People’s Minister of Energy and Petroleum and PDVSA Executive Director Rafael Ramírez reasserts PDVSA soundness and its position before the action taken by multinational ExxonMobil on the "José Vicente Hoy" show aired on TV channel Televen.
Caracas, February 10th, 2008.
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José Vicente Rangel (JVR): Good evening everybody. I have today a special edition with People's Minister of Energy and Petroleum Rafael Ramírez. It is a very significant show for the time being.
Last week, on Thursday evening, Reuters news agency reported that PDVSA funds for the amount of USD 36 billion had been frozen. Few hours later, this and other news agencies reported that billion dollars had been frozen. At last, the final version, released by the Venezuelan media, pointed to the freezing of USD 12 billion.
Since then, a movement began, which shows that we are facing a sensitive situation and the national government has taken up the case responsibly.
Such a decision from a London common court disturbs foreign affairs and creates immense uncertainty about situations related to oil or any other world activity.
There is not doubt at all that rather than a legal or economic issue; this is a political, a media issue, because the grounds for the action are very fragile.
A powerful US company, that is, ExxonMobil, has turned into the spearhead or is taken part in the offensive lunched by the (US President George W.) Bush Administration against Venezuela.
Rafael Ramírez is with us to talk about this important issue. Good evening, Rafael.
Rafael Ramírez (RR): Good evening, José Vicente.
JVR: I would like you to elaborate on your view of the case.
RR: Sure enough, as you said when introducing the subject, since last Thursday, our country has been exposed to a campaign, a battery of both judicial and misinformation actions, to create a feeling of confusion and nervousness in the country about our sovereign decisions and the reaction of a company such as ExxonMobil.
I think we should put it in a context for our people to understand where this confrontation and action come from, because anyone could think that they come from a random trade event or an economic situation.
We should remember that in the nineties, our oil business was subject to continued dismantling of our oil tax system, that is, royalties were at giveaway; oil taxes were reduced; every facility was afforded within the framework of a policy named oil opening. Further, fundamental activities in our oil business were privatized, that is, production areas, production volumes, were assigned under operational agreements or partnership agreements at the Orinoco Oil Belt. They were miscalled strategic partnerships.
All of this was based on a crack in Article 5 of the Nationalization Law. Then, it was much criticized. It was introduced under the pressure of Fedecámaras and by the direct action of ex President Carlos Andrés Pérez. It opened the door in our 1975 Nationalization Law to the multinational interest.
All in all, from 1986-1987, but particularly in the nineties, during the oil opening, our country lost substantial tax income on account of oil operations. Our tax sharing per each barrel fell from 86 percent to 45 percent as a result of these policies that were endorsed by the former National Congress.
As for production, PDVSA was left out of at least 33 oilfields that were handed over to private companies. At the Orinoco Oil Belt, its sharing averaged as low as 40 percent, and could not be the majority stakeholder.
Our government started to face such oil opening when President Chávez took over and introduced the draft Hydrocarbons Organic Law. There, the tradition of our oil policy was reasserted. It was established that the State would keep control over such an important business and noted the need to reestablish our tax system.
This made an impact on the international level with OPEC's strengthening. However, we had a serious obstacle inside. The main obstacle was that our domestic company Petróleos de Venezuela, the old PDVSA, had become a Trojan horse. It helped multinationals come back to the country. Because of it, its power and lobbying, our tax system was disassembled. And our government could do nothing. Only after the defeat of the sabotage to the oil business, the PDVSA status was reestablished as a company subordinate to the Venezuelan State and at the service of our people.
Since 2003, once we took control over our national business and when the Venezuelan State started to discuss sovereignty-related issues, we began to develop a policy termed by the president as Full Oil Sovereignty.
Under this policy, from October 2004, we made adjustments to the 1-percent royalty at the Orinoco Oil Belt. Never before had such a policy been implemented, not even during the concessions under the government of Juan Vicente Gómez at 16 2/3, effective in the 1943 law.
In addition, we reformed our Income Tax Law. Article 57 gave a concession, a special privilege, to multinationals. They paid non-oil taxes, that is, they paid taxes as if they were manufacturers or companies engaged in any other business. We reestablished this tax at the oil rate.
Later, under the Hydrocarbons Law, we reestablished a royalty for all companies, including PDVSA, at a minimum rate of 33 percent.
