Venezuela is one step away from losing Citgo, an economic debacle on the eve of elections
A US court denies Maduro’s arguments to recover the oil company, which was poorly managed by both Chavismo and the opposition. The deadline for submitting offers ended last week
Venezuela is about to lose ownership of Citgo, a U.S.-based oil refining and gasoline marketing company valued at $13 billion whose shares are being auctioned off by a U.S. federal court. The company was acquired by the Venezuelan State in 1990 and for a long time it was one of its most important assets. The case was filed in U.S. courts seven years ago and involves 18 creditors who jointly claimed $21.3 billion for expropriations and debt defaults in Venezuela under Chavismo. Economic agents, political actors and financial analysts consider that losing Citgo would be a catastrophic event for Venezuelans.
The deadline for submitting offers in a second bidding round opened by the court ended on Tuesday of last week. A month ago, the federal district judge in Delaware, Leonard Stark, cleared the way for offers and rejected the latest arguments presented by the Venezuelan government.
Pedro Tellechea, the president of Petróleos de Venezuela (PDVSA) — Citgo’s ultimate parent — issued a statement asking the court to stop the auction, which is the result of a tortuous legal process produced by the chronic state of conflict that Venezuela is experiencing. “They have to stop the auction, that is an asset of the nation. As a Venezuelan, I feel offended by the fact that our goods are being sold without asking us for any authorization,” said Tellechea. “Venezuela has not been able to defend itself because they do not recognize us as a sovereign country. This is a robbery.”
In Caracas, the official media outlets frequently remark on “the imperialist dispossession” being carried out against one of the state’s most valuable assets, and uses the circumstance to attack the United States and hold the Venezuelan opposition responsible. According to this narrative, the responsibility for the loss of Citgo lies with the defunct “interim government” of Juan Guaidó (2019-2021), in which the 2018 electoral results were challenged, leading to — with the help of the United States — a parallel administration that took control of national assets abroad, including Citgo. From that moment on, the Venezuelan voice over state assets acquired two versions: that of Chavismo and that of the opposition. The American authorities established relations with the latter.
The court determined that, at some point, Guaidó's administration used company resources to finance some extensive activities, presumably linked to the political work of his office. The news triggered more rumors about mismanagement by the interim government. This court finding regarding Guaidó's actions was the straw that broke the camel’s back. “What the Delaware court says is that Guaidó incurred in ‘extensive control,’ in violation of the alter-ego doctrine. I warned about this procedure, it generates legal risks for the nation,” explains Francisco Rodríguez, an economist, author and professor who has studied the case.
For a time, amid the opposition’s dispute with Nicolás Maduro, Venezuelan properties in the United States were managed by Guaidó officials and protected by special Treasury Department resolutions. Horacio Medina, president of PDVSA-ad hoc, flatly denies the U.S. judge’s conclusions. “That is absolutely false. The judge has let himself be carried away by media reports.” Medina claims that management of Citgo was clean and created a surplus of “$5 billion in profits.”
“The Delaware Court’s decision contains factual determinations that are clearly erroneous,” reads a statement from PDVSA. “PDVSA’s assets in the United States are blocked and the board of directors does not have access to them.”
Expropriations and debts take their toll
The loss of Citgo has to do with the aggressive process of nationalization of assets carried out by former president Hugo Chávez between 2007 and 2012. The opposition also bears responsibility for not having been able to design a more articulated strategy to retain the company, in part due to its internal disputes. “By far, here the fundamental responsibility lies with the Chavista government,” says Rodríguez, a traditional critic of the interim government. “It also cannot be denied that international sanctions make it impossible to restructure the debt accumulated by the nation. Maduro was starting to pay creditors.”
In 2008, the Canadian mining company Crystallex sued the Venezuelan state after Chávez decided to nationalize the Las Cristinas gold deposit, which was being operated within the framework of a mutual investment protection treaty. After several court victories, in 2019 Crystallex obtained authorization to seize Citgo in compensation, due to the debts accrued to the company.
Chávez’s attitude towards international capital created several judicial fronts and an accumulation of lawsuits and debts. In 2016, Maduro had resolved to hand over 100 percent of Citgo shares as collateral to receive loans from the Russian oil company Rosneft and the shareholders of the so-called PDVSA 2020 Bonds, behind the back of the National Assembly, then with an opposition majority.
“In 2017, Venezuela defaulted and declared its insolvency. That made the situation more complicated,” recalls Alejandro Grisanti, an economist and international consultant. “Crystallex was bought by a vulture fund that acquired that litigation. Personally, I believe that the strategy developed against the bondholders was too hostile. It had to be negotiated with the bondholders.”
“Of course things could have been done better, they can always be done better. With more resources you can hire more lawyers and have a broader strategy,” says Horacio Medina. The fact is that the government, with the help of the opposition, is blowing a billion-dollar hole in Venezuela’s public coffers.
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