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Lawyers, other representatives, expert(s), tribunal’s secretary

Award of the Tribunal

TABLE OF MAIN ABBREVIATIONS
ICSID Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings
Award The present Award on the merits of the dispute
Treaty or BIT Agreement on Encouragement and Reciprocal Protection of Investments Between the Kingdom of the Netherlands and the Republic of Venezuela of 22 October 1991 signed on 22 October 1991, which entered into force on 1 November 1993
Cerro Negro Association Agreement or CNAA Association Agreement Among Lagoven Cerro Negro, S.A., Mobil Producción e Industrialización de Venezuela Inc. and Veba Oel Venezuela Orinoco GmBH dated 28 October 1997
Cerro Negro Royalty Reduction Agreement Agreement between the Venezuelan Ministry of Energy and Mines and PDVSA Petróleo y Gas, S.A. to calculate the Royalty under Article 41 of the Hydrocarbons Law dated 29 May 1998
Claimants Mobil Cerro Negro Holding, Ltd., Mobil Venezolana de Petróleos Holdings, Inc., Mobil Cerro Negro, Ltd., Mobil Venezolana de Petróleos, Inc. and Venezuela Holdings, B.V.
Cline Report Expert Report of William B. Cline of Gaffney, Cline & Associates, Inc., "Technical Assessment of the Cerro Negro Contract Area" dated 14 December 2010
C. Mem. J. The Claimants' Counter-Memorial on Objections to Jurisdiction dated 16 April 2009
C. Mem. M. The Respondent's Counter-Memorial on the Merits dated 15 June 2011
Congressional Joint Committee Report Report of the Joint Committee on Energy and Mines of the Venezuelan Congress on the Framework of the Conditions for the Cerro Negro Project dated 10 April 1997
C-PH Brief The Claimants' Post-Hearing Brief dated 30 April 2012
C-PH Reply The Claimants' Post-Hearing Reply dated 14 May 2012
CVP Corporación Venezolana del Petróleo, S.A.
Decision on Jurisdiction The Tribunal's Decision on Jurisdiction dated 10 June 2010
DCF Discounted Cash Flow
Decree-Law 5200 Decree No. 5200 with Rank, Value and Force of Law on the Migration to Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as of the Risk-and-Shared-Profit Exploration Agreements, Official Gazette No. 38632, published on 26 February 2007
Enabling Law Law that Authorizes the President of the Republic to Issue Decrees with Rank, Value and Force of Law in Delegated Subject Matters, Official Gazette No. 38617, published on 1 February 2007
Ex. CL- The Claimants' Legal Authority (legal authorities)
Ex. C- The Claimants' Exhibit (documentary exhibits)
Ex. R- The Respondent's Exhibit (legal authorities and/or documentary exhibits)
FET Fair and equitable treatment
First Heads of Agreement Heads of Agreement among Lagoven, S.A., Mobil Oil Corporation and Mobil Producción e Industrialización de Venezuela dated 17 September 1996
Framework of Conditions for the Cerro Negro Association, Framework of Conditions or FCCNA Framework of Conditions for an Association Agreement on the exploitation, upgrading and marketing of extra-heavy crude oil to be produced in the Cerro Negro area of the Orinoco Oil Belt to be executed between Lagoven, S.A., Mobil Corporation and Veba Oel AG approved on 24 April 1997
Framework of Conditions for the La Ceiba Project or FCLCP Framework of Conditions for the Association Agreements for risk-bearing exploration of new areas and hydrocarbon production under the shared-profit scheme
Graves ICC Testimony Transcript of the Hearing on the Merits, 22 September 2010, Mobil Cerro Negro, Ltd. v. Petróleos de Venezuela, S.A., PDVSA Cerro Negro, S.A., ICC Case No. 15416/JRF, International Court of Arbitration of the International Chamber of Commerce (Graves Cross-Examination, Excerpt)
Graves Report Expert Report of R. Dean Graves of Alvarez & Marsal Dispute Analysis & Forensic Services, LLC dated 13 December 2010
ICC Award Mobil Cerro Negro, Ltd. v. Pétroleos de Venezuela, S.A. and PDVSA Cerro Negro, S.A., ICC Case No. ARB/15416/JRF, Award dated 23 December 2011
ICSID International Centre for Settlement of Investment Disputes
ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of other States
ICSID Institution Rules ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (Institution Rules)
Jones ICC Testimony Transcript of Hearing on the Merits, 21 September 2010, Mobil Cerro Negro, Ltd. V. Petróleos de Venezuela, S.A., PDVSA Cerro Negro, S.A., ICC Case No. 15416/JRF, International Court of Arbitration of the International Chamber of Commerce (Jones Cross-Examination, Excerpt)
La Ceiba Association Agreement or LCAA Association AGreement dated July 10, 1996 between Corporación Venezolana del Petróleo, S.A. and Mobil Venezolana de Petróleos Inc., Veba OEL Venezuela Exploration GmbH and Nippon Oil Exploration (Venezuela) Inc.
La Ceiba Evaluation Plan La Ceiba Area Venezuela Evaluation Plan submitted by Agencia Operadora La Ceiba, C.A. dated 11 December 2011
La Ceiba Royalty Reduction Agreement Royalty Reduction Agreement for Shared-Risk-and-Profit Projects among the Venezuelan Ministry of Energy and Mines and Corporación Venezolana del Petróleo, S.A. dated 5 December 1995
Law on Effects of the Migration Law on the Effects of the Process of Migration to Mixed Companies of the Agreements of the Orinoco Oil Belt, as well as of the At-Risk-and-Shared-Profits Exploration Agreements
Letter of Intent Letter of Intent among Lagoven, S.A. and Mobil Oil Corporation dated 20 December 1994
MEM The Ministry of Energy and Mines, the Ministry of Energy and Petroleum and/or the Ministry of the People's Power for Energy and Petroleum of the Bolivarian Republic of Venezuela.
Mem. J. The Respondent's Memorial on Objections to Jurisdiction dated 15 January 2009
Mem. M. The Claimants' Memorial on the Merits dated 15 December 2010
MFN Most favoured nation
Mobil Mobil Corporation
Mobil CN Mobil Cerro Negro, Ltd.
Mobil CN Holding Mobil Cerro Negro Holding, Ltd.
Mobil PIV Mobil Producción e Industrialización de Venezuela, Inc.
Mobil Venezolana Mobil Venezolana de Petróleos, Inc.
Mobil Venezolana Holdings Mobil Venezolana de Petróleos Holdings, Inc.
1975 Nationalization Law Organic Law that Reserves to the State the Industry and Trade of Hydrocarbons, Decree No. 250, issued on 29 August 1975
Nippon La Ceiba Nippon Oil Exploration (Venezuela), Inc.
October 2006 Production Cut Order from the Venezuelan Ministry of Energy to Operadora Cerro Negro to reduce extra-heavy oil production for the month of October 2006 by a total of 50,000 barrels
Offtake Support Agreement Offtake Support Agreement for the Cerro Negro Extra Heavy Crude Oil Project among Mobil Cerro Negro, Ltd., PDVSA Cerro Negro S.A., Mobil Sales & Supply Corp. and the Bank of New York dated 18 June 1998
Operadora Cerro Negro or OCN Operadora Cerro Negro S.A.
PDVSA Petróleos de Venezuela, S.A.
1. Request for Arbitration or RFA The Claimants' Request for Arbitration against the Bolivarian Republic of Venezuela dated 6 September 2007
Rej. J. The Claimants' Rejoinder on Objections to Jurisdiction dated 17 August 2009
Rej. M. The Respondent's Rejoinder on Merits dated 15 December 2011
Reply Mem. J. The Respondent's Reply on Objections to Jurisdiction dated 15 June 2009
Reply M. The Claimants' Reply Memorial on Merits dated 15 September 2011
Reservation and Dedication Agreement Reservation and Dedication Agreement Among Lagoven, S.A., Lagoven Cerro Negro, S.A., Mobil Producción e Industrialización de Venezuela Inc. and Veba Oel Venezuela Orinoco GmBH dated 28 October 1997
Respondent The Bolivarian Republic of Venezuela
Royalty Procedures Agreement Agreement on Procedures for the Payment of the Exploitation Tax (Royalty) of the Extra-Heavy Crude Produced and the Sulphur Extracted by Operadora Cerro Negro, S.A.
R-PH Brief The Respondent's Post-Hearing Memorial dated 30 April 2012
R-PH Reply The Respondent's Post-Hearing Reply Memorial dated 14 May 2012
Tr. M. Transcript of the hearing on the merits
Vienna Convention or VCLT Vienna Convention on the Law of Treaties, done at Vienna on 23 May 1969 (entered into force on 27 January 1980), United Nations, Treaty Series, vol. 1155, p. 331
Veba La Ceiba Veba Oel Venezuela Exploration GmbH
Veba Orinoco Veba Oel Venezuela Orinoco GmbH
Venezuela The Bolivarian Republic of Venezuela
Venezuela Holdings Venezuela Holdings, B.V.
WS Witness statement
1943 Hydrocarbons Law Hydrocarbons Law, Official Gazette No. 31, issued on 13 March 1943

I. PROCEDURAL HISTORY

1.
On 6 September 2007, the International Centre for Settlement of Investment Disputes received a Request for Arbitration against the Bolivarian Republic of Venezuela dated 6 September 2007 from (i) three U.S. (Delaware) companies, i.e., Mobil Corporation, Mobil Cerro Negro Holding, Ltd. and Mobil Venezolana de Petróleos Holdings, Inc., (ii) two Bahamian companies, i.e., Mobil Cerro Negro, Ltd. and Mobil Venezolana de Petróleos, Inc. and (iii) one Dutch company Venezuela Holdings, B.V.
2.
On the same day, the Centre acknowledged receipt of the request for arbitration pursuant to Rule 5 of the ICSID Institution Rules and transmitted a copy to Venezuela and to the Venezuelan Embassy in Washington, D.C.
3.
The Request for Arbitration, as supplemented by the Claimants' letters of 28 September 2007, was registered by the Secretary-General of ICSID on 10 October 2007 pursuant to Article 36(3) of the ICSID Convention. On the same day, the Secretary-General, in accordance with Rule 7 of the Institution Rules, notified the Parties of the registration and invited them to proceed to constitute a tribunal as soon as possible.
4.
By letter dated January 7, 2008, the Claimants confirmed the Parties' agreement regarding the constitution of the tribunal, according to which the tribunal would be composed of three arbitrators, one appointed by each Party and a third presiding arbitrator appointed by agreement of the Parties with the assistance of the first two appointed arbitrators.
5.
On 7 January 2008, the Claimants appointed Professor Gabrielle Kaufmann-Kohler, a national of the Swiss Confederation, as arbitrator. On 31 January 2008, the Respondent appointed Dr. Ahmed S. El-Kosheri, a national of the Arab Republic of Egypt, as arbitrator.
6.
In the absence of the Parties' appointment of a presiding arbitrator, the Claimants, by letter dated 16 May 2008, requested the Chairman of the ICSID Administrative Council to appoint the presiding arbitrator pursuant to Article 38 of the ICSID Convention and ICSID Arbitration Rule 4. On 25 July 2008, the Chairman of the ICSID Administrative Council, in consultation with the Parties, appointed H.E. Judge Gilbert Guillaume, a national of the French Republic, as the presiding arbitrator.
7.
All three arbitrators having accepted their appointments, the Acting Secretary-General of ICSID by letter dated 8 August 2008 informed the Parties that the Tribunal had been constituted and confirmed that the proceeding was deemed to have begun on that day in accordance with Rule 6(1) of the ICSID Arbitration Rules. The Parties were also informed that Mr. Ucheora Onwuamaegbu, of the ICSID Secretariat, would provisionally serve as Secretary of the Tribunal.
8.
In September 2008, Ms. Katia Yannaca-Small, of the ICSID Secretariat, was designated as the Secretary of the Tribunal, in place of Mr. Onwuamaegbu.
9.
In accordance with the Parties' agreement, the first session of the Tribunal was held at the World Bank's Paris Conference Center on 7 November 2008. The following individuals were present at the first session:

Members of the Tribunal:

H. E. Judge Gilbert Guillaume, President of the Tribunal Professor Gabrielle Kaufmann-Kohler, Arbitrator Dr. Ahmed Sadek El-Kosheri, Arbitrator ICSID Secretariat:

Ms. Katia Yannaca-Small, Secretary of the Tribunal For the Claimants:

Mr. Oscar M. Garibaldi, Covington & Burling LLP

Mr. Eugene D. Gulland, Covington & Burling LLP

Mr. Toni D. Hennike, Law Department, Exxon Mobil Corporation

Mr. Charles A. Beach, Law Department, Exxon Mobil Corporation

Mr. Luis Marulanda del Valle, Law Department, Exxon Mobil Corporation

For the Respondent:

Mr. George Kahale, III, Curtis Mallet-Prevost, Colt & Mosle LLP Ms. Gabriela Álvarez Ávila, Curtis, Mallet-Prevost, Colt & Mosle, S.C Ms. Miriam K. Harwood, Curtis Mallet-Prevost, Colt & Mosle LLP Mr. Peter M. Wolrich, Curtis Mallet-Prevost, Colt & Mosle LLP Dr. Bernard Mommer, Bolivarian Republic of Venezuela Ms. Hildegard Rondón de Sansó, Bolivarian Republic of Venezuela Dra. Beatrice Sansó de Ramirez, Bolivarian Republic of Venezuela Mr. Armando Giraud, Bolivarian Republic of Venezuela Ms. Moreeliec Peña, Bolivarian Republic of Venezuela

10.
The Tribunal determined various procedural issues at the first session, including a schedule for the submission of written pleadings.
11.
The Respondent's Memorial on Objections to Jurisdiction was filed on 15 January 2009, followed by the Claimants' Counter-Memorial on Objections to Jurisdiction on 16 April 2009, the Respondent's Reply on Jurisdiction on 15 June 2009 and the Claimants' Rejoinder on Jurisdiction on 17 August 2009.
12.
On 9 September 2009, the Tribunal held a procedural conference with the Parties by telephone.
13.
The hearing on jurisdiction was held at the offices of the World Bank's Paris Conference Center from 23-24 September 2009. The following individuals were present at the hearing:

Members of the Tribunal:

H.E. Judge Gilbert Guillaume, President of the Tribunal Professor Gabrielle Kaufmann-Kohler, Arbitrator Dr. Ahmed Sadek El-Kosheri, Arbitrator ICSID Secretariat:

Ms. Katia Yannaca-Small, Secretary of the Tribunal

For the Claimants:

Mr. Oscar Garibaldi, Covington & Burling LLP

Mr. Eugene Gulland, Covington & Burling LLP

Mr. Thomas Cubbage, Covington & Burling LLP

Mr. Miguel López Forastier, Covington & Burling LLP

Mr. David Shuford, Covington & Burling LLP

Ms. Luisa Torres, Covington & Burling LLP

Ms. Mary Hernandez, Covington & Burling LLP

Mr. Andres Barrera, Covington & Burling LLP

Mr. Andrés A. Mezgravis, Travieso Evans Arria Rengel & Paz

Mr. Theodore Frois, Exxon Mobil Corporation

Ms. Toni D. Hennike, Exxon Mobil Corporation

Mr. Charles A. Beach, Exxon Mobil Corporation

Mr. Eugene Silva, Exxon Mobil Corporation

Mr. Alberto Ravell, Exxon Mobil Corporation

Mrs. Anna Knull, Exxon Mobil Corporation

Mr. James R. Massey, witness

Professor Allan Brewer-Carías, expert Professor Christoph Schreuer, expert

For the Respondent:

Mr. George Kahale III, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Mark O'Donoghue, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Miriam Harwood, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Peter Wolrich, Curtis, Mallet-Prevost, Colt & Mosle LLP Ms. Gloria Díaz, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Christopher Grech, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Joaquín Parra, Bolivarian Republic of Venezuela

Dr. Bernard Mommer, Bolivarian Republic of Venezuela Mr. Armando Giraud, Bolivarian Republic of Venezuela Ms. Moreeliec Peña, Bolivarian Republic of Venezuela

14.
Following the hearing, the Members of the Tribunal deliberated by various means of communication, including in a meeting in Paris on 2 December 2009.
15.
In its Decision on Jurisdiction dated 10 June 2010, which forms an integral part of this Award and is attached as Annex 2, the Tribunal unanimously decided:

"(a) that it has jurisdiction over the claims presented by Venezuela Holdings (Netherlands), Mobil CN Holding and Mobil Venezolana Holdings (Delaware), Mobil CN and Mobil Venezolana (Bahamas) as far as:

(i) they are based on alleged breaches of the Agreement on Encouragement and Reciprocal Protection of Investments dated 22 October 1991 between the Kingdom of the Netherlands and the Republic of Venezuela;

(ii) they relate to disputes born after 21 February 2006 for the Cerro Negro Project and after 23 November 2006 for the La Ceiba Project and, in particular, as far as they relate to the dispute concerning the nationalization measures taken by the Republic of Venezuela;

(b) that it has no jurisdiction under Article 22 of the Venezuelan Decree with rank and force of law No. 356 on the protection and promotion of investments of 3 October 1999;

(c) to make the necessary order for the continuation of the procedure pursuant to Arbitration Rule 41(4); and

(d) to reserve all questions concerning the costs and expenses of the Tribunal and the costs of the Parties for subsequent determination.".

16.
In September 2010, Ms. Janet Whittaker, of the ICSID Secretariat, was designated as the Secretary of the Tribunal, in place of Ms. Yannaca-Small.
17.
On 15 December 2010, the Claimants submitted their Memorial on the Merits.
18.
On 9 February 2011, the Respondent submitted its First Request for the Production of Documents. On 23 February 2011, the Claimants submitted their Objections to the Respondent's First Request for Production of Documents. On 25 February 2011, the Respondent submitted an Application for an Order Requiring the Production of Documents by the Claimants. On 14 March 2011, Claimants submitted a Reply to the Respondent's Application for an Order Requiring the Production of Documents. The Respondent submitted Observations on Claimants' Reply to Respondent's Application for an Order Requiring the Production of Documents on 14 March 2011. On 17 March 2011, the Claimants submitted Comments on Respondent's Observations Regarding its Application for an Order Requiring the Production of Documents. The Tribunal issued a decision on the Respondent's Application for an Order Requiring the Production of Documents on 24 March 2011.
19.
On 15 June 2011, the Respondent submitted its Counter-Memorial on the Merits.
20.
On 15 September 2011, the Claimants submitted their Reply on the Merits.
21.
On 15 December 2011, the Respondent submitted its Rejoinder Memorial on the Merits.
22.
The hearing on the merits was held at the offices of the World Bank's Paris Conference Center from 7 to 16 February 2012. The following individuals were present at the hearing:

Members of the Tribunal:

H.E. Judge Gilbert Guillaume, President of the Tribunal Professor Gabrielle Kaufmann-Kohler, Arbitrator Dr. Ahmed Sadek El-Kosheri, Arbitrator ICSID Secretariat:

Ms. Janet Whittaker, Secretary of the Tribunal For the Claimants:

Mr. Oscar Garibaldi, Covington & Burling LLP Mr. Eugene Gulland, Covington & Burling LLP Mr. Thomas Cubbage, Covington & Burling LLP Mr. Gaëtan Verhoosel, Covington & Burling LLP Mr. Miguel López Forastier, Covington & Burling LLP Mr. José Arvelo, Covington & Burling LLP Mr. Nathaniel Morales, Covington & Burling LLP Mr. Philip Scarborough, Covington & Burling LLP Mr. Joshua Simmons, Covington & Burling LLP

Mr. Matthew Swinehart, Covington & Burling LLP

Ms. Luisa Torres, Covington & Burling LLP

Mr. Mark Cuevas, Covington & Burling LLP

Ms. Lara Dominguez, Covington & Burling LLP

Mr. William Buck, Exxon Mobil Corporation

Ms. Mary Hernandez, Exxon Mobil Corporation

Mr. Norman Kreutter, Exxon Mobil Corporation

Ms. JoAnne Lee, Exxon Mobil Corporation

Mr. Robert McClure, Exxon Mobil Corporation

Mr. René Mouledoux, Exxon Mobil Corporation

Mr. Eugene Silva, Exxon Mobil Corporation

Mr. Timothy Cutt, witness

Mr. Brian Lawless, witness

Mr. Mark Ward, witness

Mr. Leonard West, witness

Mr. William Cline, Gaffney Cline & Associates

Mr. Neil Earnest, Muse Stancil & Co.

