Venezuela is on the verge of losing ownership of CITGO Petroleum Corporation whom is the indirect subsidiary of U.S.-based PDV Holding, a non-operating holding company incorporated in Delaware and headquartered in Texas. Moreover, the government has announced legal actions against participants in the process. The company is burdened with over $20 billion in debt.
Former President Hugo Chávez ordered the expropriation of both Venezuelan and foreign companies, disregarding several contracts. Consequently, this led many companies to seek international arbitration, where they won their cases in the ICSID and the World Bank. These bodies mandated that Venezuela compensate the expropriated companies. Subsequently, several firms then took their cases to U.S. courts, particularly in Delaware, where a federal judge ordered the auction of CITGO shares to allow creditors to collect their debts.
The Venezuelan Ministry of Petroleum has requested the sale be halted, as CITGO is one of the state’s main foreign assets. Therefore, losing its U.S. subsidiary would have severe repercussions since CITGO has seven large refineries in the U.S. and participates in pipelines all across the country. This infrastructure allowed Venezuela to produce oil domestically, refine it in the U.S. or Venezuela, transport it via pipelines, and sell it at service stations. The CITGO auction is scheduled for July 29, coinciding with Venezuelan elections. The government seeks to renegotiate its debts to pay them off orderly.
Petróleos de Venezuela (PDVSA), the Venezuelan state oil company, owns 100% of the stock of PDV Holding. Because the Nicolás Maduro regime continues to control PDVSA’s operations in Venezuela, CITGO is currently unable to process the crude produced by PDVSA and it cannot play any role in the Venezuelan oil sector.
Reuters reported years ago that CITGO was in checkmate. Indeed, debates about selling the company have persisted for nearly a decade. In 1986, PDVSA bought 50% of CITGO Petroleum, acquiring the remaining shares in 1990. The acquisition aimed to leverage one of the most important U.S. markets. Two theories for the sale are the Venezuelan government’s need for cash and CITGO’s poor performance as a PDVSA investment. Venezuela faces one of the world’s largest fiscal deficits, with the bankrupt government allocating all production to public spending.
Moreover, Jorge Toledo, a U.S. citizen and oil executive, was arrested in Venezuela in 2017 alongside five other CITGO executives on baseless money laundering charges. However, CNN’s investigation discredited the Maduro regime’s accusations. These executives, known as the “Citgo 6,” spent years in prison until an October prisoner swap signed by President Biden secured their release.
In a political and economic context which is know as a highly polarized environment with many needs, Venezuela is set to elect a president who will serve for six years. Importantly, eight out of ten presidential candidates have agreed to accept the results announced by the National Electoral Council.
The oil industry significantly impacts Venezuela’s macroeconomic indicators, leading to what’s known as “Dutch disease.” This term originated in the Netherlands in the 1960s and describes the adverse effects of oil dependency. Causes include a drastic shift in production patterns, economic booms from new natural resources, and rising international oil prices, especially during the oil shocks of 1973-74 and 1979. Thus, symptoms include currency overvaluation, state apparatus growth, massive government spending, subsidies, debt accumulation, reduced industrial production, low productivity, inflationary pressures, poor competitiveness, decreased agricultural activity, reduced non-oil exports, heavy regulations, and income inequality.
https://www.citgo.com/getmedia/528fcc9b-b1a4-4d4b-b083-1f79ea9278ae/2021-CITGO-Annual-Report.pdf