General
- 19 May 2005
April 13th marked the third anniversary of the defeat of a coup against the democratically elected presidency of Hugo Chavez in Venezuela. In honor of the event there were massive local celebrations and an international solidarity conference: “Encuentro Mundial de Solidaridad con la Revolution Bolivariana”. Solidarity activists came from over 20 countries. The majority were from other Latin American countries. Canada had a strong delegation. The delegation from the U.S was quite small; A few from California, a strong delegation from Boston, some from Florida and Chicago. It is not clear if this small turnout is due to lack of publicity or lack of awareness of the importance of the Venezuelan revolution in the U.S. Participants chose one of eight workshops: Agrarian reform, housing, worker management, citizen participation, alternative media, indigenous people, women or education. Each workshop was held in a different part of the country. There were also hundreds of Venezuelan activists participating in the conference who were able to use the conference for a discussion of their current challenges. The following observations are mainly a reflection of the citizen participation workshop which I attended.
The revolution that is unfolding in Venezuela today is the leading edge of a massive social and political shift to the left that is happening throughout Latin America from Chile right up through Mexico. The past decade of globalization (what they call “neoliberalism”) has brought increased poverty and economic decline throughout the region. The result has been a shift away from governments beholden to the free market towards leaders and parties representing the poor and working people who are the overwhelming majority.
This process has gone the furthest in Venezuela. In the early years of his presidency Chavez was a supporter of the “third way”, a reference to attempts to build an alternative to both the capitalist and the old Stalinist economic models. He and others in the leadership now speak openly and often about their conclusion that the capitalist model is a dead end (sometimes quoting the pope) with no future in Latin America and that socialism is the only road forward.
How this new direction towards socialism will unfold remains to be seen but there are some indications that it will be a dynamic new road that may be a model for all of the Americas. What is most often discussed is desire to build a socialist society marked by a massive increase in popular democratic involvement. The forms of this new democracy are still being worked out. There has been a massive increase in local community councils and cooperatives to address economic and social organization at the local level. The conference was a forum for activists throughout Latin America who are involved in similar efforts to increase democratic participation under more difficult circumstances.
Education is a primary weapon in raising the cultural and political awareness in the poorest communities. There is a literacy campaign along with a series of “missions” aimed at enabling people to return to school and finish high school. A whole new university; “Universidad Simon Bolivar” has been built to massively expand college opportunities for students who had no access to the privileged university system before the revolution.
Local democratic participation is woven through the new national constitution that was enacted in the wake of Chavez’s election in 1999. In order to get many new services a local community has to organize itself, discuss and vote on its priorities and often form local cooperatives to carry out the work. They speak openly about the limitations of classic representative democracy where one can only hope that an elected official remains honest and does the work for the people. As another local leader put it, “Sometimes laws are not the answer, we have to empower people”. This is in contrast to the historical culture of Venezuela that was marked by passive complaining and demanding the government do something for you.
Part of the impetus for this massive expansion of democratic institutions is the fact that when Chavez was elected in 1999 he did it with a weak newly created party called the MVR- Movement for the Fifth Republic. While popular, the party is underdeveloped. Some fear it is used by many to get elected or to get jobs. The old state apparatus, with thousands of functionaries used to the old ways of doing little is still intact and a major obstacle to social change. As one activist put it, “We have won the government but not the state”. Rather than a purge, the strategy has been to set up a parallel government that provides direct social services to the poor (social service “missions”, clinics, food distribution, schools, microcredits, etc.). Community councils that provide organization and representation down to the level of block committees are being set up to take over aspects of local administration. Through this process two very important things are taking place: Whole new layers of the population are learning what it means to be active empowered citizens and a new layer of leaders in the government and the economy is being trained.
