WHEN Venezuelans elected Rafael Caldera as president on Dec. 5, the outlook for foreign investment in the oil industry here suddenly clouded over.
In August, the forecast was clear. For the first time since the world's sixth-largest petroleum producer was nationalized 24 years ago, the Venezeulan Congress approved a series of major joint-venture projects with overseas partners.
But President-elect Caldera and his economic team have questioned the legality of the new ``strategic associations'' under the Venezuelan constitution. Mr. Caldera has promised to review them carefully.
``There's uncertainty as to whether the new government will continue approving the deals as they are or will put new conditions on such agreements,'' says Jorge Vallalba, an oil analyst with Consultores 21, an economic and political research firm here.
But Samuel Wilhem, former director of the state oil company Petroleos de Venezuela S.A. (PDVSA), argues that Caldera has little choice but to seek more foreign investment. ``What he said to get elected is entirely different from what he'll do,'' Mr. Wilhelm says. ``I know his economic advisers. They understand the economy and what this country needs.''
Taxes on PDVSA revenue provides for 60 percent of Venezuelan government income. Nonetheless, the government faces a fiscal deficit of about $3 billion, or 4 percent of gross domestic product (GDP). If Caldera eliminates the newly approved 10 percent value-added tax, as promised, the deficit could swell to 6.1 percent of GDP, says economist Francisco Vivancos.
The country is in a recession; inflation is predicted to end the year at 45 percent. World oil prices this year are weaker than expected. And Caldera has ruled out privatizing the domestic oil market or reducing the subsidies on petroleum products sold here.
Currently, Venezuelans pay 5.6 cents a liter [24 cents a gallon] for high-octane gasoline - which could account for the abundance of second-hand gas guzzlers on the streets of Caracas.
The production cost of gasoline, meanwhile, is nearly 10 cents a liter. PDVSA and the Venezuelan government lose about $600 million a year on gasoline, motor oil, and domestic gas sold at this steep discount, says a PDVSA spokesman. But past attempts to raise gasoline prices have sparked riots.
Given political and economic realities, PDVSA will soon not have the funds it needs to invest in its oil fields.
``Venezuela has more heavy crude reserves than the Arab states but not enough resources to develop this immense resource,'' Mr. Vallalba says. He concludes that if the Venezuelan government wants to keep the cash cow healthy, private foreign investment is the least politically painful option.
That is why Congress gave a green light on Aug. 13 to two joint-venture projects (totaling $4.8 billion) to extract and process heavy crude.
Both projects are to tap Venezuela's huge Orinoco Belt, which stretches 350 miles across the hot plains of four eastern states. The belt contains an estimated 1.7 trillion barrels of hydrocarbons and is one of the world's largest oil resources.
The bigger of the two Orinoco belt projects is a $3.1 billion joint effort between Venezuela's state-owned Maraven (35 percent equity share), France's Total (40 percent), and Japan's Itochu and Marubeni (25 percent combined). The other heavy oil project is shared between Maraven (49.9 percent) and Conoco (49.9 percent), a United States firm.
Revenue over the projected 35-year lifespan of the two joint ventures is estimated to be $55 billion and $34 billion respectively, of which the Venezuelan government is expected to take about $40 billion.
Congress also approved a $5.6 billion liquid natural gas project, called Cristobal Colon, which is expected to generate revenues of $84 billion over a 30 year period. It is a joint venture between Venezuela's Lagoven (33 percent equity), Royal Dutch/Shell (30 percent), Exxon (29 percent), and Mitsubishi (8 percent).
THERE are also nine letters of intent from foreign investors awaiting approval to tap a series of marginal oil fields. Although they are less-politically sensitive service contracts, they are an important part of VDOSA's strategy for boosting production from 2.4 million barrels a day to 4 million barrels a day by the year 2002.
Venezuela is not alone in trying to seek foreign capital, Vallalba says. Colombia, Brazil, and to a lesser extent, Mexico, are all opening up to overseas investors.
``Venezuela has to realize that the resources for investment in oil development are not infinite,'' he says. ``We have to pursue these investors. If we don't, we'll miss the train.''