China's oil giant Sinopec sues Venezuelan counterpart PVDSA in sign of fraying relations

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One of China's biggest state-run conglomerates has sued a Venezuelan counterpart in a U.S. court in a dispute over unpaid bills, a sign of Beijing's growing impatience with its socialist South American ally as it slides into bankruptcy.

In the lawsuit filed Nov. 27 in a Houston federal court, a U.S. subsidiary of Sinopec sought more than $23 million in damages from Venezuela's state-run oil company, PDVSA. Sinopec alleges it never received full payment for 45,000 tons of steel rebar it agreed to sell PDVSA for $43 million and which was delivered in 2013.

The lawsuit, while small in size, says PDVSA through its U.S. subsidiary Bariven reneged on repeated promises to pay Sinopec, at one point costing the Chinese company $2 million in losses after it entered into arbitration with a supplier it agreed to purchase the steel from to carry out the deal.

"This is not simply a case of a broken promise to pay," Sinopec said in the court documents, accusing PDVSA of "deceit" and "willful deception" in its refusal to pay its bills. "Rather, this case involves a complex commercial transaction specifically calculated to leave Sinopec without a remedy."

The Chinese "usually take a more diplomatic tone" and are clearly angry, Russ Dallen, head of local brokerage Caracas Capital, wrote in a report Wednesday in which he revealed the existence of the lawsuit.

The legal action signals a split with another of Venezuela's biggest backers as the cash-strapped country seeks to restructure some $60 billion in debt in a landscape of low oil prices and production.

China has been one of Venezuela's biggest creditors, providing it loans, cash and investment totaling more than $65 billion between 2007 and 2016, according to a database maintained by Boston University and the Inter-American Dialogue. But it has so far failed to come to President Nicolas Maduro's rescue as he tries to shield the OPEC nation from triple-digit inflation, fast-declining oil production and financial sanctions imposed by the Trump administration.

China has curtailed its credit to Venezuela in the last 22 months because of chronic payment delays, troubles with joint venture projects, and crime faced by Chinese firms operating in the country.

A spokesman for Beijing-based Sinopec Group confirmed that a U.S. subsidiary of a Sinopec trading company had launched a lawsuit against PDVSA about "a dispute over payment owed."

"As a big company, it is normal for us to have such commercial dispute and it is normal to resort to law if there is a dispute," Sinopec spokesman Lu Dapeng said by phone.

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

"I think this is a common commercial dispute and there is no need to make over-interpretations of it," Geng said. "I want to stress that China attaches great importance to the development of China Venezuela relations."

China's foreign ministry spokesman Geng Shuang told a regular news briefing on Thursday that the legal action is a "common commercial dispute" that should not be over-interpreted.

"We are willing to continue exploring cooperation with Venezuela in various sectors following a principle of mutual benefit and shared development," he said.

Any solution to Venezuela's financial crisis will need the involvement of the Chinese and Russian governments, which are owed a substantial amount from the country. A Russian state-owned shipping company, Sovcomflot, also brought suit last year against PDVSA in connection with over $30 million in unpaid shipping fees.

PDVSA is in talks with a handful of European companies to obtain credit for oil and gas projects in a bid to reverse a slump in output to an almost 30-year low, and has been seeking financing from China and Russia.

But kidnappings and thefts in Caracas have prompted some Chinese executives working in the country to move to Colombia to escape the problems, sources have said. Chinese-run infrastructure projects also have faced delays.

Car makers and small grocery stores that flourished under late president Hugo Chavez due to preferential currency exchange terms have either closed or downsized. Current president Nicolas Maduro no longer offers the same preferential terms for Chinese businesses to have access to cheap imports.

"The Chinese don't have a whole lot to show for their loans," a Western diplomat in Caracas said.

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