CARACAS (Reuters) – Progress in arbitration cases and new filings are putting more pressure on Venezuela’s cash-strapped state oil company PDVSA, which faces having to compensate various firms for assets that were nationalized.
President Hugo Chavez’s socialist government has taken over many enterprises in the Latin American OPEC member, from small businesses to heavy crude projects worth billions of dollars.
That has left a trail of lawsuits and arbitration cases, principally being handled by the World Bank’s International Center for Settlement on Investment Disputes (ICSID).
There are 11 cases against Venezuela at the ICSID involving compensation claims totaling more than $43.5 billion, of which over $40 billion is from the oil sector and the rest from mining and cement companies.
The most high profile actions, brought by US majors Exxon Mobil Corp and ConocoPhillips, have seen recent progress: a partial ruling on jurisdiction in the first and an extensive hearing in The Hague in the second.
Exxon Mobil is seeking $10 billion in compensation, while ConocoPhillips wants $30 billion for the nationalization in 2007 of projects in the vast Orinoco oil belt. They brought their cases that same year, and experts expect decisions soon.
“Case law shows these cases often last two or three years, so the arbitrations brought by Exxon and Conoco … should reach a resolution this year,” said Juan Carlos Vargas, an international law professor at Venezuela’s Central University.
When Venezuela has taken over businesses, it has publicly said it recognizes it will have to reimburse the owners — but almost none of the more than 220 companies that have been nationalized in recent years have been compensated.
Ignoring an ICSID ruling could have serious consequences.
“Venezuela has to comply with the arbitration award … failure to do so would violate international law, putting at risk its external assets and foreign investment,” Vargas said.
The impact of pending rulings on PDVSA is hard to judge because of a lack of transparency to the company’s finances.
While global oil prices have recovered to above $70 from lows near $30 a barrel at the end of 2008, PDVSA has increased its liabilities. Last month, it borrowed $1.5 billion from a syndicate of banks from China and Portugal.
Its US refining subsidiary Citgo refinanced $2.1 billion of debt with $300 million in bonds, plus loans and credit after a $1.5 billion bond issue flopped.
PDVSA, one of the world’s biggest oil companies, has not yet published audited results for 2009. On Wednesday, Energy Minister Rafael Ramirez said profits had more than halved to $4.6 billion last year, compared with 2008.
Analysts estimate that the company’s total debt could be around $24 billion, with outstanding payments of more than $5 billion owed to suppliers.