We could say that in 2006, our tax system had been reestablished and the Venezuelan State sharing went again from 46 percent, during the oil opening, to 86 percent per barrel now.
What does it mean in specific terms for all the country, for all Venezuelans? It means that the Venezuelan State managed to get USD 40 billion in extraordinary revenues which used to fall in the hands of multinationals. That is, our strategy with regard to oil not only gives the natural resource a fair price, but also the oil revenues come to our country to support all the nation's development plans.
JVR: What happened to the companies that were in such situation?
RR: Since we started to take these measures, the companies were thinking already about arbitration. It is important to elaborate on this.
JVR: How many companies?
RR: We had there 33 companies under operational agreements and 10 companies at the Orinoco Oil Belt, for a total of 43 companies.
But the Fourth Republic included in all these projects, and the political bodies approved it, the modality of arbitration, that is, to submit to international arbitration some issues that were linked with the Venezuelan State sovereign decisions.
JVR: To waive jurisdiction and, for that matter, sovereignty.
RR: In the practice, jurisdiction was waived and sovereignty was affected, because these matters were agreed on the agreements (...)
JVR: They were not even legal issues, but political by nature.
RR: Yes, because nobody can argue with these issues, because we have a sovereign State and cannot let the decisions concerning taxes, royalties or any decision involving our strategic natural resources, be heard in a court.
JVR: And the decisions should be made by entities of competent jurisdiction, such as the National Assembly.
RR: Absolutely. There should be a State with all its powers working like a State.
JVR: Please, explain the attitude of these companies and also let us talk about the Trojan horse, which is most important. Against the background provided by you, it looks like the aftereffects of the oil opening. Reference is made to these companies that acted like a Trojan horse. But there is a very significant subject right now, which is the origin of arbitration, seemingly fundamental now.
RR: Yes. It is indeed a pivotal subject. Our country is undergoing, is being subject to harassment by a multinational as the direct result of what was approved here in the past, when these agreements included the possibility of taking the Republic to international arbitration. That is, the ICSID agreement.
JVR: For substantial issues, even though arbitration is common for trade matters?
RR: Arbitration as such is not at issue if you have an international dispute. Anybody may go in arbitration for dispute settlement. However, any matters related to the sovereign decisions of the State, our government, its public agencies, the National Assembly or the Supreme Tribunal of Justice, should not be taken to arbitration abroad.
JVR: This is unusual, unprecedented!
RR: Not in our country. Our sovereignty had been relinquished. This is the big complaint about the oil opening, which meant handover. In addition to submitting the Republic to arbitration, as a result of these agreements - and here we need to review the story of the signatories of these covenants and the story of all those PDVSA boards of directors headed by (ex PDVSA CEO) Luis Giusti – national company Petróleos de Venezuela turned into a virtual hostage of multinationals in the event that the Government would decide to increase taxes or change royalties.
JVR: Any sovereign action?
RR: Yes. Any sovereign action. And they undertook to compensate the companies upon the terms included in these agreements, which is unbelievable. They turned our national company into a hostage of multinationals. This is what is happening right now.
Therefore, following the State guidelines, we had to answer to such situation. It is worth mentioning that this is not the first arbitration we face.
As part of this process of adjustment of our tax system and takeover, we took control over fiscal matters; PDVSA took control over the operations again. That is, the 33 operational agreements became 33 joint ventures with PDVSA having the absolute majority of 70 percent of the stocks. The partnerships agreements at the Orinoco Oil Belt became joint ventures, where PDVSA sharing increased from 42 percent to 80 percent. That is, now we have the effective control over our oil business.
JVR: What, in your opinion, makes only two out of these companies, particularly one, at this time ExxonMobil, react this way?
RR: It is a clear political stance of this company against the interests of oil producing countries. Have a look at the story of ExxonMobil. It comes from Standard Oil, Creole Petroleum Corporation. They were the predecessors of the early oil multinationals settled in our country. Incidentally, in 1958, our government expelled the Creole CEO.
JVR: Edgar Sanabria was the Venezuela’s president in 1958.
RR: That president implemented some taxes.
JVR: He was not an imperialist at all.
