Venezuelan President Hugo Chavez revealed plans Jan. 13 to nationalize his country's utility and energy sectors and abolish the central bank's autonomy. The announcement follows a Jan. 8 statement that Venezuela will nationalize the country's electric, water and telecommunications utilities. Chavez added that Venezuela is almost ready to take a majority interest of oil projects in the Orinoco Basin. His announcement comes as a heavy blow to the affected firms, which include the private utility company Caracas Electricity, the private telecommunications firm CANTV and six major companies involved in oil projects in the Orinoco Basin. Caracas Electricity is Venezuela's largest private electricity firm. U.S. firm AES Corp., which assumed majority control of the Venezuelan utility in 2000 through a hostile takeover, holds an 85 percent stake in Caracas Electricity. Chavez evidently has Caracas Electricity in his crosshairs given his statements that Venezuela will take a 100 percent stake in the firm without negotiation. AES has not made a public statement regarding the nationalization plans. For its part, CANTV is a telecommunications company with a long relationship with the Venezuelan state. The formerly state-run firm was privatized in 1991, but has faced threats of nationalization from Chavez for several months. U.S. firm Verizon holds a 28.5 percent stake in CANTV, the only Venezuelan company traded on the New York Stock Exchange. Meanwhile, Chavez's plan to assert full control over the central bank is hardly surprising. The bank had already come under much pressure from Chavez, who regularly dips into state funds to bankroll his world tours. The planned takeover — and subsequent management — of the central bank will diminish confidence in Venezuela's currency, likely sparking inflation. To effect the takeover, Chavez intends to push legislation allowing him to make laws by executive order, which is expected to be approved before the end of January. Given Chavez's hold on the legislature, such a revision will be smoothly passed, paving the way for a Chavez-run central bank. Chavez will not spare oil projects in the Orinoco Basin from increased government control, either. Total foreign investment in Orinoco projects comes to approximately $17 billion, with ultimate investment projected at $31 billion. U.S. oil giants ExxonMobil, ConocoPhillips and Chevron Corp. — along with the Norwegian firm Statoil, France's Total and the United Kingdom's BP — are involved in joint ventures with state-run oil company Petroleos de Venezuela (PDVSA), which has minority stakes in the Orinoco Basin projects ranging from 30 percent to 49 percent. Chavez has released few details of his plans for foreign firms in the Orinoco. The takeovers, which according to the Oil Ministry will begin in the next few months, will allow foreign firms to maintain involvement in the Orinoco, but only as minority-share partners. Chavez clarified that he will not negotiate with the companies: Either they will relinquish majority control, or Venezuela will expropriate their fields and facilities. Avoiding expropriation would be best for both Venezuela and the foreign firms. Chavez needs foreign investment to maintain Orinoco output, so he seeks at least a 51 percent stake in the Orinoco projects instead of full ownership. The higher stake will yield increased revenues and operational control for Caracas, while the foreign firms' involvement will keep the projects funded. In order to keep the foreign firms involved, Chavez will work out some type of compensation deal. Ricardo Sanguino, who heads the Venezuelan National Assembly's Finance Committee, issued statements Jan. 10 noting that Venezuela intends to compensate all firms affected by Chavez's nationalization plans and that confiscation and expropriation will not be part of the process. Sanguino added that a possible option would be to offer a "fair" price for each company's stake, minus taxes and licensing rights. While Chavez's idea of a fair offer might not begin to cover a company's losses in the nationalization process, it is clearly preferable to full expropriation without compensation. The Orinoco is not Chavez's first experience with government takeovers. After surviving a coup attempt in 2002, Chavez purged PDVSA of all opposition sympathizers, firing nearly half its employees and replacing them with Chavez loyalists. PDVSA's production consequently was seriously impacted, but Chavez gained firm political control over the oil company. Chavez first turned his sights toward foreign firms in April 2006, when he forced 17 international firms into project-sharing agreements (PSAs) with PDVSA, converting 32 private oil projects into 30 PSA operations. Firms that negotiated