- The Washington Times - Thursday, August 15, 2019

A familiar sight on U.S. roadways is playing a critical role in the fight for control of Venezuela, and in the Trump administration’s hopes of driving socialist President Nicolas Maduro from power in Caracas.

Citgo, the Houston-based gas refiner and retailer long run by Venezuela’s state-owned oil company, is caught in a tug of war between Mr. Maduro and U.S.-backed opposition leader Juan Guaido, who earlier this year declared himself the country’s “interim president” because, he said, Mr. Maduro’s election last year was riddled with fraud. The political stalemate in Caracas comes as the country faces a growing economic and humanitarian crisis.

For the Maduro government, Citgo is the one international asset with true value the government can claim. For Mr. Guaido, the company and the revenue it generates — some $30 billion last year alone — are critical to underwriting his rebellion, which so far has failed to dislodge Mr. Maduro and his regime.

The Caracas government showed again that the battle for the country’s most valuable foreign asset isn’t over. Venezuelan State Comptroller Elvis Amoroso told the state-controlled television network Thursday that it was nullifying the appointments of the rival Citgo board of directors backed by Mr. Guaido and that any Venezuelan assets of those board members had been frozen.

“There is a group of people who have been committing usurpation and corruption and have appropriated companies that belong to Venezuelans,” Mr. Amoroso said.

Complicating the standoff, private creditors are seeking to seize control of Citgo to pay the company’s debts and the Trump administration has stepped up its pressure campaign by freezing all Venezuelan government assets in the U.S.

Citgo, ranking as the eighth largest U.S. refiner by capacity with a network of 5,300 retail outlets, stands out among the assets that the sanctions target.

In a letter to Congress, Mr. Trump last week “determined that it is necessary to block the property of [Venezuela] in light of the continued usurpation of power by the illegitimate Nicolas Maduro regime, as well as the regime’s human rights abuses, arbitrary arrest and detention of Venezuelan citizens, curtailment of free press, and ongoing attempts to undermine Interim President Juan Guaido of Venezuela and the democratically-elected Venezuelan National Assembly.”

Venezuela, with some of the world’s largest oil reserves, is heavily dependent on the revenue of the state oil company, known by the acronym PDVSA. Venezuelan Oil Minister Manuel Quevedo over the weekend accused the Trump administration of “stealing” Citgo in its clash with Mr. Maduro, and a PDVSA-backed board is suing in U.S. courts to regain operational control of the U.S. subsidiary.

But mismanagement and the U.S. embargo have sharply reduced production and imports from Venezuela, making the fate of Citgo even more central to the country’s governing crisis.

Citgo’s U.S. operations have tried to cut ties to the Maduro government, but the confusion over the company’s ultimate status has clouded its ability to obtain financing. The U.S. Treasury helped organize a group of some three dozen banks in March for a loan to fund the company’s daily operations and debt obligations for now.

Mr. Guaido raised the stakes this week by naming his own chief executive for the company, refinery specialist and Venezuelan native Carlos Jorda.

Although it remains unclear how the White House’s move will impact other American oil companies that drill and do business with PDVSA, Mr. Guaido welcomed the administration’s decision.

“CITGO and all its assets are protected,” he tweeted immediately after Mr. Trump’s announcement. “This action is the consequence of the arrogance of an unfeasible and indolent usurpation. Those who support it, benefiting from the hunger and pain of Venezuelans, should know that it has consequences.”

Surviving a bumpy transition

Analysts say that although Citgo is likely to survive the embargo and a potentially bumpy transition of power, it’s likely to be an uphill battle to increase distribution to a profitable level and settle its debts.

“This will not be easy for them,” said Christopher Sabatini, an adjunct professor of international and public affairs at Columbia University.

“While the sanctions are intended to protect Citgo assets and preserve them for Juan Guaido or some future democratic government in Venezuela … it has to find other forms of oil shipments … to be able to just stay afloat,” he said.

One of the pivotal issues closely watched around the world is whether the Guaido administration will complete a $913 million payment by the end of October to the holders of a bond issued by PDVSA that is maturing next year.

Although Mr. Guaido came through on an April interest payment of $71 million, Venezuela could risk losing the prized company if the opposition leader fails to write the next check, as Citgo is a collateral of the PDVSA 2020 bond.

Paul Angelo, a fellow for Latin America studies at the Council on Foreign Relations, told The Washington Times, that “one of the ways that the Trump administration sees itself helping Guaido is by intervening to save Citgo for Guaido and an eventual transition in Venezuela.”

However, the law firm representing holders in Venezuelan debt disputed claims that Citgo is entirely protected.

In a statement last week after the Trump administration announced the embargo, the firm Cleary Gottlieb argued that “in the absence of further regulatory change or guidance … we do not see a basis for this conclusion in the existing guidance.”

According to data collected by Bloomberg, T. Rowe Price, the London-based Ashmore Group and BlackRock are among some of Venezuela’s largest shareholders.

“It appears to us that the holders of the 2020 bonds are still authorized to execute on their collateral,” said the firm, pointing to guidance from the Treasury’s office of foreign assets control.

Losing control of Citgo to its creditors could be a major blow to Mr. Guaido’s movement, which is one reason some say the Trump administration will not allow it to come to pass.

“If there is that transition of power and if Citgo is not lost to creditors, there is an important chance of recovery,” Francisco Monaldi, a fellow in Latin American energy policy at Rice University, said in an interview, “particularly as long as sanctions are lifted because it will require a lot of investments.”

He said it would take seven to 10 years and about $120 billion for Venezuela’s oil industry to reach past levels of production.

“There is no short-term solution to this,” Mr. Sabatini said, but he expressed optimism in the future of the company. “I think it will survive. I think it will do well.”

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