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Saturday, 1 December, 2001, 09:26 GMT
New law sparks Venezuela oil row
Graffiti saying
Chavez's popularity has plummeted
Venezuelan president Hugo Chavez has introduced a new law for the oil industry, almost doubling the royalties companies must pay and giving the state a majority stake in all new projects.

Venezuela is the world's fourth largest producer of oil, with the largest reserves outside of the Middle East, and oil accounts for 80% of the country's export earnings.

This a liberating law because it breaks the chains that have bound us for so many years. This is a law for the poor

Hugo Chavez
Venezuela needs billions of dollars of foreign money to help develop its oil sector still further, but international oil companies say the new legislation is hostile to private investment.

Mr Chavez has brushed aside the criticism, saying it is part of his peaceful revolution to boost economic development and help the poor.

Growing opposition

The BBC's Adam Easton in Caracas says that with the popularity of Mr Chavez dropping sharply in recent opinion polls, the new law could see vocal opposition growing even louder.

Hugo Chavez
Chavez wants to redistribute wealth

Mr Chavez came to power three years ago, vowing to redistribute oil wealth among the poor, and clearly hopes this new law will help.

"This a liberating law because it breaks the chains that have bound us for so many years," Mr Chavez said. "This is a law for the poor."

"Of every 10 Venezuelans, seven are poor. One of the reasons for this was the mismanagement of the petroleum industry," he added.

Investors deterred

Under the new law, which comes into effect on 1 January, state-owned oil company Petroleos de Venezuela SA (PDVSA) must hold a minimum 51% stake in all future joint-venture projects involving exploration, exploitation, and transportation.

But many observers believe the new legislation will scare away investors, leaving Mr Chavez with less money to redistribute.

Woman begging in Venezuela
70% of Venezuela's live in poverty

Some big oil executives are privately calling the law a disaster, and a former president of the state oil company has said it will set the nation's industry back by 25 years.

Venezuela, a founder member of the oil producers group Opec, earned close to $10bn from oil last year, thanks to high world prices.

Those prices are now in freefall however,.

Mr Chavez's government has been receiving criticism form all sides and already private-sector bosses have called for a 12-hour business strike on 10 December in protest at the government's failure to consult the private sector over several key economic laws.

See also:

29 Mar 01 | Business
Venezuela outlaws oil strike
30 Jul 01 | Country profiles
Country profile: Venezuela
31 Jul 01 | Americas
Timeline: Venezuela
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