Venezuelan crisis

China’s Sinopec sues Venezuelan oil firm as Beijing’s patience wanes over debt crisis

US subsidiary of Chinese conglomerate seeks US$23 million in damages from PDVSA in dispute over payment for 45,000 tonnes of steel rebar

PUBLISHED : Thursday, 07 December, 2017, 2:18pm
UPDATED : Thursday, 07 December, 2017, 10:34pm

One of China’s biggest state-run conglomerates has sued a Venezuelan counterpart in a US court in a dispute over unpaid bills, a sign of Beijing’s growing impatience with its socialist South American ally as it slides into bankruptcy.

In the lawsuit filed on November 27 in a Houston federal court, a US subsidiary of Sinopec sought more than US$23 million in damages from Venezuela’s state-run oil company, PDVSA. Sinopec alleges it never received full payment for 45,000 tonnes of steel rebar it agreed to sell PDVSA for US$43 million and which was delivered in 2013.

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The lawsuit, while small in size, says PDVSA through its US subsidiary Bariven reneged on repeated promises to pay Sinopec, at one point costing the Chinese company US$2 million in losses after it entered into arbitration with a supplier it agreed to purchase the steel from to carry out the deal.

“This is not simply a case of a broken promise to pay,” Sinopec said in the court documents, accusing PDVSA of “deceit” and “wilful deception” in its refusal to pay its bills.

“Rather, this case involves a complex commercial transaction specifically calculated to leave Sinopec without a remedy.”

The Chinese “usually take a more diplomatic tone” and are clearly angry, Russ Dallen, head of local brokerage Caracas Capital, wrote in a report on Wednesday in which he revealed the existence of the lawsuit.

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The dispute comes as Venezuela is seeking fresh financing to restructure its huge foreign debt on which it is behind payment.

China has been one of Venezuela’s biggest creditors, providing it loans, cash and investment totalling more than US$65 billion between 2007 and 2016, according to a database maintained by Boston University and the Inter-American Dialogue. But it has so far failed to come to President Nicolas Maduro’s rescue as he tries to shield the OPEC nation from triple-digit inflation, fast declining oil production and financial sanctions imposed by the Trump administration.

The complaint suggests “patience is getting really thin at this point”, Mark Weidemaier, a law professor at the University of North Carolina at Chapel Hill and an expert on international debt disputes, said.

“This is a further sign of frostiness in the Chinese-Venezuelan relations.”

PDVSA declined to comment.

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Any solution to Venezuela’s financial crisis will need the involvement of the Chinese and Russian governments, which are owed a substantial amount from the country. A Russian state-owned shipping company, Sovcomflot, also brought a suit last year against PDVSA more than US$30 million in unpaid shipping fees.

PDVSA is in talks with a handful of European companies to obtain credit for oil and gas projects in a bid to reverse a slump in output to an almost 30-year low, and has been seeking financing from China and Russia.

But kidnappings and thefts in Caracas have prompted some Chinese executives working in the country to move to Colombia to escape the problems, sources have said. Chinese-run infrastructure projects also have faced delays.

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Carmakers and small grocery stores that flourished under late president Hugo Chavez due to preferential currency exchange terms have either closed or downsized. Current president Nicolas Maduro no longer offers the same preferential terms for Chinese businesses to have access to cheap imports.

“The Chinese don’t have a whole lot to show for their loans,” a Western diplomat in Caracas said.

Additional reporting by Reuters