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Venezuela Takes Control of Orinoco River Oil Projects

The government of Venezuela has taken operational control of four oil projects along the Orinoco River from their foreign operators.Venezuelan President Hugo Chavez described the action as the "true nationalization" of the country's natural resources. From Miami, VOA's Brian Wagner reports, the move will give President Hugo Chavez more control over the nation's oil resources.

Venezuela set Tuesday as the deadline to take a controlling stake in key oil facilities in the Orinoco region. Officials have been negotiating with several foreign oil companies to sign new contracts for facilities in the area and elsewhere in Venezuela, to transfer at least 60 percent control to the state-owned oil company. President Hugo Chavez has threatened to expel companies that fail to agree to new deals.

Mr. Chavez has been aggressive in defending his interests in the oil sector, and he has criticized earlier oil agreements for allowing too much money to flow to companies outside the country.

Frank Verrastro, director of the energy program at the Center for Strategic and International Studies in Washington, says the pressure has helped Venezuela boost its immediate returns from the oil industry. But he says it also is having a chilling effect on future investment by foreign oil companies.

"If you think retroactively they're going to keep changing taxes, or royalties, or relative equity positions, then you really have to question where you are putting your money," said Verrastro.

Verrastro says Venezuela is not the only country trying to take greater control of its energy resources, noting that Russia, Kazakhstan and the United States have passed reforms recently.

Venezuela's efforts have drawn attention because of its use of oil profits to finance a series of social programs, including health, jobs and literacy campaigns in the nation. In addition,at a weekend summit in Caracas, Mr. Chavez said he hopes to begin exporting some of those social programs to other Latin American nations.

The summit of the Bolivarian Alternative of the Americas included the presidents of Bolivia, Haiti and Nicaragua, as well as top officials from Cuba, Uruguay and several Caribbean nations.

The Chavez administration has been successful in financing social projects at home, thanks in part to the high prices of oil in recent years. Ecuador's new President Rafael Correa has announced plans for similar oil-backed social spending.

Raul Madrid, associate professor of government at the University of Texas at Austin, says it can be risky for social programs to rely heavily on the fluctuating price of oil.

"If you try to take those programs away or cut back on them, people try to protest. So a lot of those programs can be financed now while the price of oil is quite high, but if the price lowers, then you will be in trouble," said Madrid.

At the weekend summit, Mr. Chavez also said he hopes to become the sole supplier of energy to Bolivia, Cuba, Nicaragua and Haiti. And he used the summit to announce plans to sell Venezuelan-owned refineries in the United States, and create a network of new refineries with the help of its Latin American allies. Refinement has long been one of the key challenges to Venezuela's oil sector, because complex facilities are needed to process its heavy crude.

Frank Verrastro says Venezuela relies heavily on the United States, which receives at least one million barrels of Venezuelan crude each day.

"So to displace that amount of crude you would want to have probably three good size refineries in place to refine Venezuelan crude," he added. "And that takes time."

Mr. Chavez has repeatedly called for cutting oil ties with the United States because of disagreements between Caracas and Washington. But Verrastro says it is unlikely that Venezuela will begin sending its crude elsewhere in the near future, because the Chavez government needs the revenue from U.S. oil sales to continue its spending programs.