Panam Post | 31 July 2019
Venezuela on the verge of losing Citgo after recent legal ruling
By Sabrina Martín
A court in the United States has ruled in favor of the Canadian mining company Crystallex International, which is seeking to keep assets of Citgo, Venezuela’s main asset abroad.
The Canadian mining company is claiming USD $1.4 billion in damages for Hugo Chavez’s nationalization of its gold deposit in 2008, and thus far the Chavista regime has not paid the compensation agreed upon after international arbitration.
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The decision of the US judge in favor of the Canadian mining company Crystallex means that Venezuela is on the brink of losing Citgo, its largest asset abroad. The most serious issue is that there is now judicial precedent establishing that there is no separation between the Venezuela government, Citgo, and PDVSA.
In August 2018, a Delaware court determined that PDVSA acts as an alter ego of the Venezuelan government and Citgo is a subsidiary of the state oil company. Therefore, the assets of Citgo Holding, a company valued at about USD $8 billion, could be confiscated to settle the legal judgment.
It is not yet known what action the representatives of interim President Juan Guaidó will take, who could appeal the decision and seek another hearing in which a panel of judges with jurisdiction hear the case. After that, if the justices again rule against Venezuela and they decide to appeal, the Supreme Court would be their last recourse, but such a move would certainly be a long shot.
Economist Luis Oliveros explained to the PanAm Post that losing Citgo would mean losing the ability to import and distribute Venezuelan crude in the United States, because the US is the main nation that pays with hard currency.
PDV Holding Inc., owned by Venezuelan state oil company Petróleos de Venezuela (PDVSA), owns Citgo Holding Inc., which in turn owns Citgo Petroleum Corporation, which has three refineries and pipelines in the United States.
Citgo can refine 749,000 barrels per day and the Lake Charles refinery is the sixth largest refinery in the United States.
“With an action like this, the court is ruling that Crystallex may take possession of Citgo’s assets to collect the money owed to it, which is a little over a billion dollars. Quite possibly we will see that other debt holders will also pursue Citgo assets because of the precedent that has been set,” said Oliveros.
“We must remember that in addition to Citgo, Venezuela has tankers, terminals, as well as some assets in Europe; all those assets may be subject to embargoes with this type of judicial decisions,” he alleged.
The case opens the way for more than a dozen companies and bondholders to further pursue the Venezuelan refinery to collect international arbitration claims for assets expropriated under the mandate of Hugo Chávez Frías.
But the situation is further complicated, because in 2016 it became known that Nicolás Maduro secretly mortgaged the Citgo refinery to Russia for an enormous loan.
The Venezuelan regime would gave 49.99% of the shares to Russia, in exchange for a loan of USD $1.5 billion.
According to a document released by the Latin American Herald Tribune, Rosneft admits that it controls 49.99% of Citgo’s shares.
If Citgo or PDVSA fails to pay the large loan, the Russian state company Rosneft could end up owning important oil facilities and oil refineries in the United States.
In the event of a possible default by the Maduro regime, the United States government has ruled that PDVSA 2020 bondholders may lay further claim to Citgo assets, in the eventuality that Venezuela fails to pay.
Citgo: the great “treasure” now in default
Venezuela has now defaulted on all fronts. There are a mountain of creditors waiting for payment, in addition to Crystallex.
“Crystallex could now collect that debt with Citgo shares. The external debt is so great that creditors are going to pursue Citgo everywhere, because it is the only asset that is worth money,” Oliveros explained in an interview with journalist César Miguel Rondón.
A BBC report revealed that legal and financial experts anticipate that in the event of a default a complicated process of legal maneuvers will begin.
“Citgo has three refineries in the United States and would be the main object of interest for the creditors,” said the experts.
“The most striking asset is the US-based fuel refining and distribution company, Citgo, the sixth largest refinery in the country, with facilities in the states of Louisiana, Illinois, Texas, as well as tens of thousands of service stations.”
According to Oliveros, valuing Citgo is a constant topic of discussion among economists, but, according to his estimates, if Venezuela today decided to sell Citgo to pay its debts, it would not receive more than USD $4 billion, of which half belongs to Rosneft and the other half would go entirely to debt. Venezuela would have “very little” left.