By Jeremy Morgan
Latin American Herald Tribune staff
CARACAS – President Hugo Chávez’ $1.050 billion takeover of Banco de Venezuela from the Santander group of Spain means that he has now spent or committed close to $4.1 billion on nationalizing private companies since the turn of the year.
Critics claim that the bill for nationalizations this year is now 42% of the country’s hard currency earnings from oil exports during the first three quarter of the year. Just how much of this has been settled remains unclear, and argument continues over several key takeovers since Chávez embarked on his nationalization quest in 2007.
The quest was kicked off with a flurry of sudden takeovers, all of companies with owners in the United States, in February 2007. First to go was the telecommunications giant, Cantv, partly owned by Verizon of the United States.
Chávez than leapt on Electricidad de Caracas, buying out AES of the United States. Since then -- coincidence or not -- Caracas has been plagued by a series of black-outs and other shortfalls in power supply.
The first half of February 2007 wasn’t over before the state oil corporation, Petróleos de Venezuela (PDVSA), snatched up power company Seneca from United States-based CMS.
There was then a brief respite, until Chávez abruptly announced on April 13 that year that the state was taking over the three big cement producers in the country – Cemex of Mexico, the biggest such outfit in the Western Hemisphere, which held 50% of the market in Venezuela; and Lafarge of France and Holcim of Switzerland, which shared the other half between them.
None of these are done deals even now. In a sign of what was to come with other takeovers, Cemex dug in its heels and is still involved in legal action against the government. Lafarge and Holcim were said to have settled on terms for $552 million and $267 million, respectively. But reports say they have actually yet to receive the agreed sums.
Chávez went back on the takeover trail on May 1, 2007. It was Labor Day in Venezuela and this time, his target was four heavy oil fields in the Orinoco Basin, worked by a total of 13 companies. Again, this wasn’t to go smoothly, either.
The European operators of two of the fields reached agreement with PDVSA, apparently willing to take what was on offer and make the best of a bad job. They are now minority partners with minority stakes in the fields where they heavily invested in and once held sway.
But two United States giants, ExxonMobil and ConocoPhillips, which operated a field apiece, baulked. ExxonMobil, the biggest oil outfit on the planet, didn’t want to sell out and liked the offered terms even less. It resorted to the law in three countries.
Energy and Oil Minister Rafael Ramírez, who doubles up as president of PDVSA, cried victory when a judge in London ruled that the case brought by MobilExxon didn’t lie within British jurisdiction. The case had been brought on the basis that PDVSA had small interests in two refineries in the United Kingdom.
But that win, if that is what it was, has been the only one so far. A court in The Netherlands has yet to rule on a case filed by ExxonMobil on the grounds that PDVSA has interests in the Dutch Antilles.
The third case brought by ExxonMobil – and, it’s argued, potentially the biggest hurdle of them all for PDVSA – has yet to be heard by a judge at a court in New York. In the meantime, ExxonMobil shows all the signs of being willing to sit on its wallet and persevere in the courts for as long as it takes.
ConocoPhillips adopted a lower profile. Negotiations with PDVSA went on for months, amid scant information about what was happening except for repeated claims by Ramírez that a deal was all but done. It hasn’t materialized yet, and talk has it that ConocoPhillips is taking the judicial route as well.
The Orinoco Basin turned out to be the last major takeover target until May 12 the following year, when Chávez fired the gun for a takeover of steelmaker Sidor. Here, the adversary was Argentine engineering group Techint, which held 60% of the equity. The Venezuelan state held 20%, and the workforce the rest.
Talks dragged on until the same date this year, when -- after interventions by the Kirchners in Argentina -- it was announced that Thermium Sidor (for which, read Techint) had accepted $1.97 billion. But in the meantime, the government has found itself tangled up in prolonged disputes including a $500 million bill for unpaid welfare benefits for Sidor workers, who are getting decidedly restive with the new owners.
Chávez has now opened up a new hornet’s nest by announcing he also wants to take over a string of subsidiary companies in which Techint is a majority partner. On Saturday, a report in Buenos Aires said that a director of Techint had decided to ask Argentine President Cristina Fernández de Kirchner to “intervene.” This could be awkward: Chávez regards Fernández de Kirchner as one of his pals in the region.
Even as it was starting to look like Techint wasn’t going to be a cakewalk, at the end of July last year Chávez unleashed his plan to take over Banco de Venezuela, in which Santander had acquired a majority stake during the financial crash in Venezuela during the mid-1990s. This, at least, now seems to be history.
The plan to take over the cement industry came to a head in mid-2008. But this, too, still doesn’t look as if it’s over once and for all.
The government announced that it had brought out the three owners and, again, money wasn’t mentioned. Since then, however, it’s emerged that Cemex has gone for legal action. As to Lafarge and Holcim, it’s said they have yet to receive the agreed sums.
Chávez paused for another breather. Then, on May 7 this year and in record time, the National Assembly rushed through a new law allowing Chávez to take over oil field service companies, some 64 in all, 39 of them in Lake Maracaibo.
Chávez didn’t hang around. Even before the ink was dry in the Gazeta Oficial – legislation doesn’t actually become law until it’s published in the gazette – Chávez was in Maracaibo personally overseeing the takeover. Critics claimed that he’d jumped the gun by leaping in before these takeovers were actually legal.
Some of these companies involve foreign equity, quite a lot of it originating in the United States, not least of all Williams Companies. Its gas compressor complex in Monagas state was formally taken over last Thursday with Chávez leading the charge. Yet more compensation litigation most likely looms.
At the same time, four metallurgical companies in Bolívar state backed by capital from Japan, Mexico, Europe and Australia were snatched on the grounds that they’d become embroiled in protracted and seeming intractable labor disputes.
In parallel with all this, the government has also “intervened” or taken control of the operations of other companies, most notably in the food industry. Inevitably, these moves have sparked speculation that they’re a prior step to outright expropriation.
In February this year, Chavez ordered the soldiery to occupy rice processing companies owned by Alimentaciones Polar, reputedly the largest food industry company in Venezuela, and the producer of a lot else besides.
Rice and pasta production plants owned by Cargill, one of the seven largest grain companies in the world, have since followed suit. So did a packaging plant owned by Smurfitt of Ireland, as well as the ports at Maracaibo and Puerto Cabello, both of them in states which just happen to be under Opposition control.
In the background, Chávez has continued to pursue his by now customary and fully expected expropriation of agricultural land the government deems not to be in proper “socially productive” use. This strategy is depicted as setting things right and correcting the past by seizing large rural estates colloquially known throughout Latin America as Latifundios.
This is by no means over yet, and Chávez’ critics can’t say they weren’t warned. “Wherever a latifundio exists, the hand of the revolution
will come,” he declared on Friday evening. “The land is for the peasant, for the people and for producing food for the people.”