In addition, there are now increasing efforts to turn major workplaces over to workers management. This effort began in some industries that had gone bankrupt (a major paper mill). It is now spreading to major state owned industries. In addition to nationalized oil the country has major aluminum, mining and iron ore industries owned by the state. These industries were run poorly and often corruptly even during the past 6 years of the Chavez presidency. A “revolution within the revolution” is now underway to eat away at the old corrupt modes of management and turn these industries into dynamic producers of wealth, jobs and resources that can profit the whole society. The road chosen has not been to simply choose better managers or better bureaucrats. In the major aluminum factory - Venalum there has been discussion, debate and elections to choose a new leadership of the plant from the ranks of the workers in the past month. The goal is for a workers management that will revive production, efficiency and integrity in the plant. Most importantly a new model of plant management and new layer of leadership from the shop floor has a chance to emerge. This process is complex, difficult and being done with few healthy precedents. There will be many mistakes along the way. The key is to have the time needed for such a major transformation to develop.
Che Guevara spoke often about the problems of a bureaucratically planned economy in the model of the old Soviet Union. He advocated the development of a conscious and politically active population. Through the conference discussion and in projects around Venezuela you can see this process unfolding. Often the major players are women. Chavez makes it a point to highlight the development of women as leaders when he speaks. The Venezuelans do not feel they are reinventing the wheel. They are openly looking to the experience of others for examples. When the mayor of the mountain city of Merida was discussing the multiple problems they were facing he stated “If we have a problem, it has probably been solved somewhere else in Latin America”. In his opening speech to the conference, Chavez called the Bolivarian revolution, “A humble daughter of the great revolutions of the world.” When talking of deeper cultural change you often heard of the need to change from a mentality of “me” to one of “we”.
The issue of how the leadership of this revolution is organized and how it is developing a coherent theory to lead is complex and challenging. It is clear that the role of Chavez is significant. His popularity is rising. His image is seen often. He has a regular 5 hour television variety show called “Alo Presidente” that is used to educate the country about the challenges and prospects of the political process.
This is not just a cult of personality around a strong man/caudillo in the model of Juan Peron. There are thousands of dedicated politically revolutionary activists who are advancing the ideas and organization of the revolution throughout all sectors of society (except the wealthy). The organizational forms are diverse. There are “Bolivarian Circles” which are loose groupings of activist with modest organizational success. There are activists in the missions doing community organizing day in and day out. There are students who have their organizations. There are two other left parties that support Chavez that do not appear to have much of a mass base. There are activists in the workplace, the best of which have built a whole new pro-revolutionary national union federation. So when one asks, where do people go for political organization and discussion, the answer is most often that they go to work organizing.
The opposition held a rally to commemorate the coup on April 13th. There were fewer than a thousand present. By all reports the opposition appears demoralized. They have played their strongest cards and lost. Chavez predicts they will attempt to distort next years’ election. For that reason he is campaigning for 10 million votes as a goal to gain a mandate to continue the revolution.
There are a number of features of the revolution in Venezuela that can work to enhance the potential for this revolution to survive both internally and against what will be rising pressure from the United States:
1) This is a deep thorough ongoing revolution that is in progress. This is not simply the election of another left populist government. There is a mobilization of a significant part of the population to fight for its class interest. It could be defined as a “Workers and Farmers Government”.
2) The Chavez leadership is a break from the models of Social Democracy and Stalinism that could set an example of a revolutionary direction for the rest of the continent. It is typical to see posters of Chavez flanked by Bolivar on one side and Che on the other. Because of the position of Venezuela geographically and economically Chavez can play a role in the region that is more significant that that of Fidel and the Cubans.
3) The presence of oil at such a price has resulted in the immediate rise in living standards. The size of the nationalized industries inherited by the revolution means that they have the economic base to fund social programs and build broader support for the revolution. This power allowed them to withstand a massive capitalist strike in 2002 (similar to the strike that sank Allende in Chile). The government can also set up parallel economic institutions that undercut the capitalists such as the state owned food stores.
4) This economic base means that there is the potential to buy time desperately needed to develop a new revolutionary layer of society capable of administration of the state. There is less of a need to prematurely nationalize industries or collectivize land that outpaces the ability of the new society to effectively build a new administration of the economy.
