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An ad hoc committee has rejected Venezuela’s attempt to annul an $8.5 billion arbitration award owed to ConocoPhillips, marking a significant victory for the oil giant in a 17-year dispute over Venezuela’s expropriation of its oil projects. The International Centre for Settlement of Investment Disputes (ICSID) administered the arbitration, and the committee’s 356-page decision on Wednesday comprehensively dismissed Venezuela’s challenges.

Venezuela's Challenges Rejected

The arbitration dispute stems from Venezuela’s 2007 nationalization of ConocoPhillips’ interests in two extra-heavy oil projects in the Orinoco Oil Belt and an offshore project. Venezuela argued that:

• The tribunal was improperly constituted.
• Arbitrators exceeded their powers or failed to adequately explain their reasoning.
• The damages calculation was flawed.

The annulment committee dismissed these arguments, stating the tribunal’s decision was “easily understood” and that Venezuela had ample opportunity to present its case. It further noted that evidence excluded by the tribunal would not have altered its damages assessment.

Legal and Financial Implications

The award, initially granted in 2019, requires Venezuela to compensate ConocoPhillips subsidiaries for the unlawful expropriation of their investments. The committee also ordered Venezuela to pay over $6.4 million in legal fees and expenses incurred by ConocoPhillips during the annulment proceedings.

A ConocoPhillips spokesperson welcomed the decision, emphasizing its significance in upholding the principle that governments cannot unlawfully expropriate private investments without compensation.

Venezuela’s Criticism of the ICSID System

Venezuela's counsel, George Kahale III of Curtis Mallet-Prevost Colt & Mosle LLP, criticized the decision, calling the arbitration process an embarrassment. “The annulment decision confirms that the system lacks the necessary checks and balances that are the hallmark of a serious and mature legal system,” Kahale said.

Venezuela had previously challenged the impartiality of several tribunal and committee members, including accusations of misconduct involving arbitrator Kap-You "Kevin" Kim. These challenges were dismissed, with former Canadian Supreme Court Justice Ian Binnie finding no evidence to support Venezuela’s claims.

Enforcement of the Award

ConocoPhillips has already secured approval from a U.S. federal court in Washington, D.C., to enforce the award. The court ruled in 2022 that Venezuela’s chances of success in the annulment proceeding were minimal, clearing the way for asset seizures to recover the debt.