Ruling in favor of Crystallex puts Citgo at risk

Citgo at risk

A U.S. federal appeals court on Monday rejected an appeal by Venezuela’s state-owned oil company to set aside an order allowing Canadian gold mining company Crystallex to seize shares in its U.S. refining unit, Citgo Petroleum Corp.

The South American nation could lose its greatest asset in U.S. territory after this court ruling, which authorizes the Canadian company to seize shares of Citgo Petroleum Corp. to settle an arbitration award.

Expropriation claim

Crystallex International Corp had won the $1.4 billion judgment as compensation for the expropriation of its assets in Venezuela under late leftist President Hugo Chavez.

The 3rd U.S. Circuit Court of Appeals in Philadelphia said a lower court was right to attach Petroleos de Venezuela’s shares of its U.S. unit, which owns Citgo.

Crystallex CEO Bob Fung issued a statement saying the company was “pleased” with the decision. He added that it looked forward to “proceeding with our lien to recover our expropriated investment in Venezuela.”

Failed appeal

The court had allowed arguments from lawyers representing Juan Guaido, the head of Venezuela’s opposition-controlled National Assembly.

In January, Guaido invoked Venezuela’s constitution to assume an interim presidency, arguing the 2018 re-election of President Nicolas Maduro, Chavez’s Socialist protege, was illegitimate.

Guaido has been recognized as Venezuela’s rightful leader by dozens of countries, including the United States. He also named ad-hoc boards of directors to Citgo and PDVSA. Maduro calls him a “U.S. puppet” seeking to oust him in a coup.

Crystallex puts Citgo at risk

Unless it is revoked on appeal or blocked by the trump Administration, the ruling would allow Crystallex to seize Citgo shares to settle Venezuela’s debt to the Canadian company.

Hence, this country undergoing its worst recession could lose control over the refinery that processes Venezuelan crude into much-needed currency.

It also hinders efforts by
interim President Juan Guaido to retain control over Venezuelan assets,
including Citgo, while he wages a power struggle against current President
Nicolas Maduro over leadership of the country.

Guaido has asked U.S. President Donald Trump to prevent asset seizures by creditors.

Appealing to the Supreme Court or the UN

“At this stage, the only action that could stop Venezuela from losing Citgo is either a successful U.S. Supreme Court appeal, which appears unlikely, or a decision by Trump to issue an asset-protection order as Guaido has been requesting,” Francisco Rodriguez, chief economist for Torino Capital, said.

“The UN can also help,” added lawmaker Rafael Guzman, part of the opposition-led National Assembly’s finance committee. “We are going to push for all of them.”

Meanwhile, economist Luis Oliveros warned that Venezuela faces the loss of Citgo over debts incurred by the Maduro regime.

Guaido and Maduro are battling for control of Citgo by naming conflicting board nominees. A state-court judge in Delaware will decide who has legal right to appoint directors for the state-run oil company.

Guaido, leader of the country’s National Assembly, and Maduro, who is backed by the Venezuelan army, have held talks in Oslo, Norway, to solve the crisis. The last round of negotiations was programmed for early July in Barbados.

PDVSA announced sanctions

For its part, the Ad Hoc board of directors of PDVSA, appointed by the National Assembly, stated on Monday that it plans to appeal the ruling.

“The Ad Hoc board and its legal advisors will take all legal measures necessary to challenge this decision,” the press statement read. Also, it acknowledged that the board had been informed of the court ruling.

“The financial claim was generated as a result of an arbitration process against the Republic over the expropriation of assets during the government of Hugo Chavez,” it continued.

History of an expropriation

Crystallex’s gold mining operations near Las Cristinas, Venezuela, were seized without compensation in 2011 when Chavez nationalized the country’s gold-mining industry. The company pursued arbitration and won a $1.2 billion award plus interest in 2016.

Last year, Venezuela officials handed over $425 million as partial payment of the arbitration award, but the company couldn’t cut a deal to satisfy the rest of the debt. So Crystallex pushed ahead with efforts to seize shares of Citgo’s parent.

Crystallex officials waged a three-year battle to seize shares of PDV Holding Inc., which owns Citgo. PDVSA owns the holding company. A federal judge in Delaware concluded last year that since Venezuela controls PDVSA, shares of Citgo’s parent were fair game to be seized for the debt.

Other pending lawsuits

Crystallex is not the only
company that has sued Venezuela over unpaid debts.

ConocoPhillips sued Venezuela over seizure of its oil assets in the country. The U.S. oil giant won a $2 billion arbitration award over the nationalized assets.

Last year, ConocoPhillips executives got $345 million in cash and commodities in settlement after the U.S. company seized some PDVSA assets in the Caribbean.

For more information, check Energía16

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