The opacity of the oil businesses in Venezuela covered by OFAC licenses
A recent paper published by David Voght and Patricia Ventura in the Atlantic Council suggests that, despite Venezuela’s autocratic rise after the July 28 presidential election, the U.S. should “stick with the current policy—which regulates cash flow into Venezuela.” According to this paper, the cash flow to Maduro´s regime is “up to 50 percent of sales by licensed oil companies.” The authors clarify that the payment to Maduro´s Government is made in bolívars—not dollars.
My interest is to comment on this conclusion: “Detractors of the licensing regime express frustration with a lack of public information.” However, “non-public” does not mean “opaque.” Detailed reports on all activities are filed with OFAC. Information on crude trades is available from numerous subscription sources”. Consequently, OFAC licenses “have found a productive middle path that provides greater economic stability, transparency, and control over the flow of revenue to the Maduro regime.”
However, this conclusion is inaccurate because it does not consider the institutional conditions under which licensed oil firms produce oil in Venezuela. As I explained here, OFAC’s licenses do not create transparency problems. Those problems are caused by the oil contracts that oil firms have signed with PDVSA.
The starting point is understanding how oil is produced under OFAC’s licenses. There is no public information on that topic. Still, based on General License No. 41 and press releases, it is possible to conclude that the minority shareholders of joint ventures (the licensed companies) signed a “productive participation contract.” (CPP). Under this contract, the minority shareholder produces and commercializes oil and then distributes the oil revenues to repay the debt with PDVSA, cover operating expenses, and pay (or provide for the payment of) the government take. It should be noted that Chevron—not the joint venture—is authorized by General License No. 41 to undertake oil activities.
According to the Atlantic´s paper, OFAC permitted Chevron to “resume operations under an agreement with PDVSA that allowed the US company to manage key aspects of its joint ventures, including procurement, crude marketing, and finance“. This agreement is the CPP that, in practical terms, transfers the exercise of oil rights to the minority shareholder.
However, under Venezuelan Law, international oil firms cannot manage key aspects of the joint ventures. How did those companies circumvent this prohibition? The answer rests in the Anti-Blockade Law, an unconstitutional legislation approved by the now-defunct constituent assembly. This law consolidates in the executive branch the unchecked power to reorganize PDVSA and make any decisions regarding oil activities, disregarding Venezuelan law and, importantly, the Hydrocarbons Organic Law. Therefore, the CPPs covered by OFAC’s licenses are based on the Anti-Blockade Law.
The Anti-Blockade Law undermines checks and balances and mandates the secrecy of all contracts executed by its provisions. Consequently, these opacity rules cover the licensed oil company’s activities. There is a lack of information regarding the CPPs that, in any case, has not been authorized by the National Assembly. Details about the debt restructuring agreements between minority shareholders and PDVSA remain undisclosed. Additionally, the financial mechanisms for distributing oil revenues have not been made public. Ultimately, Maduro’s use of oil revenues is also shrouded in opacity.
According to Voght and Ventura’s estimations, Maduro receives approximately 3.2 billion dollars annually in oil revenues administered under the opacity rules imposed by the Anti-Blockade Law (estimating a 50% government share). From a transparency perspective, it is not relevant that those incomes are paid in VEF. The key issue is that oil revenues are collected and distributed without accountability and transparency.
The opacity rules aggravate the institutional decay in Venezuela, which has the worst rule of law index in the world and is considered one of the most corrupt countries. Even worse, the opacity rule favors using oil revenues to finance gross human rights violations due to the authoritarian resurgence after the presidential election.
It is impossible to conclude, as Voght and Ventura did that the oil businesses covered by OFAC’s licenses provide “transparency and control over the flow of revenue to the Maduro regime.” It is quite the opposite because the Anti-Blockade Law governs those oil businesses, violating transparency standards and encouraging corruption in revenue flow to Maduro´s regime.
I’m aware that OFAC’s licenses are not responsible for the gross violation of the transparency principle. But there is a contradiction that cannot be ignored. The U.S. government challenged the 2017 constituent assembly as an illegitimate body, even though it is granting oil licenses that can only be executed in Venezuela based on unconstitutional legislation approved by this illegitimate assembly.
A possible reply to this criticism is that, compared with the “maximum pressure,” the opacity imposed by the Anti-Blockade Law is a “lesser evil.” But it is an evil, though, that increases Maduro’s financial capability under secrecy conditions, which could only exacerbate corruption and human rights violations.
To be clear, I do not believe that returning to the sanctions policy of 2019 is an alternative because the current conditions are different. Nonetheless, I believe asserting that maintaining the status quo promotes transparency and effective utilization of oil resources is misleading.
In conclusion, the issue lies not in the non-public nature of OFAC’s licenses but in the opacity surrounding the Chevron model imposed by the Anti-Blockade Law. Overlooking this point may lead to an incomplete and potentially biased conclusion.