The Daily Journal. — Economist Francisco Rodríguez questioned the financial structure of the agreement signed with the United States to develop 17 Venezuelan oil fields. He warned that, based on the terms publicly presented so far, Venezuela would hand over strategic assets and supply crude oil under preferential terms without receiving guarantees in return.
In an interview with journalist Vladimir Villegas on Monday, Rodríguez argued that the agreement’s main problem is the lack of a competitive, transparent process to select investors and the uncertainty over who will ultimately assume the financial commitment.
“The first reason why this agreement is problematic is that it grants control over 20% of Venezuela’s oil reserves through a handpicked allocation,” the economist said.
Rodríguez contrasted Venezuela’s process with international experiences in which governments have awarded oil concessions through public bidding.
“If you look at the privatizations or opening processes that have taken place over the past few decades, including Venezuela’s own oil opening, they have relied on bidding rounds and public auctions (…). Authorities publish which fields are available; they publish information about their geology, and international companies can evaluate them and submit their bids,” he explained.
Publicly available information about the agreement calls for investments of up to $100 billion to develop 17 oil fields, increase production to 1.5 million barrels per day and generate tax revenue over the next 25 years. However, Rodríguez questioned the strength of the financial commitment behind those projections.
“President Trump says U.S. taxpayers are not going to contribute anything. So you have to ask: if the United States isn’t going to provide the money, and Venezuela isn’t going to provide it because it doesn’t have the money, then who is going to provide it?” he added, referring to the multibillion-dollar investment the agreement would require.
“Venezuela is the only one giving something up”
Rodríguez focused much of his criticism on what he considers an unequal distribution of the agreement’s economic obligations.
“Venezuela is the only one giving something up here,” he said.
According to his interpretation, the country would make three fundamental concessions: granting rights over the 17 fields, committing to supply oil to the United States, and assuming the fiscal cost associated with selling that crude under terms he described as preferential.
Rodríguez estimated that selling oil “at cost” could mean Venezuela would receive between $30 and $40 less per barrel than the international market price.
“We are going to lose at least $500 million a year in revenue,” he said, referring to the subsidy that, according to his estimates, the crude supply arrangement would entail.
“Venezuela needs money; it needs resources for reconstruction,” the economist said, citing the economic impact of the two earthquakes that struck in June and the need to finance the recovery of damaged infrastructure.
In his view, a different structure could allow the country to use its oil assets as an immediate source of reconstruction financing.
“An oil agreement should have a structure in which the United States, or whoever signs it, gives money to Venezuela,” he argued.
As an alternative, Rodríguez proposed opening the fields to a competitive process and directing the resulting proceeds to a reconstruction fund.
The U.S. political calendar
The economist also compared the potential volume of oil that Venezuela could supply to the United States with the subsidized shipments it historically sent to Cuba.
“Over the past 25 years, Venezuela sent Cuba 640 million barrels of subsidized oil. Under this agreement, Venezuela will send the United States 2.1 billion barrels,” he said.
The comparison led Rodríguez to question the agreement’s economic rationale.
“Why should we subsidize the United States?” he asked.
Rodríguez also linked the agreement to domestic political interests in the United States. In his view, the Donald Trump administration wants to show tangible energy results before the midterm congressional elections.
“President Trump wants to be able to say that Venezuelan oil is arriving before the midterm elections,” he said.
According to Rodríguez, that political urgency could help explain the priority given to immediately increasing Venezuelan crude flows to the U.S. market, even before the announced investments materialize.
“Unfortunately, we have become part of the U.S. electoral game, and what is happening resembles what happened more than a century ago under the governments of Cipriano Castro and Juan Vicente Gómez — what Rómulo Betancourt called the ‘dance of concessions,’” the economist said.
“Basically, concessions go to politically connected individuals, who later sell them to others, while the Venezuelan state and the Venezuelan people will probably end up receiving only a very small fraction,” he added.
