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PDVSA Demands an Independent Audit and Arbitration in Commercial Dispute with SAIC

WASHINGTON, July 21 /U.S. Newswire/ -- In a briefing today, top officials of the Venezuelan oil and gas concern PDVSA (Petroleos de Venezuela, S.A.) said the company's commercial dispute with the San Diego firm Science Applications International Corporation should be put before an independent international arbitrator, rather than be subject to political pressures in Washington.


The dispute between PDVSA and SAIC pertains to their joint ownership of an information technology firm called INTESA that was designed to provide outsourced IT services to PDVSA and potentially others in Latin America.


"This case must be resolved by independent international arbitration, the course of action that was agreed to in contracts signed by PDVSA and SAIC," said Rodolfo Porro, General Counsel of PDVSA, in a background briefing entitled "PDVSA vs. SAIC: Myths and Truths of the Commercial Dispute." Last week, the U.S. Overseas Private Investment Corporation announced it had decided in favor of SAIC in this matter and asserted that PDVSA and the Government of Venezuela had expropriated SAIC's investment in Venezuela.


In reviewing key details of the PDVSA/SAIC commercial dispute, Porro explained that SAIC has refused to provide for a certified financial audit of INTESA's books. "This is particularly important because the outside auditors of INTESA have refused to certify the validity of INTESA's financial statements for 2002. PDVSA for its part cannot pay SAIC or any entity based solely on guesswork and unaudited financial data."


Porro said there has been no expropriation and that SAIC's claim before OPIC was false. "OPIC found in favor of SAIC, but in a process in which PDVSA never even had the opportunity to review SAIC's submission. OPIC's decision simply ignored the facts of this case that were presented by PDVSA."


Porro also alleged that some OPIC officials may have had a political agenda in assisting SAIC with their efforts against PDVSA. "It is important to note that the person within OPIC who validated the SAIC claim previously worked at a company that itself had a joint venture with SAIC," he said.


Throughout the process at OPIC, OPIC has tried to pressure PDVSA to pay SAIC before a final determination could be reached in order to avoid issuing a final determination in this matter. Porro said, "We simply cannot be coerced. PDVSA has a public reputation to preserve and we cannot pay money that is not validly due."


The OPIC decision highlighted the fact that PDVSA suspended remote access to its IT systems during a nationwide work stoppage in December 2002/January 2003 that paralyzed the petroleum sector. "This was a security measure that was critical given the magnitude of the crisis we faced and the risks posed to us. Remote access was deactivated not only for the workers at INTESA but for everyone who had remote access. It was deactivated specifically because as PDVSA was trying to operate its systems, we were experiencing interruptions of service that were being perpetrated by remote access. It was absolutely essential to suspend this mechanism so that we could control our IT operations," he said, adding: "Any security expert would agree with this. It is incredible that OPIC never mentioned that these were taken as essential security measures."


Commenting on the case, the Ambassador of the Bolivarian Republic to the United States, Bernardo Alvarez Herrera, indicated that "the allegation that the assets of INTESA were confiscated by PDVSA is totally inaccurate; such actions are expressly prohibited by the Venezuelan constitution."


At the same time, the Ambassador commented on the importance of the U.S.-Venezuelan bilateral relationship. PDVSA is an important investor in the United States through its subsidiary CITGO, one of the largest U.S. oil refiners with 13,500 service stations, $12 billion in U.S. investment and more than 150,000 direct and indirect employees, he noted.


Ambassador Alvarez continued, "In the energy sector, Venezuela exports 1.44 million barrels of oil each day to the United States and buys $3.5 billion dollars each year in goods and services from more than 800 U.S. companies. There are more than 100 U.S. and international firms, with more than $25 billion in investment in the Venezuelan energy sector and an additional $14 billion expected in the near future. This is evidence that the allegations of SAIC represent an isolated experience and that OPIC's assertion has no relationship to the actual investment climate in Venezuela, where foreign investors can invest with confidence because of a secure legal investment infrastructure."


Thomas Wilner, the outside counsel to PDVSA on this matter who is a partner with the prestigious law firm of Shearman & Sterling, commented on the OPIC's memorandum of determination in this case: "This is one of the strangest decisions that I have seen in more than 30 years of practicing law in Washington. There is no basis for this decision in either the facts or in the law. The OPIC decision has no merit whatsoever."


Wilner also commented that he was "surprised by the enormous political pressure that has been put on PDVSA and Venezuela from the highest levels of the U.S. Government for what is such a modest commercial dispute. One must wonder where this political pressure comes from and why the U.S. relationship with a country that supplies nearly 15 percent of our oil imports can be held hostage to such a minor commercial dispute."


Wilner added, "As a U.S. citizen I am frankly offended to see that our tax dollars can be used to pay fraudulent claims to companies with powerful political connections. How could OPIC have paid this claim when there has never been a financial audit?"





Each of the Venezuelan spokespersons, who were in Washington for high level meetings with representatives of the U.S. business, government and financial communities, ended by reiterating the longstanding commitment that Venezuela has had, and will continue to have, with the foreign investor community and to the continued fulfillment of the contractual obligations of Venezuela that are designed to benefit commercial relations with the United States and the rest of the world, broadly speaking and in particular in the energy sector.

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Bernardo Alvarez, ambassador of the Bolivarian Republic of Venezuela to the United States:

"The more than 100 international companies, including many U.S. firms - with more than $25 billion in investment in the Venezuelan energy sector and another $14 billion in investments expected in the near future, are evidence that the case of SAIC is an isolated incident that does not reflect the general climate of confidence and security of these international firms as investors in Venezuela."

Thomas Wilner, partner, Shearman & Sterling, LLP:

"As a U.S. citizen, I am frankly offended to see that our tax dollars can be used to pay fraudulent claims to companies with powerful political connections. How could OPIC have paid this claim when there has never been a financial audit?"

 
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