An international arbitration panel has ordered Venezuela’s government to pay $1.6bn to oil-giant Exxon Mobil for the seizure of a major oil project in the country, along with other losses.
On Thursday, a three-member arbitration panel for the Washington-based International Centre For Settlement of Investment Disputes (ICSID) unanimously granted the US oil company following the June 2007 expropriation of the Cerro Negro project in Venezuela, a heavy-oil region known as the Orinoco Belt.
It is the largest award yet in a backlog of costly complaints against Venezuela over a wave of nationalisations in the past decade.
However, the panel said the award was warranted as “just compensation” under an international investment treaty signed by Venezuela.
The panel set the figure based on an analysis of future revenues and expenses of the Cerro Negro project that looked at expected oil prices, among other factors.
The ICSID decision against Venezuela follows a January 2012 judgment against state-owned oil firm Petroleos de Venezuela of $750 million by the Paris-based International Chamber of Commerce over the Cerro Negro expropriation.
ExxonMobil had sought some $12 billion after the 2007 seizure, which was followed by a number of toughened commercial terms imposed on foreign oil companies by Venezuela over the multibillion-dollar oil project begun in the 1990s.
‘Exorbitant and completely unjustified’
Venezuela cast the panel’s decision as a victory, noting that the final figure is far below the “exorbitant and completely unjustified” sum ExxonMobil had sought.
The award could still prove difficult for Venezuela to pay as declining oil production, capital flight and 60 percent inflation are depleting the country’s cash reserves.
President Nicolas Maduro’s government is currently battling more than 20 similar demands at the World Bank by foreign companies as a result of the drive by his predecessor, the late Hugo Chavez, to assert state control over the resource-rich economy.
In a similar complaint, the International Centre for Settlement of Investment Disputes ruled Sept. 23 that Venezuela must pay $740 million to Spokane, Washington-based Gold Reserve for taking control of a mining project in 2008.