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Apr 24 2019

The curious case of Citgo Petroleum Corporation and the Future of Venezuela

by John Gordon | 21:04 GMT

The US government has moved to prevent the government of Venezuela from profiting from its largest and most profitable foreign asset: Citgo Petroleum Corporation. Citgo is a US C-corporation owned by the Venezuelan state-owned oil company, Petroleos de Venezuela SA, or PDVSA. The rival Venezuelan government, led by the head of the National Assembly, Juan Guaido, is recognized as legitimate by the US, and by using the authority of the National Assembly has set up a rival board of directors for PDVSA. This board then installed a new board of directors for Citgo, since PDVSA is the controlling shareholder of Citgo. The new board thus controls the dividends of Citgo, and is prepared to use this leverage to starve the government of Nicholas Maduro, the current president.

Citgo is a private corporation, meaning it is not listed on any public stock exchange and is not required to list its owners and finances. As a Delaware corporation, it files an annual report to the state of Delaware with its current list of officers and directors, and pays an annual franchise tax to Delaware based on its shares of stock. Citgo’s headquarters is not in Delaware but in Houston, TX, so it is registered to do business in the state of Texas.

Citgo was set up with a multi-layered structure, with a holding company (CITGO Holding Inc.) that does little besides hold the shares of Citgo Petroleum Corporation. This holding company in turn is apparently owned by PDV Holding Inc., which is the direct US subsidiary of PDVSA. Setting up PDV Holding Inc. lets PDVSA own other assets in the US besides just Citgo while simplifying tax issues with the federal government.

One of the roles of a board of directors is to determine whether to declare dividends, and if so, when and how much. The directors are selected by the shareholders of the corporation. Since PDVSA owns PDV Holding, and PDV Holding owns Citgo Holding, and Citgo Holding owns Citgo Petroleum, it was necessary for Guaido to show a legitimate claim to authority over PDVSA in order to set up the boards of directors of all those subsidiaries down the line. This authority was established when the US government recognized as the legitimate president of Venezuela, and coordinated sanctions against PDVSA such that pro-Maduro directors and officers could not obtain US visas, nor could any US person (including any bank in the US) work with them without a special license. Further sanctions included a ban on paying dividends to PDVSA or related companies, nor could Citgo buy its crude oil from PDVSA. By installing pro-Guaido management, Citgo was able to keep functioning.

Because the Maduro government is still in full control of Venezuela, and has never consent to the Guaido takeover of Citgo, it is expected that a judge in Delaware’s Court of Chancery may be asked to rule on the legitimate president of Venezuela.


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