RR: Not at all. It was a national stance. And the multinational CEO was pulled out from the country. Inside OPEC, we, oil producing countries are continuously harassed and facing charges. As a matter of fact, at this current time, CITGO; a PDVSA subsidiary based in the United States, and ARAMCO of Saudi Arabia, are facing claims in US courts. That is, multinationals have acted against the state-run companies of oil producing countries in an attempt at crushing our determination to defend our resources. ExxonMobil, particularly, has a background full of violence and aggression. It is closely linked with the US Department of State. For instance, during the disaster of tanker Exxon Valdez which struck a reef in Alaska, rather than compensating for the huge environmental damages caused, they filed charges against the State of Alaska.
JVR: This company is closely related to the US government and US very important families.
RR: Yes, they are closely related to high-ranking government officials, who have been corporate directors and keep in touch. We have come to terms with all companies, namely: Total of France, Statoil of Norway, Shell of The Netherlands, British Petroleum of the United Kingdom, CNPC of China, ENI of Italy, and US Conoco Phillips and Chevron. All of them accepted our regulations. But ExxonMobil, by its own nature, is at odds with our position, seeks to humble us and rail on our nation. This is what they are trying to do right now.
JVR: Well. In this context, ex PDVSA CEO Luis Giusti is playing a significant role as Trojan horse, as termed by you and I take it, or, rather, the sepoy. He is an advisor in energy policy to President Bush, a Shell internal director. This is an inconsistency and it is even punished under the law of some countries in the world. You may not leave a fundamental State company where you know State secrets and then work for a foreign country.
RR: No. He left and joined a competitor.
JVR: Giusti, for instance, said that such decision was terrible for the Venezuelan State because it affected adversely its notes. He just said that embargos on PDVSA oil tankers in high sea may occur. And he has said lot of things. That is, you can see clearly the national and international link of this problem. What are the PDVSA position and your position as the Minister of this area and PDVSA Executive Director in the face of this sepoy-like role, in the face of this shameful attitude of people who, regardless of being Venezuelans, of having been born in this country, are not fond of this country?
RR: Certainly, the first feeling you have is one of indignation, as you witness the behavior of some Venezuelans who have occupied senior State positions of much responsibility and were directly responsible for this issue. But I must tell you something else for the whole country to know it. The ExxonMobil complaint is based on statements from Venezuelan law offices on behalf of a multinational’s interests. They are the sepoys, they are traitors. I think that this damages the nation's interests, because they make room find and lay the foundations for multinational actions against all Venezuelans. They are not acting directly against us. They try to encumber the nation's main business, our income and our economic activity. President Chávez denounced it. This action is part of an economic war.
Therefore, these sepoys have played a sadly key role in the multinational's action against our interests in all the legal actions taken by us. I would like to delve into this issue. We will explain to the public our allegations. I think it is important for the whole society to know about those who made the allegations against the nation. We will uncover the statements of these people. In this way, all our people will be able to read and learn about the allegations of the opposing party, multinationals, sepoys, and of course, our own allegations.
Going back to the catastrophic news, I would like to clarify something here. Nothing of what was said has a direct impact on the oil business.
JVR: I would like to take this very important subject to a new part of the show. Let us cut and then come back.
It is possible, Rafael, that some failures occur in PDVSA. There are weaknesses in all institutions, not only in Venezuela, but elsewhere in the world. This generalization is not meant to excuse any glitches. However, there is exaggeration, as the campaign launched, a terrible dirty war waged against, PDVSA. The company is viewed as fundamental for the operations of the State, the government, the Venezuelan society.
Inaccurate things are said, namely: they say that there is a deficit in PDVSA cash flow, that the production plummeted, that it is in a mess, etc. These opinions are added to what they are saying now, that all of our assets are presumably seized, that all PDVSA funds are frozen, that there is a really serious situation, a terrible situation that endangers the Venezuelan society.
RR: Following the defeat of the oil-sector sabotage, PDVSA has been the target of unprecedented attacks. In our country, systematically, all the newspaper headlines say inaccurate things. Let me tell you that as of 2007, earnings accounted for USD 97 billion; the oil output amounted to 3.3 million bpd; direct investment in oil operations totaled USD 10 billion. I am not taking into account the contributions to the Treasury and our goodwill resulting from a salient performance and deals with foreign partners. As I said earlier, they are the largest companies in the world.
Hence, you can see the deliberate purpose of this misleading campaign. At the beginning, they talked about freezing of USD 36 billion, and later, USD 12 billion. ExxonMobil spokespersons biased knowingly the actions filed and made think about freezing of most of our assets. This is totally untrue. I must tell all our country that in the face of arbitration, on September 6th, 2007, an international court at the International Center for Settlement of Investment Disputes (ICSID), appointed an international law office to defend the interests of the Republic, following our approval.
