By an OGJ correspondent
VIENNA, Apr. 28 -- Stability is a word that arises quickly and often in conversation with the secretary general of the Organization of Petroleum Exporting Countries, Álvaro Silva Calderón. He is no less fond of talking about dialogue, cooperation, principles or, for that matter, numbers. Indeed, it soon emerges that such words are central to Silva Calderón's view of OPEC's role in the world, whether past, present, or future.
"I was close to the founding of OPEC," he says, with a touch of assurance as he fields questions in his office overlooking Vienna's Danube Canal. "My feeling is that most people, if not all people, now have a clear concept of OPEC as an international organization. We don't exist to raise prices or take advantage of conflict. We are an organization based on principles, and our principles are as valid now as they were in 1960."
Those principles include a commitment to social development around the globe. "It is the right of every man, woman, and child on the Earth to live in a healthy, clean, and safe environment, where there is sufficient energy available to meet their normal, everyday needs, as well as to develop their economies and enhance their lives in a sustainable manner. This is the right of rich and poor alike," he says. "Security of (oil) supply is involved with that."
Present at the creation
Calderón's closeness to the founding of OPEC came through his work as a legal advisor to Juan Pablo Pérez Alfonso, Venezuela's minister of energy and mines during the administration of President Rómulo Betancourt in 1959-64.
International oil companies were then reducing the price for Venezuelan and Middle Eastern crude oil, and Alfonzo—along with Abdallah al Tariki of Iraq—initiated efforts that led to the establishment of OPEC in September 1960.
Since then, Silva Calderón has continued to play key roles in the oil industry, both at home and abroad. The holder of a doctorate in law and political science, he taught for more than 25 years in the Department of Mining and Hydrocarbons Law in the School of Law at Universidad Central de Venezuela, where he remains emeritus professor.
He was also president of the regional legislature of his home state of Monagas, one of the most important oil producing regions of Venezuela, and later became a member of the National Congress, serving as president of the International Treaties Subcommittee and a member of the Energy and Mines Committee.
His long involvement in Venezuela's mining and hydrocarbons sectors includes the drafting of a bill returning the ownership of oil concessions to the state. That bill eventually paved the way to nationalization of Venezuela's oil industry in 1976, and ultimately to the creation of the state oil company, Petróleos de Venezuela, SA.
He has served as director of the Supreme Electoral Council of Venezuela and chief legal advisor to the Ministry of Energy and Mines, where he was also director general and vice-minister of mines. At the ministry, he played a key role in legislation, with the drafting and approval of the Gaseous Hydrocarbons Law (1999), Mining Law (1999) and Hydrocarbons Organic Law (2001). On Dec. 28, 2000, he was appointed minister of oil for Venezuela.
OPEC today
Now OPEC secretary general, following his election on July 1, 2002, Silva Calderón says the organization's principles remain what they have been from the outset: "the coordination and unification of petroleum policies of member countries and the determination of the best means for safeguarding their interests, individually and collectively." At the same time, he says that OPEC seeks to "devise ways and means of ensuring the stabilization of prices in international oil markets."
He believes that the quota system, and the more recently devised price band mechanism, form essential features of OPEC's success at securing stability in world oil markets, as well as opening the way for investment in the organization's future. "Many people observe that these are good for the producer, consumer, and even investors," he says.
The quota system theoretically ensures solidarity among OPEC members, enabling them to maintain a degree of control over the supply of crude to the market which, in turn, enables them to maintain a desirable level of price. Quotas are assigned on the basis of "many parameters" and include a country's reserves, its production capacity, and its "special situation." As an organization, he says, "we make an effort at compromise." The key to success lies in the ability of OPEC members not only in accommodating one another in setting quotas but also in maintaining the quotas they are assigned.
