Free-marketer Kemp in deal with leftist government accused of being unfriendly to business

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Jack Kemp, a former NFL quarterback, legislator and vice presidential candidate in 1996, apparently wants to get into the lucrative oil business on behalf of Venezuela.

Kemp is a key figure in a proposed unusual deal by a company with offices in New York to supply Venezuelan crude oil to help fill the U.S. Strategic Petroleum Reserve.

The deal would allow Free Market Petroleum, which has Kemp on its board of directors, to supply 50,000 barrels of crude a day for three years to the U.S. government oil reserves in Texas and Louisiana.

If the deal goes through, which is still uncertain, it could bring Free Market Petroleum business of more than $1 million a day or as much as $1 billion over a three-year period.

The proposed transaction brings together Kemp, a widely known conservative who espouses free-market values, with a leftist government accused of being unfriendly to business. President Hugo Chavez has slapped controls on the Venezuelan economy and presided over a dramatic recession.

The accord signals that Venezuela wants to regain its image as a reliable supplier of crude to the U.S. markets following a calamitous two-month strike that briefly paralyzed its state oil industry.

Several facets of the deal are unusual.

Free Market Petroleum is a new company with no presence on the Internet and few known business deals under its belt. Its president, William Hickman, said in a brief telephone interview that the company is a year old and has offices in New York and London.

"We're a subsidiary of a larger company about which I can't go into," Hickman said.

The deal between Free Market Petroleum and the Venezuelan government has set off sparks in Caracas as well, for reasons unrelated to the U.S. firm.

The state oil company, Petroleos de Venezuela S.A., "traditionally never has sold petroleum through intermediaries - not only because it loses a margin through intermediation but also because the practice opens all sorts of doors to corruption," said a newsletter last Friday from the Veneconomia consulting group.

Venezuela's ambassador to the United States, Bernardo Alvarez, said Kemp arrived in Caracas last year with other representatives of Free Market Petroleum and pitched the idea of the company serving as a middleman to sell crude to the U.S. government.

"We talked to him," Alvarez said. "We checked them out and, as I said, it's a registered company. It presented to us all the requirements we needed."

Kemp's office said he was unavailable for comment.

Since 1977, the U.S. government has maintained stocks of crude oil in huge salt caverns in Texas and Louisiana. The stocks serve as an economic buffer against potential disruption of world oil supplies.

The reserve holds about 602 million barrels of crude; the White House has directed that stocks increase to 700 million barrels.

U.S. policy bars direct purchases of oil from foreign governments, however, and that is where private companies such as Free Market Petroleum can do business.

Most of the oil accumulated in the salt caverns comprises in-kind contributions made by companies drilling along the U.S. continental shelf. The companies owe royalties for rights to pump the oil. Since some of the offshore oil is of poor quality, companies swap for better crude with other firms - such as Free Market Petroleum - to turn over to the U.S. government.

Venezuela, which supplies U.S. consumers with about 14 percent of their oil, says it is pleased with the prospect of selling to the reserve.

"There is a willingness in the government to increase our energy relationship with the United States," Alvarez said. "It's a good business for Venezuela from an economic point of view. It's another client."

The two-month strike in Venezuela last December and January paralyzed the state oil company, bringing production to a trickle. Since breaking the strike, Chavez has fired more than 17,800 of the company's workers, remaking an institution that had become a hotbed of discontent with his populist government. Venezuela claims it has recovered oil production to prestrike levels of more than 3 million barrels a day.