Ms. Sarah Emerson, Energy Security Analysis, Inc.

Mr. R. Dean Graves, Alvarez & Marsal

Mr. Doug Ho, Sproule Unconventional Ltd.

Mr. Keith MacLeod, Sproule Unconventional Ltd.

Mr. Alexis Maniatis, The Brattle Group

Professor Stewart Myers, The Brattle Group

For the Respondent:

Mr. George Kahale III, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Benard Preziosi, Curtis, Mallet-Prevost, Colt & Mosle LLP Ms. Miriam Harwood, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Borzu Sabahi, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Fernando Tupa, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Justin Jacinto, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Kabir Duggal, Curtis, Mallet-Prevost, Colt & Mosle LLP Ms. Liliana Dealbert, Curtis, Mallet-Prevost, Colt & Mosle LLP Ms. Dori Yoldi, Curtis, Mallet-Prevost, Colt & Mosle LLP Mr. Fuad Zabiyev, Curtis, Mallet-Prevost, Colt & Mosle LLP

Dr. Juan Carlos Boué, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. John Kirtley, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Gloria Díaz, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Bianca Granados, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Elizabeth O'Connell, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Jorge Alcantar, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Chris Gregh, Curtis, Mallet-Prevost, Colt & Mosle LLP

Ms. Noemie Solle, Curtis, Mallet-Prevost, Colt & Mosle LLP

Mr. Christopher Grech, Curtis, Mallet-Prevost, Colt & Mosle LLP

Dra. Hildegard Rondón de Sansó, Bolivarian Republic of Venezuela

Dra. Beatrice Sansó, Bolivarian Republic of Venezuela

Dr. Álvaro Silva Calderón, Bolivarian Republic of Venezuela

Dr. Joaquín Parra, Bolivarian Republic of Venezuela

Dra. Moreeliec Peña, Bolivarian Republic of Venezuela

Mr. Alvaro Ledo, Bolivarian Republic of Venezuela

Mrs. Irama Mommer, Bolivarian Republic of Venezuela

H.E. Ambassador Jesús Pérez, Embassy of the Bolivarian Republic of Venezuela

Mrs. Zulma Pérez, Embassy of the Bolivarian Republic of Venezuela

Dr. Bernard Mommer, witness

Mr. José Ángel Pereira Ruimwyk, witness

Mr. José Antonio Urbina Herrera, witness

Dr. Vladimir Brailowsky, Economía Aplicada, S.C.

Dr. Daniel Flores, Econ One Research, Inc.

Dr. Anthony Finizza, Econ One Research, Inc.

Ms. Lisa McGuff, Econ One Research, Inc.

Mr. Jesús Rafael Patiño Murillo, ARC Solutions, S.A.

Professor Louis Wells, Harvard Business School

23.
On 30 April 2012, the Parties submitted post-hearing memorials.
24.
On 14 May 2012, the Parties submitted post-hearing reply memorials.
25.
In November 2012, Ms. Alicia Martín Blanco, of the ICSID Secretariat, was designated as the Secretary of the Tribunal, in place of Ms. Whittaker.
26.
The Members of the Tribunal deliberated by various means of communication, including in meetings in Paris from 20 to 21 November 2012 and on 23 October 2013.
27.
The Tribunal declared the proceedings closed on 28 July 2014.

II. THE FACTS

28.
This Chapter summarizes the factual background of this arbitration insofar as is necessary to understand the issues that are raised in this case.

A. THE PARTIES

1. The Claimants

29.
The five Claimants and their investments in Venezuela relevant to the present dispute are as follows1:

(a) Venezuela Holdings, B.V. (Venezuela Holdings) is a corporation organized and existing under the laws of the Kingdom of the Netherlands. Venezuela Holdings' address is Graaf Engelbertlaan 75, Breda, 4837 DS, The Netherlands. Venezuela Holdings held, through the other Claimants described below, investments in the Cerro Negro Association and the La Ceiba Association;

(b) Mobil Cerro Negro Holding, Ltd. (Mobil Cerro Negro Holding) is a corporation organized and existing under the laws of the State of Delaware, United States of America. Mobil Cerro Negro Holding's address is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, United States of America. Mobil Cerro Negro Holding is a wholly owned subsidiary of Venezuela Holdings;

(c) Mobil Cerro Negro, Ltd. (Mobil Cerro Negro) is a corporation organized and existing under the laws of the Commonwealth of the Bahamas. Mobil Cerro Negro is a wholly owned subsidiary of Mobil Cerro Negro Holding. Mobil Cerro Negro was a party to the Cerro Negro Association Agreement and owned a 41 2/3% participation in the Cerro Negro Association;

(d) Mobil Venezolana de Petróleos Holdings Inc. (Mobil Venezolana Holdings) is a corporation organized and existing under the laws of the State of Delaware, United States of America. Mobil Venezolana Holdings' address is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, United States of America. Mobil Venezolana Holdings is a wholly owned subsidiary of Venezuela Holdings; and

(e) Mobil Venezolana de Petróleos Inc. (Mobil Venezolana) is a corporation organized and existing under the laws of the Commonwealth of the Bahamas. Mobil Venezolana's address is Shirley House, 50 Shirley St., Nassau, New Providence, Commonwealth of the Bahamas. Mobil Venezolana was a party to the La Ceiba Association Agreement and owned a 50% participation in the La Ceiba Project.

30.
The Claimants are represented in this arbitration by Covington & Burling, LLP.

2. The Respondent

31.
The Respondent is the Bolivarian Republic of Venezuela.
32.
The Respondent is represented in this arbitration by the Procuraduría General de la República and Curtis, Mallet-Prevost, Colt & Mosle, LLP.

B. SUMMARY OF THE MAIN FACTS

33.
The following summary is meant to give a general overview of the present dispute. It does not include all factual aspects that may be of relevance, particularly as these emerged from the extensive testimony of witnesses and experts at the hearing on the merits. Such testimony, insofar as it is relevant, will be discussed in the context of the Tribunal's analysis of the disputed issues.
34.
The facts set forth in this section are those which are alleged by the Parties and that the Tribunal has found to be supported by the evidentiary record, as well as facts alleged by one Party that have not been disputed by the other. Where a fact is in dispute, the Tribunal has indicated as such.

1. Venezuela's Oil Reserves

35.
Venezuela is one of the world's leading petroleum producing countries2. The petroleum industry in Venezuela has always been a strategic sector of vital national importance to the economy3.
36.
In 1975, the oil industry was nationalized through the Organic Law that Reserves to the State the Industry and Trade of Hydrocarbons ("1975 Nationalization Law")4. The Law terminated the oil concessions held by private companies, expropriated their operating assets and generally reserved oil industry activities to the State5.
37.
Article 5 of the 1975 Nationalization Law provided that activities in the Venezuelan petroleum industry were to be carried out by the State acting through State-owned entities. A new State-owned entity called Petróleos de Venezuela, S.A. ("PDVSA") was created to manage the "reserved" activities6. The Respondent was, and continues to be, PDVSA's sole shareholder7. After the passage of the 1975 Nationalization Law, PDVSA and its subsidiaries carried out activities in the Venezuelan petroleum industry, without the equity participation of private parties, for the following 15 years8.
38.
By the 1980s, the Respondent wished to explore new fields or to look to the country's vast reserves of extra-heavy oil9. These reserves were primarily located in reservoirs in the Orinoco River Basin, in the Orinoco Oil Belt (la Faja Petrolífera del Orinoco), which is a vast area covering approximately 55,000 square kilometres10. The Orinoco Oil Belt was divided into four areas, from east to west: Cerro Negro (renamed Carabobo), Hamaca (later renamed Ayacucho), Zuata (later renamed Junín) and Machete (later renamed Boyacá)11.
39.
To meet these goals, the Respondent adopted a series of measures, collectively known as the Apertura Petrolera ("Oil Opening"), which allowed foreign investors to participate in the Venezuelan oil industry. One of the objectives of the Oil Opening was the development of the extra-heavy oil reservoirs in the Orinoco Oil Belt12.

2. The Oil Opening

40.
The Oil Opening was implemented on the basis of Article 5 of the Nationalization Law, which authorized PDVSA to enter into two types of agreements with private companies13:

(i) operating services agreements - which required private companies to provide specified services to PDVSA in exchange for a fee14; and

(ii) association agreements - which were contractual joint ventures that PDVSA could form with private companies for a specified term in "special cases [...] convenient to the public interest"15. These agreements required specific authorization by the Venezuelan Congress16.

41.
To encourage investment, the Respondent introduced economic incentives. These included:

(i) Reduction in the income tax rate

42.
In August 1991, the Respondent amended the Income Tax Law to provide that income arising from new exploitation and refinement of heavy and extra-heavy crude oil under association agreements would be subject to the general corporate rate (then 30%) instead of the rate applicable to other oil activities (then 67.7%)17. In 1993, the Respondent enacted Decree No. 188 on Amendment to the Income Tax Law (Decreto de Reforma de la Ley de Impuesto sobre la Renta) expressly providing that participants in "vertically integrated projects related to the exploitation, refining, industrialization, emulsification, transport and commercialization of extra-heavy crude oil" would be subject to the general corporate rate of 30%, instead of the 67.7% rate otherwise applicable to oil activities18. This general corporate rate was later raised to 34%19.

(ii) Reduction in the Applicable Royalty

43.
The 1943 Hydrocarbons Law then in force empowered the Respondent to reduce the "exploitation tax" (i.e., the royalty payable) in some circumstances. It provides that:

"All concessionaires referred to in Article 39 shall pay (...)
1. - The exploitation tax, which will be equal to 16 2/3 percent of the crude oil extracted, measured in the production field in the facilities where the inspection is carried out (...)
Sole Paragraph- For the purpose of extending the economic exploitation of certain concessions, the Federal Executive is hereby authorized to reduce the exploitation tax referred to in this subparagraph in those cases in which it is demonstrated to its satisfaction that the increasing production cost, including tax amounts, has reached the limit which does not permit commercial exploitation. The Federal Executive may also increase again the reduced exploitation tax until restoring it to its original amount, when, in its judgment, the causes which gave rise to the reduction have changed20".

44.
Exercising the discretion conferred on it by this provision, the Respondent, through the La Ceiba Royalty Reduction Agreement, provided that the applicable royalty would be 16 2/3% during early production and would be reduced, according to a sliding scale, once commercial production was achieved. The sliding scale linked the royalty rate (ranging from 1% to 16 2/3%), to the profitability of the project21. Similarly, under the Cerro Negro Royalty Reduction Agreement, the royalty rate was set at 16 2/3% during the early production phase of the Project22. Upon achieving commercial production, the rate would be reduced to one percent until such time as the accumulated gross income from the Project exceeded three times the total initial investment, but in no event would the reduction period exceed nine years from the beginning of commercial production. On expiry of the reduction, the royalty rate would revert to 16 2/3%.

3. Mobil Investment

45.
In September 1990, PDVSA approached Mobil Corporation23 to "hear out and react to" PDVSA's "new policy of international cooperation being considered to foster expansion"24. Eventually, after studies, discussions and negotiations25, Mobil participated in two projects that the Respondent offered during the Oil Opening: (i) the Cerro Negro Project - a joint venture to exploit extra-heavy crude in the Orinoco Oil Belt26; and (ii) the La Ceiba Project - a joint venture to explore and exploit, on a shared-risk-and-profit basis, an area with light and medium crude potential adjacent to Lake Maracaibo27.

4. Cerro Negro Investment

(a) Context of the Cerro Negro Investment

46.
In December 1991, Mobil and Lagoven S.A. ("Lagoven" or "PDVSA P&G")28 agreed to conduct a joint study to determine the feasibility of producing, transporting, upgrading and marketing extra-heavy crude oil from the Orinoco Oil Belt29. On 20 December 1994, Lagoven and Mobil signed a Letter of Intent agreeing to conduct a joint project study to determine the optimum technical, marketing, economic, financial, legal and fiscal conditions required to develop an extra-heavy oil project30.
47.
On 17 September 1996, Lagoven, Mobil and Mobil Producción e Industrialización de Venezuela, Inc. ("Mobil PIV")31 signed a non-binding Heads of Agreement ("First Heads of Agreement")32 concerning the proposed terms and conditions of: (i) the Cerro Negro synthetic crude oil joint venture ("Cerro Negro Association"); and (ii) a second joint venture that would own and operate the Chalmette Refinery in Louisiana, which would buy synthetic crude oil from the Cerro Negro Association and refine it using specially designated facilities33. Lagoven and Mobil would have equal equity participation in each joint venture34.
48.
The First Heads of Agreement provided that Lagoven would compensate Mobil PIV in the event that certain governmental actions resulted in a "Material Adverse Impact"35. Specific limits were placed on the circumstances under which compensation would be granted and the extent of such compensation, as discussed further below36.
49.
On 1 January 1997, Lagoven, Mobil and Veba Oel37 signed a Second Heads of Agreement, which superseded certain parts of First Heads of Agreement. Under the Second Heads of Agreement, Lagoven and Mobil PIV would each own a 41 2/3% interest in the synthetic crude oil joint venture, and Veba Orinoco38 would own the remaining 16 2/3% interest39.
50.
Negotiations progressed between the Parties and proved successful. In order to proceed further, the authorization of the Venezuelan Congress was required pursuant to Article 5 of the 1975 Nationalization Law. Consequently, on 17 March 1997, the Ministry of Energy and Mines ("MEM")40 submitted to the Venezuelan Congress, the proposed Framework of Conditions for the Cerro Negro Association (Marco de Condiciones)41.
51.
In the Framework of Conditions for the Cerro Negro Association, the Venezuelan Congress established the general terms of, and conditions for, the Cerro Negro Association and provided for undertakings by the Respondent with respect to certain rights accorded to the participants in the association as follows42:

(1) The Thirteenth Condition provided that any cut in production required by Venezuela's OPEC obligations would be applied proportionately, as follows43:

"If THE PARTIES are required to reduce their production as a result of the international commitments of the Republic of Venezuela, such reduction shall not exceed the reduction percentage generally applicable to the national oil industry as a whole. This percentage shall be calculated based on the available production capacity44".

(2) The Fifteenth Condition provided that the participants in the Cerro Negro Project would be subject to the income tax rates applicable to companies in general (as distinguished from the higher rates applicable to other companies in the oil sector), as follows:

"[The activities to be carried out by the Parties under the Association Agreement] shall not be subject to payment of Municipal Taxes (Industry and Commerce Excise) or State taxes; furthermore, pursuant to the second paragraph of article 9 of the Income Tax Law in force, THE PARTIES and each of the Entities shall pay taxes under the ordinary regime established in said law for companies and assimilated entities, for any income obtained in connection with the activities of THE PARTIES (including the Development Production)45".

(3) The Eighteenth Condition reserved the rights of Venezuela in the following terms46:

"The Association Agreement, and all activities and operations conducted under it, shall not impose any obligation on the Republic of Venezuela nor shall they restrict its sovereign powers, the exercise of which shall not give rise to any claim, regardless of the nature or characteristics of the claim by other states or foreign powers47".

(4) The Twentieth Condition provided compensation for governmental action having an adverse effect and expressly referred to the limitation of liability, as follows48:

"The Association Agreement shall include provisions allowing the renegotiation of the Agreement as necessary to compensate any Party other than LAGOVEN, on equitable terms, for adverse and significant economic consequences arising from the adoption of decisions made by governmental authorities, or changes in legislation, that cause a discriminatory treatment of THE ASSOCIATION, any entity or THE PARTIES in their capacity as participants in THE ASSOCIATION. However, it shall not be considered that a Party has suffered an adverse and significant economic consequence as a result of any of said decisions or changes in legislation, at any time when the Party is receiving income from THE ASSOCIATION equal to a price of crude oil above a maximum price that shall be specified in the Association Agreement49".

52.
The Venezuelan Congress approved the proposed Framework of Conditions for the Cerro Negro Association on 24 April 199750.

(b) Elements of the Cerro Negro Investment

53.
The principal elements of the Cerro Negro investment were51: (i) the execution of the Cerro Negro Association Agreement52, the Reservation and Dedication Agreement (Convenio de Reserva y Dedicación de Área Designada)53 and the Cerro Negro Royalty Reduction Agreement54; (ii) the creation of Petrolera Cerro Negro to manage the project (Convenio de Operaciones Cerro Negro)55; and (iii) the establishment of a joint venture between Mobil and PDVSA to own and operate the Chalmette refinery (Convenio Modificado y Replanteado de Constitución de Sociedad de Responsabilidad Limitada)56.

