Government moves to make it harder for nationalized foreign companies to receive compensation

Faced with the specter of losing multiple arbitration claims brought forth by American and other companies for not being compensated for property expropriated by the Venezuelan government, Venezuelan Oil Minister Rafael Ramirez said this week the country will not comply with penalties imposed by any international judicial entity in issues pertaining to the Chavez government’s nationalizations. The position taken by the Chavez administration would put the country at odds with the International Center for Settlement of Investment Disputes (ICSID), posing a serious concern for the 18 companies which currently have open cases against the oil producing country for assets seized by the Chávez administration.

The announcement follows recent developments in the ICSID arbitration case regarding two U.S. companies, Exxon Mobile and ConocoPhillips, whose assets were nationalized by the Venezuelan government. According to news reports, Venezuela could be asked to pay a combined sum of around $40 billion for losses endured by the two U.S companies. However, the Venezuelan government has made it clear that they are only willing to pay $2.5 billion. Oklahoma based oil services company, Helmerich & Payne, has also filed a law suit against Venezuela over the 2010 government takeover of 11 of the company’s drilling rigs.

In a separate statement Minister Ramirez declared that PDVSA will move to avoid having any assets abroad so as to protect the company from the multiple threats from international arbitration cases it is facing. Such a move would make it harder for foreign companies that are found to have been wronged and not compensated by the Venezuelan government to receive restitution for their losses.

Boris Segura, an analyst at Nomura Securities, states: “Coupled with the recent announcement of the repatriation of gold holdings and the move of international reserves out of the US and Europe, this confusion about the arbitration claims does not look positive for Venezuela’s willingness to pay”

The apparent unwillingness of the Chávez administration to honor arbitration rulings paints a bleak picture for all who have outstanding arbitration against Venezuela. The harshest consequences of these actions, however, will be borne by the Venezuelan people, who continue to see a dramatic drop in foreign investments in their country.