In the 1990s, the quite professional oil leadership in Venezuela pushed the government into modernizing the industry by means of opening windows to foreign direct investment in the then state monopoly. And the policy known as the “Apertura” succeeded in attracting the world leading oil players to the then overlooked Orinoco River Belt reservoir of thick oil.
Four large and complex projects were the Apertura pillars. They dealt with production, upgrading and marketing of extra-heavy oils from the Orinoco Oil Belt (OOB), a reservoir holding over 1 trillion barrels of heavy oil.
Three of those projects (Petrozuata, Hamaca and Cerro Negro) would end up at the center of arbitration proceedings that ConocoPhillips (COP) and ExxonMobil (XOM) initiated against Venezuela at the International Center for Settlement of Investment Disputes (ICSID) in late in 2007.
By late 2014 ICSID had ruled in favor of ExxonMobil and ConocoPhillips. ExxonMobil was awarded $1.6 billion in compensation. Fast forward to March 2017: another ICSID Panel overthrew the earlier decision. This means Venezuela will not have to pay the award to Exxon Mobil but, more importantly, that the country had the right to change the investment conditions when the project was being deployed.
I spent half a weekend talking to experts in FDI, including lawyers and arbitrators.
I also discussed this reversal of fortunes with current employees at the IMF, the World Bank and the IDB.
The consensus being that this has happened less than half a dozen times since ICSID’s insertion. The reason for such a ruling to be extremely rare is because panels are installed on a case-by-case basis searching to strike in their composition a balance between knowledge of the industry and comprehension of public policies.
Given that for one moon too many, the Venezuelan public policies seem to have been concocted at a voodoo session, panel selection was particularly demanding because it was essential to get people on the panel who understood these policies and could then issue a decision in an unbiased and effective way.
Another criterion to select panel members is that of political neutrality and absence of conflicts of interests vis-à-vis the warring parties and the substance of the subject matter they must deal with.
As a result, panel decisions are as accurate as Zeus rulings. To have one decision reversed is thus very very strange. Particularly when the awarding panel has been careful enough to go to the substance of the matter under dispute resorting to local expertise.
It also strikes as a bit illogical to now see an international investment watchdog side with voodoo inspired policies. But as British Prime Minister John Major once said: ”You want something to become as real as the Cheshire Cat? Send it for revision to a multilateral body!! They will always find ways to trump Carroll’s imagination.”
Russ Dallen and other experts on the subject matter have indicated that Venezuela secured the best talent available in the world to defend its interests.
And this talent won the day.
Wouldn’t it be wonderful if that cause and effect outcome would trigger a general Epiphany among government leaders in Venezuela?
They could admit their policy failure and seek the best talent in the world to advise on, create and execute development policies.
This could get them out of the current predicament that is claiming every day the lives of senior citizens and children that are dying on the streets for lack of medicines, health supplies and basic food.
Published by Latin American Herald Tribune on Monday March 13th, 2017.
*The opinions published herein are the sole responsibility of its author.*