5) The defeat of the coup provided the opportunity to purge the army of a substantial amount of its counterrevolutionary currents. The fact that the army can now be expanded to defend the revolution and at the same time help in social and economic development makes this a radically different road than Chile where the army led the counterrevolution. Plans are to increase the reserves from 200,000 to 500,000.
6) This revolution is embedded in a rising tide of left political movement from Chile to the Rio Grande. This is its most powerful defense and major impediment to imperialist intervention as the Bush administration openly bemoans.
7) This revolution has happened without a bloodbath, without mass public executions, without the need for a repressive state that curbs civil liberties and with massive democratic election victories. This robs the opposition and the Bush administration of cannon fodder in the propaganda war against the revolution. Many spurious charges have and will be invented by the opposition of course.
8) There are sectors that want to push the revolution forward at a faster pace. This is true among farmers wanting land frustrated by the slow pace of land reform. It is true among workers in the fight for workers control in a variety of industries. But the frustration appears to be correctly focused on the obstacles of the old state apparatus and the rich. This avoids the problem of a rise of ultra-left pressure that can then provoke a crack down from the new state.
9) The popularity of Chavez within the unique history of the Venezuelan left appears to be a gravitational force for political unity that is holding down splits and sectarian battles that can hamper leadership development (as in Nicaragua).
10) The oil wealth is allowing Venezuela to do what Che advocated which is trade based on human need rather than the market. Chavez has signed a trade agreement favorable to Cuba. He is trading oil for pregnant cows with Argentina, etc. This along with efforts to build a Pan-American trading bloc is building a regional political and economic bulwark against future U.S. intervention.
11) For the first time since the fall of the Soviet Union a new model of socialism is emerging that has the potential to be an example and an inspiration for all of the Americas.
For further analysis of the Bolivarian revolution the Monthly Review articles by Marta Harnecker and others are excellent. Richard Gott’s “In the Shadow of the Liberator” is an extensive history of Chavez’s political development. He is soon to come out with a new history of the revolution. www.Venezuelanalysis.com and www.Handsoffvenezuela.org provide current news and analysis from the perspective of defenders of the revolutionary process..
- 27 April 2005
On the eve of Condoleeza Rice's tour of Latin America, an extremely provocative article appeared yesterday in The New York Times. Under the title of "U.S. Considers Toughening Stance Toward Venezuela" and signed by Juan Forero, the article quotes a number of unnamed "American officials" basically saying that "the Bush administration is weighing a tougher approach, including funnelling more money to foundations and business and political groups opposed to his leftist government".
Forero claims in his article that a "multiagency task force in Washington has been working on shaping a new approach, one that high-ranking American policy makers say would most likely veer toward a harder line". The article quotes another unnamed American official as saying: "The conclusion that is increasingly being drawn in Washington is that a realistic, pragmatic relationship, in which we can agree to disagree on some issues but make progress on others, does not seem to be in the cards (...) We offered them a more pragmatic relationship, but obviously if they do not want it, we can move to a more confrontational approach."
Another "high-ranking Republican aide on Capitol Hill who works on Latin America policy" (also unnamed) explains: "What's happening here is they realize this thing is deteriorating rapidly and it's going to require some more attention (...) The current look-the-other-way policy is not working."
The truth of the matter, however, is that the US administration has always had a "tough" stance towards Venezuela. High-ranking United States officials met with Venezuelan opposition leaders in the weeks and days before the military coup that ousted Chavez for 47 hours on April 11, 2002. There is now hard evidence that the CIA knew that the coup was being plotted, and Washington was the first capital in the world to recognise the illegitimate government of Pedro Carmona which was installed by the coup.
The Bush administration supplied funds to opposition groups that organised the coup in 2002. It also funded the sabotage of the oil industry in December 2002 and January 2003, which cost the country's economy some 10,000 million dollars. It financed the attempt to remove Chavez through a recall referendum. It is difficult to see how Washington's stance towards the democratically elected government of Venezuela could actually get "tougher" - short of direct military intervention.