(c) Cerro Negro Association Agreement, Reservation and Dedication Agreement and Cerro Negro Royalty Reduction Agreement

54.
In June 1997, the proposed Cerro Negro Association Agreement was submitted to the Venezuelan Congress57. On 2 October 1997, the Congress determined that the terms and conditions of the Cerro Negro Association Agreement and the Annexes and Exhibits to the agreement complied with the Framework of Conditions for the Cerro Negro Association and formally authorized the execution of those instruments58.
55.
On 28 October 1997, Lagoven Cerro Negro, S.A ("PDVSA-CN")59, Veba Orinoco and Mobil PIV entered into the Cerro Negro Association Agreement60. On the same day, the Parties entered into the Reservation and Dedication Agreement61. Under the provisions thereof, PDVSA P&G conferred exclusive rights to develop and exploit the oil reserves in a designated area of the Cerro Negro region upon PDVSA-CN, Mobil Cerro Negro and Veba Orinoco62.
56.
On 29 October 1997, Mobil PIV assigned its rights in the Cerro Negro Association Agreement63 to Mobil Cerro Negro64. Until the expropriation described below65, the percentage interests of the Parties in the Cerro Negro Association were as follows: PDVSA-CN - 41 2/3%; Mobil Cerro Negro - 41 2/3%; and Veba Orinoco - 16 2/3%66.
57.
The Cerro Negro Association Agreement established an unincorporated joint venture for a term of thirty-five years starting from 30 June 200067. The project contemplated by the Cerro Negro Association Agreement - the Cerro Negro Project - was a set of activities that included68 (i) exploiting and developing the extra-heavy crude oil fields in the Cerro Negro area; (ii) constructing and operating an upgrader in the Jose Industrial Complex on the Venezuelan coast with the capacity to upgrade approximately 120,000 barrels per day of extra-heavy crude oil to a level of 16.5° API; (iii) laying and operating pipelines between the Cerro Negro area and the Jose Industrial Complex (approximately 315 km); and (iv) selling the resulting products of Mobil Cerro Negro and PDVSA-CN to Chalmette Refining69. The Cerro Negro Association Agreement authorized the parties to expand the capacity of the Project to produce extra-heavy crude as well as its capacity to upgrade that crude into synthetic crude oil. An expansion project could be undertaken by unanimous agreement of the participants or, alternatively, under certain conditions, by fewer than all of the participants70.
58.
The Cerro Negro Association Agreement granted the Parties an undivided interest in the assets and liabilities of the venture in proportion to their respective interests71. Title to the oil produced by the Cerro Negro Project vested in the participants at the wellhead, also in proportion to their respective interests72. Each party was separately responsible for paying its share of royalties and taxes owed to the Respondent73. Further, the Cerro Negro Association Agreement provided that the agreement "... in no event impose[d] any obligation on the Republic of Venezuela or limit[ed] the exercise of its sovereign rights"74.
59.
Similarly to the previous agreements, the First Heads of Agreement and the Framework of Conditions for the Cerro Negro Association both contemplated compensation to Mobil Cerro Negro in certain circumstances. This compensation structure was also contained in the Cerro Negro Association Agreement75. Clause 15 provided that PDVSA-CN would compensate Mobil Cerro Negro and Veba Orinoco for the economic consequences of governmental measures defined as "Discriminatory Measures"76. The relevant compensation provisions of the Cerro Negro Association Agreement began with the definition of the term "Discriminatory Measure" as follows77:

"‘Discriminatory Measure" shall mean any change in (or any change in the interpretation or application of) Venezuelan law, or any Governmental Measure, which is unjust and is applicable to the Project or any Foreign Party in its capacity as a participant in the Project and is not generally applied to public or private entities engaged in Extraheavy crude upgrading projects in the Republic of Venezuela; or, with respect to tax rates, foreign exchange controls or the expropriation or seizure ["ocupación"] of assets of the Project or of a Foreign Party's interests in the Project, provided that such change in (or any change in the interpretation or application of) Venezuelan law, or any Governmental Measure is not generally applicable to Companies in the Republic of Venezuela (including the imposition of income tax on the Project or on any Foreign Party in its capacity as a participant in the Project, at a rate that does not correspond with what is set forth in the last sentence of the Fifteenth Condition); or with respect to municipal taxes (license to perform industrial and commercial activities), the imposition of municipal taxes on the Foreign Parties in their capacity as participants in the Association notwithstanding the provision in the Fifteenth Condition, only if the aggregate burden of the municipal taxes on the affected Foreign Party's gross revenue from the Project exceeds by four percent (4%) the affected Foreign Party's gross revenue from the Project in the Fiscal Year at issue, in which event the amount of municipal taxes that exceeds such four percent (4%) shall be a discriminatory measure. A measure that falls within the definition of Discriminatory Measure shall be deemed unjust if it results in a Material Adverse Impact."

60.
Clause 15 of the Cerro Negro Association Agreement then provided substantive provisions for compensation for Discriminatory Measures. These provisions set forth the requirements for obtaining compensation, such as giving immediate notice to PDVSA-CN upon the occurrence of an event that might lead to a "Material Adverse Impact" (as defined in the Agreement), giving another notice immediately to PDVSA-CN upon determination by the party seeking compensation that it actually had suffered a "Material Adverse Impact", and taking all steps to "reverse or obtain relief from" the measure in question78. Pursuant to this provision, Mobil Cerro Negro Ltd. initiated arbitration proceedings at the ICC International Court of Arbitration (see below).
61.
Clause 15 also established the limitation of liability referred to in the Twentieth Condition of the Framework Conditions for the Cerro Negro Association. Specifically, Clause 15.2 provided as follows79:

"15.2 Limitation on Lagoven CN's Obligation. (a)... after the first period of six (6) consecutive months during which the Price of Brent Crude exceeds the Base Price, Lagoven CN shall not have the obligation to compensate any Foreign Party for Discriminatory Measures with respect to any Fiscal Year in which the average Price of Brent Crude Oil exceeds Base Price, and such Foreign Party receives a Net Cash Flow, after taking into account the effect of the Discriminatory Measure, commensurate with a reference price for the Production produced by the Parties which bears at least a reasonable relationship, adjusted for quality and transportation differences, to the Reference Cash Flow for such Fiscal Year."

62.
On 29 May 1998, the MEM and PDVSA P&G executed a Royalty Reduction Agreement for the Orinoco Oil Belt projects ("Cerro Negro Royalty Reduction Agreement")80. The agreement provided for a royalty reduction for Orinoco Oil Belt projects in accordance with the following formula: the applicable royalty would be 16 2/3% (the maximum allowed under the then existing law) during the early production or development phase of the project. Upon achieving commercial production (defined under the Cerro Negro Association Agreement as the upgrader completion date), the royalty would be reduced to 1% until such time as the accumulated gross income from the project exceeded three times the total investment (from the start of the project until the beginning of commercial production), but in no event would the reduction period exceed nine years from the beginning of commercial production81. This was reaffirmed by the Royalty Procedures Agreement82.
63.
The Cerro Negro Royalty Reduction Agreement provided that companies participating in association agreements (such as Mobil Cerro Negro), by expressing their consent in writing to the MEM, could avail themselves of the Cerro Negro Royalty Reduction Agreement and become Parties to it83. Mobil Cerro Negro did so by letter dated 5 November 199884.

(d) Creation of Petrolera Cerro Negro

64.
The Cerro Negro Association Agreement mandated the creation of a company, Petrolera Cerro Negro, S.A. ("Petrolera Cerro Negro"), to direct, coordinate and supervise the activities of the Cerro Negro Project85. Parties to the Cerro Negro Association Agreement held shares in Petrolera Cerro Negro in proportion to their respective interests in the Cerro Negro Project86.
65.
The Cerro Negro Association Agreement charged Petrolera Cerro Negro with appointing a technical operator to run the Cerro Negro Project87. On 1 December 1997, Petrolera Cerro Negro, PDVSA-CN, Mobil Cerro Negro and Veba Orinoco signed an Operating Agreement with Operadora Cerro Negro, S.A. ("Operadora Cerro Negro"), a wholly-owned subsidiary of Mobil Corporation88. Operadora Cerro Negro became the operator of the Cerro Negro Project, acting as an agent of the parties to the Cerro Negro Project89.

(e) Chalmette Refining

66.
The Cerro Negro Project was a vertically integrated project90. To refine the synthetic crude oil and other products of the Cerro Negro Project, Mobil and PDVSA established a related downstream joint venture91. Chalmette Refining LLC ("Chalmette Refining") was created to own and operate the Chalmette Refinery92, which was especially modified to refine diluted crude oil and synthetic crude oil from the Cerro Negro Project into marketable products93.
67.
On 1 November 1997, Mobil Cerro Negro and PDVSA-CN entered into the Chalmette Offtake Agreement with Chalmette Refining94. Under that agreement, Chalmette Refining was required to buy PDVSA-CN's and Mobil Cerro Negro's shares of the diluted crude oil and synthetic crude oil produced by the Cerro Negro Project for the life of the Cerro Negro venture95. On 18 June 1998, Mobil Cerro Negro, PDVSA-CN, Mobil Sales & Supply Corporation and the Bank of New York signed the Offtake Support Agreement96. Under the Offtake Support Agreement, Mobil Sales & Supply Corporation, a Mobil subsidiary, was required to lift and purchase any PDVSA-CN and Mobil Cerro Negro synthetic crude oil that was not accepted by Chalmette Refining97.
68.
Commercial production at the Cerro Negro project was achieved in August 200198.
69.
In sum, the investment in Cerro Negro involved the construction, operation and management of oil-production and upgrading facilities, and the establishment of a joint venture for the purchase of shares of production99. According to the Claimants, from 1997 until June 2007, the three participants invested over U.S. $3.1 billion in the Cerro Negro Project, of which Mobil allegedly invested over U.S.$1.3 billion100.

5. La Ceiba Investment

70.
The second project in which Mobil participated in Venezuela was the La Ceiba Project - a joint venture to explore and exploit an area with light and medium crude oil potential101.

(a) Context of the La Ceiba Investment

71.
In December 1994, the Respondent submitted to the Venezuelan Congress a proposed Framework of Conditions for At-Risk-and-Shared-Profits Exploration Agreements102. On 4 July 1995, the Venezuelan Congress approved the proposal103.
72.
The Framework of Conditions for At-Risk-and-Shared-Profits Exploration Agreements authorized the MEM to determine the geographic areas to be assigned to a subsidiary of PDVSA for conducting exploration and exploitation activities104. The relevant PDVSA subsidiary, in turn, was authorized to select, through a competitive bidding process, the private companies with which it would form association agreements to explore the designated areas105.
73.
One of the geographic areas designated for competitive bidding was La Ceiba, an onshore field adjacent to Lake Maracaibo106. The La Ceiba area comprised 15 blocks totaling approximately 1,800 square kilometers107.
74.
The international tender process contemplated by the Framework of Conditions for At-Risk-and-Shared-Profits Exploration Agreements (also known as the Exploration Bidding Round), took place between July 1995 and January 1996108. On 5 December 1995, Corporación Venezolana del Petróleo, S.A. ("CVP")109 and the MEM entered into a Royalty Reduction Agreement for At-Risk-and-Shared-Profits Exploration Projects (the "La Ceiba Royalty Reduction Agreement")110. Under that agreement, the royalty would be 16 2/3% during early production and would be reduced, according to a sliding scale, once commercial production was achieved111.
75.
Mobil satisfied the financial and technical requirements imposed by the tender rules and was given the highest pre-qualification status and the right to participate in the tender process alone or in a consortium112. Mobil Venezolana formed a consortium with Veba Oel Venezuela Exploration GmbH ("Veba La Ceiba") and Nippon Oil Exploration (Venezuela), Inc. ("Nippon La Ceiba") (collectively, "the Mobil Consortium") to bid for the La Ceiba area113. Mobil Venezolana held a 50% interest in the Mobil Consortium, Veba La Ceiba held a 30% interest, and Nippon La Ceiba held the remaining 20% interest114.
76.
On 16 January 1996, the Respondent awarded the La Ceiba area to the Mobil Consortium115. On 19 June 1996, the Venezuelan Congress determined that the La Ceiba Association Agreement complied with the terms of the Framework of Conditions for At-Risk-and-Shared-Profits Association Agreements and authorized execution of the La Ceiba Association Agreement116.

(b) Elements of the La Ceiba Investment

77.
On 10 July 1996, CVP, Mobil Venezolana, Veba La Ceiba and Nippon La Ceiba entered into the La Ceiba Association Agreement to explore, develop and exploit oil fields in the La Ceiba area117. The La Ceiba Association Agreement expressly provided that it imposed no limitations on the sovereign rights of the Respondent118. The Claimants also accepted the benefits conferred by the La Ceiba Royalty Reduction Agreement by becoming a party to the La Ceiba Association Agreement119.
78.
Petro-Canada International GmbH (Petro-Canada) later acquired the interests of Veba La Ceiba and Nippon La Ceiba in the venture120. At the time of the expropriation discussed below, Mobil Venezolana and Petro-Canada were the sole private investors having interests in the La Ceiba Project121.
79.
The La Ceiba Association Agreement provided for the creation of a management company, Administradora La Ceiba, to direct, coordinate and supervise the Project122. CVP held a 35% interest in Administradora La Ceiba and Mobil Venezolana and Petro-Canada each held a 32.5% interest123. The La Ceiba Association Agreement also established a Control Committee, which was responsible for "fundamental decisions of national interest to the Venezuelan State related to the performance" of the agreement124.
80.
In the event of an oil discovery, the private investors were entitled to submit an Evaluation Plan for assessment of the commercial potential of the discovery to Administradora La Ceiba and the Control Committee125. Upon a Declaration of Commerciality (i.e., the notification of an intention to prepare and submit a Development Plan for approval), Mobil Venezolana and Petro-Canada could submit a Development Plan to Administradora La Ceiba and the Control Committee for approval126.
81.
On 20 August 1996, Agencia Operadora La Ceiba, C.A. ("Operadora La Ceiba", a wholly-owned subsidiary of Mobil), Administradora La Ceiba, CVP, Mobil Venezolana, Veba La Ceiba and Nippon La Ceiba entered into the La Ceiba Operating Agreement127. Under that agreement, all activities related to the exploration, development and exploitation of the fields in the La Ceiba area were entrusted to Operadora La Ceiba128.
82.
Based on those exploration activities, on 11 December 2001, Operadora La Ceiba submitted an Evaluation Plan to Administradora La Ceiba and the Control Committee129. Administradora La Ceiba and the Control Committee approved the Evaluation Plan soon after it was submitted130.
83.
On 30 September 2005, the La Ceiba investors filed a Declaration of Commerciality for Blocks 1, 3, 4 and 7 of the La Ceiba area131. On 12 December 2005, Operadora La Ceiba, acting on behalf of Mobil Venezolana and Petro-Canada, submitted to Administradora La Ceiba a detailed Development Plan, which set forth the technical and financial blueprint for exploiting commercial discoveries in the La Ceiba area132. The Development Plan called for an investment of U.S.$1,347 billion to produce up to 50,000 barrels of oil per day for an estimated field life of 27 years133.
84.
In the Development Plan, Mobil Venezolana and Petro-Canada expressed their joint intent to proceed to exploit the discoveries134. Each of them also agreed to reduce, pro rata, its 50% interest in the project once CVP declared its intent to participate in the consortium and designated its percentage interest, up to a limit of 35%135.

6. Origin of the Present Dispute

86.
The Claimants assert that the alleged wrongful measures at issue in the present case were all taken after Mr. Hugo Chávez Frías was elected President of Venezuela in December 1998138. In approximate chronological order, the alleged adverse measures taken by the Respondent for which the Claimant seeks compensation include the following139:

1. The unilateral termination of the Cerro Negro Royalty Reduction Agreement and the Cerro Negro Royalty Procedures Agreement;

2. The further increase in the royalty rate through the imposition of the extraction tax;

3. The increase in the income tax rate applicable to participants in Orinoco Oil Belt ventures;

4. The production and export curtailments imposed on the Cerro Negro Project; and

5. The direct expropriation of Mobil Cerro Negro's and Mobil Venezolana's entire interests in the activities of the Cerro Negro Joint Venture and the La Ceiba Joint Venture, as well as the related assets.

87.
The facts relevant to these alleged wrongful measures are discussed below.

(a) Increase in the Royalty Rate in 2004 and 2005

88.
As indicated above, a reduced royalty rate was applicable to the Cerro Negro Investment and the La Ceiba Investment. On 13 November 2001, President Chávez (exercising delegated legislative powers) issued the Organic Law of Hydrocarbons, replacing the 1975 Nationalization Law and the 1943 Hydrocarbons Law140. Under the new law, production activities were reserved to the State, and private Parties would be authorized to participate in those activities only through mixed enterprises in which the State owned more than 50% of the shares141. Any production from a mixed enterprise would be subject to a royalty of 30% and would have to be sold to PDVSA or another State-owned company142.
89.
According to the Claimants, both before and after the adoption of the 2001 Organic Law of Hydrocarbons, President Chávez's administration reaffirmed its assurances that pre-existing contracts (such as the Cerro Negro and La Ceiba Association Agreements) would be respected143. Further, on 16 January 2002, the MEM and Operadora Cerro Negro (on behalf of the Cerro Negro Project participants) signed an Agreement on Procedures for the Payment of the Exploitation Tax (Royalty) of the Extra-Heavy Crude Produced and the Sulphur Extracted by Operadora Cerro Negro, S.A. ("Royalty Procedures Agreement")144. Although the 2001 Organic Law of Hydrocarbons (which provided for a royalty rate of 30%) was already in effect, the Royalty Procedures Agreement reaffirmed that the royalty for participants in the Cerro Negro Project would remain at the reduced rate of 1% in accordance with the formula set forth in the Cerro Negro Royalty Reduction Agreement and that it would not exceed 16 2/3% during the lifetime of the Project145.
90.
However, on 19 October 2004, PDVSA served notice on Mr. Mark Ward, President of ExxonMobil de Venezuela S.A. ("ExxonMobil de Venezuela")146 that, by order of President Chávez, the MEM was "leaving without effect" the 1% royalty rate that had been guaranteed by the Cerro Negro Royalty Reduction Agreement147. A royalty rate of 16 2/3% was imposed on the Project starting from 11 October 2004148.
91.
The Claimants assert that, at the time, neither of the alternative conditions specified in the Cerro Negro Royalty Reduction Agreement for ending the rate reduction had been met. Specifically, (i) the accumulated gross income from the Cerro Negro Project had not reached three times the aggregate investment, and (ii) nine years had not yet elapsed since the beginning of commercial production149. This is not disputed by the Respondent, who emphasizes that it had the discretion under the 1943 Hydrocarbons Law to end the royalty concession150.
92.
Similarly, on 25 February 2005, CVP informed Mr. Ward that the MEM, by express instructions of President Chávez, was "leav[ing] without effect" the royalty reduction established in the La Ceiba Royalty Reduction Agreement and imposing a royalty rate of 16 2/3% on the La Ceiba Project151.
93.
In its letter of 8 June 2005 to Mr. Ward, the Ministry of Energy and Mines stated that "[t]he payment of royalties required from companies that process extra-heavy crude in the Orinoco Oil Belt is 30%, as set forth in Article 44 of the Organic Hydrocarbons Law in force"152. On 23 June 2005, the Ministry of Energy and Mines informed Mobil Cerro Negro that average monthly production above 120,000 barrels per day would be subject to a royalty rate of 30%153.

