The government of Venezuela has reportedly held talks with three multi-national oil companies as it considers privatising state-owned resources in the oil industry as well as selling a majority share in the state oil company PDVSA, according to Bloomberg.
The companies included in the talks are Rosneft PJSC (Russia), Repsol SA (Spain) and Eni SpA (Italy).
The decision to privatise the oil industry, which represents around 90 percent of Venezuelan exports, would come with considerable political costs. The ruling United Socialist Party of Venezuela, under President Nicolás Maduro and his predecessor Hugo Chávez, made nationalisation of resources a centre-piece of their economic ideology.
Article 12 of the country’s constitution dictates that “mineral and hydrocarbon deposits of any nature…are the property of the Republic, are of public domain, and therefore inalienable and not transferable.”
However, this still allows the government to enter into public-private contracts with foreign companies.
Consequently, any decision to privatise the industry that results in the government giving up their majority stake would require legal and potentially constitutional changes.
However, the Maduro Administration has made some policy changes in preparation for privatisation, such as easing requirements that PDVSA holds a minimum 60 percent stake in joint ventures.
Selling off certain parts of the oil industry could offer the government some much-needed relief from international sanctions and also allow the country’s oil production to increase.
Since an oil embargo was imposed on the country by the U.S. in January last year, oil production has drastically decreased. In 2018, the country produced approximately 1.35 million barrels per day, whereas in 2019, according to OPEC data, production averaged just under 800,000 barrels per day.
It also remains to be seen if certain multi-nationals would face U.S. sanctions for operating in Venezuela.
Despite the U.S.-backed opposition in Venezuela fervently supporting foreign ownership and participation in Venezuela’s oil sector, it is likely they would oppose this decision. The opposition has staunchly rejected any form of cooperation with the government, with a powerful hardline section of it calling for more sanctions to be applied on the country.
In early January, opposition leader Juan Guaidó, who is recognised as president of the National Assembly by the U.S. and dozens of other countries and therefore as Venezuelan’s “interim President,” recently lost a re-election vote to the body’s presidency.
Guaidó claims he was impeded by security forces from entering the National Assembly building for the vote, however, multiple sources contradict this, including testimony from staunch opposition figures that did enter.
Guaidó then held an ad-hoc session in the opposition-supporting newspaper, El Nacional, where he was re-elected under a questionable quorum. The legality of Guaidó’s claim to National Assembly President is now highly dubious as inside the actual chambers on the day, the body elected opposition-figure Luis Parra to the position.
The process of making the necessary legal changes for the privatisations remains unclear under these circumstances.
Main Image: PDVSA Towers in Maracaibo Center | Wilfredor