Since the beginning of this year the barrage of accusations against the Venezuelan government by US officials has certainly increased in volume and intensity. The US has actively tried to stop the sale of weapons to Venezuela by Spain, Brazil and Russia (after the US itself refused to supply spare parts for Venezuela's ageing fleet of F16s), and has accused Venezuela of being a "negative force in the region" (Condoleeza Rice). The US administration and media have stepped up a belligerent campaign against Venezuela.
The democratically elected government of Hugo Chavez has been accused of everything from linking up with North Korea, supplying arms to the Colombian FARC guerrillas and funding the "subversive" MAS in Bolivia, to forming an axis of evil with Cuba's Castro, starting an arms race in Latin America, and harbouring Al-Qaeda terrorists. A recent article in the National Review (which appeared on April 11, the day of the third anniversary of the coup in Venezuela), carried the title "Fidel Castro and Hugo Chavez constitute an axis of evil". In this extremely belligerent article, Otto Reich, until recently Assistant Secretary of State for Western Hemisphere Affairs, openly advocated a policy of "confronting" the "emerging axis of subversion".
There is no substance to any of these accusations, for which not the slightest shred of proof is offered. They are just meant to create an impression – the kind of impression that can be used to justify an act of aggression. As we learned long ago from Josef Goebbels, even the most blatant lie, if it is repeated often enough, is taken to be the truth. In the same way, the lie that Saddam Hussein possessed weapons of mass destruction was used as an excuse for the criminal invasion of Iraq. Everybody now knows that it was a lie, but at the time enough people believed it to permit a naked act of aggression to be presented as an act of national self-defence. Now history is being repeated.
When pressed for more details on the allegations about "Venezuelan shortcomings with respect to the counter narcotics issue", Adam Ereli, Deputy Spokesman for the US Department of State, on March 30th, could not think of anything coherent to say. He merely mumbled: "Not really. I'll look and see what we've said on the past, but off the top of my head I can't give you a detailed answer." On such flimsy “evidence” is the case for armed aggression against Venezuela being constructed in Washington.
There is no doubt that all these newspaper articles and statements do not appear just by chance. One has the feeling that they are part of an orchestrated propaganda campaign aimed not only at isolating Venezuela, but also at preparing US public opinion for more direct forms of intervention against the Bolivarian Revolution. The self-same methods were used in the past to justify US interventions against the Cuban Revolution, the Arbenz government in Guatemala, the government of Salvador Allende in Chile, and more recently in Nicaragua, El Salvador, Grenada and Haiti. The hired press pours out a stream of abuse and calumnies in order to soften up public opinion. Then the heavy squad moves in. In some circles, this is known as the “freedom of the press”.
Otto Reich would know about this. In the 1980s he was at the head of the State Department’s Office of Public Diplomacy for Latin America and the Caribbean (OPD). This was nothing less than a propaganda outfit, which amongst other tasks coordinated the planting of editorial articles in newspapers openly backing the Contras and attacking those who criticised Washington's support for the murderous cut-throat gangs of thugs of the Contras in Nicaragua. The Iran-Contra investigation found that Reich, a Cuban exile, had carried out "prohibited, covert propaganda” on behalf of the Contras (the full declassified record of Otto Reich while involved in the OPD can be found at http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB40/).
But let's go back to Juan Forero's article. The only "sources" he gives for this toughening of US policy towards Venezuela are all "unnamed officials". The day after the article was published in The New York Times, Washington issued a denial of its contents, but in fact it was a “denial” that denied nothing. He said "“those are not reports that reflect any reality in terms of decisions by the United States to change its policy.” So, in fact what he means is that there is no change in the US policy, which was already very confrontational before Forero was briefed by his famous “unnamed officials".
Forero's journalistic record in relation to Venezuela is at best shaky. On the day after the military coup in Venezuela he wrote an article for The New York Times which did not mention the word "coup" once and had the amazing headline "Venezuela Chief Forced to Resign; Civilian Installed". This sounds like a well-rehearsed pantomime and it works like this: Washington leaks some disinformation it would like published to a friendly journalist. The material is published but no sources are quoted. Once the "news" is already in the public domain and has been picked up by the major news agencies and outlets, then the State Department issues a "denial" which is not reported anywhere. The damage has already been done.