(b) Creation of the Extraction Tax in 2006

94.
During the course of 2005 and 2006, the price of crude oil continued to soar, reaching new record highs each year154. By May 2006, the price of crude oil had risen to US$69.78 per barrel155.
95.
On 16 May 2006, the National Assembly enacted a partial amendment to the 2001 Organic Law of Hydrocarbons, which created an additional royalty in the form of an "extraction tax" (Impuesto de Extracción)156. The new law, which took effect on 29 May 2006, imposed an extraction tax of 33 1/3% on all liquid hydrocarbons extracted from the ground157. Under the new scheme, royalty payments were to be credited to the liability for the extraction tax158.
96.
Accordingly, Mobil Cerro Negro was liable to pay an additional 16 2/3% as an extraction tax (i.e., 33 1/3% minus 16 2/3% equals 16 2/3%) for its production share159. This change increased the royalty rate applicable to the Cerro Negro Project to 33 1/3%160.
97.
Mobil Cerro Negro paid the increased royalty and the extraction tax under protest and with full reservation of rights161. It paid the royalty at the rate of 16 2/3% from 11 October 2004 and the extraction tax at the rate of 16 2/3% from 29 May 2006, in both cases until the investment was expropriated in June 2007162.

(c) Increase in the Income Tax Rate Applicable to Participants in Orinoco Oil Belt Ventures

98.
On 29 August 2006, the National Assembly amended the Income Tax Law to repeal the provision that subjected income from the extra-heavy oil projects in the Orinoco Oil Belt to the general corporate rate, instead of the higher rate applicable to the oil industry163. This amendment had the effect of increasing from 34% to 50% the rate applicable to income from those projects, including the Cerro Negro Project164. The measure took effect on 1 January 2007165.
99.
Accordingly, after 1 January 2007, Mobil Cerro Negro was subject to an income tax rate of 50%166. Mobil Cerro Negro made two income tax advance payments at the rate of 50% from 1 January 2007 until its investment was expropriated in June 2007167.

(d) Production and export curtailments on the Cerro Negro Project

100.
Under the terms of the Cerro Negro Framework of Conditions and the Cerro Negro Association Agreement, production and export curtailments could be imposed on the Cerro Negro Project provided that they were necessary to comply with the Respondent's international commitments. They were to be applied on a pro rata basis on all oil producers in Venezuela. From late 2006 through the first part of 2007, the Respondent imposed a series of production and export curtailments on the Cerro Negro Project168.
101.
On 9 October 2006, the Ministry of Energy ordered Operadora Cerro Negro to reduce extra-heavy oil production for that month by a total of 50,000 barrels ("October 2006 Production Cut")169. Shortly thereafter, the Respondent agreed to participate in two OPEC production cuts170. The first cut, which was applied between November 2006 and February 2007, reduced Venezuela's oil production by 138,000 barrels per day171. The second cut, which took effect on 1 February 2007 and remained in effect in June 2007, reduced oil production by an additional 57,000 barrels per day172.
102.
Toward the end of 2006, the production cuts imposed by Venezuela were replaced by restrictions on exports in each of November, January, February and March 2007173. The export curtailment imposed for March 2007 was to remain in effect until the end of June 2007.
103.
As a consequence of these production and export cuts, the Cerro Negro Project allegedly produced approximately 560,000 fewer barrels of extra-heavy crude in 2006, as compared with the production target for 2006174, and exported about 5.5 million fewer barrels of synthetic crude oil by the end of June 2007 than the export target for the first half of 2007175.
104.
Mobil Cerro Negro formally objected to these curtailments as violations of the Cerro Negro Framework of Conditions and the Cerro Negro Association176.

(e) Expropriation of the Claimants' Investments in the Cerro Negro and La Ceiba Projects

105.
As described above, pursuant to the 2001 Hydrocarbons Law, operating service agreements were to be reformed as mixed enterprises177. The only activities remaining outside of this legal framework were the Orinoco Oil Belt associations (such as the Cerro Negro Project) and the Profit Sharing Agreements (such as the La Ceiba Project)178.
106.
On 8 January 2007, President Chavez announced that all of the projects that had been operating outside of the framework of the 2001 Hydrocarbons Law, including the Cerro Negro Project, would be nationalized179. On 1 February 2007, through the Enabling Law (see below), the Respondent made clear that it also intended to nationalize profit-sharing projects such as the La Ceiba Project180.
107.
On 1 February 2007, the National Assembly enacted a law entitled the "Law that Authorizes the President of the Republic to Issue Decrees with Rank, Value and Force of Law in Delegated Subject Matters" ("Enabling Law")181. The Enabling Law authorized President Chávez to take over the Cerro Negro and La Ceiba joint ventures and other similar associations by182:

"[D]ecree[ing] norms allowing the State to assume directly or through corporations of its exclusive property, the control of the activities performed by the associations operating in the Orinoco Oil Belt, including the upgraders and the associations for exploration at risk and shared profits, to regularize and adjust their activities within the legal framework that governs the national oil industry, through the contractual form of mixed enterprises or companies [that are] exclusive property of the State."

108.
On 26 February 2007, President Chávez issued Decree No. 5200 on the "Migration to Mixed Companies of the Association Agreements of the Orinoco Oil Belt, as well as of the At-Risk-and-Shared-Profits Exploration Agreements" ("Decree-Law 5200")183. The Decree-Law ordered, inter alia, that the associations located in the Orinoco Oil Belt (such as the Cerro Negro Association), and the At-Risk-and-Shared-Profits Associations, (such as the La Ceiba Association), be "migrated" into new mixed companies under the 2001 Organic Law of Hydrocarbons, in which PDVSA or one of its subsidiaries would hold at least a 60% participation interest184. This process of transformation from the association form to a mixed company was referred to as "migration"185.
109.
Decree-Law 5200 provided a roadmap and schedule for the migration of the associations186. Article 3 thereof required Operadora Cerro Negro and Operadora La Ceiba, the operators of the Cerro Negro and La Ceiba Projects, to transfer control of all activities and operations related to those projects to Corporación Venezolana del Petróleo, S.A. (or another affiliate of PDVSA) no later than 30 April 2007187. Accordingly, on 30 April 2007, Operadora Cerro Negro transferred to PDVSA Petróleo S.A. the operations and control of all activities related to the Cerro Negro Project, with full reservation of rights188. On 27 April 2007, Operadora La Ceiba did the same in respect of the La Ceiba Project189.
110.
Article 4 of Decree-Law 5200 gave Mobil Cerro Negro, Mobil Venezolana and participants in other associations in the Orinoco Oil Belt and in At-Risk-and-Shared-Profits Associations, four months (until 26 June 2007) to agree to participation in the new mixed companies190. The mixed companies would be established and would operate under a different statutory framework (the 2001 Organic Law of Hydrocarbons) and under new contractual arrangements that would replace the previous association agreements191. Article 5 of Decree-Law 5200 provided that, if no agreement was reached on the establishment and functioning of the new mixed companies by the end of the four-month period, "the Republic, through Petróleos de Venezuela S.A. or any of its affiliates [...] shall directly assume the activities of the associations," namely, the Cerro Negro Association and the La Ceiba Association192.
111.
Throughout the four-month period specified in Article 4 of Decree-Law 5200, discussions took place between Mobil Cerro Negro and Mobil Venezolana and the Respondent about the potential participation of the Claimants in the new mixed enterprises193. By 26 June 2007, no agreement had been reached on such participation194.
112.
On 27 June 2007, when the four-month term imposed by Decree-Law 5200 expired, the Respondent seized the investments of Mobil Cerro Negro in the Cerro Negro Project and the investments of Mobil Venezolana in the La Ceiba Project195. This is not disputed by the Respondent. The Respondent has admitted that it "nationalized" the Cerro Negro and La Ceiba Projects in 2007196.
113.
On 5 October 2007, the National Assembly enacted the "Law on the Effects of the Process of Migration to Mixed Companies of the Agreements of the Orinoco Oil Belt, as well as of the At-Risk-and-Shared-Profits Exploration Agreements" ("Law on Effects of the Migration")197. The Law ratified the expropriation effected by Decree-Law 5200 and ordered that the interests and assets, formerly belonging to those companies that had not agreed to "migrate", be formally transferred to the new mixed companies by application of the "reversion principle"198.
114.
Article 1 of the Law on Effects of the Migration provided that association agreements would "be extinguished as of the date of publication in the Official Gazette [...] of the decree that transfers the right to exercise primary activities to the mixed enterprises constituted according to what is provided in said Decree-Law [Decree-Law 5200]"199. Article 1 also provided a special rule for association agreements in which none of the Parties had agreed to "migrate" to mixed enterprises within the four-month period established in Decree-Law 5200. In such a case, the association agreement would be extinguished as of the date of publication of the Law on Effects of the Migration in the Official Gazette200.
115.
By Decree No. 5916, published on 5 March 2008, the Respondent transferred to PetroMonagas, S.A201. "[t]he right to develop primary activities of exploration in search of reservoirs of heavy and extra-heavy crude oil, the extraction of such crude oil in its natural state, and its initial production, transport and storage"202. Consequently, pursuant to Article 1 of the Law on Effects of the Migration, the Cerro Negro Association Agreement was terminated as of that date.
116.
Neither Mobil Venezolana nor Petro-Canada agreed to "migrate" the La Ceiba Project to a new mixed enterprise203. Consequently, the La Ceiba Association Agreement fell under the special rule of Article 1 of the Law on Effects of the Migration. Accordingly, the La Ceiba Association Agreement was terminated as of 8 October 2007, the date of the publication of the Law on Effects of the Migration.

C. THE ICC ARBITRATION

117.
The Tribunal notes that several proceedings have been initiated by the Claimants, including proceedings against PDVSA before courts in London and New York. The Tribunal will consider the impact of those proceedings, if any, in the course of this Award.
118.
In particular, the Tribunal notes that, in 2008, Mobil Cerro Negro initiated ICC proceedings against PDVSA and PDVSA-CN. That proceeding was initiated pursuant to Clause 15 of the Association Agreement, which affords Mobil Cerro Negro the right to indemnification by PDVSA-CN in the event of certain governmental measures, but requires Mobil Cerro Negro to initiate a legal action against the Government to enforce that right and sets forth a mechanism to prevent double recovery.
119.
The ICC proceeding has a direct bearing on the present proceeding in as much as the "Discriminatory Measures" at issue in that proceeding are among those before the Tribunal in this case. Further, in the ICC arbitration Mobil Cerro Negro submitted that: "if MCN receives from the Respondents payment of any damages awarded in this [ICC] Arbitration, and later receives payment of any damages awarded in the ICSID case, MCN will reimburse the Respondents (after deducting legal costs) for the payment they made, to the extent both payments relate to the same Discriminatory Measures"204.
120.
On 23 December 2011, the award was issued in the ICC proceeding, finding PDVSA and PDVSA-CN jointly and severally liable for the economic consequences of the "Discriminatory Measures". Setting off the counterclaim, the ICC Tribunal directed the Respondents in the ICC arbitration to pay to Mobil Cerro Negro a sum of US$746,937,958, together with interest thereon. The implications of the ICC Award on the various issues before this Tribunal (in particular, compensation) are considered in the context of the Tribunal's discussion of those issues.
121.
The Tribunal has deliberated and thoroughly considered the Parties' written submissions on the merits and the oral arguments delivered in the course of the evidentiary hearing.

III. THE PARTIES' SUBMISSIONS

122.
The following section briefly summarizes the Parties' allegations, which are fully addressed in the Tribunals analysis (see sections IV to XI below).

A. THE CLAIMANTS' MEMORIAL

123.
On 15 December 2010, the Claimants submitted their Memorial on the Merits.
124.
The Claimants submit that the Venezuelan Government adopted a series of measures adverse to the Claimants' investments. In particular, the Claimants refer to the following:

(i) Breach of the Cerro Negro Royalty Reduction Agreement, the Royalty Procedures Agreement and the La Ceiba Royalty Reduction Agreement;

(ii) Imposition of increased royalty rates on production above 120,000 barrels per day for the Cerro Negro Project;

(iii) Unilateral termination of the Cerro Negro Royalty Reduction Agreement and the Cerro Negro Royalty Procedures Agreement;

(iv) Further increase in the royalty rate through imposition of the extraction tax;

(v) Increase in the income-tax rate applicable to participants in the Orinoco Oil Belt ventures;

(vi) Production and export curtailments on the Cerro Negro Project;

(vii) Direct expropriation of Mobil Cerro Negro's and Mobil Venezolana's entire interests in the activities of the Cerro Negro Joint Venture and the La Ceiba Joint Venture and related assets;

(viii) Unjustified post-expropriation tax assessments; and (ix) Harassment of Claimants' witnesses and Venezuelan counsel205.

125.
In light of the Tribunal's Decision on Jurisdiction, the Claimants have reshaped their claims as follows:

"(i) claim arising out of the imposition of the Extraction Tax on the Cerro Negro Project; (ii) claim arising out of the increase in the income-tax rate for the participants in the Cerro Negro Project; (iii) claim arising out of production and export curtailments imposed on the Cerro Negro Project; and (iv) claim arising out of the expropriation of the Claimants' investments in the Cerro Negro Project and the La Ceiba Project... [They] also note that they have sustained and continue to sustain damage from the unconstitutional or otherwise unjustified post-expropriation tax measures. and reserve their right to assert claims arising from those measures depending on the outcome of pending appeals and any further unreasonable delay in the reimbursement of VAT credits"206.

126.
Regarding the law applicable to the merits, the Claimants submit that "the ICSID Convention and the Treaty determine the rules of law under which the claims asserted in this proceeding must be adjudicated"207. In particular, Article 9 (5) of the Treaty enumerates the sources of law upon which an arbitral award under the Treaty must be based208. The Claimants acknowledge that Venezuelan law is of some relevance, in particular with respect to the evidence of the Respondent's commitments and conduct. However, they consider that the main source of law must be the Treaty itself given that the claims are for breach of the Treaty209.
127.
On that basis, the Claimants contend that the Respondent is in breach of the Treaty in several respects.
128.
First, Venezuela violated the Treaty by wrongfully expropriating the Claimants' investments. That expropriation fails to meet at least three of the requirements of Article 6 of the BIT in that it was (i) conducted without due process of law; (ii) contrary to the Respondent's undertakings; and (iii) not taken against any compensation, let alone just compensation210.
129.
Second, the Claimants contend that Venezuela has violated Article 3 (1) of the BIT by failing to ensure fair and equitable treatment (FET) to its investments. "In brief, the Respondent's measures have frustrated the Claimants' legitimate expectations, which the Respondent itself created by inducing the Claimants to invest on the basis of a specific legal framework that established economic incentives and legal protections for the duration of the investment"211.
130.
Third, the Claimants submit that Venezuela has also violated Article 3 (1) of the BIT by "taking arbitrary and discriminatory measures that impaired the operation, management, use, enjoyment, or disposal of the Claimant's investments"212.
131.
They contend that those "wrongful measures have directly caused severe damage to the Claimants' investments in Venezuela, culminating in the total deprivation, without compensation, of the Claimants' interests in the Cerro Negro and La Ceiba Projects. The Claimants are therefore entitled to reparation in accordance with the standards prescribed by international law for internationally wrongful acts"213.
132.
The Claimants contend that they are entitled to be restored to the position they would occupy without the Respondent's wrongful conduct (restitutio in integrum). Since the Treaty permits only monetary compensation, the Claimants request monetary compensation that financially puts them in the same position they would be absent the Respondent's wrongful acts214.
133.
According to the Claimants, their damages relating to the Cerro Negro Project consist of (i) the damages sustained as a consequence of the measures taken before the expropriation; plus (ii) the loss of interests in that project, as a going concern, as a consequence of the expropriation. Given that the value of the lost interest in the Project had increased since the expropriation, the Claimants contend that they are entitled to the current fair market value, which they calculate by means of a discounted cash flow analysis. Assessed as of 30 September 2010, and subject to updating to the date of the Award in this proceeding, the Claimants calculate the quantum of damages in respect of the Cerro Negro Project as approximately $14.5 billion215.
134.
Regarding the La Ceiba investment, the Claimants contend that "particular circumstances warrant a different method to determine the quantum of compensation needed to provide full reparation"216. The Claimants consider that damages in this respect "are properly measured by the value of the Claimant's actual investment in that Project, which amounts to $179 million"217.
135.
The Claimants add that the Tribunal should also address other aspects of the full reparation required by international law. In particular, the Claimants allege that, insofar as the damages have been determined on an after-tax basis, the Claimants are entitled to protection against potential taxes on the compensation to be awarded. Finally, the Claimants consider that they are also entitled to pre- and post-award compound interest for the relevant periods, and to their costs and attorneys' fees in this proceeding218.
136.
For these reasons, the Claimants request that the Tribunal render an award in its favor:

"a. Upholding the claims asserted by the Claimants in this proceeding;

b. Determining that the Respondent has breached the Treaty and applicable principles of customary international law:

By expropriating the Claimants' investments concerning the Cerro Negro Project and the La Ceiba Project without complying with the requirements of the Treaty, including observance of due process of law, respect for undertaking, and payment of compensation as required by the Treaty;

By failing to accord fair and equitable treatment to the Claimant's investments concerning the Cerro Negro and La Ceiba Projects;

By taking arbitrary and/or discriminatory measures that impaired the operation, management, use, enjoyment and/or disposal of the Claimants investments concerning the Cerro Negro and La Ceiba Projects;

c. Determining that such a breach has caused damages to the Claimants;

d. Ordering the Respondent to pay to the Claimants compensation, in accordance with the Treaty and customary international law, in an amount sufficient to provide full reparation to the Claimants for the damages incurred as a result of the Respondent's conduct in violation of the Treaty, including:

Compensation for damages sustained by the Claimants in respect of their Cerrro Negro investment as a result of Decree-Law 5200 and the wrongful measures that preceded it;

Compensation for damages sustained by the Claimants in respect of their La Ceiba investment as a result of Decree-Law 5200 and the wrongful measures that preceded it;

Pre-Award compound interest at a normal commercial rate;

Post-Award compound interest at a rate reflecting the yield of the Respondent's sovereign date as of the date of the Award;

e. Determining that the Claimants shall be protected from taxation of such compensation, in the manner specified in this Memorial;

f. Ordering the Respondent to pay all costs and expenses of this arbitration, including the fees and expenses of the tribunal and the cost of legal representation, plus interest thereon in accordance with applicable law; and

g. Such other additional relief as may be appropriate under the applicable law or may otherwise be just and proper"219.

