The tale of how an American company took on the state of
Venezuela through a Dutch bilateral investment treaty, and
Earlier this month, ICSID, the World Bank's international
arbitration body, awarded Exxon Mobil $1.6 billion against the
Venezuelan government over assets expropriated in 2007. Although
not close to the $50 billion awarded to the former shareholders of
the now-defunct Yukos Group,
(article here) or the $16.6 billion the US oil giant first
sought, the award is hardly a pittance. It is also a reminder that
if you invest overseas a smart company will consider the
protections offered by investment treaties.
The Exxon case is one of more than 20 claims against Venezuela
demanding compensation for assets seized during a nationalisation
spree under the leadership of the late socialist President Hugo
Chavez. The state took over scores of companies to secure greater
control over key economic sectors, particularly in the oil
In this case, five subsidiaries of Mobil Corporation (a Dutch
holding company) initiated the arbitration against the Venezuelan
government for seizing their interests in the Cerro Negro and La
Ceiba projects, in breach of the NetherlandsVenezuela bilateral
investment treaty (BIT). These assets were initially held by Exxon
Mobil's US entities, however the restructure of Mobil
Corporation in 2005- 2006 saw them moved to Dutch holding companies
so that they would be protected under the Netherlands-Venezuela
bilateral investment treaty (there is currently no equivalent
between the US and Venezuela). Venezuela argued that the move
constituted an abuse of rights under the BIT and the tribunal had
no power to hear the matter. The tribunal rejected this, saying
that Exxon Mobil had a legitimate goal to restructure Mobil's
investments in Venezuela to gain protection under the
Interestingly, in its challenge to the tobacco plain packaging
legislation, Australia argues that Philip Morris took similar steps
to restructure its investments in Australia so as to take advantage
of the Australia-Hong Kong BIT. We assume that Australia will be
hoping the tribunal takes a different approach.
Venezuela is now up for a sizeable award and another hit to its
struggling economy. On the bright side, it has gotten away with an
award significantly less than expected and more assets to add to
its thriving oil industry. Viva La Revolucion!
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