Likely a further sign of his government’s economic woes, President Hugo Chávez’s administration is offering oil contracts to foreign companies. The response to the bidding for concessions was not as strong as it has been in the past, as many companies have been burned by Chávez’s expropriation of assets. Still, Chevron and Repsol (of Spain) committed to further oil exploration.
There are a few major takeaways.
First, Petroleos de Venezuela (PDVSA)’s control of oil production after seizing foreign assets over the past decade has been deficient. Production, once 3.2 million barrels of oil per day, fell approximately 25%. (The Venezuelan government, meanwhile, states that oil production increased in recent years. Its record in providing statistics and financial information remains questionable.) The Chávez administration uses PDVSA income to support many of its social projects. A Council on Foreign Relations report on Venezuela and oil describes this in greater detail.
Second, this serves as a reminder that when push comes to shove, Chávez will do what is necessary to stay in power, even if it means allowing entry of the very same foreign companies he previously railed against.
Adept at strategic maneuvering, Chávez has backtracked before. In 2007 he attempted to pass a wide range of constitutional measures, but was defeated at the polls. Had the referendum passed it would have removed any term limits on his running for re-election and also advanced his socialist agenda. Chávez admitted that he may have asked for too much at one time but regrouped and pressed onward with his socialist revolution, one issue at a time. One year ago he won a specific vote granting the option of indefinite re-election.
Third – and not surprisingly – major international companies, including oil producers, are willing to negotiate with less-than-democratic regimes in order to seek profit. The reported fees for signing the contracts are $500 million to $1 billion. These funds may help Chávez to remain in power. Of course, whether or not this is a positive result, depends on one’s viewpoint.
More information (the source of part of this posting) can be found here.