Venezuela: Guaido Proposes Landmark Oil Reforms

3 MINS READMar 13, 2019 | 21:28 GMT
The Big Picture

In his bid to unseat President Nicolas Maduro, Venezuela's partially recognized interim President Juan Guaido has proposed opening up his country's political and economic system — including the vital oil sector — to rescue Venezuela from its increasingly dire economic and political crisis. But even if his reforms are passed by the opposition-led National Assembly, they cannot be implemented until after the Maduro government loses control of the energy sector, over which Maduro's loyalists in the military still hold a tight grip. 

What Happened

According to a Reuters report released March 12, partially recognized interim President Juan Guaido is preparing new legislation for Venezuela's oil and gas sector that would allow companies other than the country's state-owned energy company, Petroleos de Venezuela (PDVSA), to operate oil and gas fields. The proposed reforms, which Guaido's allies are presenting at an energy conference in Houston this week, are expected to be released for debate in Venezuela's National Assembly in the coming days. 

Guaido's reforms would dismantle PDVSA's monopoly over Venezuela's oil and gas sector by no longer requiring its involvement in every project. In doing so, the laws would fundamentally reverse the country's highly nationalistic regulatory environment in place since former President Hugo Chavez nationalized the industry more than a decade ago.

Why It Matters

By proposing ambitious energy reforms, Guaido is ensuring Venezuelans that he has a rescue plan for the country's recovery should he gain more power. Venezuela's oil and gas sector is the main generator of revenue for the government, and its revitalization is thus paramount to address other factors plaguing Venezuela's recovery, such as its overseas debt obligations and decaying infrastructure.

There is a fair chance Guaido's reforms will pass the National Assembly, which is currently controlled by parties that support his campaign to unseat Maduro. Actually implementing the plan, however, will be a challenge so long as President Nicolas Maduro continues to control the military and, by proxy, the oil sector.

Venezuela's oil sector will still be an expensive and high-risk investment for foreign suitors, especially if they don't already have an established presence in the country.

Even if a transition from Maduro occurred and the new plan for Venezuela's oil sector went into effect, jump-starting investment into the sector — which has seen production collapse in recent years amid the country's ongoing economic and political crisis — would be no easy feat for Maduro's successor, whether that be Guaido or someone else. The country's oil and gas fields have long been neglected, and the heavy oil fields in the Orinoco Basin are also expensive to produce. After suffering years of underinvestment, some of the reservoirs are likely damaged and in need of costly repairs and upgrades to allow the conversion of heavy oil into a more easily transported form. This will make Venezuela an expensive and high-risk investment for foreign suitors, especially if they don't already have an established presence in the country. 

And even if enacted, questions over how long the proposed reforms — which are modeled off of Colombia's and Mexico's energy reforms introduced over the last two decades — would remain in effect would give investors pause. While Colombia's reforms have been consistently backed by successive pro-business presidents, new Mexican President Andres Manuel Lopez Obrador's efforts to reverse Mexico's energy reforms show that if the political winds shift in a Latin American country prone to left-wing and populist movements — like Venezuela is — energy reforms may not last. 

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