PETROANALYSIS || ARTICLE

Orinoco Belt: The Faja – practically still a virgin

Article by

Mazhar Al-Shereidah

History sometimes repeats itself. This does not happen as an exact copy but does so according to changing circumstances. Just a few days ago the present Venezuelan government decided to practically overhaul the whole legal framework of the oil industry, coming perhaps as a realistic answer to the well-known and unhidden reality of the deteriorating situation of PDVSA and its ability to increase its ever-falling production figures…

“Taking the brakes off”

PetroAnalysis, June 1991

Venezuela wants to open up its economy in general and its petroleum industry in particular but existing laws go against this. These laws were set up when a now discredited model of development was in vogue. They now have questionable relation to reality. For this, development now means opening up to the realities of the world market. This is the challenge that Venezuela now has in its hands.

The current Administration under Head of State Carlos Andrés Pérez is attempting to follow this trend, but is having to fight hard against old and isolationist ideas which say that foreign investments in PDV go against national sovereignty.

The Cristobal Colón gas project is a case in point: this is the first project since the nationalization of the petroleum industry in 1974 that foreign firms could be able to invest in PDV’s operations, and is a test case for future joint development of the petroleum industry.

At the moment Congress is discussing the revision of various laws that are acting as a brake on foreign investments in PDV in Venezuelan territory- cases in point being the income tax law which makes PDV pay 67% of profits to the Government, adding in the export tax PDV pays 80%; and the Petroleum Nationalization law that prohibits foreign participation in strategic areas of the industry. It is rumoured that tax rates for PDV could fall eventually to 30% and it is likely that changes will be made in the relevant clauses of the Nationalization Law. This debate will decide the viability of foreign investments and joint ventures in PDV’s operations in high-risk areas, the Orinoco Belt and the marginal fields.

Outdated laws slow down change, but the country is now starting to take the brakes off.

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