The Energy Regulation and Markets Review - Stikeman Elliott

Venezuela
against PDVSA and Venezuela as a result of the migration process. Further application
of new laws by the government, such as the reserve of the oil and gas services sector led
to more arbitration proceedings. 7
In addition to controlling the oil and gas activities, the government has changed
the focus of the state-owned company PDVSA by broadening its scope of activities
outside the core oil and gas business activities. In effect, PDVSA has been assigned the
task of not only directly exploiting the oil and gas industry, but also contributing to
the socio‐economic development of Venezuela by implementing social programmes of a
completely different nature. Such activities include the import of food, food distribution,
funding the purchase of electricity companies or projects funding infrastructure and
agriculture, including roads, health and education.
Additionally, PDVSA is now required to make significant financial contributions
to the National Development Fund (FONDEN), 8 which have had an important effect
on its cashflow. Specifically, according to Article 5 of the Hydrocarbons Law (defined
below), PDVSA’s revenues must be used to finance health and education, to create funds
for macroeconomic stabilisation and to make productive investment to the benefit of
the welfare of the Venezuelan population. For example, PDVSA contributed a total of
$3.5 billion in 2009, $7 billion in 2010 and a total of $30 billion in 2011 to social
development. These contributions were in addition to taxes and dividends paid by
PDVSA annually to the state, as well as the social projects funded by the company. As
a consequence, PDVSA’s new obligations have given rise to debate on whether PDVSA
should engage in activities that give preference to the government’s objectives rather than
the economic and business objectives of the company. 9
Alongside this debate, PDVSA has reflected its future plans in the oil and gas
sector in the Siembra Petrolera Plan (Oil Sowing Plan) 2010–2015 describing its
7 Currently, Venezuela has six oil related arbitration proceedings before ICSID: Eni Dación BV
v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/4); Opic Karimun Corporation
v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/10/14); The Williams Companies,
International Holdings BV, WilPro Energy Services (El Furrial) Limited and WilPro Energy
Services (Pigap II) Limited v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/11/10);
Mobil Corporation and others v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27);
ConocoPhillips Company and others v. Bolivarian Republic of Venezuela (ICSID Case No.
ARB/07/30); and Universal Compression International Holdings, SLU v. Bolivarian Republic of
Venezuela (ICSID Case No. ARB/10/9) http://icsid.worldbank.org/ICSID/Index.jsp.
8 FONDEN is a special fund that was created by the government of Venezuela in 2005 as a
corporation to finance and manage investment projects, public education, health care and
other welfare projects in Venezuela, to promote the economic and social development of the
country. PDVSA also contributes to the FONDEN through mandatory transfers required
under the Windfall Tax Law.
9 PDVSA was originally created in 1975 to coordinate, monitor and control all operations related
to hydrocarbons At such time PDVSA was exclusively dedicated to the oil and gas business, not
significantly subject to political or social endeavours.
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