Slaughtering a sacred cow in Venezuela

Observers of the Venezuelan oil sector did a collective spit-take on Tuesday when the proudly socialist administration announced that it intends to privatize part of the state-owned oil industry. It’s a decision that barbecues perhaps the most sacred of all sacred ideological cows in the Bolivarian Republic. In a first for the Chávez era, a portion of Venezuela’s vast oil industry is to be floated on the stock market. (Characteristically, perhaps, the stock exchange involved is Hong Kong’s, rather than New York’s or London’s.)

The decision involves Petropiar, a joint venture between Venezuela’s state-owned oil firm, Petróleos de Venezuela (known as PDVSA), and U.S. oil major Chevron. Petropiar, which has the capacity to transform 190,000 barrels of thick, tar-like, extra-heavy crude into 180,000 barrels of light, easy-to-refine synthetic crude every day, has been 70 percent PDVSA-owned for years, while Chevron holds the remaining 30 percent.

On Tuesday, PDVSA announced that it would sell a 10 percent stake in the company to Chinese state holding firm CITIC. In itself this was unremarkable; the Chávez era has often seen Venezuelan state firms selling stock to state-owned companies in other countries. The surprise came later in the same announcement, when PDVSA announced it had agreed to allow CITIC to float a portion of its share on the Hong Kong Stock Exchange, essentially allowing any Tom, Dick, or Harry to buy into Venezuela’s state-owned oil sector with a simple call to his broker.

For Venezuelans, the irony here is impossible to overstate. For years now, whenever someone even hinted at the notion that it might make sense to sell off part of Venezuela’s state holdings in the oil sector, the Chávez Administration invariably reacted with outraged revulsion, branding any such move as tantamount to "selling out the homeland." Emotional, often borderline-hysterical denunciations of opposition politicians as schemers intent on handing over Venezuela’s hydrocarbon birthright to foreign speculators have been at the heart of chavista resource nationalism from the beginning. And while pragmatic acknowledgement of the need to attract foreign investment into the oil sector have been known to lead the government to specific partnership deals with given companies to operate given oil fields, floating any part of the industry in foreign markets crosses every ideological red line chavismo was supposed to hold dear.

That PDVSA would allow CITIC to privatize any part of the oil industry speaks to the government’s increasing desperation to attract investors into the country’s vast but hard-to-develop extra heavy oil fields. Though Venezuela boasts the world’s largest recoverable oil reserves on paper, tough geology and one of the world’s most hostile investment climates have left PDVSA short of the huge capital flows needed to develop the area properly. With the need to bring production online to help finance chavismo’s unlimited thirst for fiscal largess, PDVSA is left with an increasingly weak hand in negotiating with potential partners. So weak, in fact, that it has now willing to compromise one of the most hallowed principles of the Chavez era in its desperation to entice investors in.