B. THE RESPONDENT'S COUNTER-MEMORIAL

137.
The Respondent submitted its Counter Memorial on 15 June 2011
138.
In its Memorial, the Respondent requests the Tribunal to "confirm its Decision on Jurisdiction and refuse to entertain jurisdiction for any claim based on royalty or tax increases" as well as for "any claim based on production in excess of 120,000 barrels per day"220.
139.
With respect to the applicable law, the Respondent submits that Venezuelan law must be taken into account both under article 42 (1) of the ICSID Convention and under article 9 (5) of the BIT. This includes "the relevant hydrocarbon legislation and the Cerro Negro Congressional Authorization, as well as the terms and conditions of the special agreement relating to the Cerro Negro Project, particularly the compensation provisions agreed at the outset of the Project in implementation of the Cerro Negro Congressional Authorization"221.
140.
On the merits, the Respondent contends that the measures adopted did not violate the Treaty.
141.
Regarding the allegations of breach of FET, the Respondent submits that the FET claims under the Dutch Treaty based on the fiscal measures are untenable for several reasons, each of which would independently require dismissal of these claims: "(i) they are precluded by Article 4 of the Dutch Treaty, the provision expressly dealing with fiscal measures; (ii) they conflict with the Dutch Treaty Protocol, under which non-discriminatory measures that do not violate the minimum standards of international law are beyond the scope of the Dutch Treaty's FET clause, Article 3 (1); (iii) they do not violate even the most expansive notions of FET, based on ‘legitimate expectations' at the time of the original investment or Claimants' notion of a ‘reasonable stable and predictable environment'; and (iv) Claimants do not even attempt to make their FET argument from the standpoint of Venezuela Holdings at the time of the ‘Dutch' acquisition of the investment"222.
142.
The Respondent observes that in addition to their FET claims based upon tax and royalty measures, the Claimants allege breach of the FET with respect to "(i) the production or export cutbacks, and presumably the production limitation (...) (ii) the change in operationship, (iii) negotiation under alleged duress, (iv) lack of approval of the La Ceiba development plan and (v) alleged violation of Venezuelan law"223. The Respondent contends that all these claims are without merit.
143.
According to the Respondent, the measures that it took were neither arbitrary, nor discriminatory, and therefore did not violate article 3(1) of the BIT. Like the FET allegations, the claims relating to the fiscal measures would have to be dismissed because they are beyond the scope of Article 4 of the BIT. In addition, the Respondent considers that there is no basis for claims of arbitrariness or discriminatory treatment as the Government measures do not rise to the established thresholds.224
144.
The Respondent submits that this case involves no wrongful or unlawful expropriation. According to the Respondent, the pre-migration measures do not constitute expropriation. The Respondent states that the 2007 migration was not a wrongful or unlawful expropriation"225. In particular, "the mere lack of agreement on compensation does not render an expropriation unlawful.226 Therefore, compensation must be calculated in accordance with the BIT and the damage assessed as of 26 June 2007.
145.
The Respondent identifies the following key issues on quantum for the Cerro Negro Project: "(i) the impact of the limitation on the amount of compensation to be granted for adverse governmental action specifically negotiated and agreed at the outset of the Cerro Negro Project as an express condition of the Project's authorization by Congress; (ii) the discount rate to be applied to projected future cash flows; and (iii) the price, cost and volume projection (with the 120,000 barrels per day limit) that are necessary to project cash flows"227.
146.
On the first point, the Respondent contends that the price cap set forth in the Cerro Negro Associate Agreement in implementation of the Congressional authorization must be applied in the present case. Regarding the discount rate, the Respondent submits that the only reasonable proposal is to take the average of appropriate methodologies for an international oil project228, which leads to a 19.8 % discount rate to calculate compensation in this case229. Finally, regarding future cash flows, the Respondent contends that Claimants seek to inflate compensation by inflating cash flows. Instead, the Tribunal should apply the price cap resulting from the agreed limitation on compensation and the 19.8% discount rate to the cash flow calculated by Respondent's experts, which yields a value as of June 26, 2007 of US$ $353,542,997230.
147.
The Respondent submits that the compensation for the La Ceiba Project could be limited to the value of the investment, i.e. US$ 75,000,000.
148.
The Respondent adds that the outstanding Cerro Negro debt amounts to US$ 238,139,797. According to the Respondent, this debt must be taken into account, with the total compensation therefore being limited to US$ 190,403,200.231
149.
The Respondent contends that the Claimants' request to increase the amount of the award in this case by taking into account any potential tax consequences must be denied232, and that simple, post award interest should be applied. Finally, the Respondent considers that the Claimants should bear all costs.
150.
According to the Respondent, the appropriate amount of compensation for the nationalization is US$ 190,403,200, and all other claims should be dismissed.

C. THE CLAIMANTS' REPLY

151.
In their Reply dated 15 September 2011, the Claimants note that the Respondent does not dispute the core facts of the case, including the expropriation, the Republic's reassurances and inducements to Mobil, the benefits derived from the Claimants' investments and the Cerro Negro annual net income in the years preceding the expropriation.233
152.
The Claimants contend that the Respondent's jurisdictional objections have no merit. They observe that the Tribunal's jurisdiction over the claims for expropriation and for production and export curtailments is uncontested. According to the Claimants, the Tribunal also has jurisdiction over the claims arising out of the imposition of the extraction tax and of the increase in the income tax rate in the Cerro Negro Project.
153.
The Claimants contend that they had a right to increase production over 120,000 barrels per day. They recognize that in June 2005, Venezuela imposed a higher royalty over production exceeding that figure. The Claimants add that they are not pursuing a claim relating to the dispute over such royalty, but stress that they retained the right to increase their production at a higher level, and contend that the "Tribunal has jurisdiction over the claims arising out of the expropriation" of that right234.
154.
The Claimants agree with the Respondent that Article 9(5) of the Treaty includes, among the sources of applicable law, the law of the Contracting Party and the provisions of special agreements relating to the investments235. However, they submit that this does not imply that "Condition Eighteen of the Framework of Conditions excuses non-performance of the Respondent's obligations under the Treaty236 or that Condition Twentieth of the Cerro Negro Framework of Conditions authorizes incorporation of contractual limitations in a Treaty Dispute237.
155.
According to the Claimants, "the Respondent concedes the expropriation and its liability for compensation, but mischaracterizes the expropriation process"238. The Claimants state that the expropriation was carried out without due process and was contrary to undertakings. They stress that the Respondent did not pay or even offer to pay compensation in accordance with the Treaty and its compensation standard. Moreover, the Claimants contend that the Respondent's pre-Decree-Law 5200 measures expropriated discrete rights of the Claimants.
156.
The Claimants reiterate that Venezuela breached the FET standard set forth in Article 3(1) of the BIT and Section 2 of the Protocol. They contend that, contrary to the Respondent's arguments, fiscal measures are not excluded from the scope of that standard. In fact, according to the Claimants, the standard contained in those provisions guarantees three different forms of treatment of foreign nationals under international law, only one of which (the floor) is the International Minimum Standards (IMS).
157.
According to the Claimants, Venezuela "breached the FET and the IMS by frustrating the Claimants' legitimate expectations based on specific undertakings"239. Furthermore, the Claimants contend that the Respondent "breached Article 3 (1) in subjecting the Claimants to a coercive ‘migration process'"240.
158.
The Claimants reaffirm that the Respondent's conduct was arbitrary and that the production curtailments on the Cerro Negro Project were discriminatory. Therefore, the Respondent is in breach of Article 3(1) of the BIT.
159.
The Claimants note that "the Respondent has conceded that it is liable to pay compensation for the expropriation of the Claimants interest in the Cerro Negro and La Ceiba Projects. Although the Respondent has also (belatedly) conceded that the applicable standard of compensation is fair market value, it admits a quantum of compensation which is wholly inadequate (…), based on false factual premises and untenable legal arguments"241.
160.
The Claimants reaffirm that the Respondent owes full reparation under international law for the breach of its obligation under the Treaty. Thus, they must "receive compensation that is at least equal to the fair market value of the property at the time of the expropriation"242. They add that, if the property has increased in value since that time, further compensation is due for the loss represented by the foregone increase243. In the light of these considerations, the Claimants updated their Cerro Negro quantum submissions.
161.
In this respect, they submit that the Respondent's Cerro Negro compensation analysis is factually and legally flawed. The Claimants contend that the Respondent's quantum calculations are debased from the outset by unfounded assertions, and that they are invalidated by other serious errors. According to the Claimants, market transactions discredit the Respondent's valuation for Cerro Negro. Similarly, the Claimants contend that the Respondent's position concerning compensation for La Ceiba is untenable.
162.
According to the Claimants, the Respondent's arguments on the remaining quantum issues are without merit, whether they concern protection against taxation of the Award, compound interests, costs and expenses of the Award or outstanding Mobil Cerro Negro debts.
163.
Concluding on quantum, the Claimants assert that they "are entitled to an award of compensation in an amount of not less than $ 16,802.3 million, plus pre-award interest and all other relief sought herein"244. They finally ask the Tribunal to dismiss "the defenses raised in the Respondent's Counter-Memorial, and render an award in favor of the Claimants in the form requested in the Claimants' Memorial"245.

D. THE RESPONDENT'S REJOINDER

164.
In its Rejoinder dated 15 December 2011, the Respondent reaffirms that the Tribunal does not have jurisdiction over any fiscal claims under the Decision on Jurisdiction because they were part of an already pending dispute at the time of the Dutch restructuring246. The Respondent contends that the Tribunal also lacks jurisdiction to entertain a claim for project expansion247. In particular, claims based on the imposition of the production limit of 120,000 barrels per day are beyond the scope of the Tribunal's jurisdiction and "cannot be brought into this case under the guise of calculating compensation for the 2007 nationalization"248.
165.
With respect to the applicable law, the Respondent submits that the Tribunal must take into account Venezuelan law, including the relevant hydrocarbon legislation and the Cerro Negro Congressional Authorization, as well as the terms and conditions of the special agreement relating to the Cerro Negro Project, in accordance with Article 9(5) of the BIT. This means that both the merits of the claims and the issue of quantum must be analyzed in light of the reservation by the Republic in the Eighteenth Condition, and the special compensation provisions of the Twentieth Condition of the Cerro Negro Congressional Authorization (as implemented by the Cerro Negro Association Agreement), which includes a limitation on compensation that is established through the price cap249.
166.
The Respondent reaffirms that "apart from the lack of jurisdiction under the Decision on Jurisdiction, there are several grounds for rejecting Claimants' fiscal FET claims"250, as fiscal measures are not cognizable under Article 3 of the BIT and Claimants make no argument under Article 4. Moreover, according to the Respondent, the record of negotiations "shows that the right of the Government to change law was anticipated, expressly preserved and addressed through the special compensation mechanism Claimants want this Tribunal to ignore. On those facts, no fiscal FET claims could be sustained under any standard".251
167.
The Respondent submits that investment treaty cases are unanimous in holding that "non-confiscatory fiscal measures do not constitute an expropriation"252 and that there can only be an expropriation if there is substantial deprivation of the entire investment253. Accordingly, the pre-migration measures could not have constituted an expropriation of "discrete rights"254.
168.
According to the Respondent, the 2007 Nationalization does not constitute an unlawful expropriation, as it was (i) "carried out pursuant to a law of public policy in an orderly and non-discriminatory manner and for a public purpose, so acknowledged by companies from all over the world; and (ii) serious compensation negotiations took place, but agreement was simply not possible due to Claimants demands"255. The Respondent adds that "a nationalization is not rendered unlawful by the mere fact that compensation has not yet been determined or paid so long as the government recognizes its obligation to compensate256.
169.
With respect to the Cerro Negro Project, the Respondent stresses that compensation must be calculated based on the fiscal regime in place in 2007, and that the proper valuation date for the 2007 nationalization is the date of dispossession257, i.e., 26 June 2007. The Respondent contends that: (i) the compensation must be limited as agreed pursuant to the Cerro Negro Congressional Authorization; (ii) the discount rate must be calculated not according to the capital asset pricing model (CAPM), but taking into consideration a number of elements which the Respondent's experts have analyzed when recommending a discount rate of 19.8% and (iii) the projected cash flow must be calculated taking into account "all of the historical data as well as all of the information that would have been available to a buyer as of June 26, 2007"258.
170.
The Respondent concludes that the Claimants have designed "various maneuvers to justify the exorbitant claims asserted, including ignoring the Decision on Jurisdiction to apply an outdated fiscal regime, postulating a hypothetical new project almost triple the size of the existing one, using unreasonable price scenarios and an indefensible discount rate, and ignoring the carefully tailored compensation provisions and limitations agreed as a fundamental condition to the authorization of the Cerro Negro Project"259. It then provides a table showing "how one goes from the exorbitant compensation claimed by the Claimant" (i.e., US$ 16,486 billion) "to the compensation calculated by Respondent's expert even before applying the limitation"260 (i.e., US$ 844 million). When applying such limitation, the compensation figure becomes US$ 354 million for the Cerro Negro Project.
171.
The Respondent reaffirms its previous submissions with respect to the "Claimants request for a tax indemnity"261, pre-award and post-award interest and costs.

E. HEARING AND POST-HEARING BRIEFS

172.
At the hearing held from 7 to 16 February 2012, the Parties maintained and developed their arguments. Five days before the hearing, on 2 February 2012, the Tribunal had been informed by the Respondent that a final award had been rendered on 23 December 2011 in the ICC arbitration. The Tribunal requested both Parties to address in their post-hearing briefs the impact, if any, of the ICC award on the award to be rendered in this case.
173.
On 30 April 2012, the Claimants submitted their Post-Hearing Brief. In their brief, the Claimants refer to their statement at the hearing about President Chávez's public declaration that his government would not comply with any decision by Tribunal, and they stress that the Respondent did not comment on that statement at the time.
174.
In response to the Tribunal's question, the Claimants contend that "the ICC award should have no impact on the award to be rendered in this case, either on liability or quantum... The ICC award and this case concern the liability of different parties under different normative regimes"262. According to the Claimants, the ICC Award does not end the compensation dispute, and the various arguments that the Respondent has offered in that respect are untenable.263
175.
Regarding jurisdiction, the Claimants reaffirm that the Tribunal has jurisdiction on all claims that remain at issue. In particular, it has jurisdiction over the disputes arising out of (i) the imposition of the 33 1/3% extraction tax (the extraction tax dispute) and (ii) the repudiation of the guarantee that Mobil CN would be subject to the general corporate income tax rate (the income tax dispute)264.
176.
The Claimants confirm their interpretation of Conditions 18 and 20 of the Cerro Negro Framework of Conditions and of Articles 3(1), 4 and 6 of the BIT. They stress that the hearing confirmed that, at the time of the investment, they had a legitimate expectation about the fiscal regime that would be applicable to the CN Project265, and that their investments in the La Ceiba and the Cerro Negro Projects have been unlawfully expropriated. The Claimants contend that they have a right to full compensation of their interests in those projects, which, after a detailed analysis, they evaluate at US$ 16.6 billion in the case of Cerro Negro.
177.
The Claimants consider that the Respondent's sovereign debt yield at the date of the award should be used to determine the rate of interest266.
178.
In its Post-Hearing Memorial dated 30 April 2012, the Respondent, in response to the Tribunal's question regarding the ICC Award, states that the Cerro Negro claim should be dismissed since compensation has already been paid in accordance with the agreed compensation mechanism267. In any case, the Respondent considers that the Cerro Negro result would not change even if the ICC award were to be ignored"268.
179.
The Respondent reaffirms that the "Tribunal lacks jurisdiction over the royalty and tax claims, which means that valuation of the Cerro Negro Project for purposes of the 2007 nationalization must be made applying the fiscal regime of 2007"269. Regarding the production limit claim, the Respondent states that it "had no doubt that production was limited to 120,000 barrels per day from the moment the project was authorized in the 1990s"270. "Thus, there is no jurisdictional basis for any claim for a 344,000 barrels per day project"271.
180.
The Respondent maintains its position with respect to the merits of the Cerro Negro claims. It adds that the hearing confirms the reasonableness of the cash flow projections prepared by its expert for Cerro Negro, on which it comes back with some detail. The Respondent contends that the "344,000 barrels per day" project advanced by the Claimants is based on untenable assumptions.
181.
The Respondent further reaffirms that the appropriate compensation for La Ceiba is US$ 75 million, with a simple interest at the same rate specified in the ICC Award or a similar rate.
182.
In their Post-Hearing Reply dated 14 May 2012, the Claimants maintain their observations with respect to the impact of the ICC Award on the award to be rendered in this case. They submit that the "Respondent's Post Hearing Memorial adds nothing new on the question of liability"272. They summarize their position with respect to the expected cash flow of the Cerro Negro Project (oil price, production, volume and production costs forecasts as well as inflation adjustments) and the discount rate to be applied. The Claimants finally request the Tribunal to award "the amount necessary to provide full reparation, calculated in accord with the Claimants' prior submissions"273.
183.
In its Post-Hearing Reply Memorial dated 14 May 2012, the Respondent reiterates that "the ICC award and its satisfaction should end the compensation controversy with respect to the Cerro Negro Project and the Cerro Negro claims should be dismissed"274, and that the result would be the same without the ICC Award. The Respondent submits that the Tribunal has no jurisdiction with respect to royalties, taxes and production limit and that the fiscal FET claims have to be dismissed on the merits. The Respondent contends that there has been no expropriation of "discrete rights" and that the 2007 expropriation was not unlawful. The Respondent maintains its position on quantum ( cash flow, production limits and discount rate).

IV. JURISDICTION

184.
In its Decision on Jurisdiction dated 10 June 2010, the Tribunal decided that "it has no jurisdiction under article 22 of the Venezuelan Decree with rank and force of law N° 356 on the protection and promotion of investments of 3 October 1999".
185.
The Tribunal then considered whether or not it had jurisdiction under the BIT. According to the Respondent, the restructuring of the Mobil Corporation through the creation in 2005-2006 of the Dutch holding constituted an abuse of rights, which deprived the Tribunal of jurisdiction under the BIT. According to the Claimants, the Respondent's allegation lacked a legal and factual basis. The Tribunal decided that:

"204. As stated by the Claimants, the aim of the restructuring of their investments in Venezuela through a Dutch holding was to protect those investments against breaches of their rights by the Venezuelan authorities by gaining access to ICSID arbitration through the BIT. The Tribunal considers that this was a perfectly legitimate goal as far as it concerned future disputes."

205. With respect to pre-existing disputes, the situation is different and the Tribunal considers that to restructure investments only in order to gain jurisdiction under a BIT for such disputes would constitute, to take the words of the Phoenix Tribunal, "an abusive manipulation of the system of international investment protection under the ICSID Convention and the BITs."275

186.
In light of those considerations, the Tribunal noted that the restructuring of Mobil's investments through a Dutch entity occurred from October 2005 to November 2006, and it went on to decide whether at those dates there were pending disputes between the Claimants and the Respondent. The Tribunal concluded that "complaints had already been lodged by the Claimants at the time of the restructuring"276.
187.
In this respect, the Tribunal noted the following:

"200. In two letters dated 2 February 2005, and 18 May 2005, drafted in comparable terms, the Claimants first complained of the increase from 1% to 16 2/3% of the royalties decided by Venezuela both for the Cerro Negro and the La Ceiba projects. They requested the Government to designate representatives to meet with them in order to discuss an amicable settlement. They added that ‘as you well know, in accordance with Article 22 of the Investment Law, the Bolivarian Republic of Venezuela has consented to submit to arbitration, under the ICSID Convention, investment disputes between the Bolivarian Republic of Venezuela and foreign investors'. They went on, consenting ‘to ICSID's jurisdiction for arbitration of the investment dispute, and of any further investment dispute with the Bolivarian Republic of Venezuela, so that, should arbitration become necessary, it can be carried out under the ICSID Convention'. They concluded in requesting ‘an early meeting to commence consultation' in order ‘to explore an amicable solution of the matter".

