Invitation To A Gusher

Back in 1976, Venezuela slammed the door tight on foreign participation in its lush oil fields by nationalizing them. But now, financial need is proving stronger than nationalist taboo. In January, foreign companies will start bidding on contracts to reopen more than 90 "marginal" fields under contracts with the state oil monopoly, Petroleos de Venezuela (PDVSA). Cash-strapped PDVSA doesn't have the hundreds of millions of dollars needed to revive the aging fields. That's why its president, Gustavo Roosen, is dusting off the welcome mat again for foreigners--undeterred by an attempted military coup last month.

Venezuelan oil is a rich prospect to come back to, despite PDVSA's straits. The country currently pumps 2.4 million barrels a day and is the world's fourth-biggest oil exporter--behind Saudi Arabia, Iran, and the United Arab Emirates.

PETRO-PUSH. Starting in 1993, Roosen plans to give foreign investors almost carte blanche in petrochemicals. In an even more radical move, he proposes to bring in such companies as Conoco, Amoco, and Germany's VEBA as majority partners to tap the vast belt of tar-like crudes along the Orinoco River. As a sweetener, Roosen would also offer to let such partners explore and produce more profitable light and medium crudes. With such steps, Venezuela's example would undermine nationalist curbs in Brazil and Mexico, the hemisphere's other big holdouts against a role for foreigners in oil.

Venezuela's President Carlos Andres Perez and its congress are being pushed toward this opening by the tightening financial squeeze on PDVSA, the government's cash cow. Although sales last year totaled $22.3 billion, an effective 82% income tax and other levies left only a $441 million net profit. This year, the bind has continued, forcing PDVSA to slash investments--and jeopardize its ambitious plans to top the 3.1 million barrels per day of oil pumped by foreign companies before 1976.

Nor is major tax relief in sight: Eyeing 1993's presidential election, politicians don't want to cut social spending or shift taxes from PDVSA to other taxpayers. Last February and again in November, military plotters tried to exploit popular resentment against Perez' belt-tightening reforms to rally support for attempted coups. Alarmed, the government halted increases in the price of gasoline, which retails for only 35 a gallon, after the first uprising. As a result, PDVSA continues to lose $450 million a year on domestic sales.

Contracts with foreign companies to redevelop old fields will help ease PDVSA's crunch by producing an estimated 260,000 barrels a day of oil and liquid gas condensates from around 1.2 billion barrels of crude reserves. To achieve this, winning bidders will invest hundreds of millions of dollars, to be repaid by a fee for each barrel delivered to PDVSA. An assured outlet for the added production is PDVSA's refining subsidiary, Citgo Petroleum Corp. in Tulsa, which currently buys about 500,000 barrels a day on the open market.

CAP SKIRTER. Venezuela is encouraging private investment in other industries, including steel and aluminum. But the main action is in oil. In petrochemicals, "the time has come for us to really allow the private sector to develop Venezuela's competitive advantages," says Roosen, a former executive of business conglomerate Grupo Polar who became PDVSA's chief last March. Pequiven, a PDVSA unit that dominates the petrochemical industry, is studying plans to sell shares in its holdings to the public, including 20-odd joint ventures with local and foreign private partners. In new investments, foreigners will be encouraged to own 100%.

The big bucks are in Roosen's proposed ventures with majority foreign partners, called "strategic associations," to develop Orinoco heavy oil. Two or three initial ventures could cost $5 billion apiece, if full-scale refineries are included, and could process a daily total of 400,000 barrels, currently worth $10 a barrel. One lure: the huge reserves, equal to 200 years' output at that rate.

Such foreign-led ventures would break PDVSA's monopoly, since they will control their own production and marketing. "Actually, we are creating competition for PDVSA in the 21st century," Roosen says. PDVSA may propose a 30% tax rate for the ventures, equal to Venezuela's nonoil corporate rate. And it would guarantee that any production limits adopted by OPEC, to which Venezuela belongs, won't apply to the heavy crude--or to output of other areas where foreign partners would be allowed to explore.

One advocate of such an opening is Eduardo Fernandez, head of the opposition party and a top contender to be its presidential candidate. "We have to act fast," he says. "If we don't, we will be a banana republic." Election-skittish legislators could still balk. But that would bequeath a financial crisis to Venezuela's fext President when he takes office in early 1994--and increase pressures to end the oil taboo.

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