Citgo Sale Signals Fragility, Desperation of Bolivarian Revolution
EspañolFiscal pressure from Venezuela’s worst economic crisis in decades has catalyzed a new move from the regime: the upcoming sale of US-based Citgo Petroleum. The oil company — recently involved in controversy surrounding a violation of the Clean Air Act in Corpus Christi, Texas — represents relief for the cash-strapped administration of President Nicolás Maduro.
According to Oil Minister Rafael Ramírez, as soon as they receive a good offer, they will proceed with the sale.
The Bolivarian revolution never really appreciated what they had with Citgo; and former President Hugo Chávez repeatedly expressed his desire to sell the company.
Still, the Chavista regime did use the company for political purposes. For example, as a way to criticize Washington’s welfare programs — that they were not generous enough — Citgo subsidized more than 1.7 million US residents with oil, to keep them warm during harsh winters.
Not everyone, though, is swell with the departure of Citgo from Venezuelan ownership. Opposition leader María Corina Machado, a former representative in the National Assembly, describes it as the “the greatest demonstration of irresponsibility and inefficiency.” Similarly, Chacao Mayor Ramon Muchacho has condemned the transaction: “Selling Citgo to cover the government’s excessive spending is irresponsible and unacceptable.”
Without a doubt, Venezuela’s lone oil company and parent of Citgo, Petróleos de Venezuela, S.A. (PDVSA), saw better days before being nationalized and becoming a political tool for the Bolivarian revolution. Now, according to DC-based political-risk consulting firm the Eurasia Group, the sale of Citgo is merely a way for the Venezuelan central government to face its serious, impending liquidity problems.
In the face of heavy criticism, Ramírez says he will proceed with the sale. In fact, he has reportedly already arranged meetings with various investment banks in New York in September to discuss the price and conditions of the sale.
Nevertheless, Ramírez may struggle to find a single buyer for Citgo’s assets. The PDVSA subsidiary operates three different refineries across the United States: Lake Charles, Louisiana, Lemont, Illinois, and Corpus Christi, Texas. With a combined processing capacity of some 750,000 barrels per day, Citgo may be worth more than US$10 billion, which is the amount the Venezuelan government is expecting to gain from the sale.
According to analysts from the Eurasia group, the refinery in Lemont, the only one that does not process Venezuelan heavy crude, will be the easiest to sell, because of its proximity to inexpensive Canadian crude.
A Familiar Story of Chavismo
What is evident is that mismanagement and corruption inside PDVSA hastened this decision. The state-run oil parent company has languished in recent years. A 2014 Platts report, of McGraw Hill Financial, stated that PDVSA “failed to reach its oil production goals for 2013; worse, its crude output will not be able to grow to 4 million b/d in 2014 as Oil Minister Rafael Ramírez has touted for the past two years.”
Platts also states that the “cash deficit is the outcome, on one hand, of PDVSA’s growing expenses that finance government programs, and on the other hand of a fall in income from exports.”
After all, PDVSA is the Maduro regime’s “cash machine,” and one that has been involved in its fair share of scandals. In what became known as the Amuay Tragedy, a refinery explosion in 2012 caused the deaths of 42 Venezuelans. That same year, the company was guilty of an oil spill in the Guarapiche river in eastern Venezuela.
Clearly, PDVSA is going through difficult times these days, and reported inflation rate of more than 60 percent in Venezuela is only raising the tension (152 percent, according to the Cato). Eurasia’s analysts say President Nicolás Maduro needs to loosen currency controls to restore stability and replenish reserves. However, Maduro’s advisors apparently believe the sale of Citgo is a better option.
It will undoubtedly have an impact on the Venezuelan economy, but it will probably not be a good one — at least not in the long run. Given the regime’s tendency to overspend, the short-term revenue gain will be wasted and gone in no time.