Agreement with China does not entail legal action

With strategic partners in the political or economic field, the Venezuelan Government seems to construe legal issues otherwise.

On Friday, October 4, Venezuelan President Hugo Chávez remarked during a rally that in the event of not sending more oil to China under the agreement of the Chinese Fund, China could file charges against Venezuela for noncompliance.

Presently, Venezuela is shipping around 600,000 barrels per day of crude oil and byproducts as part of a borrowing facility for USD 38 billion both for the Republic and state-run oil holding Petróleos de Venezuela (Pdvsa).

However, the warning hurled by President Chávez about a potential legal action has not been contemplated in the agreement between Venezuela and China "on long-term funding cooperation," passed by the National Assembly on September 16, 2010.

The legal instrument points out that "any inconsistencies or disagreements related to the construction or enforcement hereof shall be settled amicably between the parties, through consultation, by diplomatic means."

The deal contains a mechanism under which Pvdsa pays the loan with oil. This scheme has cracked Pdvsa's accounts, to such an extent that the very Minister of Petroleum and Mining Rafael Ramírez avowed losses for billion dollars caused by the Chinese Fund to the accounts of the oil company. 

In reference to the agreement, opposition candidate Henrique Capriles Radonski averred that in the event of winning the election for president of October 7, "not a single barrel of oil will be given away to foreign countries, as long as the Venezuelan people need it." "Every year, Hugo Chávez's Government presents almost USD 7 billion," he added in connection with the oil bill in the context of recent agreements, primarily with Cuba, as well as Petrocaribe.

Background

Noncompliance mentioned by President Chávez is precisely part of the rationale provided by ExxonMobil and ConocoPhillips to sue Pdvsa and the Republic at the International Center for Settlement of Investment Disputes (Icsid) of the World Bank, following the break of contracts and seizure of assets in the projects of Cerro Negro, Petrozuata and Hamaca.

One of the disputes was settled at the International Chamber of Commerce (ICC), which ordered Pdvsa to pay USD 555 million in cash to ExxonMobil. Nonetheless, the complaints lodged with the Icsid by ConocoPhillips are alive and kicking. Barclays Capital estimates a settlement for USD 2.7 billion based on the book value of the assets in the projects of Petrozuata and Hamaca, where the US oil company owned 50.1% and 40% of the shares, respectively."

Furthermore, the Venezuelan Government's refusal to acknowledge the enforceability of international courts made it denounce and leave the Icsid. This, despite President Chávez's Government and the National Assembly controlled by the ruling party acknowledged in July 2001 a bilateral agreement on investment promotion with France that embraced the Icsid as the arbitral court of competent jurisdiction in the event of any dispute related to investments.

The Parliament endorsed such agreement on July 15, 2003; later, on November 3, 2003, President Chávez and then Minister of Foreign Affairs Roy Chaderton countersigned it.

Translated by Conchita Delgado