World

 

Brazil

Mexico

Bolivia

Peru

Trinidad &
Tobago

Venezuela








Very usefull links



Petroleumworld
Bookstore



Institutional
links


OPEC



 


Petroleumworld
Business Partners

 


IRAQ OIL THE FORUM


Blogspots
recomended

caracas chronicles

Gustavo Coronel

Iran Watch.org

Venezuela Today

Le Blog des
Energies Nouvelles

 

 

Lagniappe

 

 

 

Oliver L Campbell :
Dispute between ExxonMobil and Venezuela

 

On 10 June, the International Centre for Settlement of Investment Disputes published the proceeding of the dispute between Mobil Corporation, the claimants, and the Bolivarian Republic of Venezuela, the respondent. Venezuela's representatives included Dr Bernard Mommer, Ms Hildegard Rondón, Dra Beatriz Sansó de Rodríguez, Ms Mariel Pérez and Ms Irama Mommer.

The document, sixty pages long, deals only with the Tribunal's jurisdiction which was challenged by Venezuela. I will touch on just a few salient points. The most surprising one was that "Venezuela first contends that Article 22 of the Investment Law does not provide the requisite clear and unambiguous consent to arbitration of this dispute." This was upheld by the Tribunal despite the fact that, by its very title, The Law for the Promotion and Protection of Investments (Ley de Promoción y Protección de Inversiones) one would have expected otherwise. Also, the layman reading Article 22, in Spanish or in the English translation below, would have expected arbitration to be covered. I am surprised that lawyers interpret it differently, particularly since one of the co-authors of the Investment Law, Werner Corrales, stated categorically that the intention of Article 22 was that international arbitration should be unilaterally available--but then I have always said going to litigation is a lottery.

“Disputes arising between an international investor whose country of origin has in effect with Venezuela a treaty or agreement on the promotion and protection of investments, or disputes to which are applicable the provision of the Convention Establishing the Multilateral Investment Guarantee Agency (OMGI –MIGA) or the Convention on the Settlement of Investment Disputes between States and National of other States (ICSID), shall be submitted to international arbitration according to the terms of the respective treaty or agreement , if it so provides, without prejudice to the possibility of making use, when appropriate, of the dispute resolution means provided for under the Venezuelan legislation in effect,” (the highlighting is mine).

The lesson for foreign investors in Venezuela is not to count on Article 22 of the Law for the Promotion and Protection of Investments.

The second point raised by Venezuela is that, for arbitration to proceed under a Bilateral Investment Treaty (BIT), the investment must be held directly by the company availing itself of Treaty status. This is expressed in the text as follows:

"Venezuela Holding, Mobil CN Holding and Mobil Venezolana Holdings are not 'the owners' of the direct investments in Venezuela or 'the one who actually controlled' them. Therefore they do not qualify as 'international investors' under the Investment Law. Venezuela contends that the BIT does not provide a basis for ICSID jurisdiction over the dispute. It submits that Venezuela Holdings is a 'corporation of convenience' created in anticipation of litigation against the Republic of Venezuela for the sole purpose of gaining access to ICSID jurisdiction. It concludes that 'this abuse of the corporate form and blatant treaty-shopping should not be condoned.'

Some antecedents will help the reader. From October 2004, the royalty rate for the Mobil investment was raised from 1% to 16 2/3% and later to 33%, and income tax was increased from 34% to 50%. The USA does not have a BIT with Venezuela so, belatedly in October 2005, Mobil formed a new company under the law of the Netherlands, called Venezuela Holdings which, through a chain of companies, effectively owned the Cerro Negro and La Ceiba investments in Venezuela The Tribunal ruled a company can be set up in a Treaty country to protect its investment in a subsidiary just the same as it can set up a company in a foreign country for tax reasons. Not surprisingly, it also ruled that the investment need not be a direct one since the typical BIT mentions a Contracting Party "controlled directly or indirectly."

However, the Tribunal established that setting up a holding company in a Treaty country cannot have a retroactive effect. So their jurisdiction only has effect for any dispute after 21 February 2006 for the Cerro Negro investment, and 23 November 2006 for the La Ceiba investment. This excludes the increases to royalties and income tax which occurred before those dates. Mobil has only itself to blame for this since its lawyers were remiss in not setting the Netherlands company years before in anticipation of possible disputes-- they knew the USA did not have a BIT with Venezuela. They may have they relied on Article 22, but a belt and braces (suspenders to some of my readers) approach would have been more prudent.

I know some of my colleagues disagree with me, but I believe the 1% royalty rate and the 34% income tax rate were discretionary while the projects in the Orinoco Oil Belt got off the ground. Once they started producing good returns, I can understand the government wanted its share of the additional profits by increasing both rates to those generally applicable in the Venezuelan oil industry. So I think Mobil would do better to concentrate on getting a fair value for its expropriated assets. The BIT with the Netherlands states that:

"Such compensation shall represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier; it shall include interest at a normal commercial rate until the date of payment and shall, in order to be effective for the claimants, be paid and made transferable, without undue delay, to the country designated by the claimants concerned and in the currency of the country of which the claimants are nationals or in any freely convertible currency accepted by the claimants."

You win some and you lose some. Venezuela won on the non applicability of Article 22 and on the non retroactive effect of the BIT with the Netherlands. Mobil lost on both those counts but won as regards the jurisdiction of the same BIT and on the acceptability of indirect investment.

To conclude, those companies relying on Article 22 of the Venezuelan Investment Law which are not covered by a BIT should hasten to restructure so that the holding company owning the companies in Venezuela is located in a country that has a BIT with Venezuela. There are currently 28 of these.

 

 



Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Petroleumworld does not necessarily share these views.


Editor's Note:
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Use Notice: This commentary was originally published by Roubini Global Economics, June 09, 2010. Petroleumworld reprint this article in the interest of our readers. Petroleumworld does not necessarily share these views.

This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld News 06/25/2010


Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!


We invite all our readers to share with us their views and
comments about this article, write to editor@petroleumworld.com

Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors

Send this story to a friend Any question or suggestions,
please write to: editor@petroleumworld.comBest Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x
600 pixels

 


TOP


Editor:Elio Ohep /
Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 or
(58  412) 952 5301


CopyRight © 1999-2010, Elio Ohep - All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile

Fair use notice of copyrighted material:

Legal Information

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.