Venezuela


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Venezuela has the second-largest oil reserves in the world. The country is highly dependent on petroleum revenues, which the government relies on for an estimated 45 percent of its income. The extractive industries accounted for 95 percent of exports and 20 percent of gross domestic product in 2010. Despite a strong legal framework, the president effectively controls the petroleum industry and transparency is weak.


Venezuela's Performance on the Resource Governance Index

Venezuela received a "partial" score of 56, ranking 20th out of 58 countries. Solid performance on the Reporting Practices and Safeguards & Quality Controls components contrasted with a "failing" Enabling Environment score.

Rank
(out of 58)
Score
(out of 100)
20 Composite Score 56
38 Institutional & Legal Setting 57
Freedom of information law 33
Comprehensive sector legislation 100
EITI participation 0
Independent licensing process 17
Environmental and social impact assessments required 50
Clarity in revenue collection 50
Comprehensive public sector balance 67
SOC financial reports required 100
Fund rules defined in law 50
Subnational transfer rules defined in law 100
14 Reporting Practices 69
Licensing process 67
Contracts 33
Environmental and social impact assessments 17
Exploration data 100
Production volumes 67
Production value 100
Primary sources of revenue 78
Secondary sources of revenue 27
Subsidies 100
Operating company names 33
Comprehensive SOC reports 50
SOC production data 95
SOC revenue data 95
SOC quasi fiscal activities 83
SOC board of directors 100
Fund rules 100
Comprehensive fund reports 33
Subnational transfer rules 100
Comprehensive subnational transfer reports 100
Subnational reporting of transfers 0
18 Safeguards & Quality Controls 67
Checks on licensing process 44
Checks on budgetary process 56
Quality of government reports 61
Government disclosure of conflicts of interest 100
Quality of SOC reports 50
SOC reports audited 100
SOC use of international accounting standards 100
SOC disclosure of conflicts of interest 100
Quality of fund reports 33
Fund reports audited 100
Government follows fund rules 50
Checks on fund spending 0
Fund disclosure of conflicts of interest 100
Quality of subnational transfer reports 50
Government follows subnational transfer rules 67
45 Enabling Environment 18
Corruption (TI Corruption Perceptions Index & WGI control of corruption) 7
Open Budget (IBP Index) 34
Accountability & democracy (EIU Democracy Index & WGI voice and accountability) 33
Government effectiveness (WGI) 15
Rule of law (WGI) 1
Satisfactory Weak
Partial Failing
To explore all data and compare
scores, use the RGI Data Tool.

Institutional & Legal Setting (Rank: 38th/58, Score: 57/100) learn more

Venezuela's "partial" score of 57 reflects the lack of an independent licensing process and insufficient public disclosure policies.

The Ministry of Petroleum and Mining (MPM) grants licenses and regulates the sector. Foreign companies may participate only through joint ventures in which Petroleos de Venezuela S.A. (PDVSA), the national oil company, has at least a 60 percent share. Joint ventures are generally established by presidential decree following direct negotiations. The MPM is nominally independent from PDVSA, but both organizations are headed by the minister of petroleum and mining.

The MPM collects royalties and sector-specific taxes; the federal tax authority collects income tax and other general taxes. As much as 60 percent of Venezuela's extractive revenues bypass the treasury; PDVSA carries out large social spending programs in exchange for lower taxes, and current law requires all windfall profits from oil prices above $50 a barrel go directly in the National Development Fund, controlled by the president.

Extractive companies must carry out environmental impact assessments. There is no freedom of information law, though general legal provisions guarantee public access to information.

Reporting Practices (Rank: 14th/58, Score: 69/100) learn more

The government publishes some information on licensing procedures and contracts, along with data on most key revenue indicators, leading to a "partial" score of 69.

However, licensing criteria, fiscal terms, and other critical details of the licensing process are not provided. Environmental impact assessments are published only after licenses have been granted.

Comprehensive MPM statistical reports include data on reserves, production volumes, prices, export values, investment, production costs, and disaggregated revenues, but they are not produced on a regular basis. The Venezuelan Central Bank publishes similar information in its annual economic report, and the federal tax authority publishes data on royalties and dividends.

Safeguards & Quality Controls (Rank: 18th/58, Score: 67/100) learn more

Government regulation of the petroleum industry gives priority to the political and strategic objectives of the executive branch, leading to a "partial" score of 67.

Despite a legal framework that defines royalties, taxes, and the length of licenses, the MPM has wide discretion to negotiate licensing terms. Contracts must be approved by the National Assembly, but this body is controlled by the executive. There is no mechanism for appealing licensing decisions.

The national audit office reviews petroleum revenues. However, it too is subject to the executive branch and recently suffered significant budget cuts, despite growing state revenues. The audit office publishes its annual report to the National Assembly, but the report does not provide a rigorous or independent evaluation of petroleum revenues.

Enabling Environment (Rank: 45th/58, Score: 18/100) learn more

Venezuela ranked poorly on measurements of corruption control and the rule of law, resulting in a "failing" score of 18.


State-Owned Companies (Rank: 7th/45, Score: 87/100) learn more

Entirely owned by the state, PDVSA is required by law to have a majority stake in all petroleum projects. The company's annual financial statements are externally audited but do not include the accounts of subsidiaries, and there are large inconsistencies between its annual figures and those presented in reports on the company's social expenditures. Nevertheless, PDVSA reports provide more detailed and up-to-date information on Venezuela's oil industry than those of government agencies, including data on reserves, production volumes, exports, and investment. Company officials are required to disclose their financial interests in oil projects, but this is not always enforced.

Natural Resource Funds (Rank: 9th/23, Score: 58/100) learn more

The National Development Fund receives revenues from windfall taxes on petroleum, as well as "excess" central bank reserves. In 2010 the fund reported a balance of $30 billion. It is administered by representatives of the president. While there are clear rules for deposits, expenditures are determined by the executive. The fund is audited, but only aggregated financial balances are published.

Subnational Transfers (Rank: 12th/30, Score: 69/100) learn more

According to Venezuela's hydrocarbon law, 25 percent of royalties and petroleum taxes must be transferred to state governments for investment purposes. Transfers depend on the estimated oil price, which is often underestimated, and local officials complain that only state governments controlled by the ruling party receive their full allotment. Information on transfers is available in printed form in local libraries, but is not published online.

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