A Brazilian oil drilling platform.
Credit: Photo Stock
State Oil Companies with a Nationalist Boost
By Diego Cevallos
Several Latin American countries are reclaiming control of a precious natural resource: hydrocarbons. How are state-run oil companies -- many of them weak and politicized -- confronting the challenge?
MEXICO CITY, (Tierramérica).- The wave of petroleum nationalism across Latin America suggests crucial challenges for the state-run oil companies. Some are weak and politicized and will require major overhauls if they hope to successfully confront the new international scenario.
Crude, the region's main energy input, is sold today at prices that are four times the cost of extraction, which has prompted several governments to retake control of this valuable resource.
In recent weeks, Bolivia nationalized its petroleum and natural gas industry, Ecuador changed the balance of the government's and transnational corporations' petroleum royalties, and Venezuela announced increases in the taxes charged to foreign oil companies.
The process is the reverse of what occurred in the 1990s, when extracting and selling crude was much less profitable.
Although "the high oil prices make nationalization more attractive... that does not necessarily translate into a better performance of the state-run companies in the industry", energy expert Mauro Guillén told Tierramérica.
Guillén, a researcher at the Wharton Business School of the University of Pennsylvania, doubts that Bolivia's government-owned oil company YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) will be able to operate successfully after nationalization, given that "it lacks the technology and commercialization capacity."
According to Alvaro Ríos, executive secretary of the Latin American Energy Organization (OLADE), YPFB "is now a very limited company," but he expects the administration under Bolivia's President Evo Morales will guide it towards modernization in order to compete as an equal with the private corporations.
The worst that could happen is that it become politicized and that the government "gives it particular advantages," said Ríos in a Tierramérica interview.
But Manuel Morales, one of YPFB's principal advisers, assures that, contrary to what many believe, nationalization "opens the possibility for major investment," in national and foreign sectors alike, because "secure and stable regulations" have been defined.
"Two or three years from now, YPFB is going to be strong and competitive, and Bolivia will attract investments from companies that want profitability but respect the decisions and the control of the Bolivian state," Morales told Tierramérica.
YPFB was "dismantled" over the past few years, and until recently its 600 employees carried out only administrative duties, he said. "But we have taken shareholder control of the foreign companies, and from that position we are going to operate, at least for now, to make best use of technology and technical personnel until our state enterprise is ready."
According to OLADE chief Ríos, the current wave of hydrocarbon nationalism in the region should not ignore relations with the transnational corporations. "No country wants to get rid of the private companies, because that investment and technology is needed," he said.
Mexico's state oil company Pemex, which since 1938 has extremely limited relations with foreign firms, is facing serious technological deficits and financial debts that surpass the value of its shares.
Production of crude in this country, whose reserves are on the decline and can now only ensure 13 more years of extraction, in 2005 reached 3.3 million barrels per day, slightly less than in 2004.
Although Mexico is now the Latin American country producing most petroleum, observers believe its future is not so promising if the divorce between Pemex and the foreign corporations continues.
Experts also say the financial scheme that obligates Pemex to hand over 60 percent of its revenues to the state is unsustainable because it impedes investment in oil development.
Quite a different situation is that of Petrobras, Brazil's state oil giant, whose prestige is on the rise. Sixty-five percent of its shares are in private hands, and 35 percent belong to the state. But the latter is assured control of the enterprise by law.
Petrobras, unlike Pemex, is traded on the world's leading exchanges, and holds agreements with several transnational firms.
Ríos believes the Brazilian approach is a good example for state-run oil companies.
"The governments should guide their oil companies to be competitive and to play under the same rules as the private companies, such that they have the same fiscal regimes and are efficient and sustainable in the long term," he said.
Another of the major players in the region is PDVSA, Venezuela's state oil company. In the 1990s, Venezuela opened its energy sector to transnational corporations, and now it applies taxes and other regulations that channel a portion of the private sector's oil income to the state.
Venezuela produces 3.2 to 3.3 million barrels of crude per day, according to official figures, although the International Energy Agency puts the country's total output at 2.7 million barrels daily.
Like all oil producing nations, in recent years this South American country saw its revenues from crude skyrocket, which the government of leftist President Hugo Chávez reinforced this month by increasing the taxes paid by various private oil companies operating in Venezuela.
But analysts warn that PDVSA neglects new investment in the industry, which would explain why its oil output remains at practically the same volume it did in the late 1990s.
Another country leaning towards oil nationalization is Ecuador, where the resource represents 40 percent of exports, and finances about the same percentage of the country's fiscal budget.
In April, regulations took effect in Ecuador that require 15 transnational companies to hand over 50 percent of their income to the state, not 20 percent like before.
Almost simultaneously, the board of directors of the state-run Petroecuador sought aid from the government because its debts reach 170 million dollars, and if they aren't covered the public enterprise will have to shut down operations.
Ríos says the Ecuadorian company, which has had five presidents in the last five years, and other state-run enterprises in the region, need deep structural reforms in order to be competitive.
"What is pushing them to be a little more nationalist are the high prices of hydrocarbons. Now the governments feel emboldened to change the rules of the game with the transnationals. But that is not enough," warned the OLADE head.
In the 1990s, when the Latin American oil-producing countries -- along with the international finance agencies like the World Bank and the International Monetary Fund -- encouraged foreign investment in their oil sectors, a barrel of crude (159 liters) was selling at an average of 20 dollars. Today the price hovers around 70 dollars per barrel.
The private oil companies "should understand that there is a new price scenario that could allow the governments to collect more revenues and that when there is a boom period it is necessary to share," said Ríos.
However, there is no reason to violate their rights. The recommendation is to ensure them "a space where they can invest and generate profits," he added.
Fernando González, president of Petroecuador, said his country also hopes to charge the transnational oil companies for a portion of the 2.3 billion dollars they made between 2001 and 2005 on high petroleum prices.
Bolivia took the most radical route: it nationalized the hydrocarbon industry, especially natural gas. The government will hold on to 82 percent of sales revenues, instead of the 18 percent the foreign firms paid previously.
In the middle of tense negotiations with the oil companies, the Morales government remains firm in its decision, which involved the advice of Venezuela's Chávez. "It's a matter of sovereignty," agree the two presidents.
* Diego Cevallos is an IPS correspondent.