Nationalizing Oil, Building Steel

Its Caribbean beaches, its expanses of jungle, its kinetic, polyglot capital, have long made Venezuela a fascinating place for off-the-beaten-trackers to visit. More important, for six decades the country has been sort of an ancillary Texas, supplying the U.S. with immense quantities of cheap and handy oil. Now, riding on the rapid ascent of petroleum prices, Venezuela is fast becoming one of the most formidable nations in the Western Hemisphere.

Last year its output of goods and services leaped nearly 40%, to $25 billion --mainly because its oil revenues hit $10 billion. Among the members of the Organization of Petroleum Exporting Countries, Venezuela stands out for its additional wealth in iron ore, asphalt, diamonds and hydroelectric power. In Caracas, a new skyscraper seems to rise every day, a new millionaire to appear every hour, and traffic jams to grow worse every minute. Drawing boards bulge with expansive economic plans, and the democratic, staunchly nationalistic President Carlos Andres Perez --whom everybody calls "Cap"--yearns to extend Venezuela's influence over its Latin neighbors.

To increase further Venezuela's oil income and economic independence, Perez last week sent to the country's Congress his long-awaited bill to nationalize the oil industry, and reiterated that the takeover will occur later this year. Venezuela plans to pay the foreign companies--Exxon's subsidiary, Creole Petroleum, and Royal Dutch/Shell are the two biggest--only the net book value less several deductions, or about $1.4 billion. The offer might seem reasonable. Under existing contracts, the foreigners in 1983 were supposed to give over all their properties to the Venezuelans, without compensation. But the oil-company managers argue that the depreciated book value of the properties does not approach their true worth of $5 billion.

French Food. Soon the industry will be run by a state company under the Bureau of Mines. Demonstrating a certain flexibility, Perez recommended that if the national oil industry runs into trouble, the government might enlist foreign companies to help produce or market the petroleum.

In January, Perez's government also nationalized the rich iron ore industry, which had been controlled by U.S. Steel and Bethlehem Steel. Last year Venezuela produced more than 26 million metric tons of ore, almost all for export. Venezuela's grand plan is to use much of its oil income to build a huge steel industry that will exploit its iron ore and great sources of hydroelectric power. Deep in the backlands on the Orinoco River, more than 200,000 people have already clustered in the government run, iron-and-steel community of Ciudad Guayana, where international businessmen come to swing deals, dine on fine French food and gaze upon spectacular waterfalls. Perez aims to raise steel output from last year's 784,000 metric tons to 5 million tons by 1978, and to 15 million by 1985. If those hugely ambitious goals are met, Venezuela will have a multibillion-dollar export to fall back on when the oil dries up--or slips in value.

At current production levels, Venezuela's proven reserves will run out by about 1990. The government intends both to deplete the reserves slowly and to keep prices high. Like most members of OPEC, Venezuela is reducing output to bolster prices in the face of shrinking demand. From 3.3 million bbl. per day in 1973, the country's production slid to 2.9 million last year and is 2.5 million at present.

As Perez told TIME Senior Editor Marshall Loeb in a recent interview: "Our strength lies precisely in OPEC. We are endeavoring to get the best that we possibly can from the price of oil, not only to advance our development plans but also to use oil as a tool for negotiation and dialogue. We are seeking a balance in commercial relations between Latin America and the developed nations." Speaking of the U.S. and of the international oil companies, he added: "We are reluctant to continue accepting that our interests be manipulated from centers of power in the world."

Last year Perez began to put half of the country's oil revenues into the Venezuelan Investment Fund, which lends and invests abroad. Local critics contend that more petromoney should be spent to improve the living conditions of the country's poor. But the investment fund goes a long way toward fulfilling one of Perez's principal objectives: to offer other Latin nations an alternative to Washington's leadership. Venezuela has pledged $50 million to an incipient cartel of five Latin American nations. The loan is to enable them to cut coffee production in an attempt to prop up prices. In addition, Venezuela and Mexico are the main forces behind an embryonic Latin economic community that aims, among other things, to create multicountry firms to export the region's raw materials.

Helping Hand. Venezuela has consistently refused to give its neighbors any break on oil prices. The government has announced, however, that it is setting aside all revenues received from Central American nations in excess of $6 per bbl. (the oil now sells for about $10.44 per bbl.), and is lending the money back to those nations for development projects. The interest charged is reasonable--from 6% to 8%--but the Caracas government must approve the uses to which the loans are put. To a degree, Venezuela's helping-hand programs smack of a paternalism that at another time and in other hands, was condemned as gringo imperialism. Perez occasionally seems to envision himself a Simon Bolivar of the space age, seeking to build Venezuelan hegemony in the region. Yet the President dismisses the notion, and talks of wider goals. Says he: "We are constructing a system for unity, for Latin American integration."

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