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In a meeting held in PDV-UK, a Pdvsa subsidiary in the United Kingdom, both corporations sought “an unprejudiced approach to evaluate the different options that might conciliate Pdvsa’s interests in maximizing the value of this natural resource, and NB Power’s aims to make its investments in its Coleson Cove plant profitable”.

The attendants to this meeting on behalf of Pdvsa were Bernard Mommer, manager director of PDV-UK; Elio Rodríguez, staff member of the corporate planning managership, and Juan Carlos Boué, Oxford University researcher and economic advisor for Pdvsa. The attendants for NB Power were, Darle Bishop, vice-president of energy generation, Phil Landry, superintendent of maintenance, Michael Wong, manager of economic affairs, Edgar Leal, Pdvsa ex-executive and current advisor for NB Power.

Hoping to establish a new agreement between both companies, Pdvsa discarded orimulsion delivery and proposed the supply of an alternative fuel, under agreement of a guaranteed differential or margin that makes NBP’s investment in its Coleson Cove plant profitable. Pdvsa also expressed that the design of this plan should also observe “a minimum price in safeguard of Venezuelan interests”.

The Venezuelan representatives exposed the technical details that differentiate natural bitumen from extra-heavy crude oil. They indicated that unlike the former, the latter can flow from the reservoir, given its liquid characteristics.

They added that “in the past, Bitúmenes del Orinoco, a Pdvsa subsidiary, launched a misleading campaign with the purpose of making the Venezuelan state believe that the extra-heavy crude oil in the Orinoco Belt, was a natural bitumen that could only be commercialized through orimulsion”.

The Pdvsa spokesmen also explained that “only after the December 2002-January 2003 confrontation, were the state authorities able to check some old businesses by the former Pdvsa thoroughly, including those of orimulsion”.

As for this business, “we unveiled a criminal conspiracy, since there was the intention of selling a national resource at a price much below its market value, an action that some ex -Pdvsa managers intentionally tried to disguise by changing its denomination tom ‘natural bitumen’”.

Therefore, they said, the Ministry of Energy and Mining (MEM) has reverted the decisions on the classification of Bitumen of Orinoco’s (Bitor’s) proven reserves as natural bitumen and ruled out the illegal reduction of the price of execution of the royalty in the 1996 agreement subscribed between Bitor and the MEM. Additionally, they indicated that the best proof that orimulsion is done with extra-heavy oil is that “there has always been an exchange of extra-heavy oil produced in the traditional areas of Pdvsa with Bitor in order to produce orimulsion and vice versa”.

They also expressed that after having made clear that orimulsion is produced by using extra-heavy oil, there have been discussions over alleged privileged tariff classification that some consumer countries have assigned to the product “as a type of liquid carbon to be sold at the price of coal”.

NB Power has performed an upgrading plan on that installation in order to adapt it to the requirements of the use of orimulsion to generate electricity. This project is programmed to be completed by next November, and to start between December and January. For this reason, NBP spokesmen warned that that November should be regarded as “a tentative date for the reception of the alternative fuel that is agreed upon”.

Nevertheless, it was made clear in the meeting that Pdvsa “would not continue to sell extra-heavy crude oil below its value once it is transformed into orimulsion, since there are better options”, such as the sale of Merey 14 and Merey 16 crude oil (as their production does not imply costs related to the construction and operation of modules or to the transportation of 30% of water), and of the synthetic crude oils produced by the strategic associations, “which have proven that it is economically profitable to make an upgrading project”.

The position of Pdvsa and the MEM -according to their representatives- is that Coleson Cove will not be supplied with orimulsion, since a 12$ per barrel discount on extra-heavy oil is, besides illegal, unacceptable for Venezuela.

Supporters of orimulsion have repeatedly indicated that this business has generated over 1.2 billion $ for the sale of 50 million tons; and that since 2002, Bitor’s reported profits have averaged 200 million $ a year for the sale of 6 million tons.

Nevertheless, in the investment program elaborated by the Pdvsa technical staff, the offer of fuel is expected to be limited, at least until 2009, to 13 million tons per year, including the agreed offer upon beginning operations of the Orifuels Sinven, S.A. orimulsion module.

Each orimulsion module -the one currently operating as well as the one expected to begin operations by early 2006 - has a capacity of 6.5 million tons. Investments for the first plant totaled approximately 330 million $ and the second plant is expected to require investments of approximately 400 million $.

Until 2002, Bitor had estimated the requirement of at least 4 modules in Venezuela, in order to reach a total production of 26 million tons a year. However, the most important feature in the Pdvsa Investment Plan of about100 billion dollars, to be carried out between 2004 and 2009, will be the extra-heavy crude oil in the Orinoco Belt.

Furthermore, the government has reached the conclusion that this fuel doesn’t yield much fiscal revenue, and that placing extra-heavy oil, mixed with medium or light hydrocarbons, in the international markets, will render greater profits.