Guaidó, Citgo and the $19B Hole

Guest author Austin Barnes analyzes how the actions of Juan Guaidó and his associates saddled Citgo with an unpayable debt.
Citgo 19B
Valued at $10-13 billion, Citgo could soon be lost to creditors. (PRNewsFoto/CITGO Petroleum)

On October 4th, Venezuela’s Attorney General, Tarek William Saab, announced a warrant for the arrest of Juan Guaidó on charges including treason, false representation and corruption stemming from his time as head of the US-appointed “interim government” of Venezuela. Guaidó is alleged to have exploited state resources to fund his parallel administration, resulting in the potential loss of a staggering $19 billion in public assets. 

Taking to social media from the safety of his Miami home, he claimed in response that “this is how the dictatorship’s machine for promoting lies works”. Unfortunately for him, the US’ own court documents prove that this charge was factually based. Guaidó, in fact, did preside over the loss of at least $19 billion in state holdings through his management of Citgo, a subsidiary of Venezuela’s state-owned PDVSA. How did this happen? How did a man, powerless within his own country, lose its largest overseas asset? 

“All that was privatised”, said then-president Hugo Chávez of the telecommunications giant CANTV, “let it be nationalised”. Thus began the 2007 nationalisation wave that took control of mining, oil, and agricultural operations for the people of Venezuela. This move represented an important step in the Bolivarian Revolution’s promise of wealth redistribution and of changing Latin America’s peripheral role as raw material supplier to companies in the Global North. 

Aggrieved corporations, such as Canadian gold-mining firm Crystallex and US oil company ConocoPhillips – separately engaged in a battle with indigenous people over the exploitation of the Alaskan wilderness – refused the Venezuelan government’s compensation offers and took to international courts. Arbitration ruled in favour of private industry and Venezuela assumed the resulting debt. The Venezuelan state took to court and challenged these rulings, getting several awards reduced. Some were fully paid and others were in the process, until the Trump administration’s financial sanctions, beginning in 2017, put a halt to these payments.

In the following years, debts accrued interest, oil revenues fell and sanctions intensified. The US Treasury prohibited all dealings with PDVSA in 2019 and seized Citgo, Venezuela’s most valuable foreign asset. Thus, while Citgo was technically the property of Venezuela, its Venezuelan parent had no room to control or receive its rightful dividends. This unusual ruling was denounced as “criminal” by President Nicolás Maduro. With the US unilaterally recognising Juan Guaidó as the legitimate leader of Venezuela, Washington passed the nation’s US-based assets into his control. This included Citgo and several bank accounts. 

Practically speaking, the US government handed an incredibly valuable company to a random person because they felt like it. While nationalised oil in Venezuela was a part of a campaign that dramatically reduced extreme poverty, unemployment, and the infant mortality rate, the nation’s most crucial overseas operation was now in the hands of someone who could not redistribute earnings and who had no power over Venezuela’s oil or people. Guaidó’s interim government appointed a board to manage the company. 

Fast forward four years, and a Delaware court has ordered a non-consensual auction of Citgo shares, set to begin on the 23rd of this month. This forced sale is the result of a series of rulings based on Guaidó’s management of the company. Put simply, Guaidó may have lost Venezuela’s most important foreign asset. 

As economist Francisco Rodriguez wrote in the Financial Times, “many governments around the world become highly indebted, and almost none of them lose their assets as a result”. Venezuela is far from the most indebted country, nor is it the first country to default on debts – Lebanon, Ukraine, and Argentina have all done so in recent memory. As Crystallex, ConocoPhillips, and other creditors appear successful in their mission to take over Citgo, we could expect to see similar tactics in other contexts. Yet we do not. This type of thing, as Rodriguez notes, goes against the principle of limited liability, which holds that a state-owned enterprise is a legally distinct entity from the state and therefore not responsible for its bills. The US-held assets of the BBC, for example, could not be claimed as part of debt proceedings against the United Kingdom despite its state ownership. However, if companies could prove that Citgo was used as an instrumentality – basically as a division of the Venezuelan state – then they could argue that the Venezuelan Republic and Citgo were the same thing and that the latter would be liable for the former’s debts. 

