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Venezuela’s Oil Minister Accuses France’s Total and Norway’s Statoil of Irregularities

By Marianna Párraga | El Universal

ENERGY | Energy Minister and President of PDVSA, Rafael Ramírez, speaking before the National Assembly accused Total and Statoil of irregularities. For Rafael Ramírez the balance resulting from the liberalization program is negative: between 1976 and 1993 for every dollar worth of exported petroleum the treasury received $0.66, which was cut in half between 1993 and 2002, causing an impact of $34 billion.

Caracas, 26 May 2005 | In a speech that opposition assembly members estimated to have lasted 55 minutes and which preceded a seven-hour debate, the President of Petróleos de Venezuela and Minister of Energy and Petroleum, Rafael Ramírez, in the semicircular chamber of the National Assembly, lashed out yesterday against the business deals of the liberalization program, particularly operating agreements, strategic associations and internationalization. He made particular mention of Sincor, an association formed during the 1990's by Total, Statoil and PDVSA in order to extract and improve extra heavy crude from the Orinoco Belt. According to the president of the PDVSA, this project will begin to be charged a royalty of 30% for every barrel exceeding 114,000 BPD, which is what was authorized and which today pays a royalty of 16.66%.

“Furthermore, we request that the associates reduce the area to the 250 square kilometers authorized by the then National Congress. But that is not enough to remedy the situation…The National Assembly needs to take a stand in view of this scandalous case, it is the one being treated with the greatest disdain. It is our judgment that an investigation should be initiated and responsibilities established.”

Ramírez provided a broad scrutiny of the conditions under which the strategic agreements were signed, but owing to the “extra-limitations” encountered in the case of Sincor he explained that this project does not square with what was approved by the Congress: the authorized production was for 114,000 BPD of extra-heavy crude and currently 210,000 BPD are being extracted; the improvement plant does not have a capacity of 100,000 BPD as authorized, but rather double that amount; the approved territorial extension was for 250 square kilometers with proven reserves of 1.5 billion barrels and the area finally taken was 324 square kilometers with reserves of 2.5 billion barrels.

To this is added the disposition “at their sole discretion” of the natural gas associated with the crude being extracted, despite the fact that “it is not part of their charge;” as well as failure to cyclically inject steam, as was initially agreed upon. This last matter places the association’s recovery factor at 7%, while the national average is 25%.

Scrutiny under the Magnifying Glass

According to the minister, the incongruences of this case were detected when a review of Sincor was initiated in order to negotiate its expansion into Sincor II, as it was announced by President Chávez from Paris. Ministry of Energy and Petroleum (MEP) authorities ran into multiple obstacles in trying to gather original information that was not even in the hands of the participating companies.

After having assumed that there existed no original copies of the projects presented to the Congress for either Sincor or Petrozuata or the report for the bicameral committee of Energy and Mines, the MEP found a copy of the Maraven-Conoco project (Petrozuata) and another unsigned copy of the committee report, all of which were analyzed and irregularities were found.

Ramírez stated that the four associations today are producing 660,000 BPD of crude which turn into 600,000 BPD of improved crude, but clarified that these barrels have yielded for the country only “laughable sums.” He added that the dollar proceeds from the exportation of these barrels do not reach the country, as in the contracts it was established that they were to be used for the payment of debt. Thus, in just four years, $9 billion have been paid out to settle amounts due.

Harmful Business Deals

“With the period of liberalization came an assault on Venezuelan petroleum,” said Ramírez in summarizing the ten years that have elapsed since this strategy began to be executed.

The balance attributable to the internationalization process is negative: from 1983 to 2004 the discounts granted by PDVSA to its overseas subsidiaries —$1.03 per barrel on average— amounted to $7.5 billion, which in today's dollars amounts to $11.4 million; and just to CITGO discounts were granted in 2003 that amounted to $394 million, leaving the Venezuelan treasury with a loss of $253 million, while the U.S. treasury received $89 million.

The same thing happened with the agreements, as 16 of them yield direct losses for PDVSA; and the associations, from which up until September hardly 1% royalties were collected, according to what was maintained by Ramírez, who admitted the agreements reduced their production by 5% between 2004 and 2005 owing to a reduction in the budget applied by the CVP (Corporación Venezolana del Petróleo).

Ramírez estimates that from 1976 to 1993 from each dollar received for oil exports 66 cents went to the treasury, which was cut in half from 1993 to 2002 and now rises to 45 cents. “The drop in fiscal petroleum revenues between 1993 and 2002, in comparison with the 17 previous years, was $34 billion, $3.4 billion per year. Here we have one of the main causes of the country's brutal impoverishment during the 1990's.”

Translation by W.K.

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