The World Bank received, on January 24, 2012, "written notice of denunciation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) from the República Bolivariana de Venezuela".1 As further reported on the ICSID website, "the denunciation will take effect six months after the receipt of Venezuela's notice, i.e., on July 25, 2012".2 It has been reported that Venezuela premised its denunciation on the position that international arbitration of oil and gas disputes is inconsistent with the Venezuelan constitution of 1999.3
ICSID is an arbitration institution with more than 140 member states. ICSID makes available a forum for the settlement of disputes between host states and international investors. Submission of disputes to ICSID arbitration requires an independent consent to arbitration by the host state and by the investor. Currently, most state consents to ICSID arbitration are included in bilateral investment treaties, or BITs, that extend international legal protections to foreign investors, such as the guarantee of full and prompt compensation for expropriation. Most investors consent to arbitration by their submission of a BIT dispute to ICSID arbitration. To date, there are 140 pending arbitrations at ICSID, and 225 ICSID arbitrations have been concluded.4
It is reported that a recent ICC award against PDVSA, the Venezuelan national oil company, in favor of an ExxonMobil subsidiary was the catalyst for Venezuela's decision to withdraw from the ICSID Convention.5 ExxonMobil is also seeking compensation from Venezuela in an independent ICSID arbitration.6 The ICC award initially had been touted as a victory by PDVSA and the Venezuelan government because the ICC Tribunal awarded ExxonMobil only $747 million on a reported claim by Exxon of $7 billion.7 But, as has been reported in public arbitration fora, a reason for the damages amount appears to have been a function of the contractual damages provisions. The damages provision, for example, appears to have referenced the price of oil significantly below today's market price.8 ExxonMobil therefore may be able to recover in the ICSID arbitration the difference between the ICC award and its true economic loss, reported to be in excess of $19 billion.9 Currently, an additional 16 ICSID claims are pending against Venezuela10 with a reported aggregate claim value in excess of $21 billion.11
Venezuela's withdrawal from the ICSID Convention should not have any formal legal effect on pending ICSID proceedings.12 The ICSID Convention does not allow Venezuela unilaterally to walk away from its commitments, even if that is what Venezuela wishes to do, given the flood of claims against it and the promise of additional claims. Commentators are in agreement that claimants in...