US issues ruling protecting Citgo from PDVSA bondholders’ actions

• This ruling nullified the decision taken by Judge Katherine Polk Failla, who in 2020 issued a ruling in favor of the creditors of the Venezuelan state oil company | Main photo: El Diario Archive

The Second Circuit Court of Appeals of the United States (US) issued a ruling on Wednesday, July 3, protecting Citgo from the actions of bondholders of Petróleos de Venezuela (PDVSA). This ruling benefits the Venezuelan opposition, which maintains control of the refinery.

In its ruling, the court invalidated the decision of Judge Katherine Polk Failla, who in 2020 ruled in favor of PDVSA bondholders and authorized the seizure of its US subsidiary Citgo.

Citgo is a Texas-based refinery valued at $13 billion, which was fully acquired by Venezuela in 1990 during the government of former President Carlos Andrés Pérez (1989-1993). For a long time this company was one of the country’s most important assets.

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A ruling that benefits the opposition

In 2019, the Venezuelan opposition, led at the time by Juan Guaidó, received the US government’s approval to take control of Citgo, and has since fought to stop possible actions by creditors holding PDVSA bonds.

The court said Judge Failla had not considered Venezuelan jurisprudence when issuing her ruling to allow the seizure and collection of bonds issued by the government of President Nicolás Maduro.

In its appeal, the opposition had requested that the complaint be resolved under Venezuelan law. The court sent the case back to the judge for a new review of her decision.

It is unclear whether the decision will affect the sale of Citgo, which was allowed by a Delaware federal court. In May, Judge Leonard Stark cleared the way for the takeover bids to be filed as part of creditors’ claims for more than $20 billion in unpaid debts and condemnations.

Photo: Courtesy

The position of the Venezuelan government

On June 13, Foreign Minister Yván Gil warned that the Citgo refinery is at imminent risk of being auctioned off, during his speech at a session of the United Nations General Assembly.

Gil explained that due to a “legal war” by a US court, together with “fictitious entities recognized by Washington”, the refinery is on the verge of falling into the hands of American and Canadian corporations.

“We denounce the attempt to strip the country of Citgo, owned by PDVSA, which has been blocked since 2019 (…) it is one of Venezuela’s main assets,” said the Venezuelan foreign minister.

The official recalled that Citgo is Venezuela’s main asset in the United States, owned by the state-owned PDVSA and is positioned as the seventh oil refining company in the US market.

The comments came amid a US court-approved bid for Citgo Petroleum shares. The Delaware-based auction to pay off creditors including ConocoPhillips, Rusoro, Crystallex and Gold Reserve raises the prospects of a change in ownership at the refinery.

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