Published by Economist Intelligence Unit

Event

A World Bank arbitration court determined that Venezuela must pay around US$1.6bn to ExxonMobil (US)—one‑sixth of what the company had initially sought—to compensate for the 2007 expropriation of its assets.

Analysis

A three‑member arbitration panel at the World Bank's International Centre for Settlement of Investment Disputes (ICSID) determined unanimously that ExxonMobil was owed US$1.4bn for the expropriation of the company's Cerro Negro project, US$179.3m for the expropriation of its La Ceiba project and a further US$9m for production and export curtailments imposed on the Cerro Negro project in 2006‑07. Annual compound interest of 3.25% from June 2007 is also to be added to the total sum.

In late 2011 the Paris‑based International Chamber of Commerce (ICC) awarded Exxon Mobil US$980m for the Cerro Negro expropriation. The ICC panel dealt only with litigation between ExxonMobil and Venezuela's state oil company, Petróleos de Venezuela (PDVSA). The ICSID ruling addresses the dispute between ExxonMobil and the Venezuelan state. Venezuelan authorities have indicated that they will pay out around US$1bn after factoring in the ICC award. Following the announcement of the ICC award, the late former president, Hugo Chávez (1999-2013), vowed that Venezuela would not abide by the ICSID award. Although Venezuela withdrew from ICSID in 2012, the court's rulings are applicable in cases filed before 2012.

There are currently 27 unresolved cases involving Venezuela at ICSID, totalling just under US$50bn. A major case involving another US energy corporation, ConocoPhillips, is expected to be determined in the coming months. During his 14-year tenure Mr Chávez nationalised assets in the country's mining and energy sectors, and increased state control over the economy.

Impact on the forecast

We expect Venezuela to pay the ICSID award and do not anticipate a payment of this size to have a substantial impact on Venezuela's ability to pay its other debts. We have made no changes to our forecasts at this time.