Merida, August 13, 2018 (venezuelanalysis.com) – A US judge has reversed a January ruling Thursday, opening the door to the potential seizure of Venezuela’s US-based oil assets by Canadian mining giant Crystallex and other transnational firms.
The Canadian multinational is looking to claim US $1.4 billion worth of compensation awarded in 2014 for the 2008 expropriation of the Las Cristales mining installations by the government of Hugo Chavez.
Delaware Judge Leonard Stark held off issuing a writ to attach a seizure order for now stating only that “Crystallex and PDVSA shall meet and confer and, no later than August 16, 2018, submit a joint status report providing their position(s) as to how this case should now proceed.”
Following the announcement, Venezuela’s state-run oil firm, PDVSA, to whom such oil assets belong, declared that it will appeal the ruling in what may prove to be a protracted legal battle.
Should the ruling be upheld, PDVSA may be forced to liquidate its US-based subsidiary, CITGO, which is valued at US $11 billion, in order to pay Crystallex, despite an established PDVSA plan of payment, which agreed to pay the Canadian company this year US $25 million before November 30, US $15 million by December 31 and around US $400 by the end of 2020.
The decision, which has been described as “historic,” reverses a January ruling concluding that PDVSA and the Venezuelan state were separate legal entities, in line with international law that separates state firms and sovereign nations.
However, this time around, Stark decided that CITGO and its parent company, PDVSA, are “alter egos” of the Venezuelan government, and as such, PDVSA assets can be used to pay government debts.
Crystallex lawyers had reportedly used PDVSA tweets with the hashtag #PDVSAesVenezuela (PDVSA is Venezuela), as well as drawing attention to the fact that an active duty military officer is currently president of the firm, to argue their case.
The decision paves the way for a series of multinational companies ─ including US oil giant ConocoPhillips which is looking to claim an awarded US $2.04 billion ─ to seize vital Venezuelan assets based abroad, including CITGO and oil-related assets in the Caribbean.
CITGO is currently struggling with US sanctions, which bar it from repatriating an estimated US $1 billion in annual dividends, denying Caracas a vital source of funding amid a deep, ongoing economic crisis.
The firm, which is the ninth largest refiner in the US, possesses three US refineries with a capacity of processing 750,000 barrels a day, 5,000 gas stations, three fully owned pipelines, six jointly owned pipelines, a 15-year lease of an Aruba refinery, as well as more than 3,500 employees.
CITGO is considered one of the most successful subsidiaries of PDVSA and is frequently used as collateral for foreign debt. Currently, 49.9 percent of company shares have been collateralized for a US $1.5 billion loan from Russian oil firm Rosneft, whilst the rest are being used to guarantee PDVSA’s 2020 US $107 million bonds. Should Crystallex succeed in seizing CITGO assets, the status of both the Rosneft loan and the 2020 bonds would also be cast into doubt.
PDVSA is experiencing a dramatic drop in production levels as well as internal disorder caused by a wide-ranging anti-graft probe. Recent reports suggest that a recovery in the vital industry may be underway.
The Delaware ruling comes hot off the back of a modification of White House sanctions in July which allows PDVSA bond holders to claim CITGO assets in the event that the company fails to pay its 2020 bondholders.
Whilst neither PDVSA, CITGO, nor the Venezuelan government have reacted to the ruling so far, many in Venezuela regard it as an ominous development.
Constituent Assembly member David Paravisini denounced what he termed the “politicization” of the US justice system, whilst former PDVSA Director Horacio Medina warned that the potential fallout is “incalculable.”
“The consequences of this are incalculable. Currently, CITGO guarantees access to one of the few spaces where PDVSA is making money,” he stated.
Similarly, economist Angel Alvarado said the decision may “seriously affect the import of diluents from the US, one of the raw materials for the extraction of [Venezuela’s] heavy and extra-heavy crude,” further accentuating PDVSA’s production decline.