188.
Then, on 20 June 2005, Mobil Cerro Negro Holding, Mobil Cerro Negro and Operadora Cerro Negro informed the Venezuelan authorities that the recent ministerial decision to increase the royalties to 30% had "broadened the investment dispute" previously brought to their attention. They stated that the introduction of a bill that would increase income tax rates from 34% to 50% would further broaden that dispute, and contended that those decisions were "in breach of the obligations" of Venezuela. They requested consultations "in an effort to reach an amicable resolution of this matter", and added that "[o]ut of an abundance of caution, each of the Mobil Parties hereby confirms its consent to ICSID jurisdiction over the broadened dispute described above and any other investment disputes with the Bolivarian Republic of Venezuela existing at the present time or that may arise in the future, including without limitation any dispute arising out of any expropriation or confiscation of all or part of the investment of the Mobil Parties"277.
189.
It results from these letters that, in June 2005, there were already pending disputes between the Parties relating to the increase of royalties and income taxes decided by Venezuela. The Claimants had even accepted to submit those disputes to ICSID arbitration under Article 22 of the Venezuelan Investment Law and, "[o]ut of an abundance of caution", they had further indicated that, on the same basis, they were also consenting to arbitration for any future dispute, including future disputes arising from expropriation or confiscation.
190.
On this basis, the Tribunal decided as follows:

"(a) that it has jurisdiction over the claims presented by Venezuela Holdings (Netherlands), Mobil CN Holding and Mobil Venezolana Holding (Delaware), Mobil CN and Mobil Venzolana (Bahamas) as far as:

(i) they are based on alleged breaches of the Agreement on Encouragement and Reciprocal Protection of Investments concluded on 22 October 1991 between the Kingdom of the Netherlands and the Republic of Venezuela;

(ii) they relate to disputes born after 21 February 2006 [i.e. the date of the restructuring] for the Cerro Negro Project and after 23 November 2006 [i.e. the date of the restructuring] for the La Ceiba project and in particular as far as they relate to the dispute concerning the nationalization measures taken by the Republic of Venezuela"278.

191.
The Parties disagree on the interpretation to be given to the Decision. Specifically, they disagree on which disputes relating to the Cerro Negro Project were born after 21 February 2006 and, as a consequence, they disagree on which claims fall within the jurisdiction of the Tribunal.
192.
The Claimants first state that, as a consequence of the Decision on Jurisdiction, they "are no longer asserting in this proceeding the following claims, which arose before the respective Treaty Application Date: (i) claim arising out of the premature termination of the 1% royalty rate reduction (that is, the royalty-rate increase to 16 1/3%) in breach of the Cerro Negro and La Ceiba Royalty Reduction Agreements and the Royalty Procedures Agreement; (ii) claim arising out of the royalty-rate increase to 30% on production over 120,000 bpd; (iii) claim arising out of the imposition of the extraction tax on the La Ceiba Project; (iv) claim arising out of the frustration of the De-Bottlenecking Project; and (v) claim arising out of the right to early production beyond the evaluation phase of the La Ceiba Project"279.
193.
The Claimants add that, in accord with the Decision on Jurisdiction, they are now

"...pursuing only the following four claims:

(i) claim arising out of the imposition of the extraction tax on the Cerro Negro Project;

(ii) claim arising out of the increase in the income-tax rate for the participants in the Cerro Negro Project;

(iii) claim arising out of production and export curtailments imposed on the Cerro Negro Project in 2006 and 2007; and

(iv) claim arising out of the 27 June 2007 expropriation of the Claimants" investments in the Cerro Negro and La Ceiba Projects"280.

194.
The Respondent contests jurisdiction over claims (i) and (ii), but concedes that the Tribunal has jurisdiction over claims (iii) and (iv) (with the exception of the increase in production claim).
195.
Therefore, the main question in dispute today is whether the claims relating to the creation of the extraction tax and the increase of the income tax rate fall within the jurisdiction of the Tribunal.
196.
The Respondent denies it. The Respondent states that the Tribunal had already decided that "there were already pending disputes relating to royalties and income tax" at the time of the Dutch restructuring, and contends that the Claimants themselves recorded those disputes in their letters of 2005, prior to the restructuring. Moreover, according to the Respondent, "In fact, the record is clear that the dispute over the right of the government to change the fiscal regime dates back not only to 2005, but actually to 2004, when the first royalty measure was taken"281.
197.
According to the Respondent, "it makes a mockery of the system of international arbitration to argue that if a government announces a measure on day one and enacts the legislation to implement it on day three, a non-treaty investor can acquire ICSID jurisdiction by transferring its investment to an affiliate in a treaty jurisdiction on day two, particularly after the non-treaty investor has specifically notified the government of an investment dispute. That is the very definition of treaty abuse"282.
198.
The Claimants acknowledge that the Tribunal's Decision on Jurisdiction is res judicata. However, they submit that the Tribunal has not already declined jurisdiction over any royalty and tax claim"283. According to the Claimants:

(a) The Respondent imposed the extraction tax by a statutory amendment that was adopted on 16 May 2006 and took effect on 25 May 2006.

(b) The Respondent increased the income tax rate applicable to extra-heavy oil projects by means of a statutory amendment adopted on 29 August 2006 with effect on 1 January 2007.

199.
The Claimants consider that both dates are well after the date of the restructuring for the Cerro Negro Project.
200.
The Claimants further submit that none of the letters cited by the Respondent or sent by the Claimants on 2 February 2005, 18 May 2005 and 20 June 2005 refer to any "extraction tax" or to the effective increase of the royalty to 33 1/3% that resulted from that measure284. They add that the letter of 20 June 2005 refers to "a potential dispute that would arise if and when the increase in the income-tax rate were enacted".285 This happened only in August 2006. Therefore, there was no actual dispute and no claim of a Party that was positively opposed by the other.
201.
Finally according to the Claimants, the present case concerns concrete measures, as opposed to "an abstract, single dispute regarding the Respondent's ‘right to adopt fiscal measures in the face of changing circumstances in the international oil market'"286. The Tribunal has jurisdiction to consider the disputes born from such measures and the corresponding claims.
202.
The Parties refer to various cases287 in support of their respective positions.
203.
The Tribunal observes that several disputes had arisen between the Claimants and the Respondent with respect to royalties and tax measures taken from October 2004 to June 2007. All these measures might have been prompted by a single reason: the evolution of the oil market during that period. However, they were distinct measures taken and contested at different dates, and the Tribunal has to take into account those dates when deciding upon its jurisdiction.
204.
With respect to the extraction tax, the Tribunal recalls that, in its Decision of 20 June 2010, it stated that "in June 2006, there were already pending disputes between the Parties regarding the increase of royalties". However, it did not specify what those disputes were and it did not mention the extraction tax.
205.
In fact, that tax was established by a statutory amendment adopted on 16 May 2006 with effect on 29 May 2006. That law imposed a tax of 33.33% on all liquid hydrocarbons extracted from the ground. Under the new scheme, former royalty payments (at the rate of 16 2/3 or 30%) were to be credited to the liability for the extraction tax.
206.
By letter dated 26 May 2006, Cerro Negro protested against the creation of the Tax, "which would have the practical consequence of increasing the royalty applicable to participants in the Cerro Negro Strategic Association to 33.33%"288 and would thus constitute a breach of the existing agreements. In the same letter, the Cerro Negro parties reserved their rights to submit that dispute to ICSID Arbitration.
207.
The Tribunal did not find in the record any previous protests by the Claimants relating to the extraction tax. In particular, the Tribunal notes that the letter of 20 June 2005 referred to in the Tribunal's Decision of 20 June 2010 does not mention that tax. It merely contests the legality of a previous increase of the royalty tax to 30%. In fact, the extraction tax was never mentioned in any of the letters exchanged between the Parties in 2005289. Accordingly, the Tribunal arrives to the conclusion that the dispute concerning the extraction tax was born after the date limit of 21 February 2006. Therefore, the Tribunal has jurisdiction over the claim relating to that dispute.
208.
The situation is different with respect to the increase of the income tax. It appears from press reports that in April 2005, Mr. Rafael Ramírez, Ministry of Energy, told local television that President Chávez had "announced that the Servicio Nacional Integrado de Administración Aduanera y Tributaria (SENIAT) tax agency will reclassify taxes and a company that drills, produces, operates or processes oil must pay income tax of 50%"290. Then, on 16 June 2005, according to a LexisNexis report, the Ministry of Energy and Venezuela's tax authority, the SENIAT, were "reportedly in the advanced stages of drafting the legislation that reflects the higher tax rates". According to the same source, this move would "increase the tax rate on the four Orinoco heavy oil upgrading projects from 34% to 50%"291.
209.
As a consequence, in its letter of 20 June 2005, Cerro Negro dealt not only with the increase of the royalty rate to 30%, but also with the increase of the income tax rate to 50%. On this last point, it noted:

"As reported by news services, on 15 June 2005, Minister Ramirez announced that the government will introduce a bill in the National Assembly that would increase the income tax rate applicable to the income of participants in Orinoco Oil Belt Project from 34 to 50%. In 1991, the Venezuelan Congress reduced the income tax rate to 34% as a financial incentive for investors to invest in those projects. This reduction was an essential inducement to MCN's predecessor to participate in the Cerro Negro project and a key element of the agreement between the participants and the Venezuelan Government."292 The Mobil parties considered that these measures were "in breach of the obligations of the Bolivarian Republic of Venezuela under the Royalty Reduction Agreement, the Procedures Agreement, the [Investment Law] and other applicable provisions of Venezuelan law and international law"293. As a consequence, the Mobil parties requested consultations with the Government "on the broadened dispute, in an effort to reach an amicable resolution of this matter and avoid dispute resolution proceedings"294.

210.
Thus, although the increase of the income tax was formally enacted only in August 2006, a dispute relating to the Government's decision to increase the income tax already existed in June 2005, before the date limit fixed in the Tribunal's Decision on Jurisdiction. This was not a potential dispute relating to a measure to be taken, but a real dispute concerning a decision already made, as recognized by the Tribunal in its Decision on Jurisdiction. That dispute would have been resolved if President Chavez and its Government had abandoned the idea to propose to the Congress the adoption of the increase they had already decided or if the Congress had rejected the bill, but that was not the case. Accordingly, the Tribunal has no jurisdiction over the claim relating to the increase in the income tax dispute.
211.
A third jurisdictional issue divides the Parties. It relates to the production volume to be taken into account for the determination of the compensation due for the expropriation of Cerro Negro. The Respondent contends that production was limited to 120,000 barrels per day before the Dutch restructuring. Accordingly, a dispute over production volume already existed before the restructuring date, which means that any claim based on this dispute is beyond the Tribunal's jurisdiction and may not be taken into account for the purposes of calculating the compensation due for the expropriation.
212.
The Claimants deny that any such limit existed. They submit that the dispute that arose before the restructuring date relates to the imposition of a 30% royalty on production above 120,000 barrels per day. According to the Claimants, this dispute is no longer at issue because they are not contesting the increased royalty, but the expropriation of their right to increase production at the higher royalty295. In fact, the Claimants contend that production could go up to 344,000 barrels per day. Accordingly, the compensation due for the expropriation must be calculated on that basis.
213.
The jurisdictional objection relating to the production increase, as well as the other objections raised by the Respondent in relation to the calculation of the quantum, will, if necessary, be examined by the Tribunal at a later stage, when conducting such a calculation (see paragraph 314 below).
214.
The Tribunal will now consider the merits of the claims relating to the alleged breach of FET, arbitrary or discriminatory treatment and expropriation. However, before doing so, the Tribunal will consider the effects of the ICC Award on the present case and determine the applicable law.

V. EFFECTS OF THE ICC ARBITRATION

215.
The Tribunal recalls that, at the Hearing, it specifically requested the Parties to address the question whether the ICC Award should have any impact on the award to be rendered in these proceedings.296 According to the Claimants, "the ICC Award should have no impact on the award to be rendered in this case, either on liability or quantum, simply because there is no legal basis for any such impact."297 By contrast, the Respondent submits that the ICC Award "should end the compensation dispute and effectively put an end to this case".298 According to the Respondent, "[the] Claimants have argued from the beginning that this is the proceeding contemplated under the Cerro Negro Association Agreement to mitigate the ‘damages payable' as a result of the Government's measures. Now that the 'damages payable' have been determined by the ICC tribunal and the ICC Award has been paid, there is no point or basis for a continuation of the Cerro Negro compensation controversy."299
216.
The Tribunal finds the Respondent's position ill-founded. The Tribunal recalls that the ICC arbitration was initiated pursuant to Clause 15 of the CNAA300, which affords Mobil Cerro Negro a right to be indemnified by PDVSA-CN in the event of certain governmental measures, but requires Mobil Cerro Negro to initiate a legal action against the Government to mitigate the damages suffered as a result of those measures. The parties to the ICC arbitration were Mobil CN, PDVSA and PDVSA-CN. The ICC Award established the contractual liability of PDVSA and PDVSA-CN to pay the limited indemnity required by the CNAA. It is clear that the ICC Award and the present case concern the liability of different parties under different normative regimes. The State was not a party to the ICC arbitration. Neither are PDVSA and PDVSA-CN parties to this case. These proceedings concern the responsibility of the State for breach of the Treaty and international law, a matter that was not (and could not) have been resolved by the ICC tribunal, which jurisdiction was limited to the contractual dispute.
217.
As a result, the Tribunal finds that the ICC Award does not, as the Respondent contends, put an end to this case. However, it is true that some facts that were relevant in the ICC arbitration are also relevant in the present case, such as the facts underlying the production and export curtailments claim. In its analysis, the Tribunal has thus considered the findings of the ICC tribunal in an attempt to avoid inconsistent outcomes whenever possible.
218.
The Tribunal further notes that the CNAA limits the compensation due by PDVSA, a limitation reflected in the amount awarded by the ICC tribunal. No such limitation applies, however, to the State's responsibility under the BIT. The Government was neither a party to the CNAA nor a third-party beneficiary. Neither has the Respondent advanced any relevant argument that the limitations on PDVSA-CN's contractual liability under Clause 15 should be transmuted into limitations of the State's responsibility under international law.
219.
The Tribunal will assess the effect of the ICC Award on quantum where relevant in section VIII.C.5 below.

VI. APPLICABLE LAW

220.
Article 42(1) of the ICSID Convention provides the following:

"The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable."

221.
In the present case, the Parties have made a choice of law, which is reflected in Article 9(5) of the BIT. The Respondent consented to this choice of law when ratifying the BIT, and the Claimants have done so when they accepted to arbitrate under the Treaty, or, at the latest, when they filed the request for arbitration with ICSID.
222.
Article 9(5) of the Treaty designates the following sources of law to govern disputes under the Treaty:

"The arbitral award shall be based on:
the law of the Contracting Party concerned;
the provisions of this Agreement and other relevant Agreements between the Contracting Parties;
the provisions of special agreements relating to the investments;
the general principles of international law; and
such rules of law as may be agreed by the parties to the dispute."

223.
Accordingly, the Tribunal will apply the BIT and the other agreed sources of law where appropriate. Article 9(5) of the Treaty does not allocate matters to any of those laws. Accordingly, it is for the Tribunal to determine whether an issue is subject to national or international law. Further, if and when an issue arises, the Tribunal will determine whether the applicable international law should be limited to general principles of international law under Article 9(5) of the BIT or whether it includes customary international law. Moreover, with respect to the interpretation of the BIT, the Tribunal will resort to the Vienna Convention on the Law of Treaties,301 which both States have ratified, as a "relevant Agreement between the Contracting Parties".
224.
Article 9(5) of the Dutch Treaty quoted above includes "the law of the Contracting Party" and "the provisions of special agreements relating to the investments" among the sources of applicable law. In reliance on these provisions, the Respondent appears to argue that the Eighteenth and Twentieth Conditions of the Cerro Negro Framework of Conditions (i) relieve the Republic from its obligation to comply with the standards set forth in the Treaty, and/or (ii) import the contractual limitations to PDVSA-CN's indemnity obligations under Clause 15 of the CNAA into the State's responsibility for breach of the Treaty.302
225.
The Tribunal disagrees with this position. The Tribunal recalls that it is a fundamental principle of international law that "[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty."303 Under this principle, international obligations arising from a treaty cannot be discarded on the grounds of national law. Among the legal systems on which the Award "shall be based" pursuant to Article 9(5) of the Treaty, the Tribunal has no doubt in concluding that this issue must be governed by international law. Consequently, the Eighteenth and Twentieth Conditions cannot exempt or excuse the Respondent from its obligations under the Treaty or under customary international law. Bearing this in mind, the Tribunal has considered the effect of the Eighteenth and Twentieth Conditions of the Cerro Negro Framework of Conditions in the section on quantum below.

VII. FET AND ARBITRARY OR DISCRIMINATORY MEASURES

226.
The Tribunal will not address the claims over which it has no jurisdiction, namely, the FET and the arbitrary/discriminatory claims concerning the increase in the income tax (see paragraph 210 above). The Tribunal will successively consider the FET and the arbitrary/discriminatory claims concerning (A) the extraction tax; (B) the production and export curtailments; (C) the coertion and the expropriation measures; and (D) the severance payments.

