Vas al Cielo y Vas Llorando Chronicles

36

stairs-to-heavenNot three weeks ago, Venezuela scored a big win over ExxonMobil, when the long-running saga over International Arbitration following Chávez’s 2006 expropriation of their extra-heavy oil upgrader in the Faja del Orinoco resulted in an award much smaller than expected. Exxon had originally wanted $20 billion out of the deal; arbitrators awarded it just $1.6 billion, $600 million of which had already been paid.

How big a win was it? So big PDVSA held special events to celebrate it.

So, naturally, now we’re appealing that decision.

Huh?!

One of two things is going on here. Either the super-fancy and well-worth-top-dollar New York Law Firm representing Venezuela at ICSID, Curtis Mallet-Prevost, has persuaded Ramírez they can get an even better settlement on appeal or the government is now so strapped for cash they’re willing to try any delaying tactic to avoid having to pay up right away.

I don’t know which one it is.

I do know that in the current climate, with markets freaking out again and again about Venezuela’s credit-worthiness over threats real and imagined, the regime might be well advised to employ some top dog P.R. people to go along with their top dog lawyers.

It’s simply shocking that when a story like this comes out Reuters is forced once again to run the ritualistic “neither Venezuela’s oil ministry, nor state oil company PDVSA, responded to phone calls and emails by Reuters seeking comment.”

You’re appealing a decision you were celebrating on cadena nacional this month, coño, surely somebody could explain what’s going on!!

No dice. Even this late in the game, there’s just no strategy for managing perceptions of defaultiness: stories hit the wires, one after another, with evident potential to spook investors, and nobody in power has a word to say about it.

En serio, contrátenme a mi…I could use the cash.

36 COMMENTS

  1. Realmente es maravilloso leerlos..refreshing plus plus ultra No tengo el email de Juan Francisco ni de Francisco…sería posible warmest d

  2. I wonder if the Maduro regime pays a contingency fee to its counsel for losing on a magnitude less than anticipated. And I wonder if an appeal of this nature could actually result, at the end of the day, in a larger award against the defendant. Those are the two things I wonder in addition to what Francisco wonders.

    • If the GOV had any smarts, it would inform the law firm: we pay if we win, we don’t pay if we lose.
      But if the GOV had any smarts, it wouldn’t be appealing what was a pretty good decision for Venezuela.
      But it the GOV had any smarts, it wouldn’t have expropriated Exxon-Mobil.
      I rest my case.

  3. Francisco, Even if they gave you the job, do you think they would listen to you? There is no cohesive strategy any longer. They are in the mode of “putting out fires”. They can’t remember what they did yesterday, and have no plan for what they will do tomorrow. All they can see is today’s emergency.

    • I would sell it to them this way:

      Listen, every time a story like this comes out, it costs you money. Stories that spook investors cost the republic money *you* could be stealing instead of putting into Wall Street pockets. For every percentage point that Venezuela risk premiums go up, we have to pay an extra $10 million a year in debt service. That’s money that could be going into YOUR Miami Beach condos or Polo Teams or Jet Streams instead of into THEIR debt service.

      • That is a very rational argument — useful for convincing people who are concerned about the medium-term future. My point was that they are not looking that far. They are only looking at surviving the next day, week, or a month at best.

    • I have to agree with Roy. There is so much being thrown at Maduro & Co. there is no way for them to get a handle on anything. No time to regroup or retrench, it’s one battle after another. Eventually exhaustion sets in and behavior becomes more erratic.
      We are getting word this morning the cancellation of Citgo was not as advertised — no surprise there. It seems the bids were coming in lower than expected and creditors were complaining that the one piece of property they have to lien on was being taken away.
      With this piece of the triad gone there are only two sources of “quick cash” now available — raising gasoline prices and/or cutting back PetroCaribe — the bus driver must now pick his poison.

  4. Am told by knowledgeable friends that legal grounds for Icsid decisions to be reversed or modified are very very narrow so that almost certainly the decision will stand as originally made. The regime is exercising the well known Venezuelan recourse of : ‘el derecho al pataleo’. Nothing more . Maybe it gets the Regime a short extention before having to pay the amount which they have been condemned to pay . Legal fees of course will climb , !! good for the Regimes hot shot lawyers , not so much for their client.

    • May I point out that GS was the brains behind the “$200-a-barrel is here to stay”, circa 2008.

      But yes, the situation does not look peachy so as to be throwing confetti around…

  5. As I understand it, this was the most logical step. This way, you delay the payment a little bit – not a bad idea, considering the circumstances.

    And, of course, you cannot blame the lawyers for estirar ese chicle

  6. Mallet-Prevost? As in Severo Mallet-Prevost, the one who represented Venezuela in the 1898 arbitration that lost the Esequibo, but then wrote a letter (to be delivered after his death) that said the arbitration was a sham, thus providing the basis for Venezuela’s repudiation of the arbitration and the never-ending saga of the border with Guyana? This company knows how to keep itself in business!

  7. You are all missing the point.

    It delays enforcement.

    Exxon cannot lien Citgo nor put Venezuela in default.

    No interest is accruing while the appeal waits (as opposed to the judgement which offered interest on the time from the expropriation to the judgement).

    Whether the interest (or lack thereof) is worth paying the lawyers or not I do not know, but it freezes the collection process.

