Please, Take my Oil Company

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The Venezuelan government is now facing over $40 billion in arbitration claims relating to 19 cases at ICSID, the World Bank’s arbitration panel. (A few of those claims seem wildly inflated, but no matter.) Now, Chávez says he wants to withdraw from ICSID altogether. Que belleza!

Now, here’s the part I don’t get. Why would Chávez start gabbing out loud about that before he’s completed the process of repatriating Venezuela’s seizable-assets abroad? Before all that gold is safely back in Caracas? Before he’s sold off CITGO and PDVSA’s other foreign-assets?

That’s like calling your bank to tell them you have no intention of paying your car loan but then leaving the car in your driveway, windows open, key in the ignition, just waiting for the repo-man to come by.

It really doesn’t make sense to me.

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1 COMMENT

    • I’m sure that’s technically true. But this is Chávez we’re talking about.

      How hard is it to imagine him simply instructing Maduro to ignore ICSID and treat its rulings the way they treat IACHR rulings?

      Not very.

      He’ll scream something about economic imperialism and storm off in a huff.

      Any lawyer to a party at an ICSID process who is not contemplating such a scenario is failing his client…

      • The difference between ICSID and IACHR is the enforceability of their decisions. Local courts will enforce ICSID rulings by seizing assets found within their jurisdiction (as long as there is a valid contract between the two parties accepting the ICSID as the arbitror in case of disagreement).
        If we do in fact get out of ICSID, where it gets interesting is what happens with all existing contracts with an arbitration clause that includes ICSID as the arbitror. By definition the Republic cannot unilaterally back out of that clause without defaulting on the contract (and being taken to ICSID). So potentially Chavez says: “Echo tierrita y no juego mas” which in term gives all counterparties with existing ICSID clauses (which is pretty much everyone) an out to take the Republic to court and seize all available assets.

  1. Well, but it wasn’t exactly ‘out loud’ was it? I mean the WSJ article is based on leaked documents, not on public statements by Chávez. Or am I missing something?

  2. Does leaving the ICSID mean they abandon the legal processes under way there? It sounds like they are floating this idea in order to get a good settlement with the companies…

    • It’s all about timing… if you sign a contract recognizing the authority of the ICDIS you are bound to its authority.
      If you wish to stop recognizing its authority, you can certainly do so in any future contracts you sign. There is no “leaving” legal procedures once you signed a contract, you might not want to be there to defend yourself but the ruling will be binding regardless.
      In my mind, this is one of those cases where no one has the balls to tell Chavez it is just incredibly inconvenient and it will take 20 years for the country to be able to “leave” ICSID. I wouldn’t be surprised if that’s how Escarra got to be Procurador, he told Chavez he would get us out.

  3. Well citgo is under huge debt. Let me add something, citgo is under huge SECURED debt, which means bondholders are first in line to cash in case of default.

  4. So, Chavez continues to borrow money from Russians and Chinese
    (as long as most is spent buying stuff from them with the money).
    Even with “bad credit” they give him loans-because he “gives” Chinese
    and Russians access to oil producing territories for example-but
    people who Know Better- say these are bad deals for Venezuela.
    And–who gives Chavez the authority to sign loans for and spend billions
    on a whim, anyway?
    Oh, I forgot. He got permission from Fidel…

  5. The Chavista Empire seems to be imploding into an “outlaw state” surrounded by barricades of tanks and missiles and an army of armed civilian militias defending a bankrupt fantasy. The firebrand charisma of the cancer-stricken commander and chief of 21st Century Socialism seems destined to a very unpleasant place in Venezuelan History!

  6. At some point after de 1988 elections, maybe even before 4-F, Eduardo Fernandez is said to have confessed that, in view of the disasterous economic situation, he was lucky to have lost to CAP. .Though losing to Chavez in 2012 would be a tragic defeat, not a stroke of luck, one can’t help but envision the disasterous economic situation the govenment will have to be prepared to cope with.

    in the meanwhile, as Venezuela burns, Chavez apparently plans to build a second satellite> http://www.lapatilla.com/site/2011/09/15/venezuela-fabricara-el-segundo-satelite-con-plata-del-fondo-chino/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+lapatilla+%28La+Patilla%29

  7. Reading the WSJ article, I felt a deja-vu: isn’t this the kind of situation that arose with the gold and the international reserves? I mean, the gold issue came up with leaked documents, it makes no rational sense to bring them to the country and yet the gold will be transported back to Venezuela.

    When you see these kind of things, you have to disregard the economical/practical issues at hand and focus on the political issues: would it benefit Chavez to say that he’s facing the Imperio Maluco against all odds? Is there any marginal benefit to it? My take is that they are definitely thinking of this, as a political weapon to be used at some point.

    About the economic cost, it surely is a consideration: Chavez will not shut down entirely the $$$ spigot, and contracts signed with ICSID clauses are valid for some years ahead regardless of whether Venezuela is a member or not. Also, remember the IMF debate? We didn’t walk out of the IMF, but the bonds issued since then no longer carry that negative pledge. And there will always be someone willing to do business with Venezuela at the right compensation.

    And not that they mind finding workarounds: they can always subject arbitration hearings to other tribunals (UK comes to mind), or they won’t mind at all: http://www.lapatilla.com/site/2011/07/21/contrato-de-pdvsa-con-williams-viola-la-constitucion/

    Problem is, legal issues will come eventually. Witness Argentina: 10 years later, they are still fighting with the holdouts from the default, they have made every legal manoeuvre to avoid giving money to them (i.e., the nationalization of pension funds), and when in a cash squeeze, they have recurred to the friendly Venezuela for funding. Not that we have uninterested parties to bail us out though…

  8. When the ship has a hole taking on water there are two things to do: (1) bale out the water (short-term solution) and (2) plug the hole (long term solution)

    The Ship of State has a hole (failing economic policies), as productivity falls all the state seems able to do under Chavez is to take on debt (baling out water). Until they realize the failure of their economic policies, the debt will eventually sink the state!

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