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US Federal Court Declares Venezuela in Default over $740 Million Claim

By: Pedro García Otero - Apr 2, 2015, 11:14 am

EspañolThe US Federal District Court for the District of Columbia has entered a default ruling against Venezuela, after the South American country failed to respond in time to a demand introduced by Gold Reserve Inc. The Canadian gold mining firm is seeking to confirm a US$740 million arbitration made in its favor by the International Center for Settlement of Investment Disputes (ICSID) over the expropriation of its operations in Venezuela in 2008.

The Venezuelan defense has entered a plea for the court to request annulment of the ruling, after it failed to present any document in its defense in the 60 days given by the ICSID. Gold Reserve subsequently presented its counterarguments in March 30, and the court is to deliver a ruling “in the near future.”

The nationalizing of gold mining projects in Venezuela has left investors in limbo.
The nationalizing of gold mining projects in Venezuela has left investors in limbo. (Oroyfinanzas)

Gold Reserve filed the claim against Venezuela on November 26, 2014, but there was no response from legal representatives from the country since then, according to news portal Business Wire, until the Venezuelan Foreign Ministry responded with a letter in late January raising “non-meritorious and irrelevant” objections.

Doug Belanger, president of Gold Reserve, stated that “this is another example of Venezuela being dilatory in its actions regarding the payment of the award.”

“The company will continue to pursue the collection of our award in a systematic and methodical way until Venezuela realizes that its needs to stop avoiding its international obligations and pay the award, sooner rather than later,” he added.

In 1992, the company acquired and began to develop the gold and copper mine now known as Proyecto Brisas. According to Gold Reserve, the mine contains 10.2 million ounces of gold and 1.4 billion pounds of copper.

In 2008, the Venezuelan government “arbitrarily revoked” Gold Reserve’s concession after it had already invested some $300 million in developing the site. The company introduced a demand before the ICSID and in September 2014 received a compensation order, which was ratified in December, despite Venezuela’s legal representatives refusing to accept service.

How Much Does Venezuela Owe?

Venezuela’s policy of expropriating private firms under the government of Hugo Chávez, especially during the 2007-2013 period, has led to massive international rulings by the ICSID, of which Venezuela is a member, just as Chávez’s successor President Nicolás Maduro faces a severe economic crisis due to the collapse of global petroleum prices.

Firms have filed 27 claims against Venezuela in the ICSID, making it the country with the most cases pending in the international tribunal. Five have already been resolved, involving a total payment of $2.12 billion.

After paying Exxon Mobil $747 million, the country will still owe $853 million, including the money it owes to Gold Reserve, and compensation for Chilean firm IDC to the tune of $33 million over the abrupt cancellation of its contract to operate an airport on Isla de Margarita in the Venezuelan Caribbean. US bottling firm Owens Illinois is expecting US$454 million after Chávez nationalized its operations on his Sunday television program, and an $46 million award to petroleum services firm Tidewater has already been ratified.

The demands are mounting still further. Adding to the total are US petroleum firm Conoco Phillips, which introduced a demand for $31 billion over the nationalization of its operations in the Orinoco oilfield (now renamed the Orinoco Hugo Chávez Oil Field).

Gold mining firm Rusoro has similarly presented a demand for $3.3 billion, and Argentina’s Grupo Techint has produced another for the nationalization of its operations in the steel sector. The total amount to be paid by Venezuela as a result of its nationalization policy, after negotiations with overseas claimants, could reach $20 billion.

Although Venezuela communicated to the World Bank in 2012 its withdrawal from the ICSID, those demands presented up until that point continue to be enforced by the institution.

Venezuelan Vice Attorney General Reinaldo Muñoz complained to state media that the ICSID rulings “seek to present Venezuela as an insolvent state with many debts to pay,” and that “these judgements are accelerating to give the impressions of a failed state with lots of debts.”

Nevertheless, Venezuela is not facing pressure to repay what it owes through ICSID alone.

Although Caracas was able to cancel its first quarter commitments to its international creditors, it’s debt to national and international private companies (over $13 billion) has led to a range of negative consequences. The supply of foodstuffs and medicines has been restricted, leading Venezuelans to line up around the block outside stores. Airlines are owed almost $3.5 billion, meaning air passengers can only pay for flights in dollars, and Venezuela’s debt to China is close to $50 billion.

The Venezuelan government’s total debt is some $125 billion, with the debt contracted by state petroleum firm PDVSA amounting to an additional $50 billion.

Venezuela will have to pay $25 billion just to service these commitments in 2015. “The government has a cash deficit that it can’t deal with, and it’s playing for time with counter-claims and temporary payments,” Venezuelan economist Asdrúbal Oliveros signaled.

Translated by Laurie Blair.

Pedro García Otero Pedro García Otero

Pedro García is the Spanish managing editor of the PanAm Post. He is a Venezuelan journalist with over 25 years of experience in local newspapers, radio, television, and online media. Follow him @PedroGarciaO.