A. THE EXTRACTION TAX

227.
The Tribunal has found that it has jurisdiction over the extraction tax claim (see paragraph 207 above). It will thus now consider whether that tax was imposed by the Respondent in violation of the FET and arbitrary or discriminatory treatment standards.
228.
The FET standard is contained in Article 3(1) of the Treaty. The Respondent submits that Article 4 precludes claims under Article 3(1) "with respect to taxes, fees, charges, and to fiscal deductions and exemptions".304 According to the Claimants, there is nothing in Article 4 of the BIT that carves out fiscal measures from the FET standard contained in Article 3(1).305 The Tribunal will start by determining whether fiscal measures are covered by the FET standard in Article 3(1) of the Treaty.
229.
The Respondent considers that Article 4 of the Treaty is the only provision addressing fiscal measures in the BIT, and that "it is appropriate to accord priority to the more specific provision, even absent an express carve-out or exception"306 under the well-established principle of lex specialis.
230.
According to the Respondent's interpretation, Article 4 of the BIT sets forth the standard of treatment with respect to fiscal measures. Since Article 4 only protects investors from discriminatory treatment, the Respondent contends that FET treatment does not apply to fiscal measures. Once the limited standards of treatment under Article 4 are met, the provision precludes claims under other provisions of the Treaty "with respect to taxes, fees, charges, and to fiscal deductions and exemptions"307.
231.
The Respondent submits that Article 4 of the Treaty imposes a requirement of nondiscriminatory treatment, but it does not contain any references to FET. Since the Claimants have not alleged that the fiscal measures in question were discriminatory under Article 4, and the FET standard of Article 3(1) does not apply to fiscal measures, the Claimants' claims must be dismissed308.
232.
In support of its position, the Respondent compares the exemptions from nondiscriminatory treatment in Article 4 with those in Article 3(3) of the Treaty. Article 4 provides that a Contracting State's obligation of non-discrimination inter alia with regard to taxes, fees, charges and fiscal deductions does not extend to "special fiscal advantages", which it may accord on the basis of reciprocity with a third State or under double taxation treaties. By contrast, Article 3(3) of the Treaty provides that a Contracting State's non-discrimination obligation does not extend to "special advantages" accorded by virtue of agreements establishing customs unions, economic unions, monetary unions, or similar institutions, or on the basis of interim agreements leading to such unions or institutions. It makes no reference to double taxation agreements or to special treatment based on reciprocity. The Respondent considers that "[t]he inclusion of these latter two exemptions in Article 4, and their absence from Article 3, demonstrates that Article 4 was intended as the exclusive provision addressing fiscal measures. If this were not the case, then an investor whose claim for fiscal measures was barred by one of the ‘special fiscal advantage' exemptions in Article 4 would be permitted to circumvent the bar by pursuing the claim under Article 3, a result that would make Article 4's exemptions meaningless"309.
233.
According to the Respondent, accepting the Claimants' submission that "[n]othing in [Article 4] carves out fiscal measures from the FET standard of Article 3(1)", would render Article 4 superfluous. Article 4 does not provide additional requirements to FET. According to the Respondent, Article 4 is more restrictive than Article 3, not more expansive.310
234.
The Respondent considers that "entertaining Claimants' FET claims based on fiscal measures would be tantamount to rewriting the Dutch Treaty to create a new form of claim for non-discriminatory fiscal measures", which would be contrary to the rules established in the Vienna Convention.311
235.
The Claimants submit that nothing in Article 4 of the Treaty carves out fiscal measures from the FET standard of Article 3(1).312 Just because Article 4 regulates some aspects of fiscal measures, it cannot be inferred that Article 4 regulates all aspects of fiscal measures.313 According to the Claimants, Article 4 does not exclude all other provisions of the Treaty that apply to the State's treatment of investments (such as the FET standard of Article 3(1), the umbrella clause in Article 3(4) and the expropriation standards of Article 6).314
236.
It is the Claimants' position that, if Article 4 were to be construed as an exception to Article 3, then it should have included language to that effect. The Tribunal cannot do violence to the terms of Article 4 and read language into the provision that is not there. This is all the more so, according to the Claimants, when Article 4 can be given meaning without adding language.
237.
In response to the Respondent's reliance on Article 3(3) of the Treaty, the Claimants submit that "at most, Article 4 of the Treaty provides a special rule that supersedes the more general rule of Article 3(3) in the matter in which both rules overlap, that is, in respect of the State's obligation to afford MFN treatment."315 According to the Claimants, the Respondent wrongly extends Article 4 of the Treaty beyond the area of its overlap with Article 3(1). There is no basis for applying Article 4 to standards (such as FET and expropriation) that are not set forth in Article 3(3), but in other provisions of the Treaty316.
238.
The Claimants submit that, as Article 4 itself requires MFN treatment for taxation measures, "it is absurd to construe Article 4 as (i) excluding taxation measures from most of the substantive standards of the Treaty while (ii) allowing the MFN principle of Article 4 to subject taxation measures to analogous substantive standards incorporated from other treaties made by Venezuela."317 The Claimants also contend that the Respondent's reliance on other treaties and on decisions of other arbitral tribunals is misplaced. In fact, the authorities cited by the Respondent explicitly state that substantive protections do not extend to taxation measures. Since that explicit language is absent in Article 4, the Claimants contend that, by contrast, Article 4 was not intended to carve out taxes from its scope of protection318.
239.
Before analyzing the Parties' positions on the interaction between Articles 3 and 4 of the Treaty, it is helpful to quote the relevant provisions. Article 3 of the BIT reads as follows:

"(1) Each Contracting Party shall ensure fair and equitable treatment of the investments of nationals of the other Contracting Party and shall not impair, by arbitrary or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those nationals.

(2) More particularly, each Contracting Party shall accord to such investments full physical security and protection which in any case shall not be less than that accorded either to investments of its own nationals or to investments of nationals of any third State, whichever is more favourable to the national concerned.

(3) If a Contracting Party has accorded special advantages to nationals of any third State by virtue of agreements establishing customs unions, economic unions, monetary unions or similar institutions, or on the basis of interim agreements leading to such unions or institutions, that Contracting Party shall not be obliged to accord such advantages to nationals of the other Contracting Party.

(4) Each Contracting Party shall observe any obligation it may have entered into with regard to the treatment of investments of nationals of the other Contracting Party. If the provisions of law of either Contracting Party or obligations under international law existing at present or established hereafter between the Contacting Parties in addition to the present Agreement contain a regulation, whether general or specific, entitling investments by nationals of the other Contracting Party to a treatment more favourable than is provided for by the present Agreement, such regulation shall to the extent that it is more favourable prevail over the present Agreement."

240.
Article 4 of the BIT provides the following:

"With respect to taxes, fees, charges, and to fiscal deductions and exemptions, each Contracting Party shall accord to nationals of the other Contracting Party with respect to their investments in its territory treatment not less favourable than that accorded to its own nationals or to those of any third State, whichever is more favourable to the nationals concerned. For this purpose, however, there shall not be taken into account any special fiscal advantages accorded by that Party;

(a) Under an agreement for the avoidance of double taxation; or

(b) by virtue of its participation in a customs union, economic union, or similar institutions; or

(c) on the basis of reciprocity with a third State."

241.
The Claimants postulate that nothing in Article 4 carves out fiscal measures from the FET standard of Article 3(1) of the Treaty. To the contrary, the Respondent contends that Article 4 of the Treaty carves out fiscal measures from the FET standard of Article 3(1).
242.
To resolve this issue, the Tribunal must interpret Articles 3 and 4 of the Treaty, for which it turns to the Vienna Convention. Article 31(1) of the Vienna Convention requires that a treaty be interpreted "in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose". To confirm the meaning of the provision of a treaty, recourse may be had to supplementary means of interpretation, which include the circumstances of the treaty's conclusion319.
243.
Broadly put, Article 4 of the Treaty guarantees national and most favored nation treatment to investors with respect to "taxes, fees, charges, and to fiscal deductions and exemptions." Article 4 is more specific than Article 3, which is generally concerned with the "treatment of investments". However, Article 4 contains no mention of "fair and equitable treatment". In addition, the treatment guaranteed by Article 4 is subject to three exceptions, two of which are not included in Article 3(3). The Tribunal considers that Article 4 comprehensively regulates the standards of treatment with respect to fiscal measures by providing for national and most favored nation treatment, and a list of applicable exceptions.
244.
If the Claimants' argument were followed, namely that Article 3(1) operates in parallel with Article 4 regarding fiscal measures, the two exceptions in Article 4 that do not appear in Article 3(3) would be rendered meaningless, as they could be circumvented by relying on the broader provisions of Article 3(1) of the BIT.
245.
Conversely, the one exception covered by both Article 4 and Article 3(3) would be duplicated and therefore redundant. In particular, Article 3(3) of the BIT contains an exception in respect of "agreements establishing customs unions, economic unions, monetary unions or similar institutions", which is essentially reproduced in Article 4: "participation in a customs union, economic union, or similar institutions." Thus, the Claimants' interpretation would result in at least one provision being rendered redundant - an outcome that should be avoided in treaty interpretation.
246.
Moreover, if the purpose of the Treaty had been not to carve out fiscal measures from the more general Article 4, then the easiest way to achieve it would have been to incorporate the exceptions contained in Article 4 in Article 3(3) itself. There would have been no need to draft an article dealing with fiscal measures and containing specific exceptions (double-taxation agreements, customs, economic or similar unions and special treatment based on reciprocity with a third State).
247.
For the foregoing reasons, the Tribunal considers that the Claimants' interpretation is not supported by the structure and wording of Articles 3 and 4 of the Treaty, and that the correct interpretation is that Article 3 and Article 4 are distinct provisions, the latter governing fiscal measures exclusively. Therefore, the Tribunal finds that fiscal measures are subject only to the national and most favored nation treatment obligations contained in Article 4 of the Treaty, and are carved out of Article 3(1), which contains the obligation to provide fair and equitable treatment.320 The Tribunal notes that the claim relating to the extraction tax is based only on Article 3(1) of the Treaty, not on Article 4. Since Article 3(1) does not apply to fiscal measures, the extraction tax claim based on the breach of the FET standard is rejected.
248.
The Tribunal's conclusions regarding FET also apply to arbitrary or discriminatory treatment relating to the extraction tax. The extraction tax claim for arbitrary or discriminatory treatment is made under Article 3(1) of the Treaty, which, for the reasons given, is inapplicable. As a result, the arbitrary or discriminatory claim relating to the extraction tax is equally rejected.

B. THE PRODUCTION AND EXPORT CURTAILMENTS

249.
The Claimants submit that the series of production and export curtailments imposed by the Respondent on the Cerro Negro Project from late 2006 through the first part of 2007321 reduced its production by approximately 560,000 barrels of extra-heavy crude in 2006, as compared with the production target for 2006, and reduced its exports by about 5.5 million barrels of synthetic crude oil by the end of June 2007, when compared to the export target for the first half of 2007322.
250.
The Claimants' contend that these production and export cuts violated both the Framework of Conditions of the Cerro Negro Project and the Association Agreement, which permitted "production cuts only if they were necessary to comply with Venezuela's international commitments, and only if they were applicable on a pro rata basis to all producers in Venezuela"323. According to the Claimants, the production cut imposed in October 2006 was not required to comply with any international obligation of the Republic, and none of them were applied on a pro rata basis to all producers in Venezuela324. To the contrary, the Claimants contend that they were in breach of FET as well as arbitrary and discriminatory treatment, and thus violated Article 3(1) of the BIT325.
251.
The Claimants contend that they have sustained damages amounting to a total of US$ 53.6 million as a result of the curtailments imposed during this period326.
252.
According to the Respondent, the 2006 curtailments did not meet the de minimis exception set forth in the Cerro Negro Association Agreement, and the same would have been true for 2007 had Mobil Cerro Negro remained in the Project327. The Respondent contends that the discriminatory treatment claim cannot be sustained given that the export curtailments were not directed at the Cerro Negro Project because of the nationality of Mobil Cerro Negro. In fact, all of the upgrading projects of the Orinoco Oil Belt were curtailed, regardless of nationality. Finally, the Respondent alleges that the differences of the Cerro Negro Project when compared to the other projects in Venezuela render any discrimination claim without merit328.
253.
The Respondent considers that any adverse impact of the 2007 measures has been grossly inflated by the Claimants329.
254.
At the outset, the Tribunal would like to point out that it is seized of a treaty claim, which must be carefully distinguished from the contract claims submitted to the ICC tribunal. Thus, and as explained in paragraph 218 above, the contractual limitation contained in Clause 15 of the Association Agreement concluded between PDVSA and the Claimants and referred to in the ICC arbitration does not apply in the present case, which concerns Venezuela's responsibility under the Treaty. The arguments developed by the Respondent to the contrary, as well as those based on the Twentieth Condition of the Cerro Negro Congressional Authorization, cannot be upheld.
255.
The Tribunal has only to consider whether the measures taken by Venezuela regarding production and exports were compatible with the fair and equitable treatment standard and with the prohibition of arbitrary or discriminatory treatment contained in Article 3(1) of the BIT - quoted in paragraph 239 above.
256.
The Tribunal will first consider the alleged breach of the FET standard. In the Tribunal's opinion, this standard may be breached by frustrating the expectations that the investor may have legitimately taken into account when making the investment. Legitimate expectations may result from specific formal assurances given by the host state in order to induce investment330. The Tribunal will thus consider whether in the present case legitimate expectations could reasonably have been the result of such assurances.
257.
In this respect, the Tribunal recalls that the Framework of Conditions of the Association Agreement for the exploitation, upgrading and marketing of extra-heavy crude oil to be produced in the Cerro Negro area of the Orinoco Oil Belt was approved by the Congress of Venezuela on 24 April 1997.
258.
Condition Ninth of the Framework of Conditions specified that "an optimal production level was to be obtained "by the time the upgrading installations start commercial operations". The level of said production would be specified in the Association Agreement. Clause 8 of the Association Agreement fixed that level at 120,000 barrels per day of extra-heavy oil (with the possibility of some increase, which the Tribunal will consider further on (see paragraphs 320 and 321below).
259.
Condition Thirteenth of the Framework of Conditions added that "[i]f the Parties are required to reduce their production as a result of the international commitments of the Republic of Venezuela, such reduction shall not exceed the reduction percentage generally applicable to the national oil industry as a whole. This percentage shall be calculated based on the available production capacity. The Parties shall agree on an appropriate extension of the terms of the Association in the event of a reduction as those indicated herein".
260.
The Tribunal considers that, when making their investment, the Claimants could reasonably and legitimately have expected to produce at least 120,000 barrels per day of extra-heavy crude oil and that their production would not be unilaterally reduced at a lower level except as provided for in Condition Thirteenth of the Framework of Conditions. Accordingly, the Tribunal will now examine whether the measures taken by Venezuela in 2006 and 2007 were contrary to those expectations.
261.
The Tribunal considers that a distinction must be made between the production curtailment decided in October 2006 and the curtailments imposed later.
262.
On 9 October 2006, Venezuela imposed a production cut of natural hydrocarbon to all oil producers, applicable on a pro rata basis. It is not contested that this reduction was not the result of an OPEC decision. It was a measure imposed by Venezuela in spite of the assurances given in Condition Ninth of the Framework of Conditions, as specified in Clause 8 of the Association Agreement, and it did not fall within the requirements of Condition Thirteenth of the Framework of Conditions.
263.
A new production curtailment was decided on November 2006, followed from January 2007 to March 2007 by export curtailments. All these curtailments constituted measures adopted as a consequence of OPEC decisions, and in this sense it is not contested that they fall within the requirements of Condition Thirteenth of the Framework of Conditions. However, these measures only concerned the Orinoco oil producers. They were not shared on a pro rata basis as required by Condition Thirteenth.
264.
It thus appears that the production and export curtailments imposed from November 2006 were incompatible with the Claimants' reasonable and legitimate expectations, and thus breached the FET standard contained in Article 3(1) of the BIT. The Respondent is responsible for the damage resulting from this breach.
265.
In order to calculate the quantum of the damages suffered as a consequence of this breach, the Claimants produced an Expert Report by Mr. R. Dean Graves evaluating the damages resulting from the production and export curtailments at US$ 53.6 million.
266.
The Expert calculates the volume of extra heavy oil that the Cerro Negro project would have produced between October 2006 and June 2007 had the curtailments not been imposed, and determines the corresponding curtailed SCO sales. The figure of 41 2/3% reached by Mr. Graves for Mobil Cerro negro must be revised for the following reasons:

(a) The Respondent draws the Tribunal's attention to the fact that the export curtailments were not a limiting factor on SCO production and sales since April 2007. Instead, SCO production and sales were constrained because of "repairs to the coker drums that reduced the EHCO feed rates to the upgrader by almost half"331. Moreover, according to the Respondent, in 2007 the Project was not in a position to produce at the levels relied on by the Claimants because of the large inventory of inactive wells that existed in the first half of 2007332. The Claimants did not persuasively contest these statements either at the hearing or in their post-hearing briefs.

(b) Mr. Graves bases his calculations on the difference between the sales that would have been achieved if the Project had produced 120,000 barrels per day of EHCO and the sales that were actually made. However, starting in November 2006, the figure must be lowered to reflect the pro rata production cut which was legally imposed in accordance with Condition Thirteenth of the Framework of Conditions as a result of the OPEC decision.

267.
Taking these elements into account, the Tribunal evaluates the impact of the curtailments on the Claimants' SCO volume of sales at a total of 815,068 barrels of EHCO.
268.
The Tribunal accepts the oil prices used by the Claimants' Expert, which from October 2006 to March 2007 vary from US$ 39.96 to US$ 44.74 per barrel of SCO. It is on that basis that the Tribunal has calculated the value of the Claimants' curtailed SCO sales at US$ 30,781,144 for the relevant period.
269.
The curtailed co-production sales, amounting to US$ 850,442, must be added to this amount. The balance amount must then be reduced by deducting: (i) production costs, which amount to US$ 2,716,663; (ii) taxes, which amount to US$ 655,195 in science and technology tax, US$ 239,169 in drug and alcohol tax, US$ 31,631 in export registration contribution; (iii) US$ 34,868 in co-production royalties; and (v) US$ 10,667,359 in extraction tax at the rate of 33 1/3% (see paragraph 96 above). It must also be reduced by deducting the income tax at the rate of 34% for 2006 and 50% for 2007, for a total amount of US$ 8,104,531. Finally, capital expenses must be deduced, in the amount of US$ 139,688.
270.
On the basis of these calculations, the Tribunal evaluates the damages suffered by the Claimants as a result of the production and export curtailments at US$ 9,042,482.
271.
The ICC tribunal had decided that the export curtailments taken in 2007 constituted discriminatory measures under the Association Agreement and awarded compensation to Cerro Negro Ltd (Bahamas) for the damages suffered as a result of those measures. It is not contested that these damages have been paid by Lagoven CN, the respondent in the ICC proceeding. It is also not contested that, under clause 15(1) of the Association Agreement, the Claimants must, upon payment of the compensation awarded in this proceeding for the same measures, reimburse Lagoven CN the sum already recovered as compensation for the prejudice resulting from the 2007 curtailments. The Claimants have expressly stated that they will make the required reimbursement to PDVSA-CN. Although this statement is based on a contractual obligation that is foreign to the present case, the Tribunal has no reason to doubt the Claimants' representation. Double recovery will thus be avoided.
272.
The Claimants add that the Respondent's conduct was not only contrary to the FET standard, but also arbitrary and discriminatory. On that ground too, the Respondent would be in breach of Article 3(1) of the BIT and therefore responsible for the damage suffered by the Claimants as a result of this breach.
273.
The Tribunal has already decided that the production and export curtailment measures breached the FET standard contained in Article 3(1) of the Treaty (see paragraph 264 above). The Tribunal does not consider it necessary to separately examine whether the Respondent's conduct was also arbitrary and/or discriminatory. Indeed, the Claimants would not be entitled to greater relief even if the Tribunal were to establish a breach of these BIT protections.

C. THE COERCION AND THE EXPROPRIATION MEASURES

274.
In addition to their expropriation claims under Article 6 of the BIT, the Claimants briefly submit that "each of the Respondent's measures giving rise to claims is in breach of the unqualified Fair and Equitable Treatment standard"333 and that "the Respondent's measures discussed earlier as violations of the Fair and Equitable Treatment standard were arbitrary"334. The inference seems to be that the alleged coertion and expropriation measures are also claimed to breach Article 3(1) of the BIT335.
275.
In respect of the claims regarding the alleged coercion of the Claimants into migration and the claim relating to the expropriation measures, the Tribunal has found that the expropriation was conducted in accordance with due process (see paragraph 297 below), that it was not carried out contrary to undertakings given to the Claimants in this respect (see paragraph 299 below) and that the Claimant have not established that the offers made by Venezuela were incompatible with the "just" compensation requirement of Article 6(c) of the BIT (see paragraph 305 below). The Tribunal has concluded that the expropriation itself was conducted in a lawful manner (see paragraph 306 below).336
276.
On this background, the Tribunal finds no additional elements in the record establishing a violation of FET or the arbitrary or discriminatory treatment standard in respect of these measures. These claims have been too briefly and too unconvincingly developed to enable the decision sought from the Tribunal. Accordingly, these claims are dismissed.

