Before answering the questions, I would like to make a general comment about this hydrocarbons law reform, which, although it is a step in the right direction, we believe is not good enough, nor is it supported by structural changes to attract large investments in the sector.
In our opinion, investors can assume geological, technical, operational, and commercial risks, but they are unlikely to assume structural and institutional risks, and this reform leaves too many decisions to the discretion of the executive branch. As a result, the legal framework ceases to be a set of rules and becomes uncertainty, that is, a permanent negotiation.
1. What do you consider to be the most significant changes introduced by this reform to the Hydrocarbons Law compared to the previous legal framework of 2006?
It is true that the reform introduces significant changes, but its most significant feature is not only the opening up to private investment, but the way in which it conceives that opening up.
On the one hand, it expands private participation in primary activities and makes the joint venture model more flexible, allowing private partners to take on operational and even commercial roles. It also introduces new contractual arrangements and greater fiscal flexibility.
However, at the same time, it concentrates broad powers in the executive branch to define economic conditions, approve partnerships, and adjust contractual terms, creating a scenario where private participation depends largely on administrative decisions rather than clear and stable rules.
In this sense, the reform opens up economic opportunities, but does not strengthen the institutional framework that should support them.
2. Does the new law expand private participation in primary activities? What impact could this have on the productive capacity of the Venezuelan oil industry?
Yes. Certainly, the reform expands private participation in primary activities, which in theory could contribute to recovering production by providing capital, technology, and operational capacity that PDVSA does not currently possess.
However, the real impact will depend less on what the law says and more on whether the institutional environment allows such participation to develop with predictable rules, which will enable cautious capital investments, leading to increased production in less complex fields with superficial problems in associated facilities. In other words, taking the “low-hanging fruit.”
This is likely to happen, since if contractual, fiscal, and regulatory conditions can be modified at will, the incentive for large-scale investments is considerably reduced. In other words, in our opinion, we will not see large structural investments capable of transforming the country’s productive capacity.
3. In joint ventures, the reform maintains state ownership of the deposits but makes private sector participation more flexible and, in some cases, allows for operational and commercial control. How could this balance work in practice?
The model proposes maintaining state ownership of the resource, while allowing the private sector to take on a greater operational and commercial role. In theory, this balance could work if there were a solid institutional framework that clearly defined responsibilities, oversight, and stable contractual rules.
But, we reiterate, when decision-making is highly centralized in the executive branch, that balance becomes fragile. In practice, the model could lead to highly customized agreements, negotiated on a case-by-case basis, where the legal framework functions more as a political enabling mechanism than as a stable regulatory structure.
4. In terms of economic scope, what can this reform achieve in the short and medium term? Could it revive local economies in oil-producing regions—in terms of employment, services, and infrastructure—even if its macroeconomic impact is more limited?
In the short term, the reform could facilitate some localized recovery, namely in specific regions such as the eastern shore of Lake Maracaibo, in Zulia, and in Mesa de Guanipa in Anzoátegui. This is particularly true in mature fields or projects where infrastructure and interested operators already exist.
This can generate employment, movement of services, and economic revitalization in these oil-producing regions, that is, it generates specific economic activity without necessarily becoming the structural engine of national recovery with broad macroeconomic impact. To achieve this impact, significant and sustained investment is required, based on levels of institutional confidence that remain uncertain today.
5. Beyond revitalizing specific areas, does this reform have the capacity to drive sustained growth at the national level and set the country on a path to prosperity, or would more profound institutional and economic transformations be required? If so, what would they be?
No. The reform may be a step in the right direction toward opening up the sector, but it does not, on its own, have the capacity to generate a sustained path of national prosperity, which requires at least:
- Judicial independence.
- Regulatory stability.
- Flexible and predictable tax rules.
- Contractual transparency.
- Solid credibility in the State.
- Comprehensive and cross-cutting security in all areas of national activity.
- Normalization of the financial and exchange rate system.
- Recover and strengthen the national electricity system.
6. In the current context—country risk, contractual history, and political environment—do you believe this reform is sufficient to attract large international investments, particularly from major oil companies?
We reiterate what we said earlier. We will not see large, consistent investments until there are clear and stable rules for the future.
We can add that, although the reform sends a signal of openness, there are still factors that weigh heavily on the decision to invest: high country risk, complex contractual conditions, concentration of decision-making in the executive branch, an uncertain political environment, and deep-rooted structural social problems.
We will see, however, gradual investments or investments by medium-sized players, rather than large capital commitments from the world’s major oil companies.
7. How do you think confidence can be built in large oil companies so that they bring their capital to Venezuela?
Trust is built primarily through reliable institutions and consistent behavior on the part of the state. That is, clear and transparent rules of the game, strict respect for contracts, transparency in the awarding of projects, reduction of political discretion, effective arbitration, and an independent technical regulator (National Hydrocarbons or Energy Agency).
8. The law incorporates arbitration and alternative dispute resolution mechanisms. To what extent does this improve legal certainty for investors?
The incorporation of arbitration is a step forward in formal terms, because it recognizes the need for international dispute resolution mechanisms. However, this law does not define it appropriately; it is more declarative than proactive.
On the other hand, legal certainty does not depend solely on the existence of arbitration, but primarily on the State’s actual willingness to respect these mechanisms and comply with their decisions. Thus, if the institutional environment does not guarantee such respect, arbitration may end up being more of a symbolic gesture than an effective guarantee.
9. Although it introduces greater contractual flexibility, the reform maintains broad discretionary powers in the hands of the executive branch. Does this generate sufficient predictability for long-term investments?
This is probably one of the most problematic aspects of the reform, given that, although it introduces a certain degree of contractual flexibility, it maintains a considerable concentration of powers in the executive branch, which may generate uncertainty for investments that require horizons of 20 or 30 years.
10. Is the executive branch’s power to adjust royalties, taxes, and economic conditions based on the “economic viability” of the project a reasonable technical tool, or could it become a source of regulatory uncertainty?
The possibility of adjusting economic conditions according to the viability of the project may be technically reasonable. However, when these adjustments depend on poorly defined criteria and centralized administrative decisions, they can become a source of regulatory uncertainty.
In other words, it is not just a matter of expressing fiscal and tax flexibility; clear and transparent rules and parameters are required to exercise it.
11. Now the executive branch authorizes the establishment of joint ventures and only notifies the National Assembly. What are the implications of this change in terms of the balance of powers and institutional controls?
This is an issue that particularly concerns us, given that the fact that the executive branch can approve joint ventures and only notify the National Assembly significantly reduces institutional control mechanisms, which weakens parliamentary control over strategic decisions and limits accountability mechanisms, in addition to affecting the balance of powers in decision-making, particularly in this strategic sector for the country.
12. Based on your experience, what would be the main points that a Hydrocarbons Law should include in order to generate confidence among both domestic and foreign investors?
A complex response in which we will only express some ideas and opinions on the necessary debate.
- Real legal stability, including duly regulated arbitration mechanisms.
- Clear and predictable fiscal and tax rules.
- Transparency in the allocation of contracts.
- Independent regulatory institutions with a high degree of technical credibility.
- Limit political discretion to a minimum.
Finally, we would like to share some opinions and reflections related to this topic.
1. No change in the law will solve Venezuela’s core problem: the absence of stable rules and reliable institutions. A change in the country’s political model of governance is needed.
2. Investors may take on various risks inherent in the nature of the business, but they are unlikely to take on high institutional risks.
3. Discretion must be eliminated or minimized, because when too many decisions depend on the executive branch, the legal framework ceases to be a set of rules and becomes a permanent negotiation.
