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Venezuela denounces US court ruling over Citgo

Venezuela denounces US court ruling over Citgo
Government rejects decision to order sale of Venezuelan oil company, which has sixth-largest refinery network in US

By Jorge Jraissati

CARACAS, Venezuela (AA) - The Venezuelan government on Sunday rejected a decision by a US federal court in a legal dispute over Citgo Petroleum Corp., calling it a “hostile” judicial process.

The court approved the sale of the shares of Citgo's parent company, Venezuela’s state oil company PDVSA, to pay defunct Canadian gold miner Crystallex $1.4 billion for the expropriation of its assets in Venezuela.

The court’s ruling comes at a time when the ownership of Citgo is being disputed between the government of President Nicolas Maduro, the Venezuelan opposition and PDVSA.

Venezuela's Foreign Minister Jorge Arreaza said the judicial process is "fraudulent" and aimed at "robbing Venezuelans of their most important asset abroad."

The case over Citgo is taking place in Wilmington, Delaware. There, Judge Leonard Stark is ruling in favor of Crystallex. Crystallex went bankrupt nine years ago, and since then, the company has been trying to recover its investment in Venezuela.

In 2011, Crystallex’s Venezuelan operations were nationalized by former President Hugo Chavez. Crystallex argued that since the Venezuelan government never repaid them for their investment of $1.4 billion, the Canadian company had the legal right to go after PDVSA. Since the legal fight began, the Venezuelan government has paid $500 million of the $1.4 billion to Crystallex.

But the legal argument used by Crystallex is far from orthodox because under US law, there is a “presumption of independent status” between a state and its companies and that as such, the Venezuelan state and PDVSA should be legally treated as separated entities, including PDVSA’s subsidiaries such as Citgo.

However, Judge Stark ruled that the Venezuelan state had erased the lines between the government and its oil company, and because of this, they should be legally treated as the same.

His argument comes from the basis that the Venezuelan government had “extensive control” over PDVSA, which means that PDVSA has been acting as the “alter ego” of the state.​​​​​​​

Under US law, for a judge to argue on these grounds, the following factors have to be taken into consideration: (1) the level of economic control by the government; (2) whether the entity’s profits go to the government; (3) the degree to which government officials manage the entity or otherwise have a hand in its daily affairs; (4) whether the government is the real beneficiary of the entity’s conduct; and (5) whether adherence to separate identities would entitle the foreign state to benefits in US courts while avoiding its obligations.

According to Judge Stark, each day Crystallex’s $1.4 billion debt goes unpaid, it is “arguably something of an affront” to the US judicial system.

“Those days must soon come to an end,” he added.

Judge Stark ended by proposing that PDV Holding Inc., the Delaware-based subsidiary of PDVSA which owns Citgo, should be auctioned to the highest bidder.

However, none of this can happen until the US Treasury Department lifts its ban over the sale and transfer of Citgo and its shares. Initially introduced in October 2019 by the Treasury’s Office of Foreign Assets Control, the ban prohibits Citgo’s creditors from taking over the company.

This prohibition is particularly important from the US’s perspective because in an eventual takeover from creditors, Russian state oil company Rosneft would have the rights to the majority of Citgo’s shares and the control of the industry for that matter, since the Venezuelan government defaulted on a series of bonds that had Citgo as collateral that are primarily owned by Rosneft.

Ultimately, if Rosneft or any other creditor were to gain control over Citgo, Venezuela would be losing ownership of its most important asset abroad.

Currently valued at $10 billion, Citgo owns oil and gas pipelines throughout the US, about 5,000 gasoline stations across 30 states, and three major refineries with the capacity to process 750,000 barrels of oil a day, making it the sixth-largest refinery network in the US.


source: News Feed
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