Page 5 - LatAmOil Week 17 2020

LatAmOil COMMENTARY LatAmOil
 As noted above, the acting oil minister and CEO are both members of a committee that has been tasked with restructuring PdVSA. In March, that committee unveiled a list of recommenda- tions for streamlining the NOC’s operations.
Argus Media, after viewing a preliminary summary report on the committee’s work, said that this list called for PdVSA to divest its non- core subsidiaries, such as its agricultural and tex- tile production units, as well as its stakes in joint ventures that are no longer operational. It also noted that the committee had backed proposals for eliminating domestic dual subsidiaries and for scaling back the company’s involvement in housing construction and other socioeconomic initiatives.
Additionally, the committee has urged PdVSA to set up a new Russian affiliate. This company, according to the report viewed by Argus, could take ownership of the Venezuelan company’s European assets, including its hold- ings in Aktiebolaget Nynäs Petroleum (Sweden) and APS (Italy).
Meanwhile, the committee also wants PdVSA to work through an existing subsidiary – CVP, which represents the state’s interest in joint ventures with foreign firms, to establish new downstream, midstream and upstream units. It has said that CVP will be able to offer investors the chance to acquire licences, sign service con- tracts, join production-sharing contracts (PSCs) and set up joint ventures.
Additionally, the committee has said it intends to revise the terms of the rules governing joint ventures between PdVSA and international oil companies (IOCs). It has also talked about allowing privately owned companies to acquire stakes of up to 100% in downstream projects.
Too little, too late?
On paper, these look like solidly market-oriented ideas. Indeed, Argus Media described them as “[based] on a profitability analysis broadly con- sistent with consultancy recommendations.”
Likewise, S&P Global Platts also treated the committee’s list of recommendations and Quevedo’s replacement by El Aissami and Chavez as part of a wider move to lift govern- ment control over PdVSA, allow the partial pri- vatisation of the sector, and open the industry up to private-sector and foreign investors. It quoted Dolores Dobarro, a Venezuelan univer- sityprofessorandattorneyspecialisinginoillaw,
as saying that the proposals represented “a dras- tic change in the orientation of the economic model advocated by the government of Nicolas Maduro.”
Platts also noted, though, that Dobarro expected US restrictions on trade with Vene- zuela to prevent PdVSA from taking much in the way of concrete action on these fronts. “With the US sanctions, this document is just a set of good, but late, intentions,” she said.
For his part, Einstein Millan Arcia, a senior Latin American oil and gas consultant, said that Maduro and his allies had not considered that IOCs and foreign contractors might baulk at dealing with Venezuela’s current regime. “The proposal is correct. The only handicap is that it relies on the people who have been appointed to make an opening call, in their negotiating skills and experiences,” he was quoted as saying by Platts. “Investors will go to Venezuela, with clear rules and less state control, but not with these actors, El Aissami and Chavez.”
Reasons to stay away
Millan is correct to identify El Aissami as a pos- sible source of friction. After all, he has been spe- cifically targeted by the US sanctions regime, in response to charges that he is involved in drug trafficking.
But these factors listed above are not the only ones that might hinder Venezuela’s bid to expand trade and economic ties via new oil deals. Investors have many more reasons to stay away, not least among them the fact that short- ages of essential goods such as fuel and food may prompt unrest in the country in the near future.
They may also think twice when they learn that PdVSA is working closely with Iran to secure the parts and supplies it needs to repair idle refineries and processing plants. Venezue- lan officials did tell Argus Media earlier this week that Iran’s role was only “oil-related and technical, not political.” But their statements may not be enough to convince IOCs to take a chance.
Instead, they may only serve to mire PdVSA in its current predicament. That is, the company may not have an opportunity to do more than look on as its production drops, processing plants go offline, storage tanks inexorably fill up and foreign partners quit the country. If so, its gestures toward reform will not mean much. gesturestowardreformwillnotmeanmuch.™
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