Silva Calderón grants that OPEC members may occasionally deviate from their agreed quotas, but he insists that "no system is ever 100% perfect." At bottom, he says, "the concept of market stability is shared by member states" who recognize that compliance with quotas is ultimately in their own interests. "We do have a monitoring committee," he says, "and this system has proved satisfactory up to now." As for the "occasional" lapses, he says, the organization "adjusts" to compensate for them. Fundamentally, he says, "we trust each other."
While the quota system enables the underlying solidarity among member states, the price band mechanism devised in 2000 is an instrument that aims to create stability in the market place. "The purpose of the band is to provide sufficient flexibility in prices to enable the market to breathe, at the same time as keeping prices at levels considered to be reasonable and stable," he says. "Crude does fall sway to such wild fluctuations because of its strategic nature. That's why the organization decided to create a price band that was wide enough to allow for fluctuations, as well as being able to account for seasonal fluctuations."
He also says the OPEC price band has provided an effective rallying point for enhanced cooperation between OPEC and non-OPEC producers, two groups traditionally seen at odds with each other. When prices dropped out of the price band in the last quarter of 2001, OPEC was able to bring several important non-OPEC producers—namely, Norway, Russia, Mexico, Oman, and Angola—on board to support the organization's efforts to stabilize the market by agreeing to make production cuts. This combined effort brought prices back into the price band by the end of the following quarter. By combining effort, he says, OPEC and non-OPEC were able to restore stability to the market "efficiently."
OPEC's future
OPEC also has a longer-term interest in the price band mechanism, seeing it as a means of assuring investment in its infrastructure. "The band guarantees revenue for producing countries and provides a fair return on capital for investors in the industry," Silva Calderón says.
At a speech before the UN Economic Commission for Europe last autumn, he cited European Commission Energy Commissioner Loyola de Palacio as saying that prices lower than $20/bbl would lead to a sizeable reduction in capital expenditure in the oil industry, as well as "tensions" on the supply side.
The fact that OPEC possesses four fifths of the world's proven crude oil reserves but currently accounts for just two fifths of daily output means that it will be looking to massive investment to meet forecast increases in global demand for crude oil in the decades to come. Stable prices created through the price band mechanism mean better prospects for investors, he says.
As for concerns about the future, Silva Calderón just smiles. With OPEC members controlling 80% of the world's proven crude reserves, he has all the numbers needed to say with complete assurance that "OPEC plays an important role, both now and in the future."
Álvaro Silva Calderón was named secretary general of the Organization of Petroleum Exporting Countries July 1, 2002. His term is scheduled to expire at yearend. On Dec. 28, 2000, he was appointed minister of energy and mines for Venezuela, a position he held until July 18, 2002.
Professional activities
Silva Calderón began his career as a member of the advisory team of Juan Pablo Pérez Alfonso, which made a significant contribution towards conceptualizing and creating OPEC.
He was president of the regional legislature of his home state of Monagas and was a member of the National Congress, serving as president of the International Treaties Subcommittee and as a member of the Energy and Mines Committee. During that time, Silva Calderón drafted a bill returning the ownership of oil concessions to the state, paving the way to nationalize the Venezuelan oil industry in 1976 and creating Petróleos de Venezuela SA. He later served on PDVSA´s board as an external director. His public service career includes stints as director of the Supreme Electoral Council of Venezuela, chief legal advisor to the Ministry of Energy and Mines, and director general and vice-minister of mines.
Silva Calderón also has worked as a columnist for national daily newspaper El Globo, contributing articles on oil and the impact of oil activities in Venezuela.
Organizations
Silva Calderón is an active member of the Venezuelan chapter at the World Petroleum Congress and of the National Energy Council.
Academic background
Silva Calderón received a doctorate in law and political science, from the Universidad Central de Venezuela in 1956. He served at the Lecturer School of Law at the Universidad Central de Venezuela, Department of Mining and Hydrocarbons Law and is an emeritus professor at the same university. Silva Calderón taught a postgraduate course on the economy of hydrocarbons.