Venezuela: Arbitration allowed for foreign companies
Venezuela constitution favours arbitration
Venezuela wants to rejig agreements with foreign partners for exploration in the Orinoco Belt but the Venezuelan constitution allows for arbitration regardless of the government attempts at excluding it from projects.
In the new agreements on the Carabobo Block at the Orinoco Oil Belt to be entered into by Venezuela with foreign partners, there are plans to clear the recourse of arbitration.
However, both the Venezuelan constitution and laws entitle foreign investors to request international arbitration for dispute settlement, said a report from El Universal newspaper.
In 2007, the Venezuelan government removed the arbitration clause at the time of organising 33 mixed companies following the migration of former operational agreements –service suppliers of state-run oil holding PDVSA.
It acted likewise with the agreements of the new companies upon nationalisation of the four upgraders of heavy crude oil at the Orinoco Belt.
Diana Droulers, executive of the Arbitration Center, Caracas chamber of commerce, said that no matter if the clause on "commercial arbitration" is taken out of the agreements with mixed companies for the Carabobo project, or elsewhere; provided that there is foreign investment, the Venezuelan Constitution and the Law on Investments Furtherance and Protection allow for it.
There is a different situation with Venezuelan-owned companies. In the absence of arbitration in their agreements, disputes should be settled in Venezuelan regular courts.
Articles 253 and 258 of the Constitution acknowledge this choice for PDVSA foreign partners. Droulers quoted article 258: "the law shall encourage arbitration, conciliation, mediation and any other alternative means for dispute settlement."
Further, the Constitution refers to the Law on Investments Furtherance and Protection –decreed during the first year of President Hugo Chavez's administration.
Article 22 of the chapter on "Dispute Settlement" provides that disputes may be "subject to international arbitration."
Droulers noted that these issues were added in 1999, both to the Constitution and the law to attract foreign investment.
She explained that the easiest way is to include the clause on "commercial arbitration" as it is called in the agreements, because it is less burdensome for any country.
Under the current laws, even if arbitration is not included in the agreements, foreign parties could file a complaint against Venezuela with the World Bank's International Center for Settlement of Investment Disputes (Icsid) in the event of any dispute.
Arbitration could be also implemented in the country of origin of the foreign investor if a treaty of that country with Venezuela is in force.
"Arbitration at Icsid is much more complicated," explained Droulers. "It is easier to include commercial arbitration in the agreements."
At the present time, some claims have been lodged with the World Bank against Venezuela.
There are the cases of cement makers Holcim and Cemex, in addition to oil companies ExxonMobil and ConocoPhillips.