The launch of the book "The Petroleum Pentagon"

Delivered by Dr. Alvaro Silva-Calderón, OPEC Secretary General, Vienna, Austria - 15 December 2003

Excellencies, ladies and gentlemen,

Let me begin by reading the following passage of text to you.

“For a long time, Venezuela’s economy will continue to be tied to the country’s great mineral wealth, fundamentally made up of its enormous oil resources. Among the mono-producing countries dependent on foreign trade, the case of Venezuela is typical of how dangerous this situation is for the normal life of a nation, a position that lacks the possibility of control of the events that can greatly affect its whole economy.

“In addition to other unfavourable circumstances that mono-production implies, the fact that the predominant product, petroleum, is depletable is a serious aggravating factor. It is a very precious and important resource whose value and importance are derived in part precisely because it cannot be renewed or produced at will.”

These words came from the pen of one of the founding fathers of OPEC: Dr Juan Pablo Pérez Alfonzo.

Although the specific reference in this extract is Venezuela, these words, in fact, could apply to any of OPEC’s 11 Member Countries.

They were written nearly 40 years ago, when OPEC was still in its infancy and its Member Countries’ petroleum sectors were dominated by the large multinational oil companies, known as “The Seven Sisters”.

Much progress has been made since then in improving the situation, as a direct consequence of the existence of OPEC, particularly in such areas as asserting sovereign rights and achieving market stability, but it is a never-ending process in a global economy that is still dominated by the large industrial powers.

It is because of Dr Pérez Alfonzo that we are meeting here today, just after the centenary of his birth in Caracas on 13 December 1903. We have used the occasion to launch an English version of an important book he wrote on the subject of the Venezuelan petroleum industry. The book was originally published in Spanish in 1967, with the title of El Pentágono Petrolero. Its English title is The Petroleum Pentagon. The extract I read to you comes from this new translation.

Dr Pérez Alfonzo, who died, aged 75, on 3 September 1979, was one of Venezuela’s greatest political thinkers of the 20th century. He was an eminent lawyer and professor of civil law at the Central University of Venezuela. His thoughts, captured in his various books, articles, parliamentary speeches, lectures, administrative programmes and strategies, provided the foundation for many government decisions and policies on hydrocarbons.

Indeed, the impact of the product of Dr Pérez Alfonzo’s exceptionally fertile intellect went beyond his native country of Venezuela. He was one of the earliest political thinkers to espouse and vigorously canvass unity among oil-producing countries as a strategy for optimising the benefit of their God-endowed natural resources for the benefit of their own people.

He maintained that oil-producing countries should coordinate their oil policies, taking into consideration the special circumstances of each country. Through benefiting from each other’s experiences and knowledge, these nations could mitigate their disadvantages, correct their past mistakes and avoid making new ones.

Dr Pérez Alfonzo first made an impression in 1945–48, when, as Minister of Development, he introduced legislation which ensured that Venezuela would receive 50 per cent of the profits from the petroleum activities undertaken in the country, as well as having greater control over the industry.

There then followed a decade of military dictatorship. As a result of his firm democratic beliefs, Dr Pérez Alfonzo spent the first part of that period in prison and then in exile. But he used the time well, devoting himself to an intensive study of the oil industry.

He thus emerged from this troubled period well prepared to take up public office again in 1958, as Venezuela’s Minister of Mines and Hydrocarbons. Just two years later, in September 1960, OPEC was created. Dr Pérez Alfonzo retired from public life in 1964, but, as a highly respected elder statesman, he was still widely consulted in governing circles and his views were sought on many economic and political issues.

The renowned author, Daniel Yergin, wrote the following about Dr Pérez Alfonzo in his standard work on the oil industry, The Prize:

“He … brought to his new office a sophisticated understanding of the structure of the oil industry, as well as his own clearly defined objectives.

“He wanted not only to increase the government’s share of the rents, but also to effect a transfer to the government, and away from the oil companies, of power and authority over production and marketing.

“To sell oil too cheaply, he argued, was bad for consumers, as the result would be the premature exhaustion of a non-renewable resource and the discouragement of new development.

