Taxpayer bailout time

OPIC (Overseas Private Investment Corporation) supposedly monitors overseas business contracts for political repercussions. I'd say they're doing a swell job of it, considering the case of Coca Cola and Shell, to name only two.

At any rate, SAIC (Science Applications International Corporation), a San Diego IT research and engineering company run by former CIA, NSA, Pentagon employees, has accused Venezuela's oil company, PDVSA, of "expropriating" its assets, and OPIC has ruled that the U.S. will have to reimburse SAIC in some yet to be determined amount of dollars (SAIC's claim is around $6 million). Go figger. At any rate, here's the background on the deal....

In 1996, before Venezuelan President Hugo Chavez took office, under PDVSA's slow path towards privatization led by company president Luis Giusti, SAIC and PDVSA formed a joint venture called Informatica, Negocios y Tecnologia S.A. (INTESA) to manage the oil company's outsourced IT operations. The two companies signed a five-year contract that could be renewed upon agreement by both parties. SAIC invested $1200 (twelve hundred dollars) while PDVSA provided all financing for the venture as well as all equipment, office space, personnel and $800.

The president of Venezuela's state oil firm PDVSA, Ali Rodriguez Araque, said Monday that the Venezuelan oil company had decided not to renew the contract with SAIC after an audit by IT consulting firm Gartner Group determined that PDVSA was not benefiting from the venture. The Gartner Group recommended changes but according to Rodriguez SAIC refused to change the operating terms of the contract.

"The OPIC simply accepted SAIC's allegations without examining the actual facts," said Rodriguez in a press release issued today. Rodriguez said that PDVSA consulted with outside legal counsel in the United States, and with a noted U.S. academic expert in international law, both of which said that the OPIC decision "is entirely without merit".

  Venezuelanalysis article

But I imagine we'll be paying them anyway.

The decision not to renew SAIC's contract is officially because PDVSA isn't benefiting. But there's a little political issue behind it as well. Chávez and Washington are at odds (links), and Venezuelan officials, along with PDVSA, claim to have evidence that SAIC participated in the sabotage of PDVSA in late 2002 in which Opposition to the Chávez government tried to destroy Venezuela's oil based economy in an effort to drive him from office.

Venezuelan government officials believe SAIC was using INTESA for espionage purposes in Venezuela due to its strong ties to the Pentagon, the CIA and the NSA. Its current and past board of directors include former NSA president Bobby Inman, former Defense Secretary Melvin Laird, former head of the research and development division of the Pentagon Donald Hicks, ex-Secretary of Defense William Perry, ex-CIA Director John Deutsch, and ex-CIA director Robert Gates. William B. Black Jr. served at Assistant Vice President at SAIC for three years after retiring from the NSA in 1997. Black later returned to the NSA as deputy director in 2000.

I don't know what would give anybody the idea that SAIC might be channeling poitical information to Washington.

"I personally find it astonishing that a government agency such as OPIC would pay out millions of U.S. taxpayer dollars based purely on the self-serving allegations of the company making a claim and in the absence of any certified financial information," Rodriguez said.

Astonishing though it may be, that's pretty much SOP around here.

Rodriguez said that PDVSA has offered to pay SAIC its share of the value of the company as determined by an independent audit, but "SAIC has refused even to meet, and has consistently refused to allow any independent audit of INTESA's books."

"We have every reason to believe that OPIC's decision was based on prevailing politics in Washington, D.C., and the desire to satisfy a politically powerful U.S. company, rather than on the facts." Rodriguez said.

Oh, that would be a first.

The Miami Herald (highly anti-Chávez) is claiming that PDVSA is refusing to pay or even discuss the judgment. Forbes has a pretty straightforward report.

OPIC provides U.S. businesses with risk insurance and financing for projects in developing countries, and is threatening to withhold it from companies wanting to do business in Venezuela. I guess that could be the first step toward Cuban-type sanctions. But it doesn't seem likely to be anything more than threatening gestures, since other U.S. businesses already have about $25 billion invested in Venezuelan oil ventures.

PDVSA has submitted the issue to the International Chamber of Commerce. (Like we are subject to some international influence or laws. Pfffh.)

Venezuelan officials have expressed concerns about the possible motives and consequences of the OPIC ruling. "We think they may be something big here. Accusing Venezuela of expropriating U.S. assets is a serious matter," said a government official. "This may be the beginning of a new type of attack on Chavez. They [the US government] and the [Venezuelan] opposition know we are leading the polls by a wide margin, and they will need new ammunition to throw against Chavez after he wins the referendum," said the official who asked not to be named.

Well, one thing is certain. Washington is not simply going to go away quietly if he does.

It seems to me, in considering the situation, the fact that the U.S. taxpayers are going to compensate a private company for business losses loads the dice. At any rate, the losers are going to be us. Again. I wonder how many such business deals gone bad we pay for each year.

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