The administration of Venezuela’s interim President Juan Guaidó will seek the annulment of the $8.7 billion arbitration award to ConocoPhillips.
The International Centre for Settlement of Investment Disputes (ICSID), a World Bank tribunal, ruled in favor the oil company in March in the case of the illegal expropriation of its assets by the Venezuelan government.
Jose Ignacio Hernandez, whom Guaidó has tapped as a special prosecutor, said his team separately has challenged the amount of the ICSID award, claiming “the methodology to determine the compensation was errant.”
Therefore, we will request “rectification or annulment,” Hernandez added.
The move is part of a series of initiatives undertaken by the Guaidó administration, seeking to preserve Venezuela’s foreign assets.
We will defend Venezuela interest in the Conoco case. Reuters, however, wrongfully identified Guaidó as “the Venezuelan opposition leader”. Guaidó is the interim president of Venezuela, and because of this, his Government is the only entitled to represent Venezuela https://t.co/qDUy0yuqrp
— Jose I. Hernandez G. (@ignandez) April 16, 2019
ConocoPhillips’ presence in Venezuela
In the early 1990’s Venezuela created a new fiscal framework to attract foreign investment for its heavy crude operations in the Orinoco Belt and other parts of the country. ConocoPhillips was involved in the development of the Petrozuata, Hamaca, and Corocoro projects under these conditions. The company provided the latest technology, as well as significant long-term investments.
However, in the Summer of 2007, the Venezuelan government, led at the time by Hugo Chavez, expropriated ConocoPhillips’ assets without compensation.
The international arbitration tribunal ruled in 2013 that the expropriation violated international law.
On March 8, ConocoPhillips informed that, in a unanimous decision, the tribunal ordered the Venezuelan government to pay $8.7 billion – plus interests – as compensation for the 2007 illegal expropriation of its assets.
Under this court ruling, “as compensation for the expropriation that took place on June 26, 2007, in violation of Article 6 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Venezuela, dated October 22, 1991, the Bolivarian Republic of Venezuela must pay the following amounts:
- $3.3 billion for ConocoPhillips’ investment in the Petrozuata strategic partnership, plus an additional $286.7 million for outstanding liabilities in this project;
- $4.4 billion for the company’s investment in the Hamaca strategic partnership;
- $562 million for the company’s share in projects in the Gulf of Paria.
Additionally, it must pay $21.8 million for all costs incurred during the arbitration process for both ConocoPhillips and the court. The Defendant must make these payments within 60 days following the day of the award. Interests on these amounts will start to accumulate after the aforementioned 60-day period has expired.”
— Reuters Venezuela (@ReutersVzla) April 17, 2019
An incentive in the face of the lack of liquidity
Venezuela is facing liquidity issues due to various factors. One of them is the loss of oil revenue, added to limited access to international funds. Hence, it is late in making the interest payments for its foreign debt, amounting to $8 billion. Also, it has delayed making
Cash-strapped Venezuela has balked at paying in other arbitration cases. Conoco has used legal seizures of Venezuelan oil assets to enforce earlier claims. Other creditors are attempting to seize shares in U.S. refiner Citgo Petroleum, Venezuela’s prize overseas asset, to collect on debts.
It was unclear if Guaidó’s representatives have standing to challenge the award since the World Bank has not recognized Guaidó. David Malpass, the president of the World Bank, said last week that recognition would be up to its shareholders.
Hernandez said Guaidó’s legal representation “cannot be questioned.”
Last month, a U.S. judge ruled that Guaidó’s representatives could present arguments in a court battle with Crystallex. The Canadian mining company is pursuing Citgo to collect on an arbitration award in compensation for Venezuela’s expropriation of a gold mining project.
Other ConocoPhillips arbitration suits against Venezuela
In April 2018, in a separate and independent legal action, an international arbitration tribunal ruled that PDVSA must pay approximately $2 billion to ConocoPhilips.
The decision of this tribunal constituted under the rules of the International Chamber of Commerce (ICC); stemmed from PDVSA’s inability to meet its contractual agreements after the illegal expropriation of ConocoPhillips’ investments in the Hamaca and Petrozuata in Venezuela.
In August 2018, ConocoPhillips signed a settlement agreement with PDVSA to recover the total amount indebted by virtue of contract awards.
ConocoPhillips also has another arbitration against Venezuela related to the Corocoro project.
For more information, check Energía16