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China's Sinopec sues Venezuela in sign of fraying relations

CommoditiesDec 07, 2017 05:31AM ET
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© Reuters. Corporate logo of the state oil company PDVSA is seen at a gas station in Caracas

By Tracy Rucinski

(Reuters) - Sinopec USA, a subsidiary of Chinese oil and gas conglomerate Sinopec, has sued Venezuela's state oil company PDVSA in a U.S. court, claiming it never received full payment for an order of steel rebar.

The lawsuit asks for $23.7 million for breach of contract and conspiracy to defraud. The legal action signals a split with another of Venezuela's biggest backers as the cash-strapped country seeks to restructure some $60 billion in debt in a landscape of low oil prices and production.

The complaint suggests "patience is getting really thin at this point," said Mark Weidemaier, law professor at the University of North Carolina at Chapel Hill and an expert on international debt disputes. "This is a further sign of frostiness in the Chinese-Venezuelan relations."

PDVSA declined to comment.

China, which has loaned Venezuela more than $50 billion over the past decade, recently has been reluctant to involve itself more deeply in the South American country's debt crisis. It has curtailed its credit to Venezuela in the last 22 months because of chronic payment delays, troubles with joint venture projects, and crime faced by Chinese firms operating in the country.

In its lawsuit, filed in U.S. District Court in Houston on Nov. 27, Sinopec said PDVSA paid half of a 2012 purchase order for 45,000 tons of steel rebar, which is used in oil rigs, by its fully owned subsidiary Bariven.

It accused the Venezuelan oil company of using Bariven "as a sham to perpetrate fraud against Sinopec", and called the PDVSA subsidiary an "undercapitalized shell with the sole purpose of preventing Sinopec from having a remedy".

China's foreign ministry spokesman Geng Shuang told a regular news briefing on Thursday that the legal action is a "common commercial dispute" that should not be over-interpreted.

"We are willing to continue exploring cooperation with Venezuela in various sectors following a principle of mutual benefit and shared development," he said.

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 suit last year against PDVSA in connection with over $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.

    Car makers 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.

China's Sinopec sues Venezuela in sign of fraying relations
 

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