Latin states seek more control of oil

Venezuela, Bolivia, and Ecuador want new terms with energy firms.

Tens of thousands of poor protesters took to the streets in Bolivia this week, demanding that President Carlos Mesa do what Venezuelan President Hugo Chávez has already done: take greater state control over oil and gas production.

Last month, Mr. Chávez changed the terms of contracts with 32 foreign companies operating here. In the next six months, they must form joint ventures with the state oil company, Petroleos de Venezuela (PdVSA), and accept a 49 percent minority stake; turn over half their profits to the government; and pay back taxes that could total $2 billion.

"If they don't pay it, they will have to leave the country," Chávez said on TV last Sunday.

At a volatile time for world energy markets, the higher cost of doing business in Venezuela, the world's fifth-largest oil supplier, adds upward pressure to prices already hovering near $50 a barrel. And if Bolivia joins Ecuador, which said this week that it, too, would review its oil contracts, prices at the pump could rise further.

But if Venezuela's experience is a gauge, the region's poor are not likely to gain from a greater state role in their country's oil wealth.

Overall, Venezuela's economy is booming. Last year, oil exports brought in $29 billion, up from $22 billion in 2001, accounting for 52 percent of all government revenue. The country's economy grew by 18 percent last year, and the United Nations projects 5 percent growth this year.

But according to the government's own figures, 55 percent of the population lived in poverty in 2003, up from 43 percent in 1998. Extreme poverty almost doubled, hitting 25 percent. In 1992, child malnutrition was 9 percent; in 2003, one-third of children were undernourished.

Chávez still claims much of the petro-wealth goes to "the people" - and official numbers show PdVSA last year spent more than $3.7 billion on social and agricultural programs, housing, free clinics (staffed by Cuban doctors), schools, literacy programs, and other social projects.

"But all these are short-term solutions and more psychological than real," says Alfredo Keller, an independent pollster here. "The schools were always there - they were just painted." Psychologically, he says, Venezuelans feel better than ever. "But objectively, they are poorer than ever."

Economist Carlos Granier, director of Cedice, a liberal think tank here, complains that the money is being squandered on military equipment, increasing an already bloated bureaucracy, and aid to Cuba. Rafael Ramirez, energy and oil minister, this month said that Venezuela is sending Cuba 90,000 barrels of free oil a day - up from 53,000.

"The problem," says Mr. Granier, "is there are no checks and balances, and we do not know where the money is going."

Andrés Izarra, Venezuela's minister of information, dismisses these claims. "Every time the President approves using revenue for anything, we publicize it," he says. He disputes his own government's poverty numbers, saying that the methodology used to get them was flawed. "This government has done more than any before it to give people without voice social programs, distribution of wealth, and justice."

It is unlikely any of the foreign energy companies, which include ChevronTexaco, Royal Dutch Shell, and British Petroleum, will choose to leave Venezuela, having invested so much here over the years. Venezuela is home to the Western Hemisphere's largest oil reserves at 78 billion barrels, as well as 1.2 trillion barrels of super-heavy crude in the Orinoco belt.

Most companies have accepted the new terms, though ExxonMobil is currently in negotiations with the government over some of the specifics.

Meanwhile in Bolivia, home to the region's second-largest natural-gas reserves, behind Venezuela, congress tried earlier this month to pass a law introducing a 32 percent tax on foreign energy companies on top of an existing 18 percent royalty while dramatically expanding state involvement in the sector.

But President Carlos Mesa refused to sign it, saying it would hurt national unity and discourage foreign investment. Instead, he has suggested new levies be applied gradually, and that nationalization, if carried out at all, be done in a "responsible manner" without imposing new contracts on the multinationals forcibly.

Gas and oil production in Bolivia is controlled by 12 foreign firms including Brazil's Petrobras, France's Total, and Spain's Repsol, which have invested $3.7 billion since 1997. These corporations have threatened to challenge the possible new rules in international tribunals.

Massive street demonstrations followed Mesa's veto, along with calls for his resignation. At first, the protesters demanded an increase in royalties paid by the foreign companies, but soon chants turned into demands outright nationalization.

Mesa, perhaps fearing a repeat of a bloody 2003 uprising over gas policies that toppled his predecessor, has not put down the protests violently, but did beef up police security around government buildings. Police fired tear gas and water to break up the crowds.

Ms. Harman is Latin America bureau chief for the Monitor and USA Today.

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