By Steve Bodzin and Daniel Cancel

June 4 (Bloomberg) -- Venezuela moved to nationalize the country’s chemicals industry as President Hugo Chavez tightens his grip over South America’s third-largest economy.

A law requiring private sector chemicals-makers to become minority partners in joint ventures with the state passed its first reading in the national legislature today and will be debated Tuesday, National Assembly Deputy Angel Rodriguez said.

Chavez, a self-described revolutionary socialist, has already forced all of the country’s private oil companies into minority positions in joint ventures. In the past month, Venezuela ordered the seizure of property from at least 74 oilfield service companies and also this week started taking over gas compression plants, Chavez said yesterday.

“It’s part of the strategy of continuing to increase the state’s presence in what they consider strategic sectors,” Asdrubal Oliveros, a director at economic research company Ecoanalitica in Caracas, said today in a telephone interview. “This adds to the general uncertainty for the private sector.”

Pequiven, Venezuela’s state chemicals company, already has joint ventures with companies including Law Debenture Trust, Mitsui & Co., FMC Corp., Quimica Venoco CA, Mitsubishi Gas Chemical and Mitsubishi Corp., according to Pequiven’s Web site.

Basic Chemicals

The new law will affect companies that make basic and intermediate chemicals from oil, gas and coal, and not companies that convert chemicals into consumer products, said Rina Quijada, founder of IntelliChem, a Houston-based consultant focusing on Latin American petrochemicals.

The law reserves for Venezuela “basic and intermediate petrochemicals activity,” according to a statement from Rodriguez’s office. Rodriguez is a member of Chavez’s United Socialist Party of Venezuela. With almost all seats in the legislature, proposals from the party are rarely halted.

“It’s the policy of the state to take control of strategic areas of the economy,” Rodriguez said in a phone interview. “It will put the legal framework in line with what we have in the oil industry.”

Law Debenture Corp., a London-based investment trust, has a 51.7 percent stake in the Clorovinilo del Zulia plant, making it one of the few holders of a majority stake in a chemicals plant.

A call to the company’s London headquarters after business hours wasn’t immediately returned.

Mitsui Stake

Mitsui & Co., a Tokyo-based iron, steel and chemicals company, has about a 15 percent stake in the Propilven project in Venezuela and a 1.6 percent stake in the Polinter polyethylene plant, according to the Pequiven Web site.

A spokesman at Mitsui’s Caracas office said he wasn’t authorized to comment.

Mitsubishi Gas Chemical Co. and Mitsubishi Corp. each have 23.75 percent stakes in the Metor methanol plant, according to Pequiven’s Web site. A spokeswoman at Mitsubishi’s Caracas office said she wasn’t authorized to comment because she hadn’t been briefed on the situation.

Sao Paulo-based Braskem SA, Latin America’s largest petrochemical producer, plans to build a $1.1 billion factory in Venezuela in a joint venture with Pequiven.

Philadelphia-based FMC Corp. has a 33.3 percent stake in the Tripoliven plant, a maker of phosphorus-based chemicals.

Profalca, a Venzuelan propylene maker, is 35 percent owned by Koch Industries Inc., a privately held nylon producer based in Wichita, Kansas. Colombian chemical maker Andersol SA operates Venezuelan paint-maker Intequim with state-owned Corp. Grupo Quimco.

Koch Industries

Koch Industries Inc. has a 35 percent stake in the Fertinitro fertilizer plant and Snamprogetti SpA, the engineering unit of Italy’s state energy company, Eni SpA, holds a 20 percent stake in Fertinitro.

Rampant takeovers are compounding the bill for the Venezuelan government, should it compensate all private companies affected by the proposals, Ecoanalitica‘s Oliveros said. Venezuela has around $13 billion of debt after taking over cement, oil, steel and banking companies, he said.

Reeling from a 53 percent plunge in oil prices since July, Venezuela stopped paying some of its service providers in 2008, prompting at least two to idle drilling rigs.

Houston-based Boots & Coots International Well Control Inc. said May 7 it suspended Venezuelan operations in the first quarter.

Ensco International Inc., based in Dallas, idled one drilling rig, which was later seized by Venezuela’s state oil company known as PDVSA, and Helmerich & Payne Inc. took seven rigs out of service.

In 2007, Chavez nationalized four heavy crude oil joint ventures in the country’s Orinoco Belt, forcing companies to take minority stakes. U.S. oil companies Exxon Mobil Corp. and ConocoPhillips rejected the offer and took their investment disputes to international arbitration.

To contact the reporter responsible for this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.

Last Updated: June 4, 2009 18:47 EDT