    Expect Venezuela to attempt 27 more appeals on ICSID judgments in the near future. Justice delayed almost always benefits the accused or convicted.

  8. The government sold this result as favorable just as spin. These types of claims are typically heavily inflated and $1.6B is probably a fair settlement.

    • The celebration was just propaganda.
      Everything they do is propaganda.
      These simplest of explanations are lost when you look too much into things

  9. Delay, delay, delay. At any cost, at any risk, above all, delay.

    That tells you all you need to know about Venezuela’s true fiscal position.

  10. From Wikipedia: “The International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration institution which facilitates arbitration and conciliation of legal disputes between international investors”.
    I understand that arbitration & conciliation (A&C) institutions exist as an alternative to courts of law so that settlements can be reached sooner and therefore at lesser costs to the parties in conflict. One of the rules in arbitration cases is that both parties vow to comply with the resolution of the panel of arbitrators, so there are no appeals within an A&C institution. BUT, nevertheless, the losing party may decide not to comply forcing the claiming party to take the conflict to a court of law, which is what the parties allegedly did not want in the first place! In such a case, the losing party enters a stalling phase, which may take years, and thereby delays payment.

    • There are no appeals in the normal sense but the losing party may ask the arbitrators to review or take a second look at their decision arguing that there were certain very fundamental elements which were overlooked or missed . The Regime is not saying it will not pay the award , only that it requests the arbitrator to ‘review’ its own decision, Historically the Icsid arbitrators hardly ever change their decision once made. Even if time is gained the review process is very short so the advantage isnt that great.

  11. Talking about selling Venezuelan assets…in today’s Bloomberg, we have the following piece of news:

    U.S. Shale Boom Revives St. Croix Refinery, Once World’s Biggest

    Oct. 28 (Bloomberg) — The St. Croix refinery in the U.S.
    Virgin Islands, which went from being the world’s largest to
    being closed, is poised to see new life, capitalizing on the
    U.S. shale boom that has boosted oil supply in the region.
    Atlantic Basin Refining Inc., agreed to buy Hovensa LLC,
    according to a statement from Atlantic Basin issued by FTI
    Consulting Inc. Hovensa’s refinery, which was shut down and
    converted into an oil storage terminal in February 2012, will
    process about 300,000 barrels of light oil a day when it
    reopens.
    It will take as long as two years to start the refinery,
    the Virgin Islands government said in a statement late
    yesterday. Hovensa’s return will add an oil buyer to a market
    where crude prices have fallen 25 percent in the past four
    months because of growing supply and weaker global demand. It
    may also bring more gasoline to the U.S. East Coast, helping to
    reduce fuel prices for American drivers.
    “The U.S. shale revolution has created an abundant supply
    of U.S. light sweet crude and there is currently a limited
    ability to process this type of feedstock at U.S. refineries,”
    Mark W. Eckard, Atlantic Basin’s managing director for legal and
    governmental affairs, said in a statement.

    Hess Corp. built the refinery in 1966 and formed a joint
    venture with Petroleos de Venezuela SA in 1998 to create
    Hovensa. Hess expanded the plant to 650,000 barrels a day in
    1974, making it the largest in the world. Operators reduced
    capacity in the years before shuttering it as the economic
    slowdown that began in 2007 reduced global fuel demand.

    Hess spokespeople could not immediately be reached for
    comment this morning. A PDVSA media official, who is not an
    authorized spokesperson, declined to comment when questioned
    about the refinery divestment.

    Refining Losses

    Losses at the refinery totaled $1.3 billion in the three
    years before it was closed, Hovensa said in a statement at the
    time. The plant burned oil products to generate heat and steam,
    putting it at a disadvantage to U.S. Gulf Coast refineries that
    used cheaper natural gas from domestic shale formations.
    St. Croix provided 83,000 barrels a day of gasoline and
    47,000 barrels of distillate to the U.S. Northeast before
    closing, according to the Energy Department. The refinery will
    be positioned to supply refined products to the U.S. East Coast,
    the Caribbean, South America and other markets, Eckard said.
    Retail gasoline prices across the U.S. could fall when the
    refinery restarts, because they are based on futures contracts
    that hinge on supplies in the New York Harbor.
    “It would certainly add some downward pressure,” Patrick
    DeHaan, a Chicago-based senior petroleum analyst for GasBuddy
    Organization LLC, said yesterday.

    Industry Veterans

    Atlantic Basin was formed by a group of energy industry
    veterans for the purpose of acquiring the refinery, the
    statement showed. The company has reached an agreement with
    Hovensa and expects to sign one with U.S. Virgin Islands Gov.
    John de Jongh Jr. tomorrow, Eckard said. The deal will need to
    be ratified by the Legislature of the territory.
    The islands will ultimately gain more than $100 million in
    annual tax revenues from the refinery, Atlantic Basin said.
    The U.S. Virgin Islands, which were purchased from Denmark
    for $25 million in gold in 1917, lie east of Puerto Rico and
    form part of the same archipelago as the British Virgin Islands.
    The islands, which include St. Croix, St. Thomas and St. John,
    are a U.S. territory and its 106,000 residents, who elect a
    governor and a 15-member senate, are U.S. citizens.

    It is not Citgo, but all money counts for the Robolución

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