reuters.com Fri February 28, 2003 04:06 PM ET By Alistair Scrutton

CARACAS, Venezuela, Feb 28 (Reuters) - Venezuela's new state currency control board, already branded a tool to punish leftist President Hugo Chavez's business foes, warned on Friday only firms "acting normally" would get vital dollars to trade abroad.

A new mechanism to allow importers to buy dollars will begin on Wednesday, six weeks after populist Chavez halted currency trading and fixed the exchange rate to stop the economy of the world's No. 5 oil producer from imploding amid a recent opposition strike.

Ex-paratrooper Chavez had warned that "coup mongers" -- the term he uses to describe his enemies -- would not get a dollar under the new system and businessmen worry he wants to squeeze private firms by denying his opponents access to trade.

Opposition leaders say the stringent currency curbs give weight to their accusations that the president is ruling like a dictator and wants to install Cuban-style communism.

Edgar Hernandez, a retired military officer and head of the new currency board, said that firms and banks which had hoarded goods or shut their doors during the two-month strike had not been acting normally.

"We intend to manage access to dollars as objectively as we can ... but there are firms that need a change in attitude ... the economic establishment hasn't a normal attitude," said Hernandez, a stiff-backed man with army-style short-cut hair.

But that did little to dispel fears that some businesses, including fast food outlets, may not get dollars to import.

Opposition leaders say the stringent currency curbs give weight to their accusations that the president is ruling like a dictator and wants to install Cuban-style communism.

Some 60 percent of Venezuela's goods currently come from abroad and companies from steel producers to whiskey sellers desperately need dollars to keep operating.

"We must pray for the currency controls," Hernandez, who is an ally of Chavez and took part in a botched 1992 coup led by him, said in a speech immersed with religious imagery.

"Companies must act with love," he added, advising that they donate 10 percent of their profits to social projects and another 10 percent as incentives for workers.

Since Jan 22 it has been impossible for companies to buy dollars unless they purchase on a burgeoning black market where the dollar is up to 40 percent more expensive.

Hernandez said 19 banks, including some of the biggest in the country, signed deals to process the dollar applications from firms. Banks include major foreign banks operating in Venezuela such as Citibank C.N and ABN Amro AAH.AS .

The currency board will publish by Tuesday the imports that the government will give priority to, including basic foods and plastic packaging and supplies for utility industries.

"Those that are not on the list should not apply (for dollars)," he said.

FAST FOOD OUTLETS NEED NOT APPLY

Venezuelans may soon face a shortages of their favorite hamburgers and foreign cheeses.

"I don't know how products for fast food restaurants will be imported. To use them as an example, these all closed in December and January (during the strike). Are we going to give dollars so that they can import?" Hernandez said.

He also said imported luxuries like some foreign cheeses, "some very tasty ones", may also become scarce.

Under the new system supervised by the state currency board companies must apply for dollars through banks. Banks then should receive the dollars from the Central Bank in a process expected to take at least ten days from start to end.

Opposition leaders and private businessmen have warned that the curbs would just further depress the Venezuela economy, already expected to contract by up to 14 percent this year.

Business also fear a mound of red tape will boost contraband and introduce opportunities for state corruption.

Hernandez said the currency controls could be lifted by the end of the year, conditioned on state oil firm PDVSA recovering production lost during a two-month opposition strike that petered out in February.

Opposition leaders and dissident oil workers began the shutdown Dec. 2 to try to pressure Chavez to accept early elections, causing the the Venezuelan bolivar to slip about 24 percent against the dollar from the start of 2003.

The new currency regime set a fixed exchange rate of 1,596/1,600 bolivars to the dollar. (Additional reporting by Pascal Fletcher)

reuters.com Fri February 28, 2003 03:51 PM ET By Tom Doggett

WASHINGTON (Reuters) - Dwindling fuel supplies and soaring prices of crude oil and natural gas have President Bush "greatly" concerned about U.S. energy costs, the White House said on Friday.

Jitters about a potential U.S. military strike against Iraq, a cold snap gripping Eastern states and a curb in oil imports from Venezuela have boosted energy costs.

Average U.S. retail gasoline prices may surpass a record $1.71 per gallon as the busy spring driving season approaches, according to federal energy forecasters.

