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The Pemex refinery in Cadereyta is now embroiled in several lawsuits. (Photo: Pemex)
Wednesday, July 10, 2013
Special Reports

Pemex Refinery Ends in Legal Dispute  

Pemex and Siemens sue each other in New York.

BY JOACHIM BAMRUD

Once they were partners in a refinery project in Northern Mexico. Now they are suing each other in bitter lawsuits in New York.

The parties are Mexico’s state oil company Pemex, Latin America’s second-largest company, on the one side against German industrial giant Siemens and Korea-based SK Engineering & Construction Co. Ltd. (SKEC) on the other.

Siemens and SKEC (along with a local company Grupo Tribasa) formed part of a venture, Conproca, that won a bid in 1997 to modernize the Pemex refinery in Cadereyta, which is located in Northern Mexico near Monterrey.

“A consortium of Sunkyong Engineering Construction, Siemens KWU and Tribasa … outstripped 16 strong competitors for the large scale Cadereyta project,” Siemens said in 1999. “The size of the project and the deadline set by Pemex, unique up to the present time in the world, represent an enormous challenge: just 990 days for engineering, delivery, assembly and commissioning of the entire plant.”

However, the project was marred by problems, including delays and additional work. Conproca blamed Pemex and took its case to arbitration at the International Chamber of Commerce. In December 2011, the ICC ruled that Pemex should pay Conproca $530 million ($282 million as well as interests) for additional work and interruptions during its work at Cadereyta between 1997 and 2000. Conproca subsequently filed a lawsuit at the US District Court in New York to collect the ICC judgment.

Now, Pemex is countersuing – also in New York -- claiming that the ICC judgment was partly based on documents executed by officials that were bribed by Siemens and SKEC.

Pemex claims that Conproca initially presented an unrealistically low bid then paid bribes to keep the contract despite  unexpected cost overruns and extensions. A former Siemens executive testified at the Mexican Solicitor General's Office on May 6 that the German company paid bribes to Pemex officials connected to the Cadereyta cost overruns.

“Peter Muller, Siemens Mexico’s former general counsel, testified that he had seen invoices that a well known business consultant issued to obtain $2.6 million dollars approved by Siemens’ Financial Director at the time,” says Michael Diaz, managing partner at Diaz Reus, which represents Pemex in this case.  “According to Muller, the monies paid to the business consultant were then funneled to a high-ranking official at Pemex.  Muller added that the contract with the business consultant was merely a cover story for the payment of bribes to one or more Pemex officials. “

Muller’s testimony came after his lawyer, Luis Rubén Esparza, had tried to blackmail Pemex to pay $1.3 million for his testimony. After Pemex denounced him, Esparza was arrested on April 16 on extorsion charges. Meanwhile, Mexico’s Public Prosecution Office issued a subpoena for Muller to testify regarding his knowledge of the facts related to the new Pemex lawsuit.  “The investigation is currently ongoing,” Diaz says.

According to Reforma newspaper, the businessman who served as the intermediary for bribes was Jaime Federico Said Camil Garza.

PEMEX LAWSUIT

The Pemex lawsuit was filed at a U.S. District Court in New York in December (case 12- cv-9070), alleging violation of the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Act. It asked for $500 million in damages.  An amended version was filed on May 8 asking for $160 million.

On May 24, Siemens and SKEC asked the court to dismiss the case, alleging that a US court should not have jurisdiction.   

“Pemex’s response details how Siemens and SKEC engaged in a complex scheme to defraud by submitting manufactured and inflated invoices for payment in the U.S.,” Diaz says. “Defendants knew, based on the parties’ agreements, that the invoices would be paid in the U.S. through the Pemex Master Trust’s bank account located in New York.  Siemens and SKEC also requested that all payments be deposited in Conproca’s bank account in the U.S.  The Pemex Master Trust, a U.S. trust, was Siemens’ and SKEC’s ultimate victim.  As a result of this scheme, the Master Trust wired approximately $160 million from Pemex’s U.S. bank account to Conproca’s U.S. bank account. “

The lawsuit from Pemex implicates Cesar Nava, who was the oil company’s legal counsel between 2001 and 2003. Nava is more known as the personal secretary of then-President Felipe Calderon between 2006 and 2008 and president of the then-ruling PAN party from 2009 to 2010.

The lawsuit claims that Nava impeded Pemex from recovering $102.8 million from Conproca to compensate for the cost overruns. He denies the allegation.

Siemens declined to comment. “For the moment we have no comments on … the Conproca case,” says Deble Kuri, the spokeswoman for Siemens Mesoamérica.

However, in a statement to Mexican media (including CNNExpansion) Conproca says it had not participated in any act of corruption, illegal payment or bribery and that Pemex has failed to prove its case. On July 3, Mexican web site 24 Horas quotes another statement from Conproca saying that Pemex “is desperate” and called Muller’s testimony “absurd.”

Diaz expects that the Pemex lawsuit against Conproca could last several months or even several years.  “If Judge [Louis] Stanton denies the defendants’ motions to dismiss, this litigation could continue for months, if not years,” he says. “Although the district court is not required to issue a ruling by a particular date, it is likely that there will be a decision shortly after the briefing is complete.”

And Diaz expects that briefing should be finished by the end of July.

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