From the Editors of VenEconomy

After ten years of doing everything that is unthinkable to push the domestic oil industry to death’s door, the Chávez administration has ordered that a grave be dug where what is left of PDVSA will be interred: the Law Reserving Goods and Services Associated with Primary Hydrocarbon Activities to the State, approved yesterday, May 5, following its first debate by the redder-than-red deputies of the National Assembly.

This new deadly law will declare associated works, goods, and services for carrying out primary activities contemplated in the Hydrocarbons Law to be of public service and affected with a public interest. This means that, once the law is enacted, these activities will be performed exclusively by the State, PDVSA or the affiliates or mixed enterprises it designates.

When this new unconstitutional and arbitrary law goes into force, Hugo Chávez and his redder-than-red president of PDVSA, Rafael Ramírez, will have the discretionary powers to take possession of outsourcing companies that provide services for the water, vapor or gas injection processes, gas compression services, and all goods and services associated with activities on Lake Maracaibo, from the launches for transporting personnel and divers and for carrying out maintenance to all types of transportation, including workshops, wharves, and docks of all kinds.

It would be hard for any analysis to dramatize the magnitude of the tragedy for the country that this law entails; nor would it be an exaggeration to say that this law completes the circle started in 2003 with the illegal firing of 20,000 professionals from PDVSA and continued since with the unconstitutional nationalization of service contractors, strategic alliances, and shared-earnings projects.

What is behind this determination to destroy the country’s main company is the thirst for control of a centralizing, dictatorial government; a government that has declared itself a bitter enemy of private property and become a notable combatant in the war to destroy the nation’s productivity, competitiveness, and prosperity.

Thanks to this new law, existing contracts will be annulled and transformed into “administrative contracts.” Consequently, the State will not only be able to wriggle out of paying its debts and evade meeting its liabilities with these service companies, but it will also be able to take possession of their assets at book value, without recognizing the right to loss of income or their value as going concerns. Nor will it feel it is under any obligation to recognize any decision handed down by any international arbitration court as, with the annulment of the contract, it is to be supposed that the commitment to go to arbitration will also be annulled. This is completely irrational, as the law cannot be retroactive and compliance with international agreements will continue to be compulsory.

Juan Pablo Pérez Alfonso’s dream of seeing of Venezuela producing only one million barrels of oil a day (based on the premise that higher production levels are bad for the country) could well come to pass in a very short time thanks to this new deadly law about to be enacted on Chávez’ orders.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

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