Financial Times article on Venezuela

September 29, 2005

Venezuela speeds up state takeover of industries

By Andy Webb-Vidal in the Financial Times

Venezuela’s
government is accelerating plans to expropriate local agribusinesses
and extend state control over foreign oil and mining industries,
fulfilling President Hugo Chvez’s “revolutionary” economic agenda.

Hugo
de los Reyes Chvez, the governor of the province of Barinas and the
president’s father, issued a decree on Monday expropriating a flour
milling plant belonging to Polar, Venezuela’s largest food company and
the country’s biggest private-sector employer.

The announced
expropriation of some of Polar’s assets, apparently without the
prospect of financial compensation, heralds a new, more integrated
phase in the government’s land redistribution programme.

In
recent weeks dozens of rural estates have been “intervened” in by
officials from the national land institute, often accompanied by the
military.

It is not clear whether the Polar plant, if
confiscated, will be handed over to a workers’ co-operative, as has
been the case with other land expropriations, or whether the assets
will be transferred to new business groups.

Lorenzo Mendoza, president of Polar, said last night: “We consider
this decision to be unjust, disconcerting and unconstitutional.”

President Chvez says he will eliminate large landholdings as part of a
drive to introduce what he terms “socialism of the 21st century”. But
the move against agribusiness parallels a policy of extending
government control over heavy industry. Rafael Ramirez, the energy
minister, said this week that the government might take over oil fields
operated by multinationals if the companies failed to comply with a new
legal operating framework by the end of the year.

Oil companies
are required to sign transitory operating contracts ahead of converting
them into joint ventures with Petroleos de Venezuela, the state-owned
oil company, in which the state will hold a majority stake.

Patrick
Esteruelas, a Latin America analyst at Eurasia Group, said that while
local agribusinesses such as Polar were likely to see expropriation,
foreign oil and mining companies faced a different challenge.

“More
strategic companies are likely to face tighter terms but are not likely
to see their assets expropriated,” said Mr Esteruelas.

The
likelihood of greater state control is also surfacing in the mining
sector. Mr Chvez said last week that a gold mining region known as Las
Cristinas “belonged to the state”. His comments prompted a sharp
decline in the share price of Crystallex, a Canadian mining company
planning to build what would be Venezuela’s largest gold mining venture.

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