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Chávez stuns opponents

VENEZUELA'S embattled President Hugo Chávez won a decisive victory in a 15 August recall referendum sponsored by his opponents, taking over 58% of the votes amid record voter turnout.

So confident had the opposition been of victory that the loose anti-Chávez coalition immediately denounced Chávez's win as fraudulent. International observers from the Organization of American States and the Carter Center dismissed these claims as baseless, but, at press time, officials were conducting a second audit of the voting results at the request of the opposition.

Public-opinion polls released in the late stages of the campaign showed Chávez building a lead over his opponents, but the magnitude of his victory has given the government fresh momentum to carry out its programme of reforms. Although the government intends to focus on improving social services for the country's poorto be paid for with booming oil revenuesit is also seeking deals with foreign investors to help bolster the economy.

Particularly welcome for the Chávez administration was the announcement, on 13 August, that ExxonMobil and the state-owned oil company, PdV, have agreed to resume work on a long-delayed 1m tonnes a year ethylene cracker project. The two firms will carry out detailed studies on the feasibility of the project and PdV hopes construction of the $2.5bn-$3bn cracker will begin in 2006, with operations commencing around the end of the decade.

Other firms are hoping the referendum result will bring some stability to the country, allowing other deals to move ahead. Although gas-focused projects such as Shell's $2.7bn Mariscal Sucre liquefied natural gas venture are the most advanced, several firms are interested in building new heavy-oil upgraders. Total has stated in the past that it is ready to accept the stringent terms of the Hydrocarbons Law to double the size of its 200,000 b/d Sincor synthetic crude plant and ChevronTexaco has proposed a new $6bn heavy-oil project, which would be built in partnership with PdV.

The government's eagerness to strike new deals with investors, however, is not yet guaranteed to translate into firm contracts. The energy ministry assumed most planning functions from PdV in the wake of the restructuring of the oil industry that occurred as a result of the December 2002 strike, but it still lacks sufficient staff to handle its new functions. However, it is expected that seven offshore gas blocks in the waters around the Paraguana Peninsula will be offered to investors some time this year. In addition, the ministry is trying to design blocks for a bid round in the Orinoco heavy-oil belt for new heavy-oil projects.

Investors are also worried that political conflict could flare up again. The opposition's reaction to the government's victory illustrates that the polarisation of the country remains a serious problem. The bitter political fighting that has characterised the last two years is expected to continue in the campaign for national legislative elections, which are set to take place in mid-2005. They will be followed by presidential elections a year later. Chávez's victory appears to have opened up a window of opportunity for the present administration to push ahead with new projects. However, the government's desire to encourage new investment does not mean it is prepared to consider increased flexibility in the tough royalty and tax provisions of the Hydrocarbons Law. Successful projects will have to weather political instability and a steep state take if they are to become reality.

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