IPS | 18 March 2008
VENEZUELA: Gov’t Celebrates British Ruling Against Exxon
By Humberto Márquez
CARACAS, Mar 18 (IPS) — Venezuela celebrated, as a triumph for countries of the developing South, Tuesday’s ruling in its favour by a British court in a legal dispute with U.S. oil giant Exxon Mobil, which overturned an earlier court order to freeze around 12 billion dollars in Venezuelan assets.
Exxon "tried to export British law as global law, abuse British legal power and use an English judge to freeze Venezuela’s assets not in England, but throughout the world," Venezuelan Energy Minister Rafael Ramírez said in a press conference.
London High Court Judge Paul Walker suspended a court order that froze global assets belonging to Venezuela’s state oil company, PDVSA. "I have today held that the injunction granted on 24 January 2008 against the defendant (PDVSA) should be discharged," Judge Walker said in a statement. Ramírez said the ruling was "100 percent favourable for Venezuela, for PDVSA, for all small nations that seek to exploit their natural resources, and for OPEC (Organisation of Petroleum Exporting Countries)," which had taken a stance in solidarity with Caracas in its dispute with the world’s largest oil company.
The British court "has put Exxon in its place," said the minister.
Venezuela’s ambassador in London, Samuel Moncada, said "this is a lesson for Exxon and a major victory for countries that manage their natural resources in a sovereign manner, because the transnational corporation tried to use, against a sovereign nation, a court in a country that had nothing to do with the dispute."
The court had ordered a temporary freeze on PDVSA assets in Europe to ensure that Exxon would be paid due compensation, after the energy giant refused to accept new terms in its contract for working oil fields in the Orinoco basin.
Under the old contract, Exxon held 41.6 percent of the shares, PDVSA a similar proportion, and Britain’s BP 16.8 percent in the Cerro Largo joint venture. The new terms, however, made PDVSA a majority partner.
Other leading firms, like BP, France’s Total, U.S.-based Chevron Corp. and StatoilHydro of Norway negotiated new contracts with the Venezuelan government, staying on as minority partners in Orinoco, while the Venezuelan oil company was granted at least a 60 percent share in all joint ventures with foreign corporations.
Exxon’s decision to challenge Venezuela in court helped drive up oil prices, when Venezuelan President Hugo Chávez threatened to stop exporting oil to the United States.
"If assets were frozen every time there was a dispute over the amount of compensation to be paid, there would be great instability in the global oil industry," said Ramírez.
Former PDVSA president Luis Giusti, who is critical of Chávez’s management of the country’s oil policy, told IPS that "we must celebrate these measures as victories for Venezuela, because they restore our national wealth to us and reflect that international justice is not necessarily in the hands of imperialism or of a company like Exxon."
The arbitration process will now continue, "and the numbers will be put in perspective," said Giusti. "In terms of assets, Exxon could have between 800 million and 1.5 billion, which means the freeze on 12 billion dollars in assets was ridiculous."
After Exxon decided last year that it would not stay on as a junior partner, the two parties turned to the International Centre for Settlement of Investment Disputes (ICSID) in New York.
Venezuela proposes paying the book value of what Exxon has invested in this country, possibly less than one billion dollars, while the U.S. firm is demanding compensation for over five billion dollars in lost future revenues, as the contract for the Cerro Negro oil field would have been in effect for another 20 years.
Exxon took advantage of signs that PDVSA was facing a cash flow problem since late 2007 — the firm sought payment for fuel oil shipments in just eight days, instead of the usual 30, and later sought up-front payments for several large shipments, while it increasingly settled debts by paying in oil — and upped the pressure by seeking an asset freeze, José Suárez, an expert with the specialised publication Petrofinanzas, told IPS.
A New York court froze 315 million dollars in assets in a PDVSA account in the Bank of New York Mellon Corp.
But at no point did PDVSA refuse to negotiate under the arbitration process, and it told the courts that it could not be treated as a rogue company, because Venezuela is the world’s fifth largest oil exporter and the firm has 107 billion dollars in assets, said Ramírez. Judge Walker, who said he would hand down full explanations for his decision on Thursday, stated that "I conclude that Mobil (has)...no good arguable case that PDV’s conduct in relation to its assets is unjustified." The statement also said that "In the absence of any exceptional feature such as fraud, and in the absence of substantial assets of PDV located here, the fact that the seat of arbitration is not here makes it inappropriate to grant an order."
The judge pointed out that orders to freeze assets are rare and are usually issued in cases in which there is "compelling evidence of serious international fraud." But "in the present case there is no suggestion whatever of fraud on the part of" PDVSA, Walker concluded. In addition, he ordered Exxon to cover Venezuela’s legal costs in the dispute, and to make an initial payment of 380,000 pounds (765,000 dollars) to PDVSA within 21 days.
Exxon spokesman Alan Jeffers said "We think that it’s important the court did not question the merits of (Exxon’s) underlying claim, but rather concluded that an English court should not issue a pre-judgment worldwide freezing order."