"There has been a confluence of factors involving both the cold weather and a shortage of supply that have led to an increase in prices that concern the president greatly," White House spokesman Ari Fleischer told reporters.

Fleischer said the cost of energy remained "a very important issue" for both the president and the U.S. Congress, which is drafting a broad bill to encourage more energy production and conservation measures.

"There is a cyclical nature to some of this and we have seen the prices go up and down before," he added.

Oil prices stabilized on Friday after a roller coaster ride that saw U.S. crude brush $40 a barrel the previous day, with the looming prospect of war in Iraq underpinning the market amid heated debate at the United Nations. A U.S. attack on Iraq, the world's eighth largest oil exporter, is opposed by Russia, China and France.

U.S. gasoline prices were up 54 cents a gallon from a year ago, according to federal data. Heating oil was up 59 cents and natural gas prices are four times higher than this time last year.

PRICE-GOUGING ALLEGATIONS

The price jump has prompted some Democrats to demand a probe into whether oil companies were taking advantage of fears of a war with Iraq to gouge consumers at the gasoline pump.

Sen. Charles Schumer, a New York Democrat, on Friday said U.S. Energy Department data showed major oil refineries were producing less gasoline than normal for this time of year.

U.S. refineries are operating at 87.5 percent of capacity, far below the five-year average of 92.3 percent, according to the department.

"This is a matter of simple economics," Schumer said. "Keeping supplies low raises prices and costs to drivers."

Oil companies deny they are doing anything wrong, arguing that crude inventories have fallen to the lowest levels since the 1970s, making it difficult for refineries to keep production above historical levels.

Democratic presidential candidate Sen. Joseph Lieberman of Connecticut denounced the White House's refusal to release heating fuel from the government's stockpile. A large number of Northeastern consumers use heating oil to warm their homes.

He called Energy Secretary Spencer Abraham "insensitive" for his comments earlier this week that Northeast consumers were not suffering enough from high prices or a supply disruption to use the 2 million-barrel heating oil reserve.

CRUDE OIL STOCKPILE

Some lawmakers and consumer groups have also urged the Bush administration to release oil from the U.S. emergency crude oil stockpile to rein in prices.

However, the administration has repeatedly said it would tap the 599 million-barrel Strategic Petroleum Reserve only for a severe disruption in crude supplies, not to control prices.

At a congressional hearing, lawmakers complained to Abraham that the more consumers had to spend on their heating bills or to fill up their car tanks, the less money they would have to buy the goods that keep the U.S. economy humming.

Businesses are also suffering because the cost of shipping products rises in tandem with trucking diesel fuel prices.

Chemical makers, manufacturers and other industrial plants have also been hit hard by natural gas prices, which climbed to record highs this week.

The spot market price for natural gas rose this week to $18.50 per million British thermal units, up five-fold from the average 2002 price. For every $1 rise in natural gas prices, the chemical industry faces about $1 billion in extra costs, according to the American Chemistry Council trade group.

A giant ethylene plant in Louisiana that makes plastics was recently closed and moved to Germany, where natural gas prices are cheaper and supplies are more predictable, the group said.

(Additional reporting by Patricia Wilson)

usinfo.state.gov

Q: Ari, you just talked about the economy and the no timing of the tax cut being related to the war in Iraq. Yet, this coming at the same time with the tensions with Iraq and the situation in Venezuela is pushing oil to $40 a barrel, and you've got a frigid winter in the northeast driving up natural gas prices. Is the cost of energy going -- is the President concerned that the cost of energy for Americans is actually going to punch a hole, and kind of negate the effect any benefit you might get from the tax package? And is anybody in the administration giving new thought, perhaps, to taking steps to alleviate this in the near term?

MR. FLEISCHER: Well, the cost of energy remains a very important, and the availability of energy remain very important issues for both the President and the Congress. And there have been a confluence of factors involving both the cold weather and a shortage of supply that have led to an increase in the prices, which concerns the President greatly. There is a cyclical nature to some of this, and we have seen the prices go up and down before.

