Venezuela is about to lose ownership of Citgo, a US-based oil refining and gasoline marketing company valued at $13 billion. The company was acquired by the Venezuelan State in 1990 and for a long time was one of the most important assets of its treasury. Economic agents, political actors and financial analysts consider his loss a catastrophic event for Venezuelans.
Last week the deadline for receiving offers for the acquisition of Citgo ended in a second round of bidding opened by a US federal court handling the case. A month ago, the federal district judge in Delaware, Leonard Stark, cleared the way for the receipt of offers and denied the latest arguments of the Venezuelan Government. In total, 18 international creditors, including large and medium-sized companies, are demanding 21.3 billion dollars from the republic for expropriations and non-payments during the times of Chavismo.
The president of Petróleos de Venezuela (PDVSA), Pedro Tellechea, has issued a statement in which he asks the US court to stop the auction, a consequence of a tortuous legal process that was reached thanks to 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. “That is theft,” he added.
In Caracas, the official press frequently comments on “the imperialist dispossession” carried out against one of the most valuable assets of the national treasury, and uses the circumstance to attack the United States and hold the Venezuelan opposition responsible for what is happening. According to this narrative, the responsibility for the loss of Citgo lies with the defunct “Interim Government” of Juan Guaido (2019-2021), in which Chavista legality and the 2018 electoral results were challenged, and created, 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 activities of his office. The news began to circulate more rumors about mismanagement in the management of the interim Government. This determination regarding Guaidó’s actions was the straw that broke the camel’s back. “What the Delaware court says is that Guaidó incurred ‘extensive control’, in violation of the alter-ego doctrine. I warned you about this procedure, it generates legal risks for the nation,” explains Francisco Rodríguez, economist, author and professor who has studied this cause.
For a time, amid the opposition’s dispute with 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 what Stark concluded. “That is absolutely false. “The judge has let himself be carried away by press versions.” Medina claims management at Citgo: “surplus, honest, which was received with mortgages and has 10 quarters giving positive profits. It has produced $5 billion in profits.”
“The Delaware Court’s decision contains factual determinations that are clearly erroneous,” states a statement from PDVSA-had-oc in response. “PDVSA’s assets in the United States are blocked and the board of directors does not have access to them.” Although there is no express mention of fraud, it is concluded that the opposition strategy, with this administrative lack of importance, did not achieve its objectives. Nothing could stop Stark’s perception. “Bad strategies are not intentional, but they cause responsibility and have a public impact,” says Rodríguez.
Expropriations and debts take their toll
The loss of Citgo has to do with the aggressive process of nationalization of assets carried out by 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 Crystalex sued the Venezuelan State once Chávez decided to nationalize the gold deposit. The Cristinas, which was being operated within the framework of a mutual investment protection treaty. After several previous court victories, in 2019, Crystalex obtained authorization to seize Citgo in compensation, due to the debts accumulated 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 deliver 100 percent of Citgo shares as collateral to receive loans to 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, economist and international consultant. “Now Crystalex was compared by a vulture fund that acquired that litigation for some time. 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,” Horacio Medina now recognizes. The fact is that the Government and with the help of the opposition are blowing a billion-dollar hole in Venezuela’s public coffers.
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