Venezuelan President Hugo Chavez said Sunday that his government should pull out of a World Bank-affiliated arbitration body and won't recognize its decisions.
Exxon Mobil Corp. is one of more than a dozen companies with arbitration cases against Venezuela pending before the Washington-based International Centre for Settlement of Investment Disputes, or ICSID.
Chavez announced his decision while referring to a more than $900 million award that Exxon Mobil recently won in another arbitration case before the International Chamber of Commerce.
"Now they're threatening us in the ICSID," Chavez said on his Sunday television program. "We have to get out of that ICSID. And I'll go ahead and say it: We won't recognize any of ICSID's decisions."
Analysts said that if Chavez follows through on the plan, it could hurt Venezuela's ability to obtain credit internationally and attract oil investments. It also might prompt companies in disputes with Chavez's government to try to freeze the country's assets, including refineries it owns in the U.S.
However, pulling out of the arbitration body would take time, and analysts said Chavez's government still has legal obligations that it can't escape in the pending cases before the arbitration body.
Exxon Mobil sought arbitration after Chavez's government nationalized an oil project in Venezuela in 2007. The Irving, Texas-based oil company declined to comment about Chavez's remarks.
The ICSID's website lists 17 pending cases against Venezuela. They include claims by Houston-based oil company ConocoPhillips Co., U.S. glass container manufacturer Owens-Illinois Inc. and Toronto-based mining company Crystallex International Corp.
The Caracas-based consulting firm Ecoanalitica estimated recently that the bulk of the government's nationalizations have involved more than $33.7 billion in assets, including about $23 billion in outstanding obligations. It estimates that of that, Exxon Mobil and ConocoPhillips stand to gain a total of $11.5 billion in their pending arbitration claims.
Venezuela has reached negotiated agreements after taking over the operations of other companies such as Swiss cement maker Holcim and Mexican cement company Cemex SAB.
Decisions in the arbitration cases could put major financial pressures on Venezuela at a time when Chavez is running for re-election and has been increasing government spending.
"Why do we have to go there, to the United States?" Chavez said of the ICSID. "The World Bank, what's that?"
Chavez had mentioned previously that the government was considering abandoning the arbitration body, following the leftist governments in Ecuador and Bolivia, which have pulled out in the past several years. But analysts had described a Venezuelan pullout as unlikely because it would likely bring various financial consequences for the government, including affecting its government bonds.
"Tomorrow, I'm sure that bonds are going to fall," said Asdrubal Oliveros, an economist and director of Ecoanalitica. "This is going to generate a lot of noise."
Regardless of what Chavez says, Venezuela "has an obligation to accept the decisions that the ICSID is going to make with respect to Conoco and Exxon," Oliveros said in a telephone interview. He said the government already accepted the arbiter in all of the pending cases and cannot take that back.
If the government eventually goes through with Chavez's idea, companies will be able to go after Venezuelan assets in the U.S. and elsewhere, Oliveros said.
He noted, however, that several years ago Chavez similarly vowed to pull out of the International Monetary Fund but found it impractical.
"I think that when they realize the impact of pulling out of the ICSID... the government will probably reverse course," Oliveros said.
Michael Nolan, a Washington lawyer who represents clients considering arbitration suits against Chavez's government, agreed that a withdrawal by Venezuela should not have any effect on cases that are already under way. He said companies should still also be able to file new arbitration cases for some time because there is a six-month "sunset provision" in a key convention to which Venezuela is a party.
"President Chavez is not going to solve Venezuela's very serious international legal problems with either speeches or even a formal denunciation of the ICSID Convention," Nolan said, noting that those pursuing claims against Venezuela are also able to sue under about 20 investment treaties that Venezuela has signed with other countries.
Chavez said Ecuadorean President Rafael Correa "is proposing something that is absolutely necessary, creating an organization in (the regional bloc) Unasur where some differences between governments or businesses in Latin America can be settled."
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