Understanding Venezuela’s defense against ExxonMobil & ConocoPhillips

Sometime soon, the World Bank-linked ICSID tribunal will announce its awards in the arbitration cases brought by ExxonMobil (XOM) and ConocoPhillips (COP) against Venezuela for 2007 expropriations. What’s six years between friends?

Juan Carlos Boué writes an 84-page (plus notes) publicly available article in English explaining these huge arbitration cases, and why the outcome may not be as favourable (with a u) to XOM and COP as is widely assumed in the USA.

[The XOM and COP decision to leave Venezuela] has been presented as the calamitous culmination of a process whereby, through a mixture of bullying and unilateral measures, the Chávez administration sought to impose extortionate new terms on oil exploration and production activities in Venezuela, which rode roughshod over the vested rights of investors. Chávez’s actions, so this story goes, not only led to suspension of the transfer of managerial know-how and technology from which Venezuela had benefited so handsomely throughout the 1993-2006 period (and without which the gigantic resources of the Orinoco Oil Belt would not have been developed) but, ultimately, paved the way for the involuntary exodus of foreign oil companies from the country and the expropriation without compensation of their assets. That being the case, so this version goes, the aggrieved companies involved were left with no alternative but to initiate legal proceedings against a rogue government and its state oil
company and affiliates.

The picture presented in the paragraph above is drawn in strokes so broad and crude that it reduces the conduct and outcomes of Venezuelan oil policy from 1999 onwards to the level of a mere caricature. Nevertheless, the broadcast and print media have had no qualms about echoing and amplifying it, while a number of OECD governments – most especially, that of the USA – have seemed equally at ease to use it as a premise for taking foreign policy decisions with regard to Venezuela. That such credence should be vouchsafed to unproven allegations raised in the context of acrimonious litigation is hardly unprecedented in the annals of US foreign relations. Unfortunately, as on many a previous occasion, this facile stance contributes nothing towards understanding the real issues underlying, and arising from, a state’s exercise of its sovereign powers to the apparent detriment of the rights (real or alleged) of foreign investors.

If you’re an international law junkie, and I know many of you are, you can read the whole thing here.

Venezuela takes over Loma de Níquel, workers get the shaft

I know, old joke, and it doesn’t work well for an open pit mine. But it’s unfortunately true. Anglo American is now fully out of Venezuela, having sold its coal mine and involuntarily returned its nickel concession.

The Venezuelan state took over operations of the Loma de Níquel mine at midnight Sunday morning, confirming what I reported here a month earlier. The situation was more like my “Imaginary scenario 2,” in which the government has no idea it’s about to be in the nickel business and doesn’t handle the transition very well. Mine manager Carlos Dini, cited in El Universal, says PDVSA is now “operating” the mine, although a worker at the mine says it’s not PDVSA but rather managers left over from Anglo American who are running things.

Anglo confirming Venezuela departure? UPDATE: No, but…

UPDATE: A worker tells me Anglo has said no such thing. However, the government did send someone to guarantee workers that they’d still have their jobs after Nov. 11. So, I guess it’s all going according to plan…

Earlier version of story:

Venezuela’s gossip-master extraordinaire Nelson Bocaranda says Anglo American has told Venezuelan mine workers to stay home tomorrow as its nickel mine will be expropriated. I haven’t confirmed that yet, but it would fit with the Venezuelan government’s usual method of avoiding sabotage — always expropriate a bit before the last possible minute.

In other news, a worker writes in to say that the company has been totally closed-mouthed about this whole operation, but that workers knew something was afoot as mine operations halted and the site’s electrical furnaces were cut to minimum power. No metal output in October, according to my source.

Don’t mind if I toot my own horn a bit more in pointing out that readers here knew about Anglo’s departure from Venezuela before they told their own workers. See, the Internet is more than just cat bounces after all.

Oh wow, forget mining & energy, I want to bounce cats.

UPDATE2: I missed this, from Reuters on Friday: Anglo has indeed confirmed the end of metal production at Loma de Niquel and the company’s likely departure from Venezuela.

Loma de Niquel, the Venezuelan ferronickel producer owned by Anglo-American, closed in September as a long-running dispute over the company’s mining concessions comes to a head.

Anglo has warned that unless a deal can be reached before November 10, when its last three concessions expire, “there will be no further production contribution from this operation”.

If that turns out to be the case, it will remove around 17,000 tonnes of annual capacity from the market, a larger hit on supply than any of the cost-related cuts so far announced.

I would dispute his claim that there was any long-running dispute. But otherwise, nice work getting Anglo’s statement.

Derwick Associates requests censorship, I request details

I couldn’t agree more. Photo I took today in Bogotá.

Derwick Associates is a Venezuelan engineering company that has had incredible success in the three years since it was founded, gaining hundreds of millions of dollars in contracts to procure generating turbines and other materials and to then build electricity plants. Press reports have raised questions about exactly how Derwick got so big, so fast. My colleague Cesar Batiz at Últimas Noticias wrote 14 months ago that the company had gotten very big contracts despite a lack of experience and the relative youth of its managers. He later included Derwick in a larger article about suppliers of electricity equipment that appeared to be overcharging. Both times, he tried to speak with the company, but wasn’t able to get them to reply. Later, the Devil’s Excrement blog ran a piece summarizing Batiz’s findings and adding a curious fact — the company, despite doing such big business, had registered a Florida office that was in a drab office building in a remote area of Fort Lauderdale, by the airport, with neighbors that included US security agencies.

The Devil later took down his post without explanations. I reposted it here, for no reason other than, as I said at the time, I dislike memory holes. I would never have posted it if it seemed that there was anything untoward about the note.

A few weeks ago, I received an e-mail (5 mb PDF) that opened with a letter from Derwick’s lawyers:

I couldn’t agree more. Photo I took today in Bogotá.

The lawyers write about Wiki Anti-Corrupción (WAC), a website I have previously recommended as having a lot of interesting if ill-supported information about corruption in Venezuela. Derwick has sued WAC for defamation in local court in Miami, demanding “not less than $200 million.” They kindly included a copy of their suit (here is the lawsuit on its own, without attachments). They say WAC defamed Derwick and its leaders with claims of money laundering, fuel smuggling, coltan trafficking, and a whole list of other claims. To be clear here, nobody claims that WAC has anything to do with Devil’s Excrement or with me. The lawyers continue, referring to the Devil’s Excrement story I reposted:

The Article — which contains certain of the false and defamatory statements concerning Plaintiffs that appear on the WAC Website and are the subject of the Action — remains accessible on your website.”

But they don’t tell me what those false or defamatory statements might be. They go on:

The original author of the article has removed that page from the [Devil’s Excrement] website after being informed that the page was littered with false and defamatory information about Plaintiffs. Accordingly we request that you also remove the Article.

So there you have the background to my very simple, and I think diplomatic, response:

=======

Mr. Torres:

I received your note of Sept. 21. If you see something on my website that you think is false or defamatory, please identify the problem as specifically as possible and support your position.

We — you and I, together — will then work out how to deal with the problem. A quick correction or a public chance to reply is often a better solution. Deletion is a last resort, and one that often doesn’t work anyway.

So for starters, just send me a copy of the letter you sent to Devil’s Excrement, ok?

Thanks,
Steven
=========

Wiki Anti-Corrupción’s very general response to the case is here.

Venepiramides also weighs in.

For my earlier, rather less diplomatic response, see Twitter.

UPDATE: I hadn’t seen Alek Boyd’s much more complete article about the nice people at Derwick.