It is clear that the US administration is increasingly hostile towards the Bolivarian revolution, which is standing firm against US imperialism. George Bush is frustrated because all the attempts to smash it have failed. But the strategy of isolating Venezuela from other Latin American governments has also failed so far. Donald Rumsfeld's recent tour of the region was not at all successful in this respect. But these failures do not mean that Washington will abandon its aggressive stance towards Venezuela. On the contrary, it means that its aggression will be stepped up and acquire dangerous proportions if it is not halted by a massive movement of protest from below.
This renewed campaign against the Venezuelan revolution represents a serious threat, which the world labour movement will neglect at its peril. In all previous occasions in which this kind of language has been used, it has always been the preparation for military intervention. Such interventions do not necessarily take the form of an actual invasion. The fact that the US army is bogged down in an unwinnable war in Iraq makes this a problematical option at this stage. But the examples of Chile and Nicaragua indicate that there are other options: a dirty war of terrorism and subversion, the assassination of President Chavez, provocations leading to war with Colombia, which the Pentagon has already turned into an armed camp. These and many other weapons are at the disposal of Bush, Rumsfeld and Rice.
All the warnings are present. The only force that can defeat the planned aggression against the Venezuelan Revolution is the international Labour Movement and the workers and the youth of the United States. It is time to sound the alarm! Venezuela is in danger! It is imperative that the workers, trade unionists, youth and students, intellectuals and artists, black and white, should unite to organize a protest movement so powerful that George Bush and the right wing gang in the White House are compelled to think again.
Let us not wait until it is too late. Let us act now to forestall this act of naked aggression of a powerful imperialist state against a South American country that is fighting for its most elementary rights: the right to national self-determination, the right to live its life in peace and to determine its own future without foreign interference, the right to build a society based on the principles of freedom, justice and equality.
This is the real reason why the most reactionary circles in the USA wish to destroy the Venezuelan Revolution: because it sets an example to the millions of poor and exploited people in the whole of Latin America. Furthermore, this is the path that the Venezuelan people have democratically chosen. Chavez and his policies have been ratified in more than 7 electoral contests and referenda since he was first elected in 1998. This example is dangerous, not to the ordinary citizens of the United States, the workers and the poor, but to Wall Street, to the banks, the big corporations and the oil barons who are the real constituents of George W. Bush.
This right wing administration, which is trying to depict Venezuela as a “danger to peace” because it is purchasing some rifles from Russia, is spending a staggering $500,000 million on arms every year. It is spending at least $6,000 million every month on the occupation of Iraq while slashing public expenditure on pensions and Medicare.
Let us act now! Reproduce this article, translate it and pass it on to as many people as possible. Pass resolutions of protest in your local trade union branch. Organize pickets, lobbies, rallies and demonstrations. The Hands Off Venezuela Campaign is preparing a major initiative for the First of May. Contact us now and join our fight against these criminal actions of the imperialists.
- 27 April 2005
After two long years of struggle at long last the expropriation of the CNV was put into practice. The CNV had been taken over by the workers throughout this time.
The Constructora Nacional de Valvulas is a factory which was owned by the coup plotter Andres Sosa Pietri, a former president of PDVSA. After the coup he refused to restart the operations and the workers decided to take over the installations.
Jorge Paredes, one of the main leaders of the factory said: "this is a new experience for the workers, a new model of development which will be at the service of the workers and the community. This process of co-management that we now start must be taken to other companies and other workers."
The company at one point supplied 22% of the national market for valves. It is calculated that this year PDVSA has to invest 148 million Bolivars in valves.
The workers estimate that in three months they will have the company ready to start producing.
See also:
- Workers of the Constructora Nacional de Valvulas continue their struggle!
- The struggle of the workers at the CNV - a new Venepal?