The Delaware court handling these claims ruled that Citgo was indistinguishable from the Venezuelan “interim government” and therefore responsible for the nation’s debt. The basis for this unusual decision rested on the “relationship between the Guaidó government and PDVSA in the United States” – i.e. the behaviour of Guaidó’s US-appointed, domestically powerless interim-government during their US appointed ownership of Citgo. Corporate lawyers successfully argued that Guaidó was treating Citgo’s proceeds like a piggy bank for his self-declared administration. 

“The Guaidó Government has accessed PDVSA’s U.S. subsidiaries’ assets in the United States and used them to fund itself”, the ruling read, noting further that “Mr Guaidó used PDVSA funds to conduct its legal defence. Most bizarrely, Guaidó’s government announced with no apparent necessity that debt would be treated the same regardless of its source, whether from “the Republic, PDVSA or another public sector entity”. In more plain language, Guaidó claimed that Venezuelan national debt and PDVSA/Citgo debt were the same before the hearings even began. Rodriguez is again the most succinct commentator on this point, writing that this “reads like a list of what you are not supposed to do if you want to avoid creditors seizing your assets”. Guaidó declared himself president, was gifted Venezuela’s most prized overseas asset, and then wasted no time adopting unnecessary policies that forfeited Venezuelan assets to literally the exact same North American companies that Chávez tried to break free from. 

The so-called “alter ego” court decision saw a number of corporations with international arbitration awards get in line for compensation. As a result, Citgo debts jumped by $19 billion, from around $5 billion to $24 billion. From perfectly manageable to unsalvageable in one fell swoop.

In the same ruling, the court considered an alternative case in which Maduro’s government was the legitimate owner of Citgo and assumed that the outcome would be the same. This is a purely hypothetical and speculative point, given that the Maduro government was not allowed to negotiate with the creditors. Regardless of Washington’s political wish list, Maduro was factually the leader of Venezuela and had the power to actually restructure debt, unlike Guaidó. Had creditors been able to deal with Maduro, they could have struck an agreement out of court. 

Furthermore, only Guaidó’s lawyers were allowed to represent Venezuela in court proceedings, given his US recognition. The actions of Guaidó’s legal team drew heavy criticisms and suspicions of malpractice. In one case, lawyers failed to respond to the court for over a year, resulting in default ruling allowing ConocoPhillips to enforce an $8.75 billion award. Thus, Guaidó’s nominal government not only saddled Citgo with unmanageable debt by treating the company as its private purse, it did not even attempt in some cases to fight back. The debt is now impossible to fulfill and Citgo will likely be taken from the Venezuelan people as a result. 

If Keir Starmer, leader of the opposition in British parliament, unilaterally declared himself prime minister, was recognised as such by Nigeria for geopolitical reasons, was handed UK assets in the country and then lost all BBC property through mismanagement, this would not be dissimilar to the Guaidó saga. It is a very legitimate reason to be arrested. Unlike the BBC in Britain, however, Citgo represents a massive part of the Venezuelan economy. Low oil prices triggered an economic depression in Venezuela. Now that oil prices are high – and Citgo posts record profits – the ability for this boom to help the Venezuelan people was tragically cut off under Guaidó’s supervision. Combined with sanctions, which Guaidó encouraged and which significantly hamper Venezuela’s ability to produce oil, it seems Venezuela will suffer whether oil prices are high or low. 

Perhaps most strikingly, companies from the Global North are leveraging the American legal system, and the unprecedented circumstances created by the parallel “interim government,” to take advantage of Venezuela’s vulnerable position. In seizing a public asset from the Venezuelan people, these companies have shown us the definition of neocolonialism. And whether through incompetence or ideology, Guaidó and his associates have played directly into their hands.

Austin Barnes is a journalist based in Glasgow, Scotland. He holds an undergraduate degree in Philosophy and Linguistics from the University of Edinburgh and a Master’s degree in Russian Studies from the University of Glasgow. Austin is interested in imperialism, finance, and development in the Global South.

The views expressed in this article are the author’s own and do not necessarily reflect those of the Venezuelanalysis editorial staff.