Tribunal Upholds Venoco’s Nationalization


In an international arbitration court, a World Bank tribunal ruled that it didnt have jurisdiction in a 2012 case in which the Netherlands-incorporated holding company of Venezuelas largest lubricant company, Venoco, argued that Venezuela wrongfully expropriated its assets in 2010. The tribunal decided that although it is internationally held, holding company Venoklims owners are Venezuelan nationals and therefore not truly international investors.

Venoklims dispute stems from Venezuelan President Hugo Chavezs October 2010 nationalization of Venoco, the countrys largest producer of lubricants, and its five subsidiaries. At that time, the Socialist regime claimed that making Venoco part of government-owned Petroleos de Venezuela S.A. would help lower the countrys lubricants prices.

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At the time the company was owned in majority by Venezuelan national Franklin Duran, who was later sentenced to four years in a United States prison for being an unregistered foreign agent for Venezuela.

In July 2012, Venoklim filed for arbitration against Venezuela in the World Banks International Centre for Settlement of Investment Disputes.

According to ICSID court documents obtained and translated by Lube Report, the tribunal upheld Venezuelas response that Venoklim is not an international investor because it is controlled first and foremost by Venezuelan nationals. The court stated that No provision invoked by [Venoklim] in this arbitration – [including] the Investment Law, the Dutch Treaty and the ICSID Convention – allow the Venezuelan nationals to act against their own states before the ICSID.”

Venezuela also argued that Venoklim may be registered under the laws of the Netherlands and own 100 percent of the shares of the five subsidiaries affected, but [the party that] ultimately suffers the financial consequences of the expropriation is not the foreign shell of Venezuelan investors acting as plaintiff in this case, but the Venezuelan company, Industrias Venoco, C.A.”

On April 3, the tribunal dismissed Venoklims claim that ICSID did not have jurisdiction to arbitrate the case, and ordered both parties to split the cost of the arbitration.

Among the subsidiaries of Venoco is Aditivos Orinoco de Venezuela and Adinoven, C.A., which makes additives for Shell and ExxonMobil lubricants, dielectric oils and specialty chemicals. Adinoven is a 55-45 percent joint venture between the Venezuelan subsidiary of Infineum (a joint venture between Shell and ExxonMobil) and Venoco. Venocos other three subsidiaries are Servicios Tcnico Administrativos Venoco, C.A.; C.A. Nacional de Grasas Lubricantes; and Qumica Venoco, C.A.

Venoco President Ricardo Barreto recounted the companys history during a presentation at the ICIS Pan-American Base Oils & Lubricants Conference in New York in December 2008. Venoco was inaugurated in June 1960. At that time, lubricants were imported, except for straight grades of oils. By 1963, Venoco was the first Venezuelan company blending and packaging a full line of automotive and industrial oils, and was custom blending for Valvoline, Esso, Shell, Mobil, Phillips 66 and Amalie. By 1963, Barreto said, Venoco had 5 percent of the countrys lube market.

The two decades from 1973 to 1993 were a period of nationalization in Venezuela, with the state holding a monopoly on marketing all hydrocarbon-related materials. Venoco survived by blending for the state-owned companies and was able to keep and protect its brand through exports, local sales of synthetic-based lubricants and sales of non-lubricant products such as chemicals and solvents, which made up 64 percent of Venocos tonnage in 2008.

The open market period beginning in 1994 brought the relaunch of Venoco lubricants. In 1995, Venoco entered a joint venture with Mobil to manufacture grease and lube oils. Venoco bought back its equity from ExxonMobil in 2007, when ExxonMobil sold its Venezuelan assets.

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