were spared expropriation. Those that did not, like Total and Italy's Eni, had their fields confiscated. Though Chavez allowed relatively lengthy negotiations in the PSA takeovers, his recent statements indicate that he might not be so patient toward the Orinoco projects. Two different considerations motivate Chavez's nationalizations. In the case of the PDVSA purge, Chavez felt politically threatened, and responded harshly and without regard for economic consequences to preserve his political authority. In the PSA case Chavez was not fighting a political battle; he was out for more revenue and state control. Destroying those oil projects by kicking out the foreigners would have been counterproductive to those aims, so Chavez took a slower path and offered some degree of negotiation and compensation. In the case of the Caracas Electricity, CANTV and the central bank, Chavez seems poised to assume control at all costs like he did over PDVSA. As to the Orinoco projects, however, it is in Chavez's best interest to find a way to work with foreign companies to keep the projects operational. Though Chavez ultimately will get his way, he thus could be more flexible in order to preserve Venezuela's oil sector. GERMANY: German Economy Minister Michael Glos said his government supports the European Commission's efforts to separate the processes of electricity generation and supply from distribution and retail, so long as such unbundling is applied evenly across the entire European Union, the Financial Times reported Jan. 12. He also in theory supports the formation of an EU-wide energy regulator, but only if closer cooperation between existing energy regulators should prove insufficient. This is a sharp change in the German stance, which until Jan. 12 sought to preserve the de facto monopoly of German energy giant E.On. GERMANY: The government of the German city-state Bremen is prepared to spend 30 million euros ($38.7 million) to acquire part of the European Aeronautics Defense and Space Co. The northern German city-state would then take 2 percent of the 7.5 percent stake DaimlerChrysler has put up for sale. THAILAND: The Bank of Thailand deliberately created uncertainty in the foreign exchange market to drive out speculators from Japan and the United States when it imposed curbs on investment, bank Governor Tarisa Watanagase said. The central bank had considered introducing a withholding tax and even an unexpected, sharp cut in the benchmark interest rate to deter speculators before finally opting for the capital controls, she said. The Bank of Thailand triggered a slump in Thai stocks, bonds and currency when it imposed penalties on early withdrawals by investors in Thai assets Dec. 18. On Dec. 19, sellers wiped out about $23 billion of market value from Thai stocks, sending the benchmark SET Index down 15 percent. ECUADOR/VENEZUELA: Venezuelan President Hugo Chavez and Ecuadorian President Rafael Correa signed a series of nine energy agreements Jan. 16. The accords were signed for a period of five years and replace the most recent deal between the countries, signed in May 2006. The main provisions of the agreements will increase Ecuador's oil-refining capacity, and lead the two countries to pursue several joint projects between the state-owned enterprises Petroleos de Venezuela (PDVSA) and PetroEcuador. These joint efforts will cover a broad range of projects, including exploration, production, refining, supply chains, processing and fuel commercialization. Additionally, the countries agreed to develop commercial policies that ensure "sovereign control" of hydrocarbon resources and could allow PDVSA to pursue operations in the Pacific. BELARUS/RUSSIA: Russian President Vladimir Putin said total Russian energy subsidies for Belarus cost $5.8 billion in 2007. Putin called this the price of calm and moderate free market relations and support for the fraternal Belarusian state. Putin said subsidies for natural gas would amount to about $3.3 billion, and for oil and oil products to $2.5 billion, adding that the latter figure had been finalized. Citing Finance Ministry data, Putin said Russian support accounts for about 41 percent of Belarus' budget, which stands at around $14 billion in 2007. Meanwhile, Belarus is slated to lift restrictions on Russian business entering the Belarusian market, according to Prime-Tass sources. EAST ASIA: The East Asian forum agreed to launch regional free trade agreement talks. The 16 countries that would be included in the proposed free-trade area — with a combined economy of about $9 trillion — include Japan, China, India, South Korea, Australia, Indonesia, Thailand, New Zealand, Malaysia, Singapore, the Philippines, Vietnam, Brunei, Laos, Cambodia and Myanmar.