In a decision that surprised few, a tribunal at the World Court’s International Centre for the Settlement of Investment Disputes ruled that Venezuela is responsible for expropriating ExxonMobil’s Cerro Negro heavy oil project, along with other assets in 2007. The full decision is available in English here and in Spanish here.
The key financial details are outlined below:
, The Tribunal unanimously decides as follows:
(a) the Tribunal lacks jurisdiction over the claim due to the increase in the
income tax rate for participants involved in the Cerro Negro Project;
(b) jurisdiction is established over the other claims, including:
a. the claim related to the extraction tax imposed on the Cerro
Negro Project;
b. the claim concerning production and export restrictions placed
on the Cerro Negro Project during 2006 and 2007; and
c. the claim regarding the expropriation of investments
in the Cerro Negro and La Ceiba Projects;
(c) the Respondent must pay the Claimants a total of US$ 9,042,482 (nine
million, forty-two thousand, four hundred and eighty-two United States
dollars) as compensation for the imposed production and export restrictions
on the Cerro Negro project in 2006 and 2007;
(d) the Respondent must pay the Claimants US$ 1,411.7 million
(one thousand, four hundred and eleven million, seven hundred thousand
United States dollars) as compensation for the expropriation of their
investments in the Cerro Negro Project;
(e) the Tribunal acknowledges that the Claimants have indicated their readiness
to reimburse PDVSA in the event of a favorable award, ensuring no double recovery;
(f) the Respondent must compensate the Claimants with US$ 179.3 million (one
hundred seventy-nine million, three hundred thousand United States dollars)
for the expropriation of their investments in the La Ceiba
Project;
(g) these amounts will be paid to the Claimants excluding any Venezuelan tax;
(h) these amounts will accrue annual compound interest at
a rate of 3.25% starting from 27 June 2007 until full payment is made;
(i) each Party will bear its own costs and legal fees;
(j) the Parties will share equally the Tribunal fees and the
costs of the ICSID Secretariat; and
(k) all other claims are dismissed.
This amounts to $1.6 billion plus 3.25% compound interest, which, according to my calculations, comes to about $2 billion currently, with an additional growth of $65 million this year if Venezuela delays payment as long as it can.
*It’s worth noting that the amount may catch some off guard. I initially expected a higher award, but it aligns with the range analysts have speculated for some time. Regardless, it represents nearly 10% of Venezuela’s foreign exchange reserves, so it’s significant by the standards of the Bolivarian Republic.
MAJOR UPDATE: No, it’s not really $2 billion. The sum is actually lower. Law professor and friend of the blog, Julian Cardenas, pointed out paragraph 374:
In essence, the total compensation owed to the Claimants is the amount specified
in paragraph 374 above, minus what the Claimants previously received under the ICC Award for the same damage. This avoids double recovery.
Paragraph 374 states:
The compensation for the expropriation of the Cerro Negro Project remains at US$ 1,411.7
million (as referenced in para 368 above).
The ICC Award was $908 million. This suggests that the current value of the judgment is closer to $1.1 billion. If that $908 million deduction also applies to the interest owed, the actual award could be under $1 billion! This would indeed be surprising, especially since ExxonMobil initially sought $15 billion and at one point secured a Mareva injunction against Venezuelan state assets worth up to $12 billion. I’m not exactly sure how these processes work, and further commentary on this may be for paid clients. But now you know!
ALSO: ExxonMobil has provided the following brief statement, which I will share verbatim:
The decision affirms that the Venezuelan government did not offer fair compensation for the expropriated assets.
Our objective with the arbitration was to obtain compensation reflecting the fair market value of the assets taken by the Venezuelan government in June 2007. ExxonMobil respects the sovereignty of all nations, and while this isn’t an ideal outcome, we recognize Venezuela’s legal right to expropriate the assets of our affiliates, provided there is fair market value compensation. ExxonMobil’s affiliate engaged in lengthy discussions with PDVSA and government officials but could not reach an agreement on fair compensation.