Not a Clean Bill of Health: China’s Sinopec Sues Venezuela’s PDVSA over Failure to Pay Debt

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.

“As a big company, it is normal for us to have such commercial dispute and it is normal to resort to the law if there is a dispute,” Sinopec spokesman Lu Dapeng confirmed. Dapeng was quoted on Oil & Gas 360.

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 lawsuit further illustrates how the relationship between the two long-time partners is turning bitter after delays in paying past loans and oil quality issues. It’s also evidence that Beijing might not always be there to bail out Venezuela, as it has done over and over in the past decade, Russ Dallen, a managing partner at Caracas Capital Markets, a Venezuela-based investment bank, said in a note to clients.

The lawsuit initiated by Sinopec could be interpreted as mounting evidence that China would no longer want to extend loans to Venezuela, and that changed position may have tipped the country and its oil firm into default, Dallen told the FT.

Geng Shuang, a spokesman of China’s Foreign Ministry, said the issue was nothing more than a regular commercial dispute and that China remains willing to cooperate with Venezuela on an equal and mutually beneficial basis.

“I think this is a common commercial dispute and there is no need to make over-interpretations of it,” Geng said. “I want to stress that China attaches great importance to the development of China Venezuela relations.” Mr. Shuang was quoted on Reuters.

China, as well as Russia, has been extending credit to Venezuela in oil-for-loan deals. But PDVSA (Petróleos de Venezuela, S.A.) has been struggling to ship oil to Russia and China in return. As early as in February this year, PDVSA was said to have been months behind in oil shipments to its key allies, according to a report published on Reuters.