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Coordinating competition

Interview with Carlos Ramon Mendosa Pattelia, Ambassador Extraordinary and Plenipotentiary of Republic of Venezuela to Russia.

Mister Ambassador, Venezuela, like Russia, is ranked among the leading oil-producing nations. Their cooperation makes a perceptible contribution to maintaining stability in world markets of energy resources ensuring the rational relation between supply and demand and that, in its turn, contributes to the forward movement of world economy. How would you characterize the relations between Venezuela and Russia in the area of energy strategy and, particularly, as far as OPEC is concerned?

C.R.M.PATTELIA: Precisely the interaction within the framework of OPEC has become the first step in developing the further cooperation between Russia and Venezuela. As is known, following the dramatic slump of world prices for oil in 1997 and 1998 such countries as Mexico, Venezuela, Saudi Arabia developed a mechanism of constant multilateral consultations and exchange of information that allows to control the situation in world market of oil and remove consequences of sharp fluctuations of prices for energy resources. From the very beginning it was obvious that such leading oil producers as Norway and Russia should also be included in this process. And today Russia takes part as an observer in all OPEC summits.

The importance of such a coordination for a stable and predictable development of world economy cannot be overestimated. Both Russia and Venezuela adhere to the policy of maintaining stable and fair prices for oil. The exceptional significance of this aspect of our interaction is also proved by the fact that the post of Venezuela's ambassador to Russia has been entrusted for the second time to precisely a professional oilman.

Both our States realize that the basic prerequisite for effective functioning of energy market is to observe the balance. On the other hand, in order to maintain sufficient rates of economic growth in oil-producing countries themselves it is necessary to increase proceeds from selling energy resources; it is clear that private oil companies are also seeking to maximize their profits. Trends of developing world market of energy resources point to a possibility of further increasing oil production and quotas of producers accordingly. But in order to avoid sharp jumps of prices, this increase should be smooth as well as regulated. If world market of energy resources is destabilized, it serves interests of neither producers nor consumers.

Analysts note a particular potential of the Asia-Pacific region in terms of developing the market of energy resources. The vector of growth of Russia's oil business, especially in connection with exploring new deposits on the Sakhalin Island, is obviously directed toward China and Japan. You might recall that after the company Transneft announced plans to construct an oil pipeline to China's territory, Tokyo immediately let it be known that Japan definitely regarded itself as a leading importer of oil from the Far East. The reaction of Saudi Arabia was also sufficiently remarkable: the country has interests in the oil markets of China, Japan and Korea. Although, in my personal opinion, the Asia-Pacific region is such a vast field for competition that there will be enough room for all, I am giving this example to stress once again the importance of exchanging current information on actual intentions of oil producers. Each market participant is fighting, of course, for his own interests and earnings as no one wants to yield and lose his chance. Relations in any market are never brotherly. The competition will always be there. But, at the same time, it is impossible to do without coordination because, otherwise, the 1997-98 situation, when the dynamics of world oil prices resembled a cardiogram of a patient with a heart attack, will happen again.

No serious investment plans can be drawn up without coordination, without prices for energy resources being predictable. It is widely thought that world oil reserves will be enough for another 30 years but during these three decades prices for oil should be kept at such a level that will make it possible to finance research and developments in the area of alternative energy sources, such as nuclear, sun, wind, etc. I do not think that their commercial use would become possible earlier. Anyway, we still have enough time to use oil as the main source of energy. To me personally it seems that there will be enough oil for the mankind even longer but, in a any case, its reserves will start running out ever faster but the value of this resource will keep growing.

That is why there is a need to adequately assess  the wealth that we now have and that allows the mankind to make up plans for the future. The private business as it is can sacrifice a long-term perspective for the sake of increasing its profits right away. It cannot serve as the only source of energy strategy. There should be a balance between corporate interests and interests of the society, including the global community of peoples. Thus, as far as development and implementation of energy strategies are concerned, the role of such an institution as the State that expresses public interests is obvious.

What are the specific forms of the trade and economic relations between Russia and Venezuela today with respect to energy? What directions are they developing in?

C.R.M.PATTELIA: The most important function of Venezuela's diplomatic and trade mission in the Russian Federation is to constantly monitor the mutual relations between our countries, including the fuel-and-energy sphere. My task as the ambassador is to support and develop direct contacts with Russia's state structures and private companies as a basis for expanding the fruitful and mutually beneficial cooperation.

The next level of our mutual relations is the cooperation between the Russian and Venezuelan Ministries of Energy, which was illustrated by drafing a treaty on cooperation in the fuel-and-energy sphere. The Treaty is to be signed during the visit to Russia by the president of Venezuela Hugo Chavez.

Finally, the oil sector of the Venezuelan economy, which is open to Russian private and state companies, provides the widest field for interaction. In its time the USSR shipped enormous supplies of oil to Cuba while Venezuela sold its oil to Spain. And in order to cut down transportation costs, the Venezuelan oil, in fact, went to Cuba and the Soviet one was shipped to Spain. So, that was the way that the mechanism of multilateral interaction emerged. Venezuela's state oil company PdVSA (Petroleos de Venezuela SA) has its enterprises in Europe and, particularly, in Germany, which refine a rather insignificant amount of Venezuelan oil. Oil that is refined there is of the Russian origin. During the last visit to Russia by Venezuela's minister of energy the Alfa Group put forward a proposal to buy European oil refineries of PdVSA. Since the other half of shares of these enterprises belongs to British petroleum, which because of it enjoys a priority as a potential buyer, and British petroleum itself has joint business with Russia's Alfa Group (the oil company TNK-BP), various options are possible and  they are being discussed now.

Another Russian company LUKOIL that has been operating on the Latin American continent (in Columbia, for example) participated in a tender for exploration and development of oil deposits on the shelf. It keeps showing its interest in other production facilities of Venezuela's oil sector. The very fact of the Russian company's participation in the tender became an important landmark of developing the bilateral cooperation betweens oilmen of our countries.

Venezuela's gas sector also provides a lot of opportunities for Russian companies. Notwithstanding all the complexities caused by the very scope of such a gigantic corporations as Gazprom, which requires much time to analyze information and make decisions, prospects for its participation in large-scale projects of Venezuela's gasification are exceptionally promising. Our both countries still do not have much  experience of cooperation in gas industry. And precisely because of it taking first steps in this direction is so important.

As for other segments of the energy sector, one should mention the participation of Russian concerns Sylovie Mashiny (SILM) and Energoprom in building hydroelectric stations, in supplying water turbines and other equipment to Venezuela. The cooperation between our countries in this direction of the energy area has long ago progressed from discussing projects to constantly implementing real deals. And this cooperation continues to actively develop.

Since the aluminum industry is extremely power-consuming, it is directly connected to the energy sphere in this respect. The Russian company RUSAL acted as a major investor in constructing aluminous plants in Venezuela. The value of this project is close to a billion dollars and that is why the project, of course, is the largest demonstration of the economic ties between our countries.

Singling out such capital-intensive areas of the cooperation as the oil-and-gas, hydraulic power and aluminum sectors, one should note the importance of exchanging information in science and technologies. Through UNIDO (the United Nations Industrial Development Organization) and within the framework of the bilateral ties Venezuela is interacting with the Russian Academy of Sciences, the Khrunichev State Space Research-and-Production Center, research divisions of the companies Bashneft, Tatneft, LUKOIL. There are also a lot of opportunities for further expanding ties between Venezuela and Russia in this direction as well.

Venezuela is open to cooperation with Russia, with all its state structures and private corporations and it is ready to discuss any joint projects.

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