“For the producing countries, oil was a national heritage, the benefits of which belonged to future generations, as well as to the present. Neither the resource, nor the wealth that flows from it, should be wasted. Instead the earnings should be used to develop the country more widely.

“Sovereign governments, rather than foreign corporations, should make the basic decisions about the production and the disposition of their petroleum. Human nature should not be allowed to squander the potential of this precious resource.”

These sentiments remain with us today and have been central to the philosophy of our Organization since its establishment in Baghdad in September 1960.

However, their modern relevance should not detract from the fact that they were considered revolutionary in the 1950s and that our Member Countries, with their activities coordinated through OPEC, fought hard and long to assert their sovereign rights to control the destiny of their indigenous natural resources in the period up to the mid-1970s. Since that time, we have also had to ensure that there is no erosion of the valuable gains we made.

Dr Pérez Alfonzo made a significant contribution towards conceptualising and creating OPEC, together with his counterparts from the four other Founder Members — Fuad Rouhani from Iran, Dr Tala’at Al-Shaibani from Iraq, Ahmed Sayed Omar from Kuwait and Abdullah Tariki from Saudi Arabia.

I was privileged to start my career in the oil industry close to Dr Pérez Alfonzo’s team.

He was already a well-known national figure at the time, but, in his presence, you never noticed this, because, by nature, he was a modest man, a pensive man, a man utterly committed to pursuing causes which had a human face to them, even if this meant making personal sacrifices. He was a politician in the classic Greek mould.

He was both a visionary and an achiever — a rare combination. The best proof of this can be found here and now, in the shape of OPEC! OPEC was his vision. But he played a big part in bringing this vision to reality.

He had a wealth of ideas and his interests extended well beyond the petroleum industry. He loved nature and the simple life, and was a committed environmentalist, decades before this became fashionable. He was especially concerned about population growth trends and the need for these to be in harmony with a country’s development aspirations.

Working close to him gave me a fresh new perspective of the petroleum sector, that it was not there for the benefit of individuals, but instead was more like a national treasure, which should be exploited with care and in a responsible manner, so that the whole country could benefit from it.

The OPEC Secretariat is publishing this English version of Dr Pérez Alfonzo’s book, The Petroleum Pentagon, as a tribute to him and to make it available to a much wider international readership, including our Member Countries, to help them better appreciate the circumstances of the birth of our Organization.

This brief but intellectually very rich book puts forward an action plan for Venezuela, the implementation of which would lead to effective control over its natural hydrocarbon resources, through an adequate level of exploitation that would avoid economic and physical waste.

This strategy foresaw an Organization like OPEC as being one of its main pillars. Without OPEC’s presence, an oil strategy for a country in similar circumstances was seen as fragile and dangerously exposed to risky unilateral or weak bilateral actions, the kind of risk that OPEC, with its fundamental objective of policy coordination and cooperation on oil matters, tries to avoid.

The strategy is anchored on five pillars, from which the title of the book, The Petroleum Pentagon, is drawn.

The first pillar is reasonable economic participation for the nation, as the owner of the natural resource. The second pillar is the creation of a government body to control the conservation of, and trade in, hydrocarbons. The third pillar is the creation of a state-owned company to handle oil activity directly, both upstream and downstream, as well as internally and externally, and which could simultaneously deal with existing private companies. The fourth pillar is a “moratorium on new concessions” to individuals and a complete review of the prevailing concessionary system which did not favour the host country. And the final pillar is OPEC, the Organization that establishes international cooperation as being indispensable for the effective implementation of the strategy.

I believe that, in order to gain a fuller understanding of anything, it is important to return to the grass roots every so often. The petroleum industry is no exception. I would, therefore, recommend that those of you who wish to enhance your understanding of this remarkable Organization of ours, set aside some time to read this interesting and valuable book by one of our founding fathers.

Finally, I should like to thank all those people who were involved in the preparation of this book in the English language, at short notice. The translation was carried out by Karen Sturges-Vera, the editing by Douglas Linton, and the cover design and production by Alaa Al-Saigh and Diana Lavnick. Their efforts are much appreciated.

Thank you.