Chinese Company Sues Venezuela over Failure to Pay Debt

Sinopec, a listed unit of China Petrochemical Corp, saw net profit surge to 46.7 billion yuan ($6.8 billion) in 2016
AFP/File Greg Baker

One of China’s largest state-owned companies has filed a lawsuit against the Venezuelan state-run oil firm Petroleum of Venezuela (PDSVA) over their failure to pay their debt, the Financial Times first reported.

The oil and gas company Sinopec filed a lawsuit on November 27 in a Houston, Texas, federal court for $23.7 million plus interest and damages over Venezuela’s failure to pay half of a $43.5 million order for steel products, accusing the PDSVA of a “disingenuous nature [and] feigned promises to make full payment.”

It also alleges PDVSA “hid behind a complicated series of subsidiaries and affiliates,” adding that some PDVSA-affiliated companies “were acting in concert to defraud Sinopec.”

The disputed amount is only a fraction of Venezuela’s total debt burden, which according to a recent paper published by the Harvard Law Roundtable amounts to $190 billion, with the troubled country recently entering default on a number of its piling debts.

The lawsuit comes weeks after Chinese officials said they would not offer a debt relief package to Venezuela for the billions of dollars that it has borrowed, expressing confidence that would successfully meet their deadlines.

For years, China has provided their socialist ally with bank loans totaling up to $60 billion in exchange for large oil exports, although Venezuela’s oil production is now at its lowest point since 2004.

However, Chinese state media outlet Global Times said that claims of financial aid “reflect an erroneous and biased understanding of [both country’s] relationship,” which they said is mainly about fulfilling China’s energy needs.

“While oil-for-loans granted by China may have helped Venezuela’s cash-strapped government, the deals have also addressed China’s demand for energy,” the outlet wrote. “While there have been reports about the increasingly poor quality of crude oil from PDVSA this year, the fact that Venezuela is a key source of heavy crude supplies should not be overlooked.”

The lawsuit will exert further pressure on the PDSVA, which amidst its financial woes has recently been taken over by military leaders as socialist dictator Nicolás Maduro seeks to tighten his grip on the industry and the country as a whole.

To facilitate the takeover, Maduro has arrested two key officials on alleged corruption charges, and appointed government loyalist Major General Manuel Quevedo to the company’s most senior position, despite him having no prior experience in oil operations. Around 65 lower-level executives have also been arrested, as employees claim that he plans to “militarize” the company in key areas.

Another issue putting significant pressure on the company is the recent economic sanctions imposed by both the U.S. as well as the European, which in America’s case prohibit American citizens from dealing with the company in any capacity.

Unlike China, another of Venezuela’s leading creditors Russia last month agreed to offer a debt restructuring package on the $3 billion debt owed to them, as analysts fear that Vladimir Putin seeks to exert greater influence in the region.

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