José Toro Hardy: Crystallex, PDVSA and CITGO

A federal court in Washington DC confirmed and registered the $ 1.4 billion award against Venezuela in favor of Crystallex for the expropriation of its mining operations in Venezuela. Crystallex can now demand that ICSID's judgment be enforced against Venezuela's assets in the United States.

Holy God! How far can the damage that this populist insanity do to Venezuela? Will we now lose CITGO?

Let's turn a few pages back to understand what is happening. Las Cristinas - with its 31 million ounces of reserves - is said to be the largest gold mine in Latin America.

At the end of the 1990s the Las Cristinas concession was awarded to another Canadian company, Placer Dome, which created Minera Las Cristinas, CA (MINCA) for the development of the project.

Subsequently, Placer Dome sold its stake in MINCA, in an operation that the Venezuelan state did not recognize. In 2002, President Chávez annulled the rights of MINCA over Las Cristinas and granted the concession to Crystallex. Chavez later nationalized it by claiming that: "These minerals are for Venezuelans, not transnational corporations."

A tortuous arbitration process is initiated before the ICSID (World Bank arbitration tribunal) which concludes with the decision cited at the beginning of a Federal Court in Washington that would allow Crystallex to seize the assets of the Venezuelan state in the US, including PDV Holding and its subsidiary Citgo.

The case is complicated by the fact that recently 100% of CITGO's shares were taxed: 51.1% to guarantee the payment of PDVSA bonds whose maturity was renegotiated by 2020 and 49.9% as guarantee for a loan of $ 1,500 million granted by the Russian company Rofsnet. PDVSA has even been accused of fraudulently undermining the rights of other creditors such as Crystallex.

What does this mean for Venezuela?

Let's start by saying that CITGO is the main trading arm of Venezuelan oil. It had 8 refineries in the northern country with capacity to refine 1.8 million barrels per day, as well as 66 terminals, participation in oil pipelines that crossed the US from south to north and 15,250 service stations bearing the CITGO brand. These assets, on the whole, allowed us the rare privilege of being able to take Venezuelan crude from our own fields to the gasoline tank of American motorists, passing all the time by Venezuelan facilities. Thanks to this seamless vertical integration, we had managed to control 10% of the world's largest gasoline market, the US.

However, since its inception, the current regime has weakened that position. Of the 1.8 million barrels per day we exported to the US today we ship about 750,000 b / d. We have got rid of the oil pipelines and several refineries. Our refining potential also fell by half and of the 15,250 service stations there are less than 6,000. Even so, that country remains the main destination of our oil exports and, of course, the few that still pay us in cash.

But the situation is much more serious than it seems. New developments threaten Venezuelan oil. The first is the authorization for the construction of pipelines that will carry the Canadian oil to the Gulf of Mexico displacing our crude oil. But, even more serious, the combination of three factors could make our crude products no longer competitive in the American market: (a) the rapid development of oil shale production in the US thanks to "fracking", (b) Constant lowering of production costs with this technology and c) the announced tax advantages for the production of shale oil.

However, as long as we are the owners of CITGO, nothing could prevent this company from making the decision to source crude from its parent company, PDVSA.

Let me explain: In any other company it could happen that one of its shareholders objected to the purchase of oil under less advantageous conditions affecting the interests of its shareholders. But as the sole shareholder of CITGO is PDVSA, in our case that risk would not be raised.

But the situation has changed. Due to the expropriating craze of the Venezuelan regime, it is CITGO's property that is now at risk. We have numerous pending ICSID arbitrations, many of which we have already lost, and others - as in the case of Conoco Phillips - that remain to be decided.

Each lost arbitration puts at risk the ownership of our facilities abroad and, in particular, the ownership of CITGO which, as we have seen, has a fundamental strategic importance for Venezuela.

In this situation we have fallen as a result of the coming to power of dogmatic upstarts who believed that with Marx's Capital under their arm they could do and undo as they pleased the fate of Venezuela.

Now the situation takes on really serious proportions. If any advice is allowed, I would advise these gentlemen to call Crystallex, Conoco Phillips and the other companies with pending claims to ICSID as soon as possible and sit down and negotiate directly with them. That they be offered to restore to them the rights that were affected in these years of madness, and that the necessary conditions be established for them to take back the investments that are so urgently required to help Venezuela out of this dreadful crisis in which they have plunged the country without No need.

@josetorohardy 
[email protected] 
Sent from my iPad