Venezuela puts its US-based oil refinery network on sale

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A man fills up his car with gas in Caracas. / REUTERS

President Maduro’s regime wants to sell its Citgo corporation to avoid sanctions

Ewald Scharfenberg Caracas

Venezuelan Economy Vice President Rafael Ramírez confirmed the government’s interest in selling one of its main assets on the international market: Citgo Petroleum Corporation, one of the largest oil refinery and distribution networks in the United States. Rumors about the sale have been circulating since late June.

“We will get out of Citgo when we receive a lucrative offer,” he said in Caracas on Tuesday. Ramírez also serves as president of Pdvsa, the state-run oil company, and as President Maduro’s energy and oil minister. Argus Media, a London-based media organization that reports on the global energy and commodities markets, says Venezuela has three offers on the table from Goldman Sachs, J.P. Morgan and Deutsche Bank.

The government acquired Citgo through Pdvsa, buying up shares in 1986 and then taking full ownership of the refinery in 1990. The Houston-based company became the jewel in the crown of the country’s plan to expand its oil industry abroad. The initiative called for vertical integration of the business in a way that would guarantee Venezuelan crude oil’s position on the international market. Pdvsa also acquired other refineries from the German company, Ruhr Oel.

After Hugo Chávez purged Pdvsa’s executive board in the wake of an oil workers’ strike in December 2002, he decided to jettison what he called a “neoliberal” initiative. And the state-owned oil company became the financier and manager of the country’s social programs, which led to the triumph of the so-called “socialist revolution of the 21st century.”

The Houston-based company became the jewel in the crown of the country’s plan to expand its oil industry abroad

In 2010, Pdvsa sold its Ruhr Oel assets to Russian company Rosneft for $1.6 billion (€1.2 billion). Citgo, which operates in Louisiana, Texas and Illinois, can produce 750,000 barrels of refined oil a day. The network controls 6,000 gas stations in 27 US states, mostly on the east coast. “Citgo should not sell for less than $10 billion,” Chávez said in October 2010. “If we sold it and put the money in some banking accounts with interest, there would be dividend benefits of I don’t know how much each year.”

While the government weighed its options to sell, Chávez used Citgo as a political tool. He and Joe Kennedy III’s NGO, Citizens Energy, created a program to distribute gas and heating oil to low-income American families on the east coast of the United States. The government said it donated $500 million in fuel between 2005 and 2013. But now, Chávez is dead and his successors are in bankruptcy.

Venezuela is also facing a calamitous currency shortage. President Nicolás Maduro has granted Ramírez full authority to adopt whatever measures he deems necessary to solve the crisis and these measures are getting closer to the US economic playbook.

If gas prices on the domestic market – which have not changed since 1996 – went up to meet production costs, Pdvsa would save $13 billion in subsidies. Citgo’s sale will bring in a similar amount.

The refinery’s sale also has a strategic objective. The company is an obvious target for US sanctions as tensions between Caracas and Washington grow. Until now, the Obama administration was reluctant to punish Venezuela. Then, in late July, the White House announced restrictions on visas for 24 Venezuelan public servants accused of human rights violations.

After a wave of nationalizations, Venezuela faces the largest number of complaints, 23, at the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank. ExxonMobil and ConocoPhillips are among the plaintiffs. If the center were to rule against Venezuela, its Citgo assets could be subject to embargo.