Wed, 15 Nov 2000

Ex-Marxist Rodriguez takes helm at OPEC

By Tom Ashby

VIENNA (Reuters): Former Marxist guerrilla, lawyer and statesman, Venezuela's Ali Rodriguez, should breathe new life into the aging OPEC oil cartel as its new secretary-general.

Based at OPEC's Vienna headquarters, its top administrative post has often been ceremonial and powerless, but the Venezuelan oil minister will make a spirited defense of producers' interests as multinational companies and consumer governments eat away at their oil market share and income.

In two years as minister of the world's number three exporter, the South American helped raise crude oil prices by bringing the cartel's worst quota-busting country into line with drastic production cuts.

Then as OPEC President since March, he helped broker a target price of US$22-$28 per barrel, moderating exporters' price ambitions at a time when the cost of a barrel soared above $30, stoking fears of another oil shock in the West.

His radical roots are those of a Cuban-inspired rebel in the decade after the restoration of Venezuelan democracy in 1958. But Rodriguez has become known for consensus-building in the fractious cartel that contains Gulf War foes Iraq and Kuwait.

In his three-year term as secretary-general, he will try to take OPEC beyond the basic task of world oil supply management to a more active role in international trade and investment relations.

"OPEC has been bypassed, limiting its role to setting quotas, while the rest of the world moved on," said Bernard Mommer, a research fellow at the Oxford Institute for Energy Studies and adviser to Rodriguez.

"OPEC needs to be completely updated."

Despite controlling two-thirds of the planet's oil exports and proven reserves, OPEC has made no impact on international energy treaties and global environment talks over the past 20 years.

Meanwhile, OPEC governments have reopened their nationalized oil reserves to foreign private investment without discussing common ground rules for their involvement.

The developments have not come without cost.

OPEC's share of the price at the pump has been falling steadily since the 1970s, when it nationalized the oil industries in its own countries.

And world prices, formerly set by exporters in monthly posted prices, are now decided by dealers at financial exchanges in London and New York, where trade in futures contracts is more than double total world oil supply.

Rodriguez argues that futures market speculation has made OPEC's job of keeping prices in its target band impossible, while consumer government taxes are unfairly high.

"The distortion that taxes produce is so huge that they generate higher revenues for the governments of consuming countries than the full export income of oil producers," Rodriguez told fellow ministers on Monday.

Oil taxes in the industrialized world have ballooned by 355 percent since 1980, while the price of an oil barrel has dropped by 50 percent, he added.

Before becoming minister, Rodriguez was an outspoken critic of the way in which Venezuela reopened its oil exploration and production to foreign private capital.

In particular, he opposed big discounts in royalty, which forms the basis of government oil revenue, following the lead of the North Sea and other non-OPEC producers.

As minister, he has rewritten the country's hydrocarbons law, expected to take effect in the next few months, raising the royalty from 1/6 to 1/5 of gross revenue.

The change is unpopular with oil investors because it raises production costs, but it is better for governments because it ensures fiscal revenue from oil production even when operators are making a loss.

"OPEC is making almost all the investment in finding new oil reserves, while the international oil companies are merging forces in what appears to be a preparation for a big battle for market share," Rodriguez told journalists on Sunday.

He would like to see OPEC establish a shared minimum royalty to avoid competition within the cartel for international investment capital.