In January of this year, ExxonMobil realized that we would not appear at the arbitration; that we would put up the fight here. Then, they appealed to arbitration against the company, at ICSID. We accepted it and are acting accordingly.
The temporary measures taken in courts of New York, London and The Netherlands are clearly intended to jeopardize, harass PDVSA.
Truly, in New York, USD 300 million in the account of former PDVSA-Cerro Negro operator was frozen. That company does not exist any more. But they froze; they are precautionary measures. In the meantime, PDVSA is preparing its pleadings and we will be able to prove that we can overcome any related complaint.
JVR: It is not a fait accompli; there is no final ruling or something like that.
RR: Exactly. It was a parallel action without prior notice to us, the opposing party. They filed these charges in London, where they asked for freezing of assets for the amount of USD 12 billion in the United Kingdom.
We have no assets for such amount in the United Kingdom, or any account. We used to have an old office called PDV UK. We closed it because it was very expensive. It was located in one of the most luxurious places in London. Then, they made a similar application in The Netherlands for seizure or freezing of USD 12 billion in The Netherlands or the Netherlands Antilles. We have no assets for such amount in The Netherlands either. In the Antilles, we do have the Isla Refinery rented. Now, ExxonMobil knows it. Then, what is the purpose of such move?
JVR: There is a political and media purpose. Listen, I was remembering a very interesting event during the plot against late Chilean President Salvador Allende. (ex US President) Bill Clinton's unclassified reports include a very interesting talk between former US President Richard Nixon, who called Allende "son of a b..." He told (former US Secretary of State) Henry Kissinger: "We must make the Chilean economy howl.” As a matter of fact, they surrounded it. International loans finished off; carriers received subsidies to go on strike; they made the funds freeze, etc. At last, (General) Augusto Pinochet came and led the fascist coup.
Well, besiege is being laid to Venezuela. Some people think that the claims of an empire are an exaggeration; that there is no such an empire. Again, this situation is obviously an international plot.
Undoubtedly, as you said, Exxon is the spearhead of the current conspiracy. New events are coming. Is it PDVSA ready to face this dilemma? How will we answer? Was PDVSA taken by surprise or did you know about the possibility of such a measure? Why? We should be aware of a significant media effect that has given rise to confusion and concern among many people.
RR: Absolutely. Let me tell you something. This action has an echo on the national media, where you include the remarks by Luis Giusti. Remember that on December 1st, before the oil business sabotage, Luis Giusti read out a Decalogue of their way to stop the oil business. Today, he has said that our ships in high sea could be seized. This is completely untrue. It is not possible; it can be done by no means.
JVR: Giusti said also that if President Chávez sent not a drop of oil to the United States in the event of keeping this policy, no country would buy it.
RR: This is what I view as ludicrous. We have been working on arbitration for two years. We took action from the very beginning. We were aware of this modality that was approved under the Fourth Republic. Therefore, we started to work on our pleadings in the event of arbitration and we are ready for it.
We have an international team of lawyers qualified to work on these cases. They have a track record on the defense of OPEC member states. For this reason, we went to OPEC along with our lawyers to discuss this issue and get ready. I must say that we have the full support, the experience of OPEC member states. As I mentioned already, we have been subject to the aggression from multinationals against our interests. Recently, ExxonMobil lost a complaint in Kazakhstan. We are well informed about this case.
We are in touch, because they are similar cases. We are prepared for this confrontation. We have made provision also to protect the interests of the company, the nation, the accounts, all those facilities including oil sale. Therefore, today we can assure you that our operations, cash flow, financial status have not been affected directly by such action. However, the country has been affected to some extent. For instance, the action taken by this multinational made an impact on our sovereign debt bonds, which means an impact on all Venezuelans.
JVR: Are we in the face of a second oil strike? Those guys definitely did not learn their lesson after the tremendous defeat in 2002 and 2003, where the oil sabotage was apparent. Now, here they go again with these same old ideas, these same old formats that were vanquished already. They even lack imagination. It seems that they are trying to replicate the adventure.
RR: Yes, they could try to replicate the same scripts. As a matter of fact, there is an attempt at destabilizing our country economically. This is quite impossible due to our sound economy. However, the conditions have changed indeed since 2002, because we have now strengthened institutions. PDVSA is in the people's hands; our armed forces are in the hands of patriotic officers; our government is strong. There is also a grassroots movement and, first and foremost, national awareness of these issues.
