AP

US refiner Citgo emerges as key to Venezuela’s power battle

Feb 9, 2019, 8:10 AM

FILE - In this Feb. 24, 2012 file photo, gas prices are posted at the Citgo gas station in Philadel...

FILE - In this Feb. 24, 2012 file photo, gas prices are posted at the Citgo gas station in Philadelphia. U.S. refiners like Citgo are among the few customers paying cash for Venezuelan crude. Oil shipments to Venezuela’s other big customers, China and Russia, are usually taken as repayment for billions of dollars in debt. So the cash from Citgo has become a lifeline over the past two years as Venezuela’s oil output has plummeted amid chronic underinvestment in PDVSA and oil prices have dropped from historic highs. (AP Photo/Alex Brandon, File)

(AP Photo/Alex Brandon, File)

NEW YORK (AP) — The U.S. and dozens of other countries may have declared that Nicolas Maduro is no longer the legitimate president of Venezuela, but that has not loosened his grip on power. Maduro still controls the military, despite scattered defections. He has the loyalty of the Supreme Court. And he has rendered the opposition-controlled National Assembly powerless by setting up a rival constitutional assembly.

But Maduro stands to lose one crucial lever of power: Houston-based refining company Citgo, a wholly owned subsidiary of Venezuelan state-owned oil company Petroleos de Venezuela SA, known by its acronym PDVSA.

Americans know Citgo for its familiar red triangle logo at its more than 5,000 branded gas stations and the iconic sign visible from Fenway Park in Boston. Venezuelans know it as one of their collapsing economy’s last lifelines.

The Trump administration is moving to help transfer its control to Juan Guaido, the National Assembly leader recognized by the U.S. and other countries as Venezuela’s legitimate president.

Such a feat would give Guaido a slice of de facto power.

“It’s more than symbolic,” said William Burke-White, a professor of international law at the University of Pennsylvania who served in the State Department under the Obama Administration. “An alternative power is starting to emerge. This is about creating a world where there is another entity contesting every point of authority that Maduro has.”

Here’s a look Citgo’s critical role in Venezuela’s power struggle.

___

WHY IS CITGO SUCH A VALUABLE ASSET FOR VENEZUELA?

U.S. refiners like Citgo are among the few customers paying cash for Venezuelan crude. Oil shipments to Venezuela’s other big customers, China and Russia, are usually taken as repayment for billions of dollars in debt. So the cash from Citgo has become a lifeline over the past two years as Venezuela’s oil output has plummeted amid chronic underinvestment in PDVSA and oil prices have dropped from historic highs.

Until U.S. sanctions prohibited, Citgo also repatriated profits to PDVSA. It also sent back fuel that Venezuela needs because of its deteriorating refining capabilities, as well as diluents that PDVSA needs to mix with Venezuela’s heaviest crude oil before it can be exported. But sanctions have prohibited those exports. Like other refiners, Citgo can now only import Venezuelan crude oil if it makes payments into blocked bank accounts, which almost certainly means the PDVSA will halt shipments to the U.S.

Maduro’s government also mortgaged Citgo to raise cash. Almost 50 percent of the company’s shares were put up as collateral for a $1.5 billion loan from the Russian state-controlled oil company Rosneft. The rest of the shares are collateral for PDVSA’s 2020 bond, the only bond Venezuela has continued to make payments on in a desperate effort to hang on to Citgo.

___

HOW DO U.S. SANCTIONS AFFECT CITGO?

Citgo itself has become a little less dependent on PDVSA in one crucial way. Like other PDVSA customers, the refiner has been forced in recent months to look for alternative sources of crude because of Venezuela’s dramatic production decline, said Jennifer Rowland, an equity research analyst for Edward Jones who focuses on the energy sector.

Still, the company faces a scramble to replace a complete loss of Venezuelan supply. Citgo had been processing up to 200,000 barrels a day of Venezuelan crude before the sanctions, or about 26 percent of the company’s total 749,000-barrel-a-day capacity. Most of the Venezuelan oil was processed at its Lake Charles refinery in Louisiana, which is specially equipped to handle the high-density, high-sulfur crude that Venezuela exports. That type of crude oil is in short supply because of production cuts in other countries like Mexico and Saudi Arabia.

Citgo itself is not a target of the sanctions. The Trump administration carved out an exemption for the PDVSA subsidiary so Americans can continue doing business with it.

___

CAN GUAIDO PULL OFF A LEADERSHIP CHANGE AT CITGO?

Guaido has said he will soon name a new board of directors for Citgo. Legally, there may be little stopping him from doing so. There is some precedent, as when the U.S. and other countries recognized a coalition of rebel groups in Libya as the official government in 2011 when Moammar Gadhafi still controlled Tripoli. The decision gave the rebel group the right to take control of Libyan assets overseas.

“International law allows this to happen,” Burke-White said.

Implementing the change, however, involves logistical hurdles. Pedro Burelli, a U.S.-based consultant who was a PDVSA executive board member until 1998, said Guaido must first appoint new PDVSA leaders, who would then oversee the shareholder-voting process of selecting a Citgo board. But that new PDVSA leadership would not have real access to the bureaucracy and operations of the parent company, which Maduro controls.

Citgo itself is not a target of the sanctions. The Trump administration carved out an exemption for the PDVSA subsidiary so Americans can continue doing business with it.

___

CAN GUAIDO PULL OFF A LEADERSHIP CHANGE AT CITGO?

Guaido has said he will soon name a new board of directors for Citgo. Legally, there may be little stopping him from doing so. There is some precedent, as when the U.S. and other countries recognized a coalition of rebel groups in Libya as the official government in 2011 when Moammar Gadhafi still controlled Tripoli. The decision gave the rebel group the right to take control of Libyan assets overseas.

