Page 6 - LatAmOil Week 30

LatAmOil COMMENTARY LatAmOil
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Venezuela had argued that Citgo should be immune from the billions of dollars of debt that the country has accrued, on the grounds that they were separate entities. But the US courts disagreed, ruling that PdVSA did not act su - ciently separately from the Venezuelan govern- ment, which had accrued the debt.
“ e District Court acted within its jurisdic- tion when it issued a writ of attachment on PdV- SA’s shares of [US unit] PDVH [PDV Holding] to satisfy Crystallex’s judgment against Vene- zuela, and the PDVH shares are not immune from attachment,” Judge Leonard Stark wrote.
e decision allowed Crystallex to auction the shares in order to settle Venezuela’s unpaid debt to it, provided that the verdict is not suc- cessfully appealed or blocked by the govern- ment of US President Donald Trump. PdVSA could theoretically still dispute the ruling at the US Supreme Court, but this appears unlikely to happen. e Venezuelan company had not yet commented on the decision as of press time, and it has not divulged any information about what it might do next.
Bad timing
e US court’s decision comes at a bad time for Venezuela, which is struggling with its worst- ever recession. Caracas desperately needs the funds that Citgo is capable of providing – or was capable of providing before the US imposed sanctions on PdVSA in January.
The downstream operator owns three re neries in the US – a 418,000 barrel per day (bpd) refinery in Lake Charles, Louisiana, a 157,000 bpd re nery in Corpus Christi, Texas and a 179,265 bpd refinery in Lemont, Illi- nois. Together, these plants process more than 750,000 barrels per day (bpd). Prior to the imposition of sanctions, PdVSA depended on them as an export destination for its crude and as a source of re ned products and diluent.
Now, though, these facilities are out of reach. Even worse, the July 29 court ruling creates a precedent for more of Venezuela’s debts to be repaid through the unwilling seizure of shares in Citgo.
“It has the potential to be a big blow to Ven- ezuela,” said Russ Dallen, a managing partner in Caracas Capital. “ e pool of creditors that can now attack and go a er PdVSA is greatly expanded,” he told Bloomberg.
e ruling may also be a source of concern for investors holding PdVSA’s 2020 bond. e company pledged half of its Citgo shares as collateral for that securities issue, on which it began making payments in May of this year.
Power struggle
e decision also complicates matters for Juan Guaido, the head of Venezuela’s opposition-con- trolled National Assembly, who is in the midst of a struggle for power with President Nicolas Maduro.
Guaido invoked Venezuela’s constitution in January of this year to assume an interim pres- idency, arguing that Maduro’s re-election in 2018 was illegitimate. A number of countries, including the US, have recognised him as pres- ident. Maduro, however, claims that the oppo- sition leader is a US puppet who is seeking to oust him in a coup.
Since assuming his interim presidency, Guaido has named ad-hoc boards of direc- tors to Citgo and PdVSA. Even so, Maduro has nominated his own supporters to the board, insisting on his right to do so as president. Moreover, his board has led suit in a Delaware court, seeking control over Citgo.
For his part, Guaido has asked Trump to pre- vent creditors from seizing Venezuela’s assets, and there is certainly a possibility that the latter may grant such an asset-protection order. e US government has been fairly sympathetic to Citgo, having granted it some exemptions to the sanctions against PdVSA.
Under these circumstances, PdVSA’s posi- tion looks increasingly shaky. Even though the parties have yet to conclude their court battle, the NOC’s hold over Citgo looks weaker in light of the July 29 ruling – and will probably become even more so if Maduro continues to cling to power. ™
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desperately needs the funds that Citgo is capable of providing – or was capable of providing before the US imposed sanctions on PdVSA in January
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w w w . N E W S B A S E . c o m Week 30 31•July•2019