VenEconomy: Venezuela Pays for Expropriation Mistakes From the Editors of VenEconomy Latin American Herald Tribune October 21, 2014
Venezuela today is paying for the irresponsible and insatiable wave of expropriations which, on the one hand, has taken national production to critical levels and led the country to rely on imports for its livelihood; and on the other, has discouraged investment capital while making the State go to arbitration courts so it can respond to complaints from international companies whose rights have been violated.
At least two rulings from the courts of the International Center for Settlement of Investment Disputes (ICSID) ordering the Venezuelan government to compensate complainant companies over the seizure of projects or cessation of contracts in an arbitrary manner have been made public this month.
One of those rulings favored mining company Gold Reserve, Inc., to whom the Venezuelan State must pay $740 million for the seizure of a project at Las Brisas gold mine (the world’s fourth largest) located in Bolívar state.
Two weeks ago, a court of the ICSID also ruled against the Venezuelan State after ordering it to pay oil company ExxonMobil $1.6 billion for the expropriation of a stake at the Cerro Negro upgrader ($1.41 billion) and La Ceiba joint venture ($179.3 million), besides a $9.0 million charge for tax discount. It should be noted that even though the Cerro Negro amount was the highest ever granted by an ICSID arbitration court, it turned out far less than expected. However, no matter how much the government of Nicolás Maduro wants to make a fuss about the matter, the reality is that this reduction in the amount is no great victory for it, although it may not represent a significant burden for the country.
Such a “Pyrrhic victory” entails a tremendous cost to the nation’s image because the rulings made detailed descriptions of the frequent and systematic violations to the obligations imposed to Venezuela with regard to contracts, laws and, overall, its inability to give a fair treatment to partners that were not only investing large sums of money in the country, but that granted (in the case of ExxonMobil) access to cutting-edge drilling and upgrading technologies previously deemed impossible to put on the market.
In addition, even though they may not be aware of this, all Venezuelans are paying a high price for the illegal and arbitrary seizure of projects by the late Hugo Chávez that today could make a significant difference in the beleaguered mining and oil sectors.
Worse still is that claims will have to be processed and any of the eventual payments that Venezuela must deal with in the near future to compensate the international companies will have to be made, because even though Chávez withdrew the country from the ICSID in 2012, the State is obliged to abide by the court rulings on the contracts signed before that year.
More than a dozen lawsuits against the Venezuelan State are being lodged by the ICSID today, being this the country with more accumulated cases by this center responsible for settling problems between States and investors.
An indisputable fact is that Venezuela needs investments from the national and international private sectors in order to break the current stalemate; but these will not return unless the world gets clear signals that the Government has respect for private property and the rule of law.
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