Mexico City, Mexico, March 28, 2023 (venezuelanalysis.com) – A US judge ruled Friday that four companies had the right to seize shares of CITGO, the US-based subsidiary of Venezuelan state oil company Petroleos de Venezuela (PDVSA), after they convinced the court that it was the "alter ego" of the so-called “interim government” of Venezuela.
CITGO, considered Venezuela’s most prized foreign asset, is on the brink of being broken up and seized by creditors pending changes to the sanctions regime imposed by the US Treasury Department’s Office of Foreign Assets Control (OFAC). The potential seizure of shares stem from awards worth billions against the Bolivarian Republic of Venezuela in international arbitration courts.
O-I Glass, Huntington Ingalls Industries, ACL1 Investments and Rusoro Mining will now peg claims totalling US $1.6 billion plus accrued interest to a court-mandated auction of shares belonging to PDV Holding, CITGO’s parent company.
In October, Delaware Judge Leonard P. Stark set the auction process in motion to satisfy Canadian miner Crystallex’s efforts to collect a $1.4 billion sum awarded by the World Bank’s International Center for Settlement of Investment Disputes (ICSID) in 2016 as compensation for the 2008 nationalization of its gold mine in eastern Venezuela. Any sale remains contingent on the authorization of the Treasury Department.
Control of CITGO, and its parent company PDV Holding, was handed over to the Venezuelan political opposition led by Juan Guaidó in 2019 as part of the regime-change strategy that saw Washington formally recognize the opposition figure as Venezuela’s “interim president” and ramp up wide-reaching sanctions.
Washington’s recognition meant the so-called “interim government” was viewed by the US Justice System as the “rightful” owner of PDVSA’s assets stateside, with the legal obligation to represent CITGO in court proceedings.
US courts normally protect the shares of a public company owned by a foreign country, viewing the company as legally distinct from the state, meaning they cannot be seized by creditors, and only allowing exemptions under specific circumstances.
However, the Guaidó-led “administration” bungled its management of the file by failing to disprove that his administration exercised direct control over PDVSA. Stark found that the four companies had a legitimate case that PDVSA was the "alter ego" of the opposition-controlled “interim government”.
“The Guaidó Government maintains significant control over PDVSA in the U.S., due in part to the Venezuelan constitution. ... The Guaidó Government has continued to assert Venezuela's economic control over PDVSA and PDVSA's assets (and subsidiaries) in the U.S.,” read part of the ruling.
The text specifically made reference to the so-called Transition Statute—the unconstitutional legislation passed by the opposition-controlled National Assembly in 2019 to give the “interim government” a veneer of legitimacy—and pointed to the Guaidó administration’s direct use of PDVSA’s assets.
“To fund itself, the Guaido Government has drawn directly from PDVSA commercial subsidiaries in the United States, bypassing PDVSA's corporate right to dividends,” read the ruling.
Guaidó himself stated that as “interim president”, he intended to treat PDVSA and the Venezuelan state’s debt as one in the same.
Venezuelan economist and political commentator Francisco Rodríguez stated the responsibility for this ruling fell on the shoulders of the Guaidó-led administration.
“It is inexcusable that, after spending tens of millions of dollars on lawyers, the interim government has made such basic errors. The fact they have done so casts serious doubts on the integrity of those who were in charge of conducting these matters,” wrote Rodríguez.
The hardline opposition’s actions endangering CITGO is part of a pattern of mismanagement by the so-called “interim government”.
In 2019, the Iván Duque government seized Colombia-based petrochemical company Monómeros and likewise handed it to the self-proclaimed “interim government”. While under the control of the opposition, the company was at the center of a number of corruption scandals as different factions sought to profit off of the asset. Eventually Monómeros, considered Venezuela’s second most important foreign asset, was left gutted and in financial trouble.
Following Gustavo Petro’s electoral victory in Colombian presidential election, there was a swift reestablishment of diplomatic ties with Caracas and Monómeros was soon returned to the Venezuelan state.
In an effort to restore the company’s production capacity and to potentially stave off a seizure of its assets, Colombian ambassador to Venezuela Armando Benedetti recently said Monómeros could be sold to Ecopetrol. However, Ecopetrol, which is 90 percent owned by the Colombian state, later issued a statement claiming that it had not “engaged in talks” towards acquiring Monómeros.
CITGO faces further threats from corporations that have secured international arbitration awards against Venezuela.
ConocoPhillips secured a default victory to enforce an $8.5 billion ICSID award following court no-shows from Guaidó representatives. The award is still undergoing an appeal.
The US-based refiner likewise risks being seized by holders of the defaulted PDVSA 2020 bond, for which 50.1 percent of CITGO shares were pledged as collateral. In January, OFAC issued general license 5J blocking transactions involving the bond until April 20. Previous licenses had been issued for six months or an entire year, and the shorter term for the current one is seen by analysts as a signal that it will not be extended further.
Edited by Ricardo Vaz in Caracas.