Accused of being a concealed privatization and unconstitutional, the Productive Participation Contracts are one of the mechanisms implemented by Nicolás Maduro’s regime to finance itself and evade sanctions imposed by the United States.
Moreover, since the Cartel of the Suns —a key operator of Maduro’s regime— has been designated as a transnational terrorist organization by the U.S. government, any entity that negotiates with the dictatorship risks being labeled as a collaborator and financier of terrorism, complicating the situation further.
In this context, companies associated with the regime through the PPC face a dual risk: being accused of collaborating with terrorism and the necessity to sell the oil obtained as payment for services rendered in operations deemed internationally illegal.
How Maduro’s Regime Justifies It
Nicolás Maduro’s regime, through the irregular and unconstitutional Constituent Assembly, approved the Anti-Blockade Constitutional Law for National Development and Guarantee of Human Rights, commonly known as the Anti-Blockade Law on October 9, 2020.
In the context of this legislative instrument, Article 28 states that “In order to counteract the impact of unilateral coercive measures and other restrictive or punitive actions, the National Executive will design and implement exceptional mechanisms for the contracting, purchase, and payment of goods and services, preferably of national production, destined to: 1. Satisfy fundamental rights to life, health, and food. 2. Generate income, obtain foreign currency, and mobilize it internationally. 3. Ensure normal operation of entities subject to unilateral coercive measures and other restrictive or punitive measures that motivate this Constitutional Law. 4. Selectively substitute imports.”
Based on this, Maduro’s regime created the figure of the Productive Participation Contracts (PPC) to establish exceptional mechanisms for contracting goods and services, aiming to boost national production and reactivate economic sectors, including the oil sector.
The Productive Participation Contracts (PPC) allow private companies, both national and foreign, to operate oil fields without the need to participate in bidding processes. Unlike mixed companies, PPCs do not grant equity participation in the blocks or areas assigned by the Ministry of Hydrocarbons and PDVSA.
Additionally, they pay lower taxes and fiscal contributions and, according to ruling party deputy, William Rodríguez, facilitate the “rapid recovery of investment because it starts during the first year, allowing the company to recover costs based on production goals and the investment plan, which is something no other oil producer in the world does.”
Unconstitutionality of the PPC
The very illegality of the Constituent Assembly convened by Nicolás Maduro in 2017 is grounds for the illegality and unconstitutionality of all decisions stemming from it. It is essential to remember that its convening violated Articles 347 and 348 of the Venezuelan Constitution, which stipulate that only the Venezuelan people are empowered to call for a Constituent Assembly, a consultation that did not take place. This was affirmed by the Supreme Court of Justice (TSJ) in exile.
Likewise, the wording of the Anti-Blockade Law itself allows for the privatization of state assets and their operation without transparency or parliamentary control, granting almost total control to private entities over oil fields in violation of constitutional principles of sovereignty, public bidding, and resource management.
Furthermore, under Venezuelan law, international oil companies are not authorized to produce or market oil, a restriction that Maduro’s regime violates through the Anti-Blockade Law, which “consolidates in the Executive Branch unlimited power to reorganize PDVSA and make any decisions regarding oil activities, disregarding the provisions of oil legislation and, more importantly, the Organic Hydrocarbons Law.” The OFAC licenses are not what creates the transparency issue, but rather the oil contracts that licensed companies sign with PDVSA.
Despite this, some sectors of the oil industry and the National Assembly propose transferring the provisions regarding Productive Participation Contracts (PPC) to the Organic Hydrocarbons Law.
The Contracts
Under the figure of the Productive Participation Contracts (PPC), a series of negotiations by Nicolás Maduro’s regime would have taken place, especially with Chinese companies, according to information leaked to the press. This fact is seen as the takeover of PDVSA by the Asian nation. Investments from the Turkish Petroleum Corporation (TPAO), the Russian TNG Group, and Nigeria’s Oranto Petroleum were also announced.
This is part of Maduro’s maneuver to secure financing in light of U.S. sanctions against both the regime and PDVSA, following the revocation of Chevron’s license by the Trump administration. Chevron’s operations in Venezuela are limited to maintenance work on its assets.
In the PPC model —a production-sharing agreement— participating companies can take up to 55% of the produced crude barrels as payment for their operations and services in the exploited oil fields.
According to leaked information, nine companies have signed PPCs with Petróleos de Venezuela S.A. to develop 13 projects that could produce up to 890,000 barrels per day. The investment would be around $32 billion and would take place in the Orinoco Oil Belt (FPO) and the Lake Maracaibo basin.
Among the Chinese companies that would benefit is China Concord Petroleum, sanctioned by the Office of Foreign Assets Control (OFAC) of the U.S. Treasury due to its dealings with Iran. Its operations would be in two blocks in Lake Maracaibo.
It is also reported that Anhui Guangda Mining Investment Co. has signed a PPC for the Ayacucho 2 block in the FPO, and Kerui, which is in talks and allegedly signed a memorandum of understanding with PDVSA. This company operated wells in Lake Maracaibo in 2016. Meanwhile, LNG Energy Group signed a PPC aimed at operating two blocks in the FPO.
Harry Sargeant III, who Venezuela Política previously reported as maintaining operations with Maduro’s regime through North America Blue Energy Partners, is also one of the beneficiaries of the Productive Participation Contracts. He is credited with increasing production at Petrozamora in Lake Maracaibo. He is also said to have initiated operations in Junín Sur and Petrocedeño in the FPO. However, following the revocation of his licenses by OFAC, the future of his operations remains uncertain.
Other smaller companies of unknown background might also be part of the group signing PPCs: Aldyl Argentina, Consorcio Alvarado & Cladoca (Brazil), Miller Energy Trading (Turkey), Accumes Holdings (Switzerland), and Vulcan Energy Technology (Germany and Australia).
After the explosion of the oil barge “Cristi Bay” in Lake Maracaibo on Tuesday, March 25, resulting in three dead and six injured, the Oil Workers’ Union of Zulia called for sanctions and a thorough investigation against Servicios y Obras Sudamericana CA (Sosca), the contractor of PDVSA that owns the vessel, as well as against the mixed company Petrozamora, and North America Blue Energy Partners.
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