We used to say that before 2002, PDVSA was a black box. Now we opened this box. We took all these affairs out. We took down oil opening. I think that right now, in the national ambit, there is agreement about the need of joining efforts to defend our business, interests and economy; because this affects all Venezuelans.
JVR: Has the Government, PDVSA, or President Chávez appealed to national unity in order to face, in a national, patriotic reasonable way, this offensive?
RR: Every sector in our country should play a role in the defense of our business. We will ignore sepoys, traitors, and strongly defend our interests. No multinational is to break our rights or purposes. Since this situation arose, oil prices soared by more than USD 3.3, from Friday to Monday, again, in oil consuming countries (...)
JVR: That is, they backfired?
RR: Absolutely. You cannot ask for stability in the oil market if you cause destabilization in oil producing countries. Every time an aircraft carrier is deployed in front of Iran, or shelling on Iran is heavier, or they attack our company PDVSA, the oil market gets distorted, strained, and we see rising prices. This is the case now.
JVR: What is the reply of OPEC member states with regard to this issue?
RR: We should appeal to our fellow oil producing countries. During the last OPEC meeting, we warned that our country was to face such situation with a company like ExxonMobil. We explained the situation in depth. We took the issue to the OPEC law team and have been in touch with its counselors to face the whole situation. Whenever these events occur, there is immediately solidarity. Again, reference is made to an oil producing country which is taking a sovereign action and is attacked by companies, such as ExxonMobil.
JVR: This means that last Thursday, when this situation began, you had contacted already the OPEC member countries, governments and ministers?
RR: Even before that. During the last meeting we had discussed this subject, because it could emerge at any time. Only that the Thursday move is sort of premeditated. It was not included in arbitration, but it is clearly the abuse of that multinational power, the biggest oil company in the world, that has just accounted for the largest income in its history. Then, the action filed by them is out of proportion. Therefore, we will make our pleadings this week to shield against its effects on the country.
JVR: Much information must be given to the country at this time, hence the importance of such a talk. Dissemination of plenty of information, answers to specific questions are most important. We are in a media war; the media are the battle front. That is undeniable. There is an international media firm plotting against national interests, not only of Venezuela, but also of Ecuador, Argentina, or any country in the world unwilling to surrender. Are you keenly aware of this matter and do you have the capacity to reply?
RR: We suffer it day after day, particularly our company. Everything is said about whatever we do. Sure enough, we should redouble efforts to explain. Oil issues seem to be for the elite, but they are for all the people, hence the need to discuss and talk. We should not restrict ourselves to a legal issue, because we should wage this battle. We should put the pawn in the political context of the present confrontation between a country owner of its natural resources and multinational interests. This is a historical clash. In the early 20th Century, in some cases, disputes were settled by means of invasions, gruesome dictatorships, such as that of Juan Vicente Gómez.
Yes, indeed. We should disseminate this more. We do think that it is important for all of you to have the papers on this case and show them to the audience. You, journalists, and our people, should help us spread the present events and show the country a new chapter of confrontation due to the defense of our sovereignty.
JVR: Any special message?
RR: Yes, thank you. At this present time, our nation is very strong, has a clear political view as to defense of our interests, of our main business and the economy. It is a ship where all of us are on board, and it is a national issue, where the country's interests take precedence over multinational, mean interests of imperialism and global capitalism.
As said by President Chávez, who is at the top of this operation involving the defense of our sovereignty, I assure the people that our government, army, oil-sector workers and the Venezuelan people will act as needed to defend the interests of the Republic, of the nation, of all Venezuelans, in any sphere intended by multinational interests.
We will come to all international courts and forums. But, first of all, we will make our country stand up for our institutions and interests. We have no different thought but giving our people an additional victory in the building of our future.
JVR: I am familiar with your courage, capacity and qualifications. I spent much time with you at the cabinet council. I know what you worth as human being and a leader, as somebody knowledgeable about oil issues. I think that we are in good hands to manage this situation. And I think that there is no need to be in the government, or a government follower, or red, very red, to defend the country. I think that the appeal to national unity is vital at this time. Thank you very much for being tonight at this show. Good evening. Thank you.
RR: Thank you.
JVR: I thank you all for your attention.