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Two decades chasing $8.5 billion
Seizure and arbitration
When the Chavez government nationalized the oil industry, the companies lost the tens of billions of dollars they had poured into machinery, training, and infrastructure. All of it was simply taken.
ConocoPhillips went to international arbitration to recover its losses. It eventually won an award of over $8.5 billion from the World Bank's arbitration tribunal, which with interest has ballooned past $12 billion. It also secured a separate $2 billion award from the International Chamber of Commerce.
The creditor queue
ConocoPhillips is far from the only creditor in the queue. Total claims from judgment creditors, including Crystallex and others, run to roughly $20 billion, much of it tied up in the ongoing court-mandated auction of Citgo, Venezuela's US-based refining subsidiary.
The investment plan
Now the plan calls for the major oil companies to invest reportedly up to $100 billion to modernize Venezuela's extraction infrastructure. They reportedly weren't even consulted before the plan was put into action. If either the US or Venezuelan government changes, the next administration could reverse everything, and there is no structural guarantee the investment won't be taken again.
Why do arbitration awards grow so much over time?
Tribunals typically award interest on top of the principal, running from the date of the taking until the award is paid. Over nearly two decades, that interest compounds a base figure into a much larger sum. The World Bank hosts the International Centre for Settlement of Investment Disputes, whose tribunals commonly include interest in the awards they issue. The interest rate is set by the tribunal in each case.
How can creditors force the sale of Citgo?
Citgo Petroleum has been owned through a holding company, PDV Holding, which is ultimately owned by Venezuela's state oil company PDVSA. Because those assets sit in the United States, creditors holding US court judgments can ask a federal court to attach them. A federal court in Delaware oversaw a process to sell shares of PDV Holding to satisfy those judgments. A court-appointed special master was named to run the sale process.
Why do oil companies risk nationalization at all?
Oil projects demand huge capital up front and pay back over decades, and the wells and pipelines cannot be moved once built. Political economist Raymond Vernon described this as the obsolescing bargain: after the money is sunk, the host government's leverage over the investor grows. Investment treaties and arbitration clauses grew up to give investors a way to recover losses. Thousands of bilateral investment treaties have been signed for that purpose.
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