To avoid a repeatable, predictable pattern of the cyclical nature, which hurts consumers, the President believes that is why Congress must pass a comprehensive plan to deal with energy, to increase conservation and to create more supply. These become predictable debates in Washington, as prices go up in the winter, and then they come down, and they go back up in the summer. The President thinks that people came to Washington to think long-term, and to act long-term, and to get ahead of the cycle. And that's why it's so important for Congress to pass the comprehensive legislation that the President has discussed to increase conservation and promote more production.

Q: If I could just follow. In the last 30 years, when oil hits $40 a barrel, it typically triggers a recession. Does the President believe that the tax package that he has before the Congress now will be enough to curtail a possible recession if oil stays at $40 a barrel?

MR. FLEISCHER: Well, I think, one, today is the perfect day to study some of these benchmarks about predictions and patterns, given the fact that the best estimators in the government did not have the estimate correct about the past. The fourth quarter GDP report we have today, it does indicate that you have to be guarded about estimates into the future. And that's why the President's focus is on the principal policies -- in this case, the American people need to conserve more, they deserve to have more supply. And we need to have an economic growth plan in place that creates jobs. All of the above.

www.forbes.com Reuters, 02.28.03, 3:25 PM ET

(Adds comments from ConocoPhillips in paragraphs 4-5) CARACAS, Venezuela, Feb 28 (Reuters) - Venezuela's four foreign-financed extra-heavy-oil upgrading projects in the Orinoco region are back online following the restart of the Petrozuata joint venture on Friday, project officials said. The projects, which partner state oil firm Petroleos de Venezuela PDVSA with international firms such as U.S. ExxonMobil Corp. (nyse: XOM - news - people) and French TotalFinaElf <TOTF.PA>, had been pumping over 400,000 barrels of extra heavy oil before shutting down due to an oil strike that started Dec. 2. The Cerro Negro and Sincor projects resumed output this week after PDVSA restarted natural gas supplies needed as feedstock for processing units that upgrade the ultra-heavy oil into synthetic crude for export. Petrozuata, which partners PDVSA and ConocoPhillips (nyse: COP - news - people), reestabished production on Friday. "We have started running the plant's crude processor and coker at reduced rates," a spokesman for ConocoPhillips told Reuters. He did not give initial production levels. A fourth project, Hamaca, has resumed limited output of the tar-like Orinoco oil mixed with lighter crude to create an exportable blend. Hamaca's synthetic crude upgrader has not been completed. Initial output from all four projects will increase as gas supplies improve. Venezuela's government has been battling to restore the strike-hit oil sector, which provides half of state revenue. President Hugo Chavez fired over 15,000 PDVSA workers who took part in the strike, hiring replacement workers and the military to staff abandoned posts. The OPEC nation, normally the world's No. 5 crude exporter, was pumping nearly 3.1 million bpd of oil including output from the Orinoco region before the strike. On Thursday, oil minister Rafael Ramirez said total oil production had been restored to 2.08 million bpd. But PDVSA employees and rebel oil workers said that output temporarily fell by 450,000 bpd to 500,000 bpd on Friday. The rebel workers say output is now 1.13 million bpd.

www.forbes.com Reuters, 02.28.03, 2:48 PM ET

CARACAS, Venezuela (Reuters) - OPEC's secretary-general said Friday world oil supplies were sufficient despite recent price rises due to war fears, and raised concerns that markets could even face oversupply next quarter. "The outstanding threat of war is creating the (price) rise," OPEC Secretary-General Alvaro Silva told Venezuelan state news agency Venpres in a telephone interview from Vienna. "Next quarter we are going into summer where there is less demand for oil and if for some reason there is an oversupply, it could induce a fall in prices that does not benefit anyone," the former Venezuelan oil minister said. The threat of a U.S. attack on Iraq and the disruption of oil supplies from strike-hit Venezuela has helped to drive U.S. crude prices to post-Gulf War highs, edging near $40 a barrel during Thursday trading. U.S. oil fell 30 cents Friday afternoon to $36.90. Silva told Venpres the cartel had sufficient shut-in capacity to meet any increase in demand. On Thursday he told reporters the Organization of Petroleum Exporting Countries had another 4 million barrels per day (bpd) of spare capacity, although analysts peg the number closer to 2 million bpd. OPEC next meets on March 11 and is expected to leave official supply quotas unchanged. Delegates have said OPEC may suspend production quotas during the period of any war.