Venezuelan state-owned document favors the country in disputes and taxes; requirements contravene US Treasury rules
Petróleos de Venezuela SA, a Venezuelan state-owned company, presented a model contract to foreign energy companies interested in operating in the country. The objective is to try to reactivate national production by resuming oil wells, drilling new areas and selling the commodity. The information is from Bloomberg.
The document began to be shared at the end of last week with executives and consultants in the oil sector. The text is 90 pages long, establishes the operating conditions and indicates a rigid initial position of the state-owned company for negotiations.
Companies that already have preliminary agreements with PDVSA were waiting for the contract to be defined before starting formal negotiations. The expectation was that Venezuela would adopt a more attractive model for foreign investors.
The reception from lawyers and industry representatives shows that the transformation of agreements into definitive contracts is likely to take longer than expected.
ARBITRATION & SANCTIONS
The new formulation benefits the Venezuelan government and shields the State from possible disputes. In dispute cases, the text defines mediation by IOMed (International Organization for Mediation), based in Hong Kong. If there is no consensus, the matter will be referred to an arbitration court in Paris.
The clause contravenes US Treasury Department rules. The US government requires that industry agreements be governed by US law and arbitration courts.
UNILATERAL TERMINATION AND TAXES
The contractual model also leaves room for Venezuela to unilaterally terminate partnerships if people linked to the operating company become involved in acts of political destabilization.
The compensation established for the foreign oil company is limited in the event of cancellation of the contract for reasons of public interest in the first 6 years. Venezuela also reserves the freedom to define the collection of taxes and royalties on operations.
POLITICAL SCENARIO
The document is signed by the president of PDVSA, Héctor Obregón – a member of Nicolás Maduro’s administration and the target of international sanctions.
The negotiations are being carried out against a backdrop of rising global oil prices and attempts by the Donald Trump (Republican Party) government to accelerate investments in the country. Venezuela has one of the largest oil and gas reserves in the world.
The current Venezuelan government is dealing with internal pressure from nationalist groups linked to the former Maduro regime, captured by the United States in January.
PDVSA, the Venezuelan Ministry of Information and the US Treasury did not respond to requests for comment from the Bloomberg.
