Doubts Hover Over Takeovers As Promised Cash Never Seems To Arrive

Question is, will Venezuela have the cash amid the financial crisis? -- The global financial crisis and the doubts about world oil demand it brought with it are posing questions about President Hugo Chávez' populist policy of nationalizing large companies he deems of "strategic importance" to the country.

At issue is whether he can afford to push the policy without eating into an accumulation of state funds now that it's likely some of these will be needed to cushion the economy in general and state spending in particular during 2009.

Amid unofficial estimates that the Venezuelan state may have squirreled away as much as $70 billion or even $90 billion, including $39 billion in the official reserves and $25 billion at the National Development Fund (Fonden), it might seem that Venezuela could afford nationalization as well.

The trouble is that state takeovers so far have proved more difficult than Chávez and his economic advisors evidently believed. Critics argue that the government thought that, as one put it, "saying something is the same as doing it" and nobody worked out the implications of compensation for private sector shareholders.

The nationalization hit list started in the all-important oil sector, but later spread to the three largest cement producers in Venezuela, all of them foreign-owned, and steelmaker Sidor, in which Ternium, a consortium led by Argentine engineers Techint had 60%. Chávez has moved to take over Banco de Venezuela, owned by Spanish group Santander and there's been talk of taking over the three other big banks as well.

Kicking off with oil two years ago, Chávez demanded a majority state interest of at least 60 percent in oil operations across the country. His vehicle for this was the concept of "mixed companies" in which the state oil corporation, Petróleos de Venezuela (PDVSA), would hold 60%, leaving the previous owners in a minority. If they didn't like it, they could go away. He largely got his way, but not all of it, oil industry sources say, mindful of doing so on condition of confidentiality.

Many companies reasoned they'd faced similar demands in other countries and that it was best to go along. But this wasn't so in two heavy oil fields in the Orinoco Basin. ExxonMobil refused to hand over its majority working interest in one field, Cerro Negro, so Chávez snatched their ownership.

ExxonMobil and the government are locked into a prolonged battle about compensation. The oil giant has launched legal proceedings against PDVSA in foreign courts. So far, a judge in London has ruled that the case is not within British jurisdiction, proceedings are pending in The Hague and a third case has yet to start in New York. Negotiations continue with ConocoPhillips in another Orinoco heavy oil field. Again, the issue is compensation and so far agreement has yet to be reached.

Similarly, deals have yet to be sealed with the cement companies, which include Cemex of Mexico, potentially posing problems with that country. The government has yet to settle terms with Ternium on Sidor. And even when it settles an agreement, the companies still seem to be have a problem getting paid for their troubles. Santander has yet to be paid for its stake in Banco de Venezuela, cement producer Lafarge has yet to be paid for its nationalized cement company, nor has Holcim been paid for its agreed nationalization either.