Venezuela Gets Ready to Lose Citgo

There’s a problem with this narrative: The purpose of the Citgo auction is to compensate some of those whose property was expropriated by Hugo Chávez’s Bolivarian revolution. Had there been no expropriation, there would be no auction. This is Chávez’s doing.

There’s no such thing as a level electoral playing field in Venezuela. The dictatorship has been jailing political activists for months and has blocked popular Unitary Platform candidate María Corina Machado from running.

Nevertheless, Edmundo González Urrutia, who is standing in for Ms. Machado, is leading in the polls by more than 20 percentage points. If the vote count is remotely fair, dictator Nicolás Maduro should lose in a landslide.

It’s unlikely that Mr. Maduro will willingly acknowledge defeat. But he has reason to want to avoid the appearance of blatant fraud. The regime’s international pariah status is almost guaranteed to worsen if the election is obviously stolen. Twenty-eight former Spanish and Latin American heads of state have signed a letter demanding that Mr. Maduro respect the vote. Venezuelan allies Brazil and Colombia have said the same.

The dictatorship, therefore, wants to be able to justify a rigged result. Venezuelan democrats report that new polling stations, ready to generate lots of Maduro votes, have popped up in remote areas and inside military bases and government offices. Even if Mr. González isn’t disqualified ahead of the vote, which is still possible, the regime may obscure his photo, name and party affiliation on the final ballot. Harassment of voters, to tamp down turnout on election day, is anticipated.

Citgo has long been a symbol of Venezuelan commercial success abroad and a matter of national pride. So the regime thinks it can explain away a stolen election by claiming that the public faults the opposition for letting creditors get their hands on the company. Yet that doesn’t square with voter surveys that over months have consistently shown the challenger trouncing Mr. Maduro. Even the humblest Venezuelan, it seems, understands that it’s chavismo that has brought the country to its knees.

The Chávez-Maduro military dictatorship has held power since 1999. During that time oil-rich Venezuela has racked up more than $140 billion in external debt, including debt issued by the republic and the state-owned oil company Petroleos de Venezuela, or PdVSA, as well as money due to investors whose property was confiscated and debts to suppliers. The Bolivarian revolution is a world-class deadbeat.

Chávez, who died in 2013, may have thought that layers of holding companies protected Citgo from asset seizure in the U.S. This would explain why he went on an expropriation binge between 2007 and 2012. His regime pillaged as if Venezuela had no contractual obligations.

But investors didn’t give up so easily. Canadian mining company Crystallex, which owned a mining interest in Venezuela that was pinched by Chávez in 2011, won a $1.4 billion arbitration award at the International Center for Settlement of Investment Disputes in 2016. Lawyers for Crystallex then took the case to a Delaware court. They filed a claim seeking to attach the shares of PDV Holding, the company that indirectly owns Citgo.

Crystallex’s beef was with the Venezuelan republic. So the Canadian company had to prove that for all intents and purposes PdVSA—which owns the shares of PDV Holding—is the republic’s “alter-ego,” or in other words the same “person” as Venezuela.

It won that argument in 2017 by showing that the regime treated PdVSA as its own and routinely intervened in its daily affairs. This made the shares of PDV Holding, incorporated in Delaware, fair game to be sold for the illegal expropriation by the sovereign.

Once that ruling came down, other creditors made similar claims to win compensation for their property losses. After the international community recognized Juan Guaidó as head of an interim Venezuelan government in 2019, his team tried to save Citgo from Crystallex, and from further liability claims, by arguing that PdVSA was no longer run by the sovereign. But the past couldn’t be erased, and the judge ruled the alter-ego status of PdVSA remained even during the interim government. Claimants asking for $20.8 billion worth of compensation from Venezuela are now lined up for a piece of Citgo, which is valued at $11 billion to $13 billion.

During the interim government, the U.S. protected Citgo from creditors, but once the Guaidó effort to unseat Mr. Maduro failed, all bets were off. Venezuela was destined to face the consequences of its reckless expropriations and abrogations of contracts. Next month, if the auction goes off as scheduled, it will.