Watching Government-Reassuring supplier

June 2, 2003
Venezuela is working hard to repair strained relations with the US government and its oil customers.

Venezuela is working hard to repair strained relations with the US government and its oil customers. In an encouraging sign for potential investors, the government may soon accept a referendum on populist leader Hugo Chávez's presidency after Aug. 19.

The latest announcement follows quiet negotiations, with some high-powered lobbying thrown in. Republican political heavyweight Jack Kemp represented the Chávez camp at a recent Wall Street Journal editorial meeting, the newspaper said. And opposition leaders have reportedly hired Democratic strategist James Carville to shore up votes for an anticipated, but not certain, election.

Meanwhile, the US government and investors watch and wait. "My impression is that, with the referendum possibly in a couple of months, most companies would rather wait a little longer and see what's happening," said Michael Lynch, president, Strategic Energy & Economic Research Inc., Amherst, Mass.

PDVSA ready

State-run Petroleos de Venezuela SA met skeptical US industry officials in Houston last month to reiterate that they are open for business.

Existing PDVSA business partners acknowledge Venezuela is too important an oil market to walk away from, but nagging short-term concerns remain. Contractors complain of unpaid invoices; producers worry about unskilled technical workers hired to replace striking professionals. Wall Street analysts say that oil companies still want new and improved contracts from PDVSA. But Anne Milne and Alexis Panton of Deutsche Bank AG's New York City office also note it will be difficult for PDVSA to fund its share of future investments given current fiscal and economic constraints.

Mixed signals

The US earlier this spring made clear its unhappiness with Chávez. The US Export-Import Bank in April stopped providing financial guarantees for regular sales of US-made goods to public and private sector buyers in Venezuela. Venezuela says the bank's action is unjustified and is damaging US interests.

"This decision comes at a time when Venezuela has been paying its foreign debt on a timely basis and has already reestablished oil production to the prestoppage levels in order to satisfy the energy demands of our most important customer, the United States, as well as to other customers," Venezuelan officials in Washington, DC, told OGJ. "This unfortunate action has had a deleterious effect both on Venezuela's credit rating and economic recovery, but also the commercial and investment interests of US companies already operating in Venezuela and those interested in establishing economic links with our country. Several of these companies have approached us with their concerns."

Those companies also have complained to the White House, and recent US statements seem increasingly pragmatic. An Ex-Im spokesman May 22 stressed oil services contracts are still eligible for US-backed loans on "a case-by-case basis." And while earlier this year US officials castigated Venezuela for being an "insecure" oil supplier, a May 5 Department of Energy news release touted that the Strategic Petroleum Reserve "achieved a new milestone" when it received its 600 millionth bbl "in a cargo of Santa Barbara sour crude from Venezuela."