Purpose of the law that reserves to the Venezuelan state the goods and services of hydrocarbons primary operations

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Venezuela's National Assembly passed the Organic Law that reserves to the Venezuelan state the goods and services of hydrocarbons primary operations, a document that nationalized almost all private companies that provide PDVSA any service directly related to oil and that states, in Article 6, that all corporations expropriated will be compensated without regard to loss of profits or consequential damages, in addition that their assets will be priced according to book value rather than market value.

Chavez showed this law to the media telling us that this is another step of his government to bring Venezuela toward socialism and that these nationalizations are putting national wealth in the peoples' hands. However, and although it is not a lie that Chavez is communist, this time the nationalization of sectors that provide oil services to PDVSA has not only ideological but also operational purposes.

We think this because since oil prices are falling, PDVSA has been delaying payments to oil services providers, building up huge debts that compromise even more the future of the state oil company. and prompting many oil corporations to refuse to invest in Venezuela. What in the end has caused the decline in Venezuela's oil production and in the overall operations of PDVSA.

Then, the Organic Law that reserves to the State the goods and services linked to hydrocarbons primary activities was made to prevent PDVSA from stopping operations due to its problems covering costs related to services, because it will allow Chavez to expropriate equipments that were previously leased.

However, with these nationalizations the Venezuelan government is acquiring more debts -with a budget that already has a substantial shortfall- and PDVSA will have to draw cash from its reduced wallet to keep operations of the expropriated companies up and running. So if we add these factors to the notorious inefficiency of Chavism, the outcome will be that the Venezuelan oil industry will continue disintegrating in the hands of Hugo Chavez.

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