Bernardo Alvarez

The day the decision to raise the royalties on oil production (from 1% to 16 2/3 % for the Strategic Associations operating in the Orinoco Oil Belt) was taken, I was planning my trip to Venezuela. However, as soon as I heard the news, I postponed my trip for a few days because I wanted to go to Washington to speak to some business executives, congressmen, and with the government of the U.S., recalls Bernardo Alvarez, Venezuelan ambassador.

“And what was very clear from the beginning is that this discussion was mainly over economic and business topics. That is what the Minister of Energy and Mining, Rafael Ramírez stated clearly in Washington”.

What we’ve said -the diplomat added- is that there are some economic conditions that justify the decision taken by the government, and specially that there is legal grounds for it. And I think this is an excellent precedent that indicates a mature relationship between the Venezuelan government and the companies. Because after all, oil is a business. In this case, it’s a relationship based on an economic discussion. There are several sectors involved, and each of them has its own interests”.

- Is that impression valid to describe relations with the three sectors you’ve already mentioned: the businesses, the U.S. congress, and the government?

- That’s the way I see it. But the opinion of the companies has also been very important. For example, an executive of a transnational company told me that the lawyers are called upon when the good deals have already been made. A good deal is not started talking with lawyers. I think that this has been excellent evidence of a mature relationship among actors in the energy business and of a discussion that is not ideological, but one based on the interests of the different actors.

In fact, I have the impression that many companies feel that a direct dialogue with the owner of the resources is a better approach. Furthermore, just as the Minister put it, at the current price of the oil barrel, a 1% royalty rate is ridiculous, even without considering the analyses of productivity and commercialization of that type of oil. All in all, from the economic point of view, it was a completely tenable decision.

- But some opposition leaders have pointed out that this measure could affect the atmosphere of legal security?

- The fact is that we are talking about a very particular situation, about a product that is scarce throughout the world. And what happens in the energy sector is not the same that goes on in other sectors of the economy.

- Executives of the major transnational companies with interests in Venezuela have expressed that in the case of the new projects in the Orinoco Belt, they could pay the taxes established in the Hydrocarbons Act . Have they told you the same?

- There are operators in the Orinoco Belt that are already paying 30% on royalties for their surplus production. Besides, I repeat, the legal soundness of this decision has been a very important factor. And what’s happening now? Well, once it was determined that there are enough reserves, and that production in the Orinoco Belt is no longer a technological challenge, Venezuela has become a global actor in the hydrocarbons business.

It is clear that the government should proceed with these projects, and there are now enough offering companies. I think that there are projects, like that of Chevron Texaco, with the advantage of being an integrated project; but of course, this would have to be evaluated by the government. By the way, one of the intentions that inspired the Hydrocarbons Act would be put into practice, in that private participation is granted opportunities according to the different situations. This proposal is a global response to produce oil derivatives and not only synthetic crude oil, a strategy that would help overcome the lack of refined products. Just a few weeks ago, we gave a workshop on refining in Alaska, at our request.

- Why was it done there?

- Because it was the site of the Energy Council. Where an analysis of the refining activity throughout the hemisphere was carried out.

- Is Venezuela promoting the construction of refineries throughout the continent?

- Venezuela has assumed the issue of refining as a matter to be discussed. In fact, we have sent the United States Senate a document explaining all the matters concerning the energy market, since the problems in that area are the ones affecting oil prices.

- But in order to solve this problem it is necessary to invest in this business...
- Of course. It is necessary to invest in refining to do that.

- Have the relations with the Energy Council been affected by the political tensions between the government of Venezuela and the U.S? Is it convenient for Venezuela to stay in this forum?

- There are several scenarios in which the U.S. energy policy is defined: the Department of Energy and the Congress in Washington, the major companies; some with headquarters in Houston, the major gas and hydrocarbons associations, the specialized media, and the front formed by the consumer states of that country.

The Energy Council is integrated not only by states of the U.S., but also by some Canadian provinces, and of course by Venezuela. I think it is our responsibility to promote a debate within in this institution because it is a challenge for the future.

- Has the fact that Luis Giusti worked on George Bush’s energy proposal been a disruptive factor in the Venezuela-U.S. relations?

- We welcomed Bush’s plan when it was set forth. But we should bear in mind that many people wrote it. Frankly, I don’t think that his opinions are reflected at all there. His name has not been mentioned in any of the meetings I have been to in the U.S.. But the truth is that the plan was not carried out, and that’s why the energy problem is still a pending issue in that nation. There are interests and strategic issues that are permanent, like the energy policy. For instance, at the moment, there is a very important discussion going on, concerning reliance on foreign oil.

The problem is that there is only one reality. There are also people who link this to the political situation. And I have sometimes said that it is not necessary to spend 200 million dollars on security here in order to guarantee access to develop the oil reserve areas.

All aspects related to energy are covered in the U.S.: the design and application of policies, the producer and consumer states, the companies, and the specialized press. There is also a very strong tendency among the of people who have a more pragmatic and independent attitude, and wonder which other country in the world; with Venezuela’s geographical location, amount of reserves, and political situation, will serve as a safe and reliable supplier of oil for the U.S..

Venezuela is at a six day distance from this market; a lot closer than our competitors. As much as there can be an energy source diversification strategy, we have to think of extending our relations on energy affairs. But even so, neither the U.S. nor Venezuela is going to move from its place. And in the case of natural gas, if that topic is to be brought up, they also have to talk to Venezuela.

- What are the expectations of the hydrocarbons business in the context of the relation with the U.S.?

- The discussion is very practical when it comes to energy: What do we want from you, and what do you want from us. This tone of discussion takes into consideration the aims of both countries. For example, I think we need fair prices and enough fiscal contributions to develop our country. We also require a greater trade balance. The Venezuelan state-owned Citgo and Pdvsa, are very important clients for some states of that nation. In that case, we can develop Venezuela’s production capacity, in association with U.S. companies. We have a fundamental responsibility to our consumers. We can’t play around with that.

- Does the U.S. understand this vision? Or did they understand it after the oil strike?

- We have always sustained that if our relation is mutually beneficial, we don’t understand how they can overlook all that because they don’t like a particular political situation. And many U.S. congressmen and businessmen have criticized the politicization of our relations, for the mere reason that they dislike a government .

- Which are those sectors?

- Sectors within the congress, including both parties. Some have said that Venezuela‘s relevance for the U.S. has not been quite clearly assessed. Moreover, in the case of the refinery proposal, some have commented that we are doing the job they should be doing.

- Is there an agreement- as the opposition claims- between president Chávez and Bush to ease up the pressure from the White House on Venezuela in exchange of oil?

- That is more of an attack against Bush than against Chávez . It is not true. Nobody can go against reality. Absolutely not. In fact, there are sectors within that administration that have insisted on politicizing our relations in order to seek a change of government in Venezuela

- Some people either can not get used to the processes or can not understand them. But there are also people who do, and who realize that this happens all over the world. I hope a normalization of relations takes place, although it doesn’t mean that there won’t be disagreements over certain topics, like our relations with Cuba, for instance. Because if we do not reach agreements in this hemisphere to raise the living standards of the population, this region will undergo much political instability. Venezuela is not a threat, it’s an alternative path, which plays a stabilizing role.

Published in Quantum N.38