Venezuelan parliament approves oil law breaking state monopoly powers

Venezuela's National Assembly unanimously approved a reform of the Hydrocarbons Law on Jan. 29, with the intent of opening up Venezuela's oil industry in order to boost production and exports.

This legal reform breaks the monopoly powers established since the oil industry was nationalized in Venezuela in 1975.

The law allows Production Participation Contracts (CPP), where operating companies can explore, produce, process and export crude without having to form joint ventures with state-owned oil company PDVSA.

The oil reforms were proposed following the US seizure of Venezuelan President Nicolas Maduro on Jan. 3, and subsequent promise by US President Donald Trump that companies would invest in Venezuela's oil infrastructure to grow output.

Venezuela's oil production has fallen from 3 million b/d in January 2008 to roughly 963,000 b/d in December due to a lack of investment in the country's infrastructure.

The reform repeals Decree 5200, which in 2007 required oil companies to form mixed contracts with PDVSA, with PDVSA getting a 60% stake in each joint venture.

The reform allows joint ventures between state-owned PDVSA and international companies, but requires state-owned companies to hold a stake of at least 50%, eliminating ambiguities regarding shareholder control.

Also, state-owned companies will be allowed to transfer ownership or other rights over "moveable or immovable property" belonging to the state. It is unclear if that means PDVSA would be able to transfer ownership of its oil assets to an international oil company.

Under the reforms, joint ventures are exempt from complying with the Public Procurement Law, which requires companies to hold tenders for the purchase of equipment.

Companies are required under the law to sell crude oil at prices that do not deviate significantly from international market prices.

The reformed law maintains the 30% royalty rate but allows the Ministry of Hydrocarbons to adjust it to be internationally competitive.

The law also gives the ministry flexibility in determining remuneration to companies operating in Venezuela, not limiting agreements to a percentage of produced hydrocarbons.

The reformed law also permits conventional, unrestricted arbitration for contractual disputes.

The reforms were first debated on Jan. 22, and business interests subsequently presented their proposals at PDVSA headquarters in Caracas on Jan. 26.

The 34-article reform will come into force upon publication in the Official Gazette.