One of China’s biggest state-owned oil companies is suing its Venezuelan counterpart in a US court, in a sign that Beijing’s patience over unpaid debts is running out as the Caribbean nation falls deeper into economic and social chaos. A US subsidiary of Sinopec is suing PDVSA, the Venezuelan state oil company, for $23.7m plus punitive damages over a May 2012 contract to supply steel rebar for $43.5m, half of which it says remains unpaid, according to court documents seen by the Financial Times.
The amount at dispute is small but it reveals a breakdown in relations of a far greater order. Sinopec agreed in September 2013 to invest $14bn in a Venezuelan oilfield, according to Rafael Ramírez, Venezuela’s oil minister at the time. It formed part of Chinese investments and loans that added up to more than $62bn in the oil-rich nation between 2007 and 2016, according to the China-Latin America Finance Database run by the Inter-American Dialogue, a think-tank.
But Caracas has struggled to repay its debts as the oil price has fallen from its 2014 peak and as production at PDVSA has dwindled. The language of Sinopec’s complaint, filed on November 27 at a US district court in Houston, Texas, reveals how badly relationships have soured. Sinopec accuses PDVSA of using “an undercapitalized shell with the sole purpose of preventing Sinopec from having a remedy” and says its conduct “constituted intentional misrepresentations, deceit, and concealment of material facts” involving “wilful deception” and a co-ordinated conspiracy among several units of PDVSA. “This is when we know that China is not going to bail these guys out,” said Russ Dallen of boutique investment bank Caracas Capital, who follows Venezuela closely and who first revealed the court documents to his clients.