Venezuela Oil: Privatization Law Signed by Acting President

Venezuela’s acting president Delcy Rodríguez on Thursday signed a law that will open the nation’s oil sector to privatization, reversing a key tenet of the country’s socialist movement that has been in power for over two decades.

Venezuela Oil Sector Overhaul

Lawmakers in the country’s National Assembly approved the overhaul of the energy industry law earlier in the day, less than a month after the seizure of President Nicolás Maduro in Venezuela’s capital.

As the bill was being passed, the U.S. Treasury Department began easing sanctions on Venezuelan oil and expanded the ability of U.S. energy companies to operate in the South American nation, as outlined by U.S. Secretary of State Marco Rubio the day before.

“We’re talking about the future. We are talking about the country that we are going to give to our children,” Rodríguez said.

Rodríguez proposed the changes after U.S. President Donald Trump said his administration would take control of Venezuela’s oil exports and revitalize the industry by attracting foreign investment.

The legislation will give private companies control over the production and sale of oil and allow for independent arbitration of disputes.

The government expects the changes to reassure major U.S. oil companies that have been hesitant to return to the country. Some companies lost investments when the ruling party enacted the existing law two decades ago to favour Venezuela’s state-run oil company, Petróleos de Venezuela SA (PDVSA).

The revised law would modify extraction taxes, setting a royalty cap rate of 30 per cent and allowing the executive branch to set percentages for each project based on capital investment needs and competitiveness.

It also removes the requirement for disputes to be settled only in Venezuelan courts, which are controlled by the ruling party. Foreign investors have long sought the involvement of independent courts to prevent future expropriation.

Economic Impact

Ruling-party lawmaker Orlando Camacho, head of the assembly’s oil committee, said the reform “will change the country’s economy.”

Opposition lawmaker Antonio Ecarri urged the assembly to add transparency and accountability provisions to the law, including a website to make funding and other information public. He argued that these provisions could also be considered judicial guarantees, noting that the current lack of oversight has led to systemic corruption.

“Let the light shine on in the oil industry,” Ecarri said.

Oil workers dressed in red jumpsuits and hard hats celebrated the bill’s approval, waving a Venezuelan flag inside the legislative palace and joining lawmakers in a demonstration with ruling-party supporters.

The law was last altered two decades ago when the late Hugo Chávez made heavy state control over the oil industry a pillar of his socialist-inspired revolution.

In the early years of his tenure, a large increase in oil revenue allowed PDVSA to become the main source of government revenue and the backbone of Venezuela’s economy.

Chávez’s 2006 changes to the hydrocarbons law required PDVSA to be the principal stakeholder in all major oil projects.

Chávez nationalized assets belonging to American and other Western firms that refused to comply with the new contracts, including ExxonMobil and ConocoPhillips. They are still awaiting billions of dollars in arbitration awards.

PDVSA’s fortunes, and the country’s, declined as oil prices dropped and government mismanagement eroded profits and hurt production, first under Chávez, then Maduro.