Merida, 4th September 2013 (Venezuelanalysis.com) – Venezuela's oil and mining minister and head of the country's state oil company, Rafael Ramirez, has stated the government will appeal a World Bank ruling against the 2007 expropriation of the oil assets of ConocoPhillips.
Yesterday the World Bank's arbitration panel, the International Centre for Settlement of Investment Disputes (ICSID), ruled that the Venezuelan government failed to act in good faith or adequately compensate the US based oil company for the expropriations.
“This weekend, our lawyers are going to request a new hearing,” Ramirez stated after the ruling was released.
“We are not going to accept in any circumstances that something that was already signed and for which a mechanism of compensation was established will be now skipped,” he stated.
“We believe it's absolutely untenable...the determination of two members of the arbitral tribunal that the Bolivarian Republic of Venezuela did not negotiate in good faith for compensation of these nationalisations...is completely inconsistent with what happened in this case,” Ramirez argued in a statement released yesterday.
“We have always shown our full readiness to reach an amicable settlement of compensation, as we have done with many companies,” he stated.
However, Ramirez noted that the ICSID did not back all of ConocoPhillips' claims. “The decision of the ICSID arbitrator tribunal endorses the positions held by the Bolivarian Republic of Venezuela on many important issues,” he stated.
The minister noted that the ICSID rejected the company's claim for US$10 billion in compensation for lost tax credit in the United States.
The company, however, has welcomed the ruling.“This ruling sends a clear message that countries cannot expropriate their investments without fair compensation,” ConocoPhillops' senior vice president Janet Langford Kelly told media this week.
Yet this week's ruling didn't determine the amount to be compensated. The panel stated it would decide on a final figure “at the conclusion of a later phase of this arbitration proceeding”. According to the company, they could be as far as two years away from receiving any compensation under this ruling.
The 2007 Nationalisation Drive
The 2001 hydrocarbons law established that Venezuela's oil industry should be publicly owned. Special exceptions were made for ventures related to extra-heavy crude production, which could be as much as 49% privately owned.
Six years after the law was passed, the Venezuelan government moved to acquire majority shares in oil ventures in the Orinoco Oil Belt. The belt could contain the world's largest reserves of extra-heavy oil. Although in the years between the law's passing all new oil ventures were at least 60% owned by the state oil company Petroleos de Venezuela (PDVSA), numerous ventures in the belt that pre-dated the law were still majority owned by private investors.
At the time, then President Hugo Chavez stated that his administration didn't want private companies to “leave” the Orinoco, but become “minority partners”.
“The owner will be PDVSA and the business will be in the hands of Venezuelans,” he stated in February 2007.“The oil belongs to all Venezuelans,” he said.
Along with three major ConocoPhillips investments, the government moved to acquire majority stakes in holdings of companies including ExxonMobil, ChevronTexaco, Statoil and BP.
The Chavez administration came to negotiated agreements with companies such as Chevron, while both ConocoPhillips and ExxonMobil filed for arbitration.
Last year, PDVSA paid out around US$907 million in compensation to Exxon, following a ruling handed down by the International Chamber of Commerce. ConocoPhillips had initially demanded US$30 billion in compensation; the government offered around US$2 billion. The difference stemmed from how the government and company valued the assets. ConocoPhillips claims its figure is based on the market value of the property, while the government referred to the book value. The ICSID found that the government should have offered compensation at market value.
“The respondent breached its obligation to negotiate in good faith for compensation for its taking of the ConocoPhillips assets in the three projects on the basis of market value,” said the ICSID.
Yet according to Ramirez, the government is not expecting to be called on to pay out anywhere near US$30 billion. “The court has not yet determined the amount of compensation, which will certainly be only a small fraction of the exorbitant sum that the multinational [ConocoPhillips] has been calling for,” Ramirez stated.
There are still more than 20 other arbitration cases related to Venezuela's nationalisation drive pending at the ICSID. Venezuela withdrew from the ICSID last year, though the panel still has jurisdiction to arbitrate cases brought before it prior to the withdrawal.
Speaking to state broadcaster VTV, Ramirez has also hit out at the private media's coverage of the dispute. He argued that the private media has largely sided with private industry against the government.
“Everyone is free to think what they will, but there are very strong facts showing that we are facing a historic battle to defend our sovereignty and natural resources,” Ramirez said.