Chavez Says Venezuela Won’t Accept World Bank Arbitration

Venezuela will pull out of a World Bank-affiliated arbitration panel and won’t accept any of its rulings, including a multi-billion claim for a nationalized oil project by Exxon Mobil Corp. (XOM), President Hugo Chavez said.

The Washington-based International Centre for Settlement of Investment Disputes, or ICSID, is considering Exxon’s claim in one of about 20 suits filed there against the Venezuelan government. Wichita, Kansas-based Koch Industries Inc. and Owens-Illinois (OI), Inc., the world’s largest maker of glass containers, are among other companies seeking compensation.

“We won’t recognize any decisions from the ICSID,” Chavez, who has seized assets in the energy, mining and telecommunications industry during his 12-year rule, said yesterday on state television. Exxon is “seeking the impossible, that we pay what we will never pay.”

Exxon, the world’s largest oil company by market value, was the first to abandon Venezuela after Chavez expropriated industry assets in 2007. The self-declared socialist revolutionary forced foreign oil producers into joint ventures as minority partners that year and is also in arbitration at the World Bank with ConocoPhillips (COP), which rejected the terms.

“We’ve got to get out of that ICSID,” Chavez, 57, said during a six-hour Alo Presidente talk show yesterday, which he resumed for the first time since being diagnosed with cancer in June. The South American leader on Jan. 4 said that Exxon had been “arrogant” for demanding as much as $12 billion in compensation for its stake in the Cerro Negro project that produced and processed heavy crude oil.

Exxon had no comment on Chavez’s statement, spokesman Patrick McGinn said yesterday in an e-mail.

Pulling Out

Chavez threatened to withdraw from ICSID as early as 2007. If he follows through this time, it’s unlikely to affect arbitrations already under way, said Michael Nolan, a partner in the Washington office of Milbank, Tweed, Hadley & McCloy.

“Chavez is not going to solve Venezuela’s very serious international legal problems with either speeches or even a formal denunciation of the ICSID convention,” Nolan, who has represented clients in arbitration with Venezuela, said today in an e-mailed response to questions.

Exiting the arbitration panel would also require Venezuela withdraw from some 20 bilateral investment treaties with various countries, a process that would still give companies “many years” to initiate claims against the government, he added.

Enforcement Measures

In a separate case, the New York-based International Chamber of Commerce, an arbitration court, ruled last month that state oil company Petroleos de Venezuela SA must pay Exxon a net $746.9 million for the Cerro Negro nationalization.

Exxon in 2010 cut its claim to $7 billion from $12 billion, according to PDVSA, as the Caracas-based company is known. Chavez said yesterday that the country would only reimburse Exxon for what it had actually invested in the country.

PDVSA said on Jan. 2 that it would pay $255 million in cash for the ICC judgment, after accounting for about $300 million in a frozen New York bank account and $191 million of Exxon debt that it will cancel. The total amount of the International Chamber of Commerce ruling was for $907.6 million, minus a $161 million counterclaim by PDVSA.

A decision favoring Exxon at the ICSID would be more easily-enforced because it gives a successful claimant the right to enforce against assets in third party states, Nolan said.

‘Strong’ Enforcement

“If Exxon gets an award in the ICSID, the enforcement mechanisms are strong,” said Nolan.

Venezuela does not expect to pay more than what the ICC awarded Exxon last month, oil minister Rafael Ramirez told reporters today in Caracas.

“The ICC has already made a decision on the Exxon case,” said Ramirez, adding that the arbitration case with ConocoPhillips before the ICSID was continuing.

Owens-Illinois in September filed for arbitration at the ICSID for compensation for two bottling plants nationalized by Chavez’s government in 2010. Other companies with claims against Venezuela at the ICSID include Tenaris SA (TEN), the world’s biggest maker of seamless steel tubes, and The Williams Companies (WMB), Inc., a natural gas services supplier located in Tulsa, Oklahoma.

To contact the reporters on this story: Jose Orozco in Caracas at jorozco8@bloomberg.net; Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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