- The Washington Times - Monday, July 14, 2003

CARACAS, Venezuela — Neoconservative leader Jack Kemp has joined a company that plans to purchase oil from Venezuelan President Hugo Chavez’s government and sell it to the U.S. Strategic Petroleum Reserve.

The retired pro football star, congressman and 1996 Republican vice-presidential candidate is working with Free Market Petroleum LLC, which signed a contract with Venezuela’s Ministry of Energy and Mines in January to purchase 50,000 barrels of petroleum per day for three years.

No oil has yet been shipped, but the deal, potentially worth more than $1 billion, is generating criticism in Venezuela because of several features that vary sharply from the country’s past oil-marketing practices.

The arrangement has also drawn attention because of the association between Mr. Kemp, a conservative free-market advocate, and Venezuela’s leftist president, who often denounces neo-liberalism and globalization.

Mr. Kemp declined to speak to The Washington Times for this article.

A spokesman for Mr. Kemp at his Empower America office in Washington referred all queries about Free Market Petroleum to the company’s chairman, Adrian Nash, in London.

Mr. Nash did not return telephone calls.

The Wall Street Journal reported last month that Mr. Kemp had developed a friendship with the Venezuelan ambassador in Washington, former oil executive Bernardo Alvarez, and had accompanied him on public-relations missions, including an editorial board meeting at the Journal.

The paper also said Mr. Kemp had met repeatedly with Department of Energy officials in Washington on behalf of Free Market Petroleum, where he is on the board of directors, and had accompanied its executives to meet with Mr. Chavez and other Venezuelan executives in Caracas.

Venezuelan critics of the oil contract — most of whom oppose Mr. Chavez’s rule — say there is no record of Free Market Petroleum having carried out any previous business transaction. It was registered in Delaware late last year, as was its holding company, Free Market Holdings.

Phone calls to the number listed for Free Market’s New York headquarters were answered by an investment firm, Whitestone Capital, where an employee again referred inquiries to the London office.

The company’s Caracas representative, Arturo Sarmiento, is known primarily as a whiskey importer, which exacerbates concerns in Venezuela about Free Market’s seriousness.

“It’s a company in a suitcase,” said Jose Suarez Nunez, who has reported on the deal for Caracas’ El Mundo newspaper. The business newsletter Veneconomia estimated that Free Market could earn a $55 million profit during the three-year life of the deal.

Luis Giusti, who served as chairman of Venezuela’s state oil company for five years until Mr. Chavez took power, said: “There are several angles to this whole deal which are strange, to say the least.”

The state oil company, Petroleum of Venezuela (PDVSA), has for the first time in its existence been asked to pay royalties to the Venezuelan government in oil rather than cash. That oil, in turn, would be sold to Free Market Petroleum, said Mr. Giusti, now a senior adviser to the Center for Strategic and International Studies in Washington.

He said PDVSA also had departed from its traditional practices by selling oil through an intermediary, rather than directly to the ultimate purchaser.

“This is a bad deal for Venezuela,” said Jose Toro-Hardy, an ex-director of PDVSA, adding that the use of intermediaries opened the door to corruption.

Venezuela signed the deal with Free Market Petroleum in the midst of a two-month strike by antigovernment oil industry employees that crippled the nation’s economy but failed to drive out Mr. Chavez.

Under siege, the Chavez government may have seen in Mr. Kemp a potential ally in Washington, Mr. Toro-Hardy said. Others here believe the Chavez government planned to borrow against the future oil sales.

Neither PDVSA nor Energy Ministry officials responded to requests for comment. However, in a letter to the Venezuelan newspaper Tal Cual, Mr. Alvarez said the contract was legal and correctly documented and argued that it helped Venezuela secure a long-term market for its oil.

“We would be supplying the Strategic Reserve in a more stable commercial base, which has always been desirable for Venezuela,” he wrote.

Mr. Kemp told the Wall Street Journal that he was not familiar with PDVSA’s marketing practices but acknowledged that he had met Energy Department officials to find out “how Venezuela can sell oil to the Strategic Petroleum Reserve.”

When the deal “is completed, it will be transparent,” he was quoted as saying. It also reported that he said he had joined Free Market Petroleum “to get the Strategic Petroleum Reserve filled up.”

President Bush ordered the 600-million-barrel reserve, which stores crude in salt caverns along the Gulf of Mexico, to increase stock late last year.

The reserve does not purchase oil directly; instead, it receives in-kind royalty payments from U.S. domestic oil producers. Rather than providing their own oil, these producers sometimes obtain oil for the reserve from brokers, which is where Free Market could play a role.

John H. Lichtblau, an analyst with the Petroleum Industry Research Foundation in New York, said the Free Market deal did not appear to operate in either nation’s interest.

There is plenty of crude on the world market available for the United States to fill up its reserve, he said, while Venezuela is likely to have been able to obtain a better price for its crude oil elsewhere.

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