging American car manufacturers and food companies to set up factories and assembly plants in Venezuela.

According to El Universal, PDVSA is so strapped for cash that it has been unable to make its annual allotments to Venezuela’s National Development Fund, which subsidizes health, education, housing and food programs for Venezuela’s poor.

Oil industry analyst Francisco Toro said the government’s heavy borrowing has created a $40 billion shortfall and that the “worldwide credit crunch makes it harder and harder to borrow the difference.”

A recent study by the Washington-based Heritage Foundation concluded that “the recent drop in oil prices could eventually lead to social upheaval in Venezuela and the end of the Chavez era.”

Other analysts are more cautious, pointing out that Mr. Chavez survived a strike that brought the oil industry to a standstill in 2002.

Mr. Chavez ordered his military to seize paralyzed installations, and he brought in oil workers from India, Libya and Iran to restart drilling rigs and refineries as he fired more than 17,000 PDVSA employees.

Mr. Chavez recently won a referendum on constitutional changes that allow him to be re-elected indefinitely. He also forced his main opponent, Gov. Manuel Rosales of Zulia, to seek exile in Peru, after threatening to arrest him.

U.S. intelligence officials believe, however, that Mr. Chavez’s ability to extend his influence has been seriously hampered.

“Chavez is likely to face new constraints in 2009 as he attempts to expand his influence in Latin America,” National Intelligence Director Dennis C. Blair recently told a Senate Intelligence Committee hearing. “Falling oil prices could further undermine his ability to buy friends,” Mr. Blair said.

Pro-Chavez governments have come to power over in Bolivia, Nicaragua and Ecuador and most recently in El Salvador and Honduras.

Mr. Chavez has said that he will continue funding social programs through a $6 billion development fund created with China in 2007, which provides for a barter system, in which China finances development projects in Venezuela in return for oil shipments.

Venezuelan government officials have also pointed to oil-price rises over the past week, placing Venezuelan crude at $49 a barrel, a level considered a break-even point.

Patrick Esteruelas, an international oil analyst with the Eurasia Group in New York, has said that Mr Chavez’s latest nationalization effort is aimed at pressuring companies to accept his terms.

“I don’t think that PDVSA wants to immediately take over the entire service sector,” he was quoted as saying by the Associated Press. “That would be a logistical nightmare.”