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Al? Rodr?guez, president PDVSA

Statement of Ali Rodriguez Araque, President, Petroleos de Venezuela

CARACAS, Venezuela.- July 14, 2004 .- The United States Overseas Private Investment Corporation (?OPIC?) formally informed us yesterday that it has decided to pay the San Diego firm Science Applications International Corporation (?SAIC?) based on SAIC?s claim that its investment in Venezuela has been expropriated.

We have every reason to believe that OPIC?s decision was based on prevailing politics in Washington, D.C., and the desire to satisfy a politically powerful U.S. company, rather than on the facts. We have consulted with outside legal counsel in the United States, as well as with a noted U.S. academic expert in the field of international law and expropriation, and both have concluded that OPIC?s determination is entirely without merit. OPIC simply accepted the allegations of SAIC without examining the actual facts.

The facts are straightforward:
? In 1996, PDVSA made the decision to outsource its information technology services. It entered into a joint venture with SAIC, and together they created a Venezuelan joint venture company called ?INTESA? to provide outsourced information-technology services to PDVSA.

? SAIC ? through an offshore subsidiary called ?SAIC Bermuda? ? invested $1,200 in the venture, while PDVSA provided all financing for the venture as well as all equipment, office space, personnel and $800. The venture was governed by a five-year contract that could be renewed upon agreement of both parties. The contract gave SAIC both management and board control of INTESA.

? Under the contract, PDVSA paid INTESA all costs for services provided, plus a mark up of approximately 10 percent. PDVSA paid each month in advance.

? SAIC profited handsomely from the venture, earning more than $40 million in dividends on its investment of twelve hundred dollars, and an additional $53 million in subcontract fees.

? By contrast, the venture was not economically beneficial to PDVSA. A July 2000 report by PDVSA?s internal auditor raised questions about the cost-plus outsourcing agreement. Guaicapuro Lameda, who was then President of PDVSA, created an internal committee to evaluate that agreement and recommend changes. PDVSA hired the Gartner Group, an internationally recognized IT consulting firm, to examine and assess the agreement. Both the internal committee and Gartner recommended that PDVSA not renew the agreement unless its terms were changed significantly.

? After a series of attempts to renegotiate the working arrangement, and after SAIC refused to change the operating terms, PDVSA informed SAIC that it would not renew the agreement after it expired.

OPIC concluded that the decision not to renew the agreement ?effectively ended the viability of the joint venture.? It apparently decided that PDVSA made that decision at the direction of the government and for political reasons. That is simply untrue. PDVSA made that decision purely for commercial reasons based on its own internal studies and the advice of an expert outside consultant.

PDVSA has consistently tried to meet with SAIC to work out an orderly dissolution of INTESA in conformity with the terms of the joint venture contract. PDVSA has made clear in all these efforts that it would pay SAIC its share of the value of the company as determined by an independent audit, in accordance with the contract.

SAIC has refused even to meet. It has also consistently refused to allow any independent audit of INTESA?s books. Such an audit is particularly important because INTESA?s own auditors had refused to certify the accuracy of its financial statements. PDVSA, of course, cannot make a payment based on guess work and unaudited financial statements.

Rather than work out an orderly dissolution with PDVSA in accordance with the contract, SAIC sought political support in Washington from various agencies and members of Congress and filed a claim with OPIC alleging that PDVSA and the Government of Venezuela have ?expropriated? its investment in INTESA. Neither the Government of Venezuela nor PDVSA was notified of SAIC?s filing or has ever been allowed even to see SAIC?s claim.

OPIC has tried to pressure PDVSA to pay SAIC in order to make this dispute go away and to avoid any controversy that might occur as a result of an OPIC determination. But we simply cannot be subjected to such blackmail. PDVSA has a public trust and it cannot pay money that is not lawfully due.

I personally find it astonishing that a government agency such as OPIC would pay out millions of U.S. taxpayer dollars based purely on the self-serving allegations of the company making a claim and in the absence of any certified financial information.

The OPIC process, in which only one party is able to present its case, is not an appropriate venue for resolving these types of commercial disputes. On April 28, PDVSA notified SAIC of its intent to submit this dispute to arbitration before the International Chamber of Commerce in accordance with the specific terms of their joint venture contract. This is the proper forum for the resolution of disputes between the parties. This independent adjudicative body will allow for a proper and unbiased review of all facts in this matter. We are confident of the outcome.

The wide array of companies that continue to invest in the oil business in Venezuela ? with more than $25 billion of direct investment to date ? is testament to our commitment to the highest standards of commercial and legal propriety. Now, as always, PDVSA is deeply committed to its international business partners and to upholding the laws and regulations that bind us together.

For More Information Contact:
Tom Wilner, 202-508-8050

 
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