- Support the Workers of the CNV in Venezuela
- 25 April 2005
During his weekly Alo Presidente broadcast Venezuelan President Hugo Chavez gave an explanation of the reasons for the suspension of the bilateral military exchange programme with the United States. According to Chavez, US military advisors "were carrying out their own campaign within the military institution and this cannot be allowed". He added that they were "talking ill of the [Venezuelan] president to our boys", which is something that goes against the country's stability and sovereignty.
Hugo Chavez argued that this measure was also taken in order to protect the physical integrity of US military personnel. He reminded the audience that in the build up to the US invasion of Panama, a number of US military personnel were attacked in the streets. It was later found out that these attacks had been carried out by the US intelligence services in order to prepare a "justification" for the invasion.
Last year, Venezuela had also suspended the military mission that the US had kept within Fuerte Tiuna, the main military garrison in the capital. Chavez accused the US officers of being CIA agents and there is suspicion that they participated in the failed military coup against Chavez on April 11, 2002. The first place Chavez was taken after being deposed by reactionary military officers was precisely the Fuerte Tiuna barracks.
In the same programme Chavez explained that the desperation of the US in relation to Venezuela is because of its oil. The "United States want to continue to get hold of that oil, but it is now ours (...) and it is being used for the welfare of all Venezuelans, and not of a privileged minority" he added.
A video of the US organised Bay of Pigs invasion in Cuba in 1961 was shown during the weekly programme. President Chavez said that a similar strategy had been planned in relation to the 100 Colombian paramilitaries arrested on a ranch in El Hatillo, near the capital Caracas, in May 2004. Chavez also announced that a US military officer had been found taking pictures of the Command of the Armoured Army Brigade in Maracay, and a number of US citizens, who later identified themselves as journalists, had been found taking pictures of the El Palito refinery in Moron. He warned that "if any officer of the US military repeats these kind of activities again, they are going to be arrested and tried in Venezuela."
To combat these threats, Chavez argued, it is necessary to organise the reserve forces of the army, which he wants to increase to 2 million people, and to "strengthen the mobilisation of the people ... to defend the country in any circumstance"
Since the beginning of the year, the US administration and media have stepped up a belligerent campaign against Venezuela. The democratically elected government of Hugo Chavez has been accused of everything from linking up with North Korea, supplying arms to the Colombian FARC guerrillas, funding the "subversive" MAS in Bolivia, forming an axis of evil with Cuba's Castro, starting an arms race in Latin America, to harbouring Al-Qaeda terrorists.
On March 13, an article in the Financial Times quoted US Deputy Assistant Secretary for the Western Hemisphere, Roger Pardo-Maurer, who accused Chavez of "picking on the countries whose social fabric is the weakest. In some cases, it’s downright subversion." This is in fact the key to the belligerent attitude of the US. Translated into plain English, what Roger Pardo-Maurer is saying is that the Venezuelan revolution is seen as an example by the workers and peasants throughout Latin America. The policies of privatisation, de-regulation, the opening up of markets, and the free trade agreements pursued by Washington in the whole of Latin America for the last two decades have plunged these countries into deep economic crises. The number of poor and unemployed have gone up, while multinational companies have plundered these countries' natural resources.
The policies of the Chavez government of opposing privatization, using large amounts of the country's oil revenues, his stance against the policies of US imperialism and the Free Trade Area of the Americas, are obviously seen as an alternative. Furthermore the Bolivarian revolution in Venezuela has proven that the diktats of Washington can be defied and that the attempts of the oligarchy and imperialism to put an end to this defiance can be overcome through mass mobilisation. Venezuela is indeed a very "dangerous" example from the point of view of the White House. For them, anything that threatens the rule of big business is "downright subversion".
