Monthly Archives: July 2010

Jul
16
2010
Posted by
admin
Comments

Expropriated Companies in Venezuela Get Little to No Compensation

July 15

“… I will expropriate all the rice processing plants, I will expropriate them, I don’t have a problem doing it and moreover, I will pay them in paper not with real money.”

-          Hugo Chavez, May 1, 2009

The latest expropriation of an American company in Venezuela, that of Oklahoma-based contract drilling company Helmerich & Payne, yielded a familiar reaction from the U.S. government. The U.S. State Department said that “We would just call on them, if they did make such a move, to compensate the owners of those wells. This is the latest in such an instance where international investors, their investments are being nationalized by the government of Venezuela. It doesn’t speak or bode well for the investment climate there.”

The statement from the U.S. government was echoed a few months earlier by Assistant Secretary of Commerce, Walter Bastian, who when asked about the increased expropriations in Venezuela, said that “We have no problem with expropriation as long as those affected are paid.”

Therein lies the problem: expropriated companies in Venezuela are NOT being compensated. Moreover, because the Chavez regime has eradicated judicial independence in Venezuela, foreign companies have in practice no legal recourse to challenge the expropriations.

The numbers tell the story. According to a report issued in May 2010 by prominent Caracas based economic consulting firm,  Ecoanalítica, the costs of the nationalizations executed by President Chavez (since 2006) add up to $23.3 billion. These costs include that of the major nationalizations but do not include that of the “rescued land or farms, expropriated sugar mills or the expropriations of industrial zones in Barquisimeto and Maracaibo, so the figure could be higher.” It does include the expropriations of U.S. companies such as Hilton, Exxon, Conoco, and Cargill.  Ecoanalítica estimates that of this $23.3 billion, $14.65 billion of compensation have yet to be paid by the government. In fact, the Venezuelan government has only paid 37.2% of what it owes to the expropriated companies. According to the Ecoanalítica report, of the $14.65 yet to be paid, nearly half, “$ 7.25 billion are payable to companies in the oil sector, such as ConocoPhillips and ExxonMobil.”

Not only are expropriated companies not being compensated as legally required, but companies impacted by the nationalization policies have little legal recourse to challenge the taking of their property. This is so because Venezuela’s judicial system has been politicized by President Chavez and lack independence, thus in practice denying domestic and foreign companies the right to due process to challenge the government’s taking.  The 2009 U.S. State Department Human Rights Report described Venezuela’s “corrupt, inefficient, and politicized judicial system characterized by trial delays and violations of due process.” In its 2009 report on Venezuela, the OAS’ Inter-American Commission on Human Rights noted “the Executive Branch’s alleged interference in decisions of the judiciary.” To put it lightly, those counting on Venezuelan’s judicial system to overrule an action taken by the government, much less a decree issued by the President himself, are indeed tempting fate.

One need only look at the case of the coffee company, Fama de América. Fama de America, the best known coffee brand in Venezuela, was expropriated last year by the government. As part of negotiations to determine compensation, company representatives and the government agreed to name a three member panel of experts to determine the value of the company. Two of the members of the panel where named by the government. The panel conducted a study and determined a fair price, yet the government offered to pay only 10% of the value agreed upon by the experts. It was a take it or leave it offer: take the 10% and then we take the company, or refuse the offer and we’ll take the company anyway. That sounds more like extortion than a fair negotiation.

The bottom line for American and other foreign expropriated companies in Venezuela is that compensation for the taking of their property is likely never to come. It may not be surprising then that following the taking of their property, Helmerich & Payne issued a warning to fellow companies in their industry about investing in Venezuela: “Reflecting on last week’s forced exit from Venezuela, it is clear now that PDVSA was not interested in both sides achieving commercial terms to return our rigs to work… That approach only heightens concerns for our oil-field-service peers contemplating their future there, as it should.”

 
Jul
16
2010
Posted by
admin
Comments

Expropriated Companies in Venezuela Get Little to No Compensation

The latest expropriation of an American company in Venezuela, that of Oklahoma-based contract drilling company Helmerich & Payne, yielded a familiar reaction from the U.S. government. The U.S. State Department said that “We would just call on them, if they did make such a move, to compensate the owners of those wells. This is the latest in such an instance where international investors, their investments are being nationalized by the government of Venezuela. It doesn’t speak or bode well for the investment climate there.”

The statement from the U.S. government was echoed a few months earlier by Assistant Secretary of Commerce, Walter Bastian, who when asked about the increased expropriations in Venezuela, said that “We have no problem with expropriation as long as those affected are paid.”

Therein lies the problem: expropriated companies in Venezuela are NOT being compensated. Moreover, because the Chavez regime has eradicated judicial independence in Venezuela, foreign companies have in practice no legal recourse to challenge the expropriations.

