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Last week the International Centre for Settlement of Investment Disputes (ICSID) emitted a partial ruling against Venezuela, saying the nation had “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.” Venezuela has requested an appeal of the ruling that favors ConocoPhilips.
The tribunal based their decisions on the 1991 Treaty for Reciprocal Protection of Investments between the Netherlands and Venezuela (BIT), noted Asdrúbal Aguiar, current head of the legal commission for the Inter American Press Association (SIP-IAPA). The consequence of the ruling, that Venezuela “lacked” to act in “good faith,” set the date of valuation of the ConocoPhilips assets as the date of the “Award” and not the date of the taking, June 26, 2007, emphasized Aquiar to the PanAmerican Post.
Beyond that point, the tribunal dismissed arguments by ConocoPhilips for lost tax credit. The ruling concluded that costs associated with the tribunal and the proceeding would have to wait for future examination.
In a letter to the ICSID this week, Petroleum and Mines Minister Rafael Ramírez said Venezuela rejected the tribunal’s assessment that “we did not negotiate in good faith.” He emphasized, “We are willing to defend our country by whatever means and we have the elements to do so.”
ConocoPhillips originally demanded US$30 billion in compensation, but Miraflores offered US$2 billion.
In the early 1990s, Venezuela’s oil industry put in place various economic reforms to attract foreign investment to its extra-heavy crude oil deposits in the Faja Orinoco. The Petrozuata, Hamaca, and Corocoro projects were a direct result of Venezuela’s Apertura Petrolera policy.
ConocoPhilips labeled the ruling as a major milestone. “This ruling sends a clear message that countries cannot expropriate their investments without fair compensation,” said Janet Langford Kelly of the company’s legal counsel.
The Apertura Petrolera had been “very well thought out,” Robert Bottome said in an emailed interview, a Venezuelan economist and chief editor of the financial publication VenEconomía. Congress endorsed the policy, and it had produced important benefits for Venezuela, he noted.
New laws and changes in policy under the late President Hugo Chávez — that increased taxes and royalties with forced minority stakes in projects — lead to a series of expropriations in 2007.
Ramírez said that Venezuela had reached deals with other companies, such as Chevron.
Currently there are some 20 cases pending — including one with Exxon — at the ICSID and other courts resulting from the nationalizations. Venezuela withdrew from the ICSID in 2012, but must still answer to cases submitted beforehand.
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