The Venezuelan opposition led by Juan Guaido could soon become the owner of PDVSA’s U.S. refining business, Citgo, in what would only deepen the chaos surrounding the country’s state oil company.
Guaido declared himself interim president and appointed an interim government in anticipation for new elections after he decried incumbent Nicolas Maduro’s second victory earlier this year. But the opposition leader and President of the opposition-dominated National Assembly also said he was about to announce an alternative board of directors for both PDVSA itself and Citgo as well. If this happens, Venezuela will not only have two presidents and two parliaments, but also two state oil companies.
This plot that would fit right in among Hollywood blockbusters is a legal quagmire, to say the least. In fact, Bloomberg’s Davide Scigliuzzo calls it “a nightmarish legal situation”. It is indeed a nightmare: Citgo is registered in the United States, but its owner is Venezuela’s state oil company–that is, Venezuela.
Besides, there is a line of PDVSA creditors and companies fighting against Caracas in court after the forced nationalization of their businesses by Hugo Chavez waiting to get their hands on at least a piece of Citgo, or better yet, the whole company. One notable creditor in the line is Rosneft, whom PDVSA granted a majority stake in Citgo as collateral for a loan. And now, on top of all this, Citgo may end up with two managements and two boards of directors.
Scigliuzzo predicts it will all end in court and it will be a U.S. court. This, he says, means that more likely than not ownership of Citgo will pass into the hands of Guaido, based on a precedent involving Communist China and the nationalist government that was overthrown by the Communists. In that case, concerning a deposit of over US$600,000 with Wells Fargo, the U.S. court ruled in favor of the nationalist government, which was the one Washington supported, Scigliuzzo notes. It would only make sense that any U.S. court will comply with Washington’s sympathies on the Citgo case as well.
“The court will defer to what the State Department says and I think the State Department in the U.S. has made it really clear who they think is the proper representative of the Venezuelan people,” Scigliuzzo quoted a Duke University law professor, Mitu Gulati, as saying.
So, that particular matter is more or less settled, and a surprise is unlikely. But what will happen next? The parent company would still be in a schizoid state, with two boards of directors, and there is far less certainty that the Guaido-appointed board will be recognized as the legitimate one in Venezuela. This means, then, that Citgo could end up owned by the opposition while the Maduro government owns its parent company.
Besides the legal headaches, this means Citgo will need to find other sources of crude: Venezuelan exports to the United States are already in decline following the last round of sanctions issued by Washington. PDVSA, on the other hand, will have to find new markets for the crude it is still producing. The wild cards that are PDVSA’s creditors and other compensation seekers make a whole deck, adding a lot of further complexity to the situation. It’s anyone’s guess how things will end with Venezuela’s most important state company.
- By Irina Slav for Oilprice.com, February 12, 2019