Exxon freeze on Venezuela assets could affect London bus deal
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Expat Village is edited and published by
Iain Williams in Caracas, Venezuela.
A story by Natalie Obiko of Dow Jones
Newswires at www.dowjones.com
Exxon Mobil Corp.'s move to freeze the overseas assets of Venezuela's state oil company through a U.K. court could complicate a high-profile deal that has seen Venezuela subsidizing low fares for the poor on London's iconic red buses.
London's controversial Mayor Ken Livingstone, who faces re-election May 1, struck a deal with the government of Venezuelan President Hugo Chavez, a self-proclaimed socialist revolutionary, in February 2007 to allow Londoners on income support to travel on London buses and trams for half price.
Under the agreement, state oil company Petroleos de Venezuela SA, or PdVSA, was to provide cash payments to London's transport authority to offset the cost of lost revenues, as well as to pay for administration costs and advertising.
In return, the Greater London Authority, a city-wide governing body whose responsibilities include transport, policing, fire and emergency planning, is advising Caracas on how to improve its transport and other municipal services.
More than 50,000 people have signed up for the scheme, while an advertising blitz has seen double-decker buses plastered with wraparound signs touting Venezuela's tourist wonders. A million inserts in local publications, as well as radio adverts have been paid for out of a GBP2 million administrative budget set aside to promote and run the high-profile program.
But the program's future may be in question after Irving, Texas-based ExxonMobil won an order from a British court last month to freeze up to $12 billion of PdVSA's worldwide assets as it battles the Chavez government for compensation for an oil project nationalized last year.
According to the contract, PDV Europa B.V. - PdVSA's Netherlands-based European subsidiary - was to make two cash payments to Transport for London, or TfL, to execute the program set to cost GBP15 million for the first year.
The first payment was to be made within 20 days after the program's launch on Aug. 20, while the remaining half was to be made six months later - by early March at the latest, according to Simon Hall, a budget researcher for the Conservative Party.
How PdVSA will honor that payment remains in question with its bank accounts frozen overseas.
The TfL said in an emailed statement to Dow Jones Newswires that it has "not been advised of any adverse impact on the agreement" but refused to elaborate.
The mayor's office, TfL and PDVE didn't respond to repeated requests for information on whether the first payment was made and how PDVE, which is based in The Hague, would be able to make its upcoming payment with a freezing injunction in place from a Netherlands court, in addition to the U.K. court.
"One thing the government of Venezuela could do is find another vehicle to pass the money onto the Mayor of London, if they so wish, though I suspect that is not their highest priority," said Maurice Mendelson, emeritus professor of international law at the University of London and a senior lawyer with Blackstone Chambers Barristers in London.
The Venezuelan government is certainly facing more pressing demands for payment from other parties, such as ConocoPhillips (COP), which is pursuing both arbitration and negotiation to recoup billions of dollars in compensation for another oil field nationalized by the Chavez administration.
The London Assembly's Budget Committee last month demanded a clearer accounting from the mayor's office on the Venezuelan bus program, warning that, "this arrangement is unique and high-profile, and leaves TfL bearing risks that could amount to millions of pounds."
The TfL has said that the level of funding from Venezuela isn't "considered significant in the context of TfL's overall finances and that any loss of income can be effectively managed by TfL."
The U.K. court injunction warns that, "any other person who knows of this order and does anything which helps or permits the respondent to breach the terms of this order may also be held to be in contempt of court and may be imprisoned, fined or have their assets seized."
With lawyers involved in the case refusing to comment, it is unclear whether London could be held responsible if it accepts payment from PdVSA knowing that its assets have been frozen.
The court order includes an exception permitting PdVSA to continue activities in "the proper course of business."
Whether the London bus agreement - and its possible renewal in August of this year - falls under that definition remains in question, several U.K.-based lawyers uninvolved in the case said.
Expat Village is edited and published by
Iain Williams in Caracas, Venezuela.
© Copyright 2003 by Expat-Village.com
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