US judge approves Venezuela’s CITGO auction process

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The Delaware Court has ratified a sale procedure brought forward in September 2021 by Canadian miner Crystallex. (AP)

By Andreína Chávez Alava

Guayaquil, Ecuador, (venezuelanalysis.com) – A US judge greenlighted an auction procedure for Houston-based Venezuelan oil subsidiary CITGO.

According to documents published by Law360, on Wednesday Judge Leonard Stark of the US Delaware District Court authorized a special master to conduct a marketing and sales process for a “contingent auction” of CITGO shares “including selecting a winning bid.”

However, the ruling clarified that the company’s shares will not be transferred until the winning bidder obtains a license from the US Treasury Department’s Office of Foreign Assets Control (OFAC), which currently blocks any attempt to sell or auction the US $8 billion-worth Venezuelan asset. CITGO was seized by Washington and placed under the control of US-backed self-proclaimed “Interim President” Juan Guaidó in 2019.

Judge Stark granted court-appointed special master Robert B. Pincus six months to “obtain guidance from OFAC” regarding the department’s “view of the process and the likelihood that it will issue a specific license for a sale to close.” The Treasury’s office reply “may be shared with the market” to give potential bidders confidence to participate in the auction.

Stark went on to stress that his court has determined that adopting preliminary steps for CITGO’s auction does not violate Washington’s sanctions regulations against Caracas, dismissing specifications outlined in OFAC’s Frequently Ask Questions site.

In December 2019, the Treasury Department added the 809 FAQ concerning Venezuelan assets within the reach of claimants in US courts. The guide indicates that creditors “must obtain a specific license from OFAC prior to conducting an auction or other sale, including a contingent auction.”

“The Court will not defer to this informal OFAC statement. Instead, the Court agrees with [Canadian miner] Crystallex that FAQ 809 lacks the force of law and is not entitled to deference,” reads Delaware’s ruling.

According to Venezuelan economy expert Francisco Rodríguez, the judge’s interpretation increases incentives for sanctions overcompliance beyond the CITGO case. “It is far from clear that OFAC guidance is truly informative about what sanctions regulations allow and what they forbid,” he warned.

Wednesday’s ruling has mostly ratified a CITGO sale procedure introduced last year by Canadian miner Crystallex, a company seeking to collect a $1.4 billion international arbitration award granted by the World Bank’s International Center for Settlement of Investment Disputes (ICSID) in 2016. The compensation relates to the 2008 nationalization of Las Cristinas gold mining project under former president Hugo Chávez.

In September 2021, the Canadian corporation had a request to move forward with the court-ordered sale rebuffed by OFAC. The US Treasury body argued that allowing the seizure of CITGO shares was “inconsistent with US foreign policy goals insofar as it weakened the Guaidó “interim government” but pledged to revisit the case in 2022.

Crystallex is not the only corporation that has set its sights on CITGO shares to collect massive international arbitration awards. US oil giant ConocoPhillips is claiming $2 billion in compensation won in 2018 at an International Chamber of Commerce (ICC) tribunal for two joint oil ventures formerly held in Venezuela.

Holders of the 2020 PDVSA bond are likewise lining up to benefit from a potential CITGO auction after US financial sanctions imposed in 2017 blocked Caracas from servicing debt. The US Treasury Department has issued successive orders blocking transactions with the 2020 bond, the latest one in January for another 12-month period.

US-based CITGO is a subsidiary of state oil company PDVSA and is Venezuela’s largest asset abroad. Revenues from its three refineries brought an estimated income of $1 billion a year. Since 2019, the Caribbean country stopped receiving the much-needed revenue as well fuel shipments following the company’s seizure by the former Trump administration and subsequent control by a Juan Guaidó-appointed ad-hoc board.

Washington’s recognition also meant that the opposition politician assumed the country’s legal representation before US courts. Guaidó has been harshly criticized for failing to protect the important enterprise from creditors and award claimants, with OFAC stepping in to block corporate efforts to seize CITGO.

Nonetheless, litigation efforts by large firms have been ongoing. In October 2021, a Washington D.C. federal court declared Venezuela in “default” and greenlighted ConocoPhillips to enforce an $8.5 billion arbitration award after Guaidó’s lawyers failed to respond for over a year.

The Venezuelan opposition frontman has also drawn severe criticism over a reported $1.3 billion settlement signed with ConocoPhillips. Guaidó denied brokering the deal, which was revealed in a Delaware court document, and the relevant section was struck out. The former deputy likewise came under fire for failing to meet the country’s obligations in an appeal against the ConocoPhillips award at the Washington DC-based ICSID.

In addition to the CITGO controversy, Guaidó has been accused of jeopardizing Colombia-based Venezuelan agrochemical producer Monómeros and trying to gain access to $1.7 billion worth of Venezuelan gold stored at the Bank of England (BoE).

For its part, the Nicolás Maduro government has blasted the opposition leader for stealing the country’s foreign assets and continued to denounce Washinton’s sanctions against its oil industry and other key sectors of the economy. Caracas has likewise pushed its own legal efforts to defend frozen companies and resources abroad.

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