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Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America
Message: Meet the mysterious agreement signed between Crystallex and the regime of Nicolás Maduro
Machine translation:
Meet the mysterious agreement signed between Crystallex and the regime of Nicolás Maduro
The expropriation policy developed by the government of Hugo Chávez continues to generate millions in losses for the republic. In 2011, Venezuela expropriated a gold mining project by the Canadian Crystallex, which led to the arbitration ruling in 2016 that generated a debt of almost USD 1,400 million. In 2018, the regime of Nicolás Maduro privileged the payments of an agreement with the Canadian transnational over other creditors. The (secret) agreement was not approved by the National Assembly, which is the power in charge of giving legality to the commitments of the republic. Although the letters seem to be cast, there is no clarity on this issue that could lead to the loss of major assets of the nation.
By Maibort Petit
@maibortpetit
The Canadian mining company Crystallex won an arbitration case against the Venezuelan State in 2016, for an amount of USD 1,202 million plus interest and expenses. Since then, the company initiated several litigation to collect the debt, including a lawsuit in the federal court of Delaware to try that collection by executing the shares of PDVSA in PDV Holding, Inc., the parent company of Citgo.
In August 2018, federal district judge Leonard Stark in Delaware considered that Crystallex could sell the shares owned by PDV Holding, Inc. at a public auction, which would imply the loss of control of Citgo.
Shortly thereafter, on September 10, 2018, the government of Nicolás Maduro and Crystallex entered into an agreement that modified the terms of the previous transaction signed in 2017. On this occasion, Crystallex received a payment of 425 million dollars. In the context of this negotiation, the first thing that draws attention is the speed with which the payment of more than one third of the total amount owed was obtained.
The most surprising thing happened shortly after, in the trial that Crystallex continues for the appeal that takes place in Delaware for the ruling affecting Citgo. On December 27, 2018, Henry Rodriguez, who works for the Attorney General's Office, said that Crystallex had changed the text of the transaction initially.
According to affidavits that form part of the file, the attorney for the Attorney General's office indicates that the original text of the transaction in Spanish only covered the republic, but in the English version, Crystallex also included PDVSA. It was that translation into English which, once signed, has been used in the courts, including the Canadian court, in which Crystallex maintains a bankruptcy process.
The documents indicate that the transaction was signed by Reinaldo Muñoz Pedraza in October 2018, this despite the fact that the National Assembly had already declared that Muñoz Pedraza has not been duly appointed Attorney and, therefore, is not authorized to validly subscribe any document that commits the republic.
Finally, Crystallex received the payment with funds from the Venezuelan State, despite the fact that the National Assembly has not approved the budget and, therefore, it was not possible to make any valid expenditures.
The Crystallex transaction leaves several questions:
1. Why did Maduro's regime accept to recognize the entire amount claimed by Crystallex and pay it almost one third?
2. Why the Maduro government, which has breached various obligations, decided to pay that amount to Crystallex?
3. Why did Crystallex change the text of the signed transaction, as stated by the attorney for the Attorney General's Office?
For now these questions have no answers.
Other details of the case
Crystallex International Corporation entered into operation in Venezuela in 2002, through an Operating Contract, in conjunction with the Corporacion Venezolana de Guayana (CVG) to exploit the "Las Cristinas" gold mines, located in the state of Bolívar. The contract was canceled by the government of then President Hugo Chávez in 2011, which led the mining company to file an arbitration proceeding in 2012 with the International Center for Settlement of Investment Disputes (CIADI) for USD 3,400 million, which was based on Investment treaties between Canada and Venezuela. In 2016, the ICSID ruled in favor of Crystallex, forcing Venezuela to pay USD 1,400 million (USD 1,200 million plus USD 0.2 million in interest from that date, to 6 months LIBOR rate, plus 1 percent interest approximately 3,
The payments
The chronological evaluation of the documents of the case indicates that on April 4, 2016, the original debt of the arbitration in favor of Crystallex was USD 1,202,000,000.00.
The agreement stated that if Venezuela did not comply with the payments agreed before January 10, Crystallex would restart the legal proceedings. Thus, Crystallex and Venezuela reached an agreement in 2018, in which the country maintained the payment agreement after transferring USD 74,638,998.43.
It is not officially known how many payments the Venezuelan government has made to Crystallex and their amounts. However, it has been observed that the terms of the hasty agreement signed between the parties to avoid the confiscation of Citgo, after the court accepted the argument that PDV Holding Inc. is that the alter-ego of PDVSA, which granted to Crystallex the rights over the shares of the aforementioned company -PDV Holding Inc- and, therefore, of the subsidiary in US territory.
According to the legal documents, the agreement contains two types of payments: An initial disbursement of USD 425,000,000 and the remaining balance, which according to the contract is USD 814,632,217, divided into 34 payments, which should begin to be made on 1 February 2019 and finish on January 28, 2021.
The sum of the payments that have been made, as they are to be done, add up to a total of USD 1,314,271,214.43, an amount that is USD 112,271,214.43 million above the prize figure granted by the ICSID.
Assuming that Crystallex has decided to charge interest on the debt between the time of the award and the date of the agreement, the interest rate corresponding to that increase is between 3.34 percent and 3.42 percent per annum, depending on the moment in which the payments totaling USD 74,638,998.43 have been made. From there, the agreement does not include any interest rate, it only divides the amount of the total debt at the moment of making the agreement (USD 1,239,632,216), in two parts, which are paid at the beginning (USD 425,000,000) ) and another part (USD 814,632,217) payable in 34 installments over two years, and that do not carry any interest rate.
The documents also indicate that during the entire duration of the contract, the republic undertakes to maintain as security assets for the value of 120 percent of the amount to be paid in installments, known as the "substantially normal". In any case, given the substantial guarantee on liquid assets, the interest rate should be low and, in effect, is zero. Also, it is known that the agreement as such does not have excessive terms.
Until now, the reasons why, eventually, Crystallex decided to capitalize interest between 3.34 percent and 3.42 percent per year for the time between the date of the award and the agreement, and have not decided to have minimum interests (given the guarantee) are unknown. ) in the rest of the agreement.
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