How Substantial Are Venezuela’s Legal Liabilities?

ICSID is hearing more than 40 cases largely due to former Venezuelan President Hugo Chávez’s controversial expropriations of various companies during his presidency. // File Photo: Venezuelan Government.

The World Bank’s International Centre for Settlement of Investment Disputes, or ICSID, in mid-March overturned a previous ruling that had ordered Venezuela to pay U.S.-based multinational oil company ExxonMobil $1.4 billion in damages. The case is only one of more than 40 others being heard at ICSID that came largely as a result of late President Hugo Chávez’s nationalizations of the oil sector, in addition to takeovers in the electricity, telecoms, metal and agricultural sectors during his presidency. How will the ruling and similar cases influence foreign investment in Venezuela’s oil sector? Does the latest decision provide any meaningful relief for Venezuela’s cash crunch? What is the state of arbitration claims against Venezuela in international courts, and how big of a liability are the cases for the cash-strapped nation?

David Voght, managing director at IPD Latin America: “The ICSID tribunal’s decision to annul the $1.4 billion Venezuela Holdings BV (ExxonMobil) award will give Venezuela some financial respite as it faces a spike in foreign debt service and arbitration liabilities in the coming years. Following the March decision, we estimate that some $3.3 billion in outstanding ICSID awards are still pending payment. Total liability for cases currently under review or awaiting decision may add an additional $9.5 billion to Venezuela’s overall arbitration liability through 2020 and beyond. While the numbers seem daunting, near-term payments will be relatively low, as Venezuela’s agile lawyers contest awards and mastermind compensation deferments. Because perceived country risk is already high, the ruling probably will not impact new foreign investment in Venezuela’s oil sector. Out of necessity, PDVSA has been implementing contract structures that ring-fence oil investments from political and commercial risk—to a degree. New arrangements for upstream production ventures and service contracts continue to…”

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