“International law allows this to happen,” Burke-White said.

Implementing the change, however, involves logistical hurdles. Pedro Burelli, a U.S.-based consultant who was a PDVSA executive board member until 1998, said Guaido must first appoint new PDVSA leaders, who would then oversee the shareholder-voting process of selecting a Citgo board. But that new PDVSA leadership would not have real access to the bureaucracy and operations of the parent company, which Maduro controls.

The company changed ownership several times before PDVSA fully bought it in 1990. At the time, relations between Venezuela and the U.S. were strong, and PDVSA was a well-regarded state oil corporation.

Chavez, the firebrand socialist who died in 2013, often complained that Citgo contributed little to Venezuela’s coffers and at one point tried to sell the company. Instead, his government put loyalists in key positions, some of them with little oil industry experience. Corporate upheaval became a way of life at the company.

An oil industry purge in 2017 included the arrest of former Citgo CEO Nelson Martinez, who died in prison last year. Six other Citgo executives were also arrested including five who hold U.S. passports. Maduro’s government says the purge was intended to root out corruption. Critics say it was politically motivated.

___

WHAT ABOUT THE CREDITORS TARGETING CITGO?

It’s unclear how much financial value Citgo would be to Guaido. For one thing, the most immediate task will be keeping Citgo from falling into the hands of creditors owed billions of dollars by Venezuela and PDVSA.

Economists expect Maduro to stop paying to protect Citgo, including defaulting on the 2020 PDVSA bond. He also could stop honoring settlements with companies whose Venezuelan assets were expropriated under Chavez, including the Canadian mining company Crystallex, which won a court ruling last year allowing it go after Citgo to recover its losses.

Russ Dallen, managing partner of brokerage firm Caracas Capital, said the Trump administration may seek to impose a “debt shield” for Venezuela similar to a measure the U.N. implemented for Iraq during the 2003 U.S.-led invasion. But he said the measure would have to go through the Organization of American States because Maduro allies Russia and China have veto power on the U.N. Security Council.

There is also the risk that Maduro will stop paying off the Rosneft loan collateralized by Citgo shares. The Trump administration has said it is exploring legal options to keep Citgo from falling into Russian hands.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

AP

Republican presidential candidate former President Donald Trump speaks at a primary election night ...

MEG KINNARD and WILL WEISSERT Associated Press

Trump wins South Carolina, easily beating Haley in her home state and closing in on GOP nomination

Donald Trump won South Carolina's Republican primary on Saturday further consolidating his path to a third straight GOP nomination.

2 hours ago

Hannah Gutierrez-Reed, center, sits with her attorney Jason Bowles, left, during the first day of t...

MORGAN LEE Associate Press

Negligence or scapegoating? Trial of ‘Rust’ armorer begins in fatal shooting by Alec Baldwin

Prosecutors sought to pin blame on a movie weapons supervisor for bringing live ammunition on set that contributed to the fatal shooting of a cinematographer by Alec Baldwin during production of the film "Rust."

2 days ago

A pail rests next to caution tape on a beach in Lauderdale-by-the-Sea, Fla., on Tuesday, Feb. 20, 2...

Associated Press

Young girl killed when a hole she dug in the sand collapsed on a Florida beach, authorities said

A young girl died Tuesday when a deep hole she was digging collapsed on her at a south Florida beach, authorities said.

4 days ago

A Gila monster is displayed at the Woodland Park Zoo in Seattle, Dec. 14, 2018....

MEAD GRUVER Associated Press

A Colorado man is dead after a pet Gila monster bite

A Colorado man has died after being bitten by his pet Gila monster in what would be a rare death if the creature's venom was the cause.

4 days ago

Visitors stand at the closed gates leading to the Eiffel Tower, Tuesday, Feb. 20, 2024 in Paris....

OLEG CETINIC Associated Press

Eiffel Tower operator warns the landmark is closed as strike turns visitors away for a second day

A strike at the Eiffel Tower over poor financial management turned away visitors on Tuesday for the second consecutive day.

4 days ago

capitol one building...

KEN SWEET AP Business Writer

Capital One to buy Discover for $35 billion in deal that combines major US credit card companies

Capital One Financial is buying Discover Financial Services for $35 billion, in a deal that would bring together two of the nation's biggest lenders and credit card issuers.

4 days ago

Sponsored Articles

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

front of the Butch Cassidy museum with a man in a cowboy hat standing in the doorway...

Bear Lake Convention and Visitors Bureau

Looking Back: The History of Bear Lake

The history of Bear Lake is full of fascinating stories. At over 250,000 years old, the lake has seen generations of people visit its shores.

silhouette of a family looking over a lake with a bird in the top corner flying...

Bear Lake Convention and Visitors Bureau

8 Fun Activities To Do in Bear Lake Without Getting in the Water

Bear Lake offers plenty of activities for the whole family to enjoy without having to get in the water. Catch 8 of our favorite activities.

Wellsville Mountains in the spring with a pond in the foreground...

Wasatch Property Management

Advantages of Renting Over Owning a Home

Renting allows you to enjoy luxury amenities and low maintenance without the long-term commitment and responsibilities of owning a home.

Clouds over a red rock vista in Hurricane, Utah...

Wasatch Property Management

Why Southern Utah is a Retirement Paradise

Retirement in southern Utah offers plenty of cultural and recreational opportunities. Find out all that this region has to offer.

US refiner Citgo emerges as key to Venezuela’s power battle