The numbers tell the story. According to a report issued in May 2010 by prominent Caracas based economic consulting firm, Ecoanalítica, the costs of the nationalizations executed by President Chavez (since 2006) add up to $23.3 billion. These costs include that of the major nationalizations but do not include that of the “rescued land or farms, expropriated sugar mills or the expropriations of industrial zones in Barquisimeto and Maracaibo, so the figure could be higher.” It does include the expropriations of U.S. companies such as Hilton, Exxon, Conoco, and Cargill. Ecoanalítica estimates that of this $23.3 billion, $14.65 billion of compensation have yet to be paid by the government. In fact, the Venezuelan government has only paid 37.2% of what it owes to the expropriated companies. According to the Ecoanalítica report, of the $14.65 yet to be paid, nearly half, “$ 7.25 billion are payable to companies in the oil sector, such as ConocoPhillips and ExxonMobil.”

Not only are expropriated companies not being compensated as legally required, but companies impacted by the nationalization policies have little legal recourse to challenge the taking of their property. This is so because Venezuela’s judicial system has been politicized by President Chavez and lack independence, thus in practice denying domestic and foreign companies the right to due process to challenge the government’s taking. The 2009 U.S. State Department Human Rights Report described Venezuela’s “corrupt, inefficient, and politicized judicial system characterized by trial delays and violations of due process.”

In its 2009 report on Venezuela, the OAS’ Inter-American Commission on Human Rights noted “the Executive Branch’s alleged interference in decisions of the judiciary.” To put it lightly, those counting on Venezuelan’s judicial system to overrule an action taken by the government, much less a decree issued by the President himself, are indeed tempting fate.

One need only look at the case of the coffee company, Fama de América. Fama de America, the best known coffee brand in Venezuela, was expropriated last year by the government. As part of negotiations to determine compensation, company representatives and the government agreed to name a three member panel of experts to determine the value of the company. Two of the members of the panel where named by the government.

The panel conducted a study and determined a fair price, yet the government offered to pay only 10% of the value agreed upon by the experts. It was a take it or leave it offer: take the 10% and then we take the company, or refuse the offer and we’ll take the company anyway. That sounds more like extortion than a fair negotiation.

The bottom line for American and other foreign expropriated companies in Venezuela is that compensation for the taking of their property is likely never to come. It may not be surprising then that following the taking of their property, Helmerich & Payne issued a warning to fellow companies in their industry about investing in Venezuela: “Reflecting on last week’s forced exit from Venezuela, it is clear now that PDVSA was not interested in both sides achieving commercial terms to return our rigs to work… That approach only heightens concerns for our oil-field-service peers contemplating their future there, as it should.”

Read other E-Alerts

 
Jul
16
2010
Posted by
editor
Comments

Chavez “communes” stoke Venezuela democracy debate

Credit: Reuters/Carlos Garcia Rawlins

This article was originally posted by Reuters

CARACAS (Reuters) – Tucked into forested hills in southwest Caracas, a red-brick housing complex for the poor is a testing ground for Venezuelan President Hugo Chavez’s latest step to build socialism in the Latin American oil producer.

The phalanx of simple five-storey apartment blocks, some still being built, anchors the “Cacique Tiuna Commune”. This is one of a network of “socialist communes” that Chavez and his supporters want to extend across the nation in a political and legislative offensive to dismantle “bourgeois” capitalism.

Not surprisingly in a country whose politics is as flammable as gasoline, the project enshrined in a package of “power to the people” laws is stoking a political firestorm.

Fuelling the political debate is the proximity of legislative elections on September 26.

The government says the communes will help end poverty. But furious opponents, who already denounce Chavez as a repressive autocrat, say the initiative heralds outright communism in Venezuela and so violates its pluralist constitution.

“A barrier is being crossed … we’re passing from Chavez’s tropical socialism to open and glaring communism,” says Emilio Grateron, mayor of Chacao, an opposition stronghold entrenched in a more wealthy eastern neighbourhood of Caracas.

Displaying colourful murals of Venezuela’s 19th century independence hero Simon Bolivar, and one of Argentine guerrilla legend Ernesto “Che” Guevara, the 2,220-inhabitant Cacique Tiuna Commune is conceived as a showcase “socialist” community among the dirt-poor hilltop slums that hem in the capital.

Chavez and the laws’ promoters deny the communes project is a bid to railroad the country into Soviet- or Cuban-style Marxism. They say the legislation is compatible with the 1999 Constitution and follows socialist goals of ending decades of inequality in Venezuela and giving more say to the poor in the running of their own lives and that of the country.

Read more