Many in the current US administration know a lot about “subversion”. Rogelio “Roger” Pardo-Maurer himself was the political officer in the Washington office of the Nicaraguan contras from 1986 to 1989. Other prominent figures in the US administration are also well versed in “subversion”, having been involved in the counter-insurgency operations in Central America in the 1980s (Elliot Abrams, Otto Reich, John Negroponte, Roger Noriega, etc). Several of them also met the Venezuelan April 2002 coup organizers in Washington in the weeks prior to the “subversive” ousting of Chavez. As for “picking on weak countries” Roger Pardo-Maurer, Otto Reich, and other US officials, intervened directly in El Salvador last year to prevent a victory of the left-wing FMLN in the elections. They hinted that this would put at risk the remittances of Salvadorian immigrants in the US (one of the country’s main sources of income). The FMLN lost the election by a very small margin.
President Chavez and the Bolivarian revolutionary movement are right to take
measures to defend themselves from the threat of intervention by the US.
To act in any other way, taking into account the long history of US
participating in the crushing of revolutionary movements in Latin
America, would be downright irresponsible.
- 15 April 2005
 |
| Minister of Energy and Petroleum and PdVSA President Rafael Ramirez Credit: ABN |
According to Venezuela’s minister of Energy and Petroleum, Rafael Ramirez, the operating agreements that exist between the state oil company PDVSA and various transnational oil companies caused $260 million of losses for PDVSA and will thus be revised. During a press conference yesterday, Ramirez said that the goal would be to change the operating agreements into joint ventures with PDVSA, where PDVSA would have a majority stake.
Ramirez, who also serves as president PDVSA, explained that there are 32 operating agreements with companies such as ChevronTexaco, Royal Dutch Shell, France’s Total, and Spain’s Repsol, which produce about 500,000 barrels of oil per day, mostly from marginal oil fields. The contracts were signed in the between 1992 and 1997, when the price of oil was very low and the government at the time was interested in opening up the country’s oil industry to foreign investors.
The operating agreements are service agreements, in which the Venezuelan state pays a fee for the production of the oil. According to Ramirez, in many cases the fees the state paid for this extraction service cost more than could be earned by the sale of the oil, thus leading to losses in many cases for the state-owned oil company. Ramirez says that it costs $14 per barrel to extract oil under the service agreements, while in other oil fields the PDVSA operates it costs only $4 per barrel.
The Energy Ministry’s new requirement is to have all operating agreements changed into joint ventures in the next six months, under which they would pay 30% royalties, as well as taxes of 50%. A royalty is the percentage of the extracted oil’s market value that an oil company must pay directly to the government, before it subtracts any of its expenses. The taxes are then applied to the profits that the oil company makes on the sale of the remaining oil (i.e., after subtracting its expenses).
According to the new law on hydrocarbons, which went into effect in late 2001, international investment project in the oil sector would take the form of joint ventures, with PDVSA maintaining a 51% stake in these ventures. The new law also raised royalties from 16.6% to 30% and lowered taxes from 67% to 50%.
A day earlier, on Wednesday, President Chavez had said during a speech that many of these oil companies declared losses in Venezuela and were thus not paying any taxes at all. Chavez announced that the state’s tax collection agency, SENIAT, would investigate these companies. “In some cases, and we already have the proof, that there are transnational companies that have not paid the taxes that they should have paid, so we will charge them,” said Chavez. “A country cannot allow itself to be looted in this way,” he added. Ramirez said that the back taxes could amount to as much as $2 billion.
The oil companies affected by this move have yet to comment on it. Industry analysts, however, say that it is unlikely that the companies will challenge the changes, since the oil price is expected to remain high and profits can still be made.
Last year, in a surprise announcement, the Chavez government had increased royalties that extra-heavy crude production projects pay in the Orinoco oil belt, from 1% to 16.6%. These extra-heavy crude production projects contribute another 500,000 barrels per day to Venezuela’s overall output. The extraction of extra-heavy crude is particularly difficult because the oil is so thick and thus needs to be processed with lighter forms of crude so it can be transported. The royalty rate for these projects was kept so low because when the contracts were signed, the price of oil was very low. However, the Chavez government says that the oil companies can afford to pay more, now that the price has reached new highs.
When the announcement of the royalty increase in the extra-heavy crude projects was made, all companies except for ExxonMobil accepted the change. ExxonMobil is currently engaging in negotiations over the increased royalties.
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