D. THE SEVERANCE PAYMENTS

277.
The Claimants refer to the removal of Operadora Cerro Negro from its role as the operating company for the Cerro Negro Project by Decree-Law 5200, which took effect in April 2007. They submit that this change was arbitrary and discriminatory and violated the fair and equitable treatment standard contained in Article 3(1) of the BIT. According to the Claimants, as a consequence of the removal, the company was required to make severance payments to Operadora Cerro Negro's displaced Venezuelan employees. On the basis of Mr. R. Dean Graves' report, the Claimants contend that the damages resulting from those payments amount to US$ 2.7 million337, and request the corresponding compensation. The Respondent contested this claim in its Counter-Memorial on the Merits338 and the matter was not further addressed in any detail.
278.
Under the circumstances and bearing in mind the findings recalled in paragraph 275 above, the Tribunal is unable on the basis of the record to conclude that the removal of Operadora Cerro Negro from its role as the operating company for the Cerro Negro Project by Decree-Law 5200 constituted a violation of Article 3(1) of the Treaty. In any case, besides relying on the expert report of Mr. Graves, the Claimants have not furnished any evidence of damage suffered as a consequence of this alleged breach. Therefore, this claim must be dismissed.

VIII. EXPROPRIATION

279.
The Claimants submit that Venezuela has breached Article 6 of the BIT by wrongfully expropriating its investments in the Cerro Negro and La Ceiba Projects. The Respondent does not dispute that the Claimant's investments were expropriated, but contends that that expropriation was lawful.
280.
Article 6 of the BIT provides the following:

"Neither Contracting Party shall take measures to expropriate or nationalise investments of nationals of the other Contracting Party or take measures having an effect equivalent to nationalisation or expropriation with regard to such investments, unless the following conditions are complied with:

a) the measures are taken in the public interest and under due process of law;

b) the measures are not discriminatory or contrary to any undertaking which the Contracting Party taking such measures may have given;

c) the measures are taken against just compensation.

Such compensation shall represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is earlier; it shall include interest at a normal commercial rate until the date of payment and, shall, in order to be effective for the claimants, be paid and made transferable, without delay, to the country designated by the claimants concerned and in the currency of the country of which the claimants are nationals or in any convertible currency accepted by the claimants."

A. EXPROPRIATION OF "DISCRETE RIGHTS" BEFORE JUNE 2007

281.
The Claimants submit that before "Decree-Law 5200 directly expropriated the Claimants' rights and interests in the Cerro Negro and La Ceiba Projects, they had already been permanently deprived of the benefit of discrete rights pertaining to their investments339 by measures having an effect equivalent to expropriation340. The indirect expropriation of the Claimants' rights was wrongful under the BIT because it was carried out without due process of law, contrary to undertakings and without compensation341.
282.
According to the Claimants, the following measures permanently deprived them of the benefit of their rights:

. Imposing a higher income-tax rate to the participants in extra-heavy oil projects;

. Adopting an extraction tax;

. Imposing unjustified and discriminatory production and export curtailments;

. Appointing a new operator for the Cerro Negro Project by decree (severance payments claim).

283.
The Claimants state that each of the expropriated rights falls within the definition of investment given in article 1(a) of the BIT and is separately protected by Article 6 of the BIT342.
284.
The Respondent submits that, in the absence of special circumstances, such as it would be in the case of confiscatory taxes, taxation does not constitute expropriation.343 According to the Respondent, the fiscal measures adopted did not prevent the Claimants from enjoying profitable operations in Venezuela due to the unprecedented environment of high oil prices. Accordingly, the fiscal measures may not be considered "confiscatory" and therefore did not constitute expropriation344.

B. EXPROPRIATION OF THE CERRO NEGRO AND LA CEIBA PROJECTS IN JUNE 2007

288.
The Parties agree that the Claimants' investments were expropriated on 27 June 2007 in implementation of Decree-Law 5200 (see paragraphs 111 to 113 above). The Claimants submit that that expropriation was unlawful and that, as a consequence, the Respondent is under the obligation to make full reparation for the damages caused, in conformity with international law348. By contrast, the Respondent contends that the expropriation was lawful and that the indemnity to be paid to the Claimants must represent the market value of the investment in June 2007, as provided for in article 6 of the BIT.349 The Respondent considers that the same rules would apply even if the expropriation was deemed to have been unlawful350.
289.
The Tribunal will first consider whether the expropriation of the Claimants' investments was carried out lawfully, and then address the compensation claim.
290.
The Claimants submit that the measures taken by Venezuela fail to meet at least three of the requirements of Article 6 of the BIT in that: (i) they were taken without due process of law; (ii) they were contrary to the Respondent's undertakings; and (iii) they were not taken against any compensation, let alone just compensation. Non-compliance with any of these requirements would render the expropriation wrongful under the BIT351.
291.
On the first point, the Claimants submit that the process through which the expropriation was carried out was a coercive process which did not follow any established legal procedure to determine their rights before title of the assets was transferred to a PVDSA subsidiary352. On the second point, the Claimants submit that the expropriation was made against specific commitments regarding the legal frameworks applicable to the Cerro Negro and La Ceiba Projects353. On the third point, the Claimants contend that the Respondent has not provided any compensation to the Claimants. Failure to pay compensation itself renders the expropriation wrongful354.
292.
The Respondent contends that the nationalization was carried out pursuant to a law of public policy, in an orderly and non-discriminatory manner and for a public purpose, in accordance with a process established by duly enacted laws which in fact satisfied most of the oil companies operating in the country355. The Respondent denies that specific commitments were made by Venezuela surrendering its sovereign right to regulate or even expropriate interests in the oil sector. The Respondent further contends that it engaged in bona fide negotiations with the Claimants regarding compensation, but an agreement was not possible due to the Claimants' demands356. Failure to agree upon the amount of compensation does not render an expropriation unlawful357.
293.
The Tribunal recalls that, under the 2001 Hydrocarbon Law, oil production activities were reserved to the State and that private Parties were authorized to participate in those activities only through mixed enterprises in which the State owned more than 50% of the shares. However, the Orinoco Oil Belt Associations (such as the Cerro Negro Project) and the Profit Sharing Agreements (such as the La Ceiba Project) remained outside that legal framework.
294.
Six years later, the Venezuelan authorities decided to put an end to this special regime. On 1 February 2007, the National Assembly adopted a law enabling the President to take the measures required to that effect. In implementation of the Enabling Law, Decree-Law 5200 ordered that the Associations located in the Orinoco Oil Belt and the At-Risk-and-Shared-Profits Associations be "migrated" into new mixed companies under the 2001 Hydrocarbon Law. Article 4 of DecreeLaw 5200 gave the oil company four months, until 26 June 2007, to agree to participate in the new mixed companies. Article 5 provided that, if no agreement was reached on such a migration by the end of that period, Venezuela would "directly assume the activities of the Associations"358.
295.
Throughout those four months, discussions took place between Mobil Cerro Negro, Mobil Venezolana and the Respondent about the potential participation of the Claimants in the new mixed enterprises. No agreement was reached.
296.
As a consequence, on 27 June 2007, the Respondent seized the investments of Mobil Cerro Negro in the Cerro Negro Project and the investments of Mobil Venezolana in the La Ceiba Project. The Law on Effects of the Migration, enacted on 5 October 2007, ratified the expropriation and ordered that the interests and assets formerly belonging to the companies that had not agreed to migrate be formally transferred to the new mixed companies (see paragraphs 113 and 114 above).
297.
The Tribunal considers that the expropriation of the Claimants' investments was the result of laws enacted by the National Assembly and of decisions taken by the President of the Republic of Venezuela, the purpose of which was to create new mixed companies in which the State would own more than 50% of the shares. Negotiations with the oil companies were foreseen to that effect for a period of four months, and nationalization was contemplated only in case of failure of those negotiations. In the present case, the negotiations failed. In other cases recalled by the Respondent, the negotiations were successful, e.g. with Chevron, Total, Statoil, Sinopec or BP. The Tribunal considers that this process, which enabled the participating companies to weigh their interests and make decisions during a reasonable period of time, was compatible with the due process obligation of Article 6 of the BIT.
298.
Regarding the Claimants' allegation that specific commitments were made by the Respondent that the 2001 Hydrocarbon Law would not be applied to the existing associations, the Tribunal notes that (i) the Cerro Negro Congressional Authorization specifically indicates that the Association Agreement and all activities and operations conducted under it would not impose any obligations on the Respondent, nor restrict its sovereign powers; and that (ii) the Congressional Authorization covering La Ceiba stated that the Agreement, as well as all activities and operations derived from it, would in no case create liability for the Respondent nor diminish its sovereign rights.
299.
Both Authorizations provided that Venezuelan Law would govern the Agreements. Both Agreements referred to those Authorizations. In reserving its sovereign rights, the Respondent reserved inter alia its right to expropriate the Claimants' investments. There is no indication that Venezuela later committed not to exercise that right. Accordingly, the Tribunal concludes that the expropriation was not carried out contrary to undertakings given in this respect to the Claimants.
300.
Regarding the Claimants' allegation that the Respondent "has not determined, has not tendered, and has not paid the compensation required by the Treaty"359, which is enough to render the expropriation wrongful360, and the Respondent's counterargument that it has always been willing to provide compensation and that in any case the mere fact of not having received compensation does not render a nationalization unlawful, the Tribunal observes the following.

C. QUANTUM OF THE EXPROPRIATION OF THE CERRO NEGRO PROJECT

307.
Article 6 of the BIT requires that "just compensation" be paid to the Claimants. Such compensation must "represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier". In the present case, the market value must be determined immediately after the failure of the negotiations between the Parties and before the expropriation, i.e., on 27 June 2007369, and it must correspond to the amount that a willing buyer would have been ready to pay to a willing seller at the time in order to acquire the expropriated interests.

1. Net Cash Flow

309.
To calculate the net cash flows, one must forecast the future revenues and expenses of the Cerro Negro Project. In the present case, the revenues forecast is mainly determined by the volume of production of oil and by the oil price level, while the expenses forecast depends on the cost of the operations, the capital investment, if any, and the royalties and taxes to be paid to the Government. On these points, the Parties have developed detailed legal arguments and produced several witness statements and expert reports, which have been most helpful to the Tribunal.

a) Volume of Production

310.
The Parties disagree with respect to the future volume of production to be taken into consideration in order to calculate the compensation. The Claimants submit that: "At the time the Cerro Negro Project was built, the participants and the Venezuelan Congress set an initial production target of 120,000 barrels per day of extra-heavy oil" (EHCO), but they add that that was "without prejudice to the right to expand production later"371. Accordingly, the Claimants contend that the initial production facilities were designed to produce 120,000 barrels per day, but they retained the right to expand this amount. They submit that, by applying thermal EOR techniques, improving existing facilities and constructing a second upgrader, they would have produced 344,000 barrels of EHCO per day as soon as 2014372. They request compensation on the basis of such volume of production.
311.
By contrast, the Respondent submits that the proper valuation needs to consider a maximum EHCO production of 120,000 barrels per day, not any other increased number373. According to the Respondent, a production limit of 120,000 barrels per day was fixed and implemented long before the Dutch restructuring. In fact, a dispute arose between the Parties at that time on the subject. Accordingly, the Tribunal has no jurisdiction to consider that dispute and, as a consequence, it also lacks jurisdiction over any claim for a project expanded beyond 120,000 barrels per day of EHCO. Such a project may not be taken into account for the purposes of determining compensation.
312.
In addition, the Respondent contends that the Claimants would have required the approval of the Venezuelan authorities for the contemplated expansion, and such approval could only have been given in conformity with the 2001 Hydrocarbons Law, under conditions which the Claimants twice found to be unacceptable. Finally, the Respondent adds that the expansion scenario depicted by the Claimants is not technically feasible and relies on unrealistic economic assumptions. As an alternative, the Respondent points out that there would be no basis for using the discount cash flow method to assess the value of a new project.
313.
In response to these arguments, the Claimants contend that the Respondent never imposed a production limit to the Project. According to the Claimants, in 2005 Venezuela imposed a 30% royalty rate on production volumes exceeding a monthly average of 120,000 barrels per day of EHCO. At the time, the Claimants complained about that new royalty. However, they retained their right to increase production despite the imposed royalty. Accordingly, the dispute that existed at the time about the royalty does not affect the Tribunal's jurisdiction to consider the expanded project, which was technically and economically feasible, and to take it into account when determining the amount of compensation.
314.
With respect to jurisdiction, the Tribunal observes that the Claimants' claim is not directed against the measures adopted in 2005 by the Respondent. It is a claim for compensation for the expropriation done in 2007. The Tribunal has jurisdiction to consider that claim and to establish the amount of compensation to be paid to the Claimants as a result of that expropriation. Accordingly, the analysis of the Tribunal must include the volume of production forecasted from 27 June 2007 to 30 September 2035. In order to determine that volume, the Tribunal must decide whether a willing buyer would have taken into account in June 2007 that the Claimants had the right to increase their production beyond 120,000 barrels per day of EHCO. The Tribunal has jurisdiction to make this determination.
315.
In this respect, the Tribunal first notes that, under article 5 of the 1975 Nationalization Law, the execution of association agreements such as the Cerro Negro one required the prior authorization of the Congressional Chambers in joint session, within their established conditions and having been duly informed by the National Executive of all the pertinent circumstances374.
316.
The Cerro Negro Association Agreement, approved by the National Assembly, contemplated a volume of production of 120,000 barrels per day of EHCO. However, Article 8(1)(c) did not exclude the possibility to "increase the capacity of the upgrader or the production of Extra-Heavy Oil", and specified that the consequential amendments to the Association Agreement and the other agreements relating to the Project would have to be agreed upon by the parties. No agreement would be required where the increase was carried out by one or more of the parties to the Association Agreement at their own risk and expense and assuming the title of all assets and rights derived from it. While this provision reserved the possibility of increasing the production of EHCO by increasing the capacity of the existing upgrader, it did not contemplate the possibility of building a new upgrader.
317.
In 2004, all the participants to the Association Agreement considered a "debottlenecking" project, intended to increase the production from 120,000 to 144,000 barrels per day of EHCO. This increase would have been achieved by enhancing the capacity of components of the Project in order to allow full use of the capacity already available in other components375. However in December 2004, PDVSA-CN informed its partners that the agreement of the company and of the Ministry would be subordinated to the payment of a higher royalty, the use of EOR production techniques and the signature of a memorandum of understanding called Cerro Negro II, under which the incremental production would be commercialized by PVDSA. It added that the new 2001 Hydrocarbon Law would apply to the project376. In light of these requirements, the project was abandoned.
318.
In 2005, the Venezuelan authorities accused some oil associations of producing more than they had been authorized to produce. The companies were informed that production limits had to be respected and that any excess production would be subject to higher royalties. This was specified in particular in a letter377 from the Minister of Energy and Mines to the Cerro Negro Association dated 23 June 2005, which stated the following:

"...the volumes of hydrocarbons that exceed the average monthly production of 120 MBD are subject to the royalty of thirty percent (30%) provided for in Article 44 of the above-mentioned Decree with Force of Organic Law on Hydrocarbons. The same amount of royalty must be paid in cases of volumes related to the mixture of extra-heavy crudes [...]
The payment of the royalty referred to above does not legitimize the over-production indicated above and, consequently, does not imply any authorization of the activies referred to above or of the situations created."

319.
It appears that the Claimants abided by the production limit at all times after that decision was made and notified to the Projects participants378.
320.
The Tribunal observes that the Project as contemplated today by the Claimants would almost triple the production of oil. This volume of production would require the construction of a new upgrader, at a cost evaluated by the Claimants at US$ 2.3 billion, as well as the extension of the existing facilities and of the maritime terminal at the San José Complex. A project of this magnitude does not fall within the scope of Clause 8(1)(c) of the Association Agreement approved by the Venezuelan legislature. This new project would require the approval of the Venezuelan authorities. In view of the position taken by the Administration in 2004 and 2005, such approval could not have been taken for granted by a prospective buyer in 2007.
321.
In these circumstances, the Tribunal concludes that it cannot use the production volume that would have resulted from the adoption and implementation of this new project. The net cash flows must be calculated on the basis of an average monthly production of 120,000 barrels per day of EHCO. Based on the past experience analyzed in the experts' reports, this volume of production would, in the opinion of the Tribunal, allow for an average monthly production of 108,000 barrels per day of synthetic crude oil (SCO)379.
322.
The experts agree that it would not be possible to achieve such a level at all times. Prof. Myers, the expert appointed by the Claimants, calculated the impact on production of risks such as "episodes of civil unrest", "major unplanned outrages due to accidents or equipment failures" and the possibility of OPEC curtailments. On these grounds, he proposes to reduce the expected production by 3.2%380. Prof. Myers specifies that this percentage does not take into account "operational down time, typical failures and maintenance"381. Mr. Brailovsky and Prof. Wells, the experts appointed by the Respondent, consider that the reductions made by Prof. Myers understate the effects of the events they address. Mr. Brailovsky and Prof. Wells stress that certain types of minor incidents and turn around factors must also be taken into account, and propose a reduction of approximately 5%.
323.
The Tribunal has carefully considered this question in light of the expert reports. The Tribunal concludes that the future average planned production must in the long run be reduced by approximately 4%, and that it could accordingly be fixed at 104,300 barrels per day of SCO. The corresponding production, year by year, appears in column 2 of the table annexed to this Award382.

b) Oil Price

324.
The Parties have produced detailed expert reports containing price forecasts for the Cerro Negro Synthetic Crude Oil (CN - SCO). These reports forecast SCO prices by benchmarking SCO to other price series for which there is more forecast information. In this respect, the experts (i) refer first to the price to be paid for West Texas Intermediate light sweet crude oil (WTI); and then (ii) derive the CN - SCO price from WTI in two steps, using a Mexican heavy sour crude oil called Maya as an intermediary. The experts differ on their forecast of WTI prices and on the discount to be applied from the benchmark WTI price to the SCO price.
325.
In her second report, Ms. Sarah Emerson, of Energy Security Analysis (ESAI), expert for the Claimants, forecasts WTI prices as of 27 June 2007 on the basis of market analyses made by ESAI in 2007 and, in particular, on the basis of a report of that firm entitled "Atlantic Basin Stockwatch", published on 16 July 2007. Ms. Emerson anticipates a price of US$ 72.91 per barrel of WTI in the second half of 2007,383 decreasing to US$ 67.60 in 2013, then going up to US$ 105.52 in 2035384.