- The Washington Times - Wednesday, August 24, 2005

CARACAS, Venezuela — President Hugo Chavez is taking advantage of soaring oil prices and a weak opposition movement to squeeze private oil companies and regain what he calls “petroleum sovereignty.”

More than 20 foreign companies including Chevron Corp., British Petroleum and Royal Dutch Shell are being targeted in an effort to collect more than $3 billion.

“Oil riches have given the Venezuelan government huge negotiating power,” said one lawyer, who is representing the oil companies in talks with the government. “And they are using it.”

Mr. Chavez, who presides over the largest oil reserves in the hemisphere is threatening to expel foreign oil companies if they do not pay up.

Meanwhile, Jamaica this week announced the finalizing of an agreement with Venezuela to purchase oil from Caracas at a discount price of $40 a barrel, compared with the more than $60 a barrel oil currently costs on the world market.



The deal was announced by Jamaican Prime Minister P.J. Patterson after a meeting in Montego Bay, Jamaica, with Mr. Chavez on Tuesday.

The discounted oil is being offered throughout the Caribbean region.

Royal Dutch Shell and Houston-based Harvest Natural Resources, the first companies to receive tax demands, have let the Venezuelan government know they won’t go without a fight.

Earlier this month, Shell officials announced that the company would challenge tax authorities on a $131 million bill it received in mid-July.

Houston-based Harvest Natural Resources has also publicly rejected a Venezuelan tax-evasion claim for $94 million, which amounts to about $24 million more that the company’s first-quarter revenue.

Harvest President Peter Hill said that while international arbitration would be a last resort, the company would go that route “if things get too difficult.”

Apart from the tax demands, there has been little public outcry from companies about a mandatory conversion from current contracts to joint ventures in which the state-run oil company, known as PDVSA, will have a majority stake.

Eight smaller companies took the first step this month toward what Energy and Petroleum Minister Rafael Ramirez advocates as “dismantling” the 1990s, when Venezuela opened its reserves to 22 private companies.

These eight companies, including Harvest Natural Resources, the Spanish Repsol, and China National Petroleum Corp., last week signed transitory contracts that govern their operations as they negotiate the joint ventures.

Larger companies operating in the country, including Shell, Chevron and BP, are still in talks with the government.

Mr. Ramirez said that the companies “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.”

The government argues that deals signed under previous governments, called operating service agreements, violate a Venezuelan law prohibiting private participation.

It also asserts that many of the contracts signed in the 1990s produce losses for PDVSA.

The big oil companies have expressed 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.

Shell Venezuela President Sean Rooney said his company is “pro-active 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.”

Yet the aggressive new oil policy is not without its critics. PDVSA directors from previous governments accuse the Chavez government of scaring off new investment and frustrating prior efforts to increase Venezuela’s share in the global oil market.

Former PDVSA President Andres Sosa Pietri said that the Chavez government is spoiling 1990s policies that encouraged more foreign investment and increased production.

U.S. Ambassador William Brownfield said that while Venezuela has a sovereign right to govern its natural resources as it pleases, it also has an “obligation to respect the contracts that it has already signed and voluntarily entered into.”

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