Advancing the sale of Venezuela's US refining subsidiary Citgo could damage US foreign policy goals and that country's struggling opposition beyond repair, President Donald Trump's administration wrote in an 11th-hour filing ahead of arguments on the refiner's future.
Letters from the US Treasury's Office of Foreign Assets Control (OFAC) and US Special Representative for Venezuela Elliott Abrams argued that establishing a process to satisfy an international arbitration award with shares of the roughly 770,000 b/d refining business would only complicate US strategy there.
Moving forward with efforts by defunct Canadian mining firm and arbitration winner Crystallex would instead damage Venezuelan support for the US-recognized opposition working to remove President Nicolas Maduro from power, Abrams wrote.
"Every Venezuelan knows of this company and it is viewed, as are Venezuela's oil reserves, as a central piece of the national patrimony," Abrams wrote. "The impact on [US-recognized interim president Juan] Guaido, the interim government and US foreign policy goals in Venezuela would be greatly damaging and perhaps beyond recuperation."
Abrams supported Guaido's arguments that his US-recognized leadership should dissolve a 2018 ruling exposing Citgo to the billions of dollars sought by Venezuela's creditors. And OFAC denied Crystallex arguments that determining how to proceed with a sale would help the office decide whether to grant the company a license to execute it.
Opposition leaders have long hoped for executive branch assistance in the US District of Delaware case that has come perilously close to ending Venezuelan control of one of its most valuable overseas assets. Yesterday's late filing arrived more than seven months after an initial invitation from the court to respond, two months after another solicitation of executive interest and less than 15 hours before oral arguments on whether to develop sale proceedings on shares of Citgo to help satisfy a $1.4bn arbitration award.
"The US sincerely apologizes to the court and the parties for any inconvenience caused by filing so close to the hearing date," the Justice Department said.
US support of Guaido is not news to the court, which accepted the opposition leader's representatives on behalf of Venezuela soon after the executive branch recognized him as interim president in January 2019. Guaido representatives argued unsuccessfully against a sale in appeals last summer before the US 3rd Circuit Court of Appeals, and failed to attract consideration from the US Supreme Court this year.
But the opposition government can still persuade the US District Court of Delaware that circumstances have changed enough to remove a ruling argued in 2018 by Maduro representatives.
The court at that time determined that Maduro's government had so closely controlled Citgo that it functioned as an alter ego of the state. The decision pierced the corporate legal structure that normally protects such companies in the US from that exposure. Crystallex, now controlled by New York hedge fund Tenor Management, could seek shares of Citgo's holding company to satisfy an international award for mining interests expropriated under former president Hugo Chavez in 2011.
Filings have proceeded on two tracks this summer toward oral argument today.
The first considers whether circumstances have changed enough, as Guaido argues, to throw out the 2018 ruling. Though Venezuela has lost appeals of that decision, the judge could determine that enough has changed in Citgo's circumstances, as argued by Abrams, to render the original, proper decision now moot.
Crystallex has pointed to the Guaido government's lack of control over any Venezuelan institutions outside the US. The opposition has no access to Citgo's revenue and cannot ship its gasoline to Venezuela because of US sanctions.
Hoping the government's country would change did not justify denying compensation confirmed by US courts, Crystallex argued.
Venezuelan national oil company PdV and Citgo also argue that even if the company lacks immunity from the judgment, Delaware law still did not permit making the refiner responsible for sovereign debt.
The executive branch said in footnotes that granting Venezuela's motions arguing that circumstances had changed since the original ruling or another effort to throw out the decision would "forestall the need for parties and the court to address certain purported issues of constitutional and foreign relations law."
The second track would determine the appropriate way to sell shares of Citgo to satisfy the roughly $1bn remaining to be paid on the award.
Crystallex has sought a straightforward auction under Delaware law. Venezuela, Citgo and other creditors, including ConocoPhillips, have said such a proceeding could undervalue the refiner — leaving nothing left after satisfying the Crystallex debt. ConocoPhillips proposed a receivership, similar to US bankruptcy. Venezuela argues that if a sale must proceed, it should be carried out by PdV to ensure the highest possible value.
"Crystallex has no incentive to minimize the number of shares sold or respect the due process rights of others, including PdV," the national oil company said.
Such a sale would leave the legitimacy of the opposition government "severely eroded" if it took place with Maduro still in power, Abrams warned.
"Should these assets be advertised for public auction at this time, the Venezuelan people would seriously question the interim government ability to protect the nation's assets, thereby weakening it and US policy in Venezuela today."
Maduro has meanwhile moved to clip Guaido's remaining influence in Venezuela. Guaido's claim as interim president, recognized by dozens of western governments, relies on his leadership of the National Assembly. Venezuela's supreme court ratified a rival leadership in May, and a new Maduro-aligned electoral board was appointed last month. Opposition leaders have not decided whether to recognize or participate in elections under those circumstances later this year.
