In a surprise to no one*, a tribunal at the World Court’s International Centre for the Settlement of Investment Disputes decided that Venezuela was liable for expropriating ExxonMobil’s Cerro Negro heavy oil project and some other assets in 2007. The decision in English is here and in Spanish is here.
The money section is at the end:
, The Tribunal unanimously decides as follows:
(a) the Tribunal has no jurisdiction over the claim arising out of the increase in the
income tax rate for the participants to the Cerro Negro Project;
(b) the Tribunal has jurisdiction over the remaining claims, i.e.:
a. the claim arising out of the imposition of the extraction tax on the Cerro
b. the claim arising out of the production and export curtailments imposed
on the Cerro Negro Project in 2006 and 2007; and
c. the claim arising out of the expropriation of the Claimants’ investments
in the Cerro Negro and La Ceiba Projects;
(c) the Respondent shall pay to the Claimants the sum of US$ 9,042,482 (nine
million, forty two thousand, four hundred and eighty two United States
dollars) in compensation for the production and export curtailments imposed
on the Cerro Negro project in 2006 and 2007;
(d) the Respondent shall pay to the Claimants the sum of US$ 1,411.7 million
(one thousand, four hundred and eleven million, seven hundred thousand
United States dollars) in compensation for the expropriation of their
investments in the Cerro Negro Project;
(e) the Tribunal takes note in both cases of the Claimants’ representation that, in
the event of favourable award, the Claimants are willing to make the required
reimbursements to PDVSA. Double recovery will thus be avoided;
(f) the Respondent shall pay to the Claimants the sum of US$ 179.3 million (one
hundred seventy nine million, three hundred thousand United States dollars)
in compensation for the expropriation of their investments in the La Ceiba
(g) these sums shall be paid to the Claimants net of any Venezuelan tax;
(h) these sums shall be increased by annual compound interest on their amount at
the rate of 3.25% from 27 June 2007 up to the date when payment of this
sums has been made in full;
(i) each Party shall bear its own costs and counsel fees
(j) the Parties shall equally share the fees and expenses of the Tribunal and the
costs of the ICSID Secretariat; and
(k) all other claims are rejected.
So, $1.6 billion plus 3.25% compounding interest, which according to my calculator, works out to a nice round $2 billion as of now, growing by another $65 million this year assuming Venezuela delays payment as long as it can.
*Note, the amount may be a surprise to some. I thought the award would be bigger, but it’s within the range that analysts have given for years. In any case, it’s almost 10% of Venezuela’s foreign exchange reserves, so it’s a lot by the Bolivarian Republic’s standards.
MAJOR UPDATE: No, it’s not $2 billion. It’s much less. Law prof and friend of the blog Julian Cardenas writes to point out paragraph 374:
Effectively, the total compensation payable to the Claimants is the amount specified
in paragraph 374 above, less the amount already received by the Claimants under
the ICC Award for the same damage. Double recovery will thus be avoided
And the referenced paragraph 374 says
As a consequence, the compensation to be paid by the Respondent for the
expropriation of the Cerro Negro Project remains in the amount of US$ 1,411.7
million (see para 368 above).
The ICC Award was $908 million. So I think this means the current value of the judgment is more like $1.1 billion. If that $908 million deduction also cuts into the interest owed, the award is less than $1 billion! That would indeed be a surprise, given how ExxonMobil originally demanded $15 billion and even (for a short time) got a Mareva injunction against Venezuelan state assets up to $12 billion. I don’t know how these things work, and additional writing on this will probably be for paying clients. But now you know!
ALSO: ExxonMobil writes with the following rather comment. I’ll just print it verbatim, it’s short:
The decision confirms that the Venezuelan government failed to provide fair compensation for expropriated assets.
Our goal with the arbitration was to seek compensation for the fair market value of assets that were expropriated by the Venezuelan government in June 2007. ExxonMobil recognizes the sovereignty of all nations and, while clearly not a desirable outcome, accepts Venezuela’s legal right to expropriate the assets of our affiliates subject to compensation at fair market value. ExxonMobil’s affiliate engaged in extensive discussions with PDVSA and government officials but was unable to reach agreement on fair compensation.