Merida, June 14th 2010 (Venezuelanalysis.com) – Last Thursday the International Centre for Settlement of Investment Disputes (ICSID) ruled in favour of the Bolivarian Republic of Venezuela in the lawsuit against it by Exxon Mobil, which was filing for higher compensation following the nationalisation of its share of an Orinoco Oil Belt project. Also, on Sunday, President Hugo Chavez called for the formation of Socialist Petro-Industrial Bases.
The decision by the ICSID tribunal, a World Bank institution based in Washington that arbitrates investment disputes between member countries and individual investors, was the first ruling since the case began in 2008, following a series of claims and responses by the two parties.
After the nationalisation of the Orinoco Oil Belt reserves in May 2007, the Venezuelan government required that the state have at least 60% stakes in all oil projects. Six major companies were asked to hand over proportions of their stakes, and Chevron Corp, Total, BP PLC and Statoil negotiated deals with Venezuela to continue on as minority partners. But ExxonMobil and ConocoPhillips rejected the terms and Venezuela then nationalised Exxon’s 42% stake of the Cerro Negro project, with an offer of compensation.
Exxon rejected the offer of compensation and went to the ICSID for arbitration in September that year. The offer was for $750 million, based on Venezuela’s state oil company, PDVSA’s estimation of the value of Exxon’s stake at the time. But Exxon demanded that projected profits be included and sought $5 billion in total compensation.
On Thursday, the ICSID Tribunal concluded it had no jurisdiction over the claims of Mobil Corporation. The court ruled that ExxonMobil could not make the claim on the basis of Article 22 of the Investment Law of Venezuela, and therefore there was no basis for jurisdiction.
However, one of Exxon’s main arguments was that it was protected by the treaty of promotion and protection of investments that Venezuela had with Holland. In 2006, when the nationalisation process began, Exxon Mobil restructured itself as a Dutch company. The Venezuelan government argues that it did this in order to be able to go to the ICSID.
The tribunal ruled that it can therefore only consider claims by the company on earnings made after 2006. Exxon had claimed indemnity on its assets since 2004.
PDVSA President Rafael Ramirez explained to press this would “drastically reduce the amount” that Exxon could claim in compensation.
“Venezuela sees this as a favourable decision, though we’re aware that the trial doesn’t end here,” he said.
ConocoPhilips is also demanding $30 billion for the nationalisation of its projects. Ramirez called this a “fantasy”.
Venezuelan government spokespeople have also accused Exxon of seeking to damage PDVSA’s reputation and of an “economic war” against Venezuela, citing the company’s move to also take the case to court in London, despite the pending case in ICSID, and seeking an asset freeze of $12 billion, more than the company’s compensation claim. The freeze was granted temporarily, then revoked.
Since the nationalisations, state participation in the Orinoco River Belt has increased from 39% to 78%, the income from which goes to a range of Venezuela’s different social programs, public credits, and investments in national production.
Socialist Petro-Industrial Bases
On Sunday during his weekly show, Alo Presidente, President Hugo Chavez proposed the creation of Socialist Petro-industrial Bases (Bepiso) “to construct socialism,” while visiting the petroleum complex Jose Antonio Anzoategui in Puerta La Cruz.
The bases will be small productive units, “like military bases,” Chavez said, “but with an impact on the community.”
Ramirez, speaking on the program, said the bases will allow the development of the industry along with petroleum services such as boat repair, ship yards, and construction, as well as help to create new factories for workers’ boots, uniforms, and tools.
Chavez said that alongside the bases, there could be a popular industrial zone that would develop other areas and take advantage of all the engineers, machinery, technology and materials, to, for example, “teach the people to make bricks, reinforcement... to construct housing, streets, and piping.”
President Chavez suggested that the Jose Antonio Anzoategui complex become the first of these bases. “One needs to give the people a point of support. Now we are going to use petroleum, the petroleum installations and petroleum workers to liberate the country and construct a new one,” he said.
Chavez reminded his audience that it was “Three years, one month and thirteen days since the revolution nationalised the Orinoco Oil Belt that was in the hands of imperialism... now we see that we, Venezuelans, can manage our own companies, and proof of that is that we have increased production, dividends, and fair employment.”
Finally, Chavez suggested that PDVSA change its name from Petróleos de Venezuela, Sociedad Anónima to Petroleos de Venezuela Socialista. The name change would mean a legal change from being a “Sociedad Anonima,” or joint stock company (JSC) in English, which Chavez said was a term inherited from capitalism. He asked Ramirez to investigate the legalities of the name change.