12 September 2008
	SA/VENEZUELA The price of 'stolen' oil By Matthew Hill and Prakash Naidoo SA may have to pay a political price for its dealings with Hugo Chavez

"Beware of Greeks

There are potentially lucrative mining and energy resources in Venezuela - but getting access won't be easy. "The country has been infected by the Hugo Chavez doctrine," the businessman says. Last year Chavez began a nationalisation drive in the petroleum, communications and electricity sectors.

WHAT IT MEANS Access may come at a political price Doing business there is not easy

Business practices are another problem. "The ethics of the workforce are not anything like you or I are used to. It makes the imposition of Western corporate governance very difficult," says the businessman. "It's bloody difficult, but if you get it right it can be very profitable."

But Canadian gold miner Crystallex argues that many problems in the country are "perceptional". Says spokesman Richard Marshall: "Overall, we have been pleased with Venezuela."

Crystallex has operated in Venezuela for 16 years. It has struggled to develop its Las Cristinas project in the Imataca Forest Reserve because of government's social and environmental concerns.

US-based Gold Reserve appears to be faring no better with its Brisas project, also in the Imataca Reserve.

Nor has the mighty Anglo American found it easy. It was notified in January that government had decided to scrap exploration and exploitation concessions at its 91,4%-held Loma de Niquel ferronickel operation, citing Anglo's failure to meet certain conditions.

Two companies that seem to have played their cards right - or, rather, the right cards - are JSE-listed Gold Fields and Russian-owned Rusoro. Russia supplies arms to Chavez, and Rusoro has been declared partner of choice for gold mining opportunities. Gold Fields stands to benefit from this, as it secured a 38% stake in Rusoro when it sold its Choco 10 mine to the company last year.

One industry insider says Gold Fields "got out just in time". Since then it has been quiet on Venezuela, saying it is only a passive investor in Rusoro.

Last week, another SA company, state-owned PetroSA, shook hands with Chavez on an agreement to drill for oil in the Orinoco belt. The memorandum was met with scepticism, with one observer commenting: "Why should SA want to be involved in a country that's effectively stolen the oil reserves?"

Venezuela's oil brings in 90% of its export earnings and generates nearly a third of GDP.

While Chavez was signing the record of understanding with SA that makes provision for discounted crude oil, lawmakers back home approved a bill allowing the Venezuelan government to seize control of fuel distribution.

Under the new law, subsidiaries of British Petroleum (BP), Exxon Mobil Corp and Chevron Corp will have 60 days to negotiate the sale of their businesses to the Venezuelan government or face expropriation.

So far the socialist government has nationalised the largest telephone, electricity, steel and cement companies, and has taken majority control of four big oil projects. "SA will have to ask itself whether the economic benefits are worth the political price it will have to pay," says Daniel Litvin, an expert on the geopolitics of resources with the London-based think-tank, Chatham House.

According to Litvin, high oil prices have given energy-rich nations greater leverage over other countries. "Countries like Venezuela have huge amounts of money to spend and have used this to build anti-American alliances."

Lyal White, an expert on Latin America at the Institute for Global Dialogue, agrees. He says SA may still be unaware of some of the political costs attached to the deal. "The electorates in Latin America are very fickle, and if there's a change in power in Venezuela, these deals could very likely fall away."

Details of the deal are still sketchy, but PetroSA says it has signed two memoranda of understanding with Venezuela's state-run oil company, Petroleos de Venezuela SA (PDVSA), and one study agreement covering oil and gas exploration.

PetroSA has invited PDVSA for joint investments in the proposed crude oil refinery at Coega in the Eastern Cape. It's understood the Venezuelans have also been invited to use crude oil storage facilities at Saldanha.

PetroSA has also offered to share its low-temperature gas-to-liquid technology with PDVSA to help commercialise Venezuelan gas assets.

"It would be great for us if these deals do materialise because we have good technology to export in this area, especially in coal," says White. But he believes strengthening relations with Brazil, which has just discovered rich offshore oil reserves, and Chile would be more in SA's interest.

bearing gifts" is the sceptical response of one respected businessman with Venezuelan experience, commenting on the recent pacts SA signed with the South American country.