Monday, May 20, 2024

Venezuela's refining arm Citgo on the verge of yet another power shake-up

Venezuela's refining arm Citgo on the verge of yet another power shake-up

A new battle for control of Citgo Petroleum, the eighth largest U.S. oil refiner and Venezuela's foreign crown jewel, could soon be unleashed under a proposed management shake-up by the South American country's opposition lawmakers.

The revamping would come despite the company posting strong profits after two years of losses and could lead to executive departures, experts and current board members said.

The lawmakers say they want to shore up the stability of Citgo after three years of frequent reshuffles and as the political environment in Venezuela looks set to shift.

However, the U.S. State Department is worried that the changes could trigger a messy fight for control, two people involved in talks about the topic said. Washington has pressed Venezuelan lawmakers to stabilize the country's foreign operations.

Citgo, a subsidiary of state-run oil firm PDVSA, is currently run by boards appointed by Juan Guaido, whom Washington recognizes as Venezuela's legitimate leader. It views President Nicolas Maduro's 2018 reelection as a sham.

But the power of Guaido has been waning, and some opposition politicians fear that his mandate as leader of Venezuela's parallel "interim government" may not be renewed in January.

Arguing that greater stability was needed, they approved a deal last month to move the power of board appointments for Citgo and Venezuela's other foreign assets from Guaido to a new super-advisory council.

The three-member council, to be appointed by the lawmakers, will also supervise and evaluate Citgo's performance, proposing changes and designing legal strategies with the intention of protecting the refiner and the other companies abroad.

Citgo and the U.S. State Department declined to comment.

The move was led by parties including Primero Justicia, which has called for all Venezuelan assets overseas to be transferred to an independent body.

Julio Borges, Primero Justicia's leader, said new structure was needed to save Citgo and other holdings from meddling by individual parties.

"We must take them away from political control," Borges told Reuters.

Gustavo Marcano of the Primero Justicia party said the council "is a first step in giving greater stability to the foreign companies before any possible political changes."

After revisions that gave Guaido a say in the boards' make-up, Guaido's Voluntad Popular party agreed to the pact, two sources close to the decision said. Guaido's final approval will still be required for ratifying Citgo executive appointments.


Current board members supervising Citgo criticized the decision and said it made no sense from an operational point of view.

"The management of these boards has been good and has not been criticized on a professional level," said Horacio Medina, president of a board that oversees several PDVSA subsidiaries, including Citgo.

"This decision is a mistake and could end up driving away our best company managers. I am not planning to resign," he said.

Citgo only recently returned to profit after losses during the coronavirus pandemic. Its first-quarter $245 million profit was more than 10 times the year-ago level on higher processing volumes, higher exports and stronger margins.

Two executives close to Citgo's board said CEO Carlos Jorda, who took over three years ago and rejoined the board last October, could be pushed out. He has provided a bridge between the company's operations and stakeholders amid the frequent board reshuffles, the people said.

Jorda could not be reached for comment.

Others questioned the constitutionality of the move.

Any change that removes control of Venezuelan's foreign assets from Guaido "is simply unconstitutional since the constitution establishes the president must be in charge of the country's foreign assets," said Jose Ignacio Hernandez, Venezuela's former special attorney general.

He said he believed the ultimate goal of some opposition parties was to get access to Venezuela's overseas assets.

The interim government's current special attorney general also warned against the move, citing legal, reputational and financial risks.

A reorganization "is unnecessary and wrong," said Enrique Sanchez in a letter published days before the lawmakers' decision.

Carlos Vecchio, Guaido's ambassador to Washington, said the new council could be useful in helping manage Venezuela's foreign assets, however.

"I expect any external audit, if the council moves to do so, will find the company is in good financial and operational health and operating transparently," he said.

Any management shake-up could stir a court challenge. In 2020, a Delaware court ratified executives appointed by Guaido to run the refiner. A change might require new approvals, according to two lawyers familiar with the matter.

Management changes also increase the risk of lawsuits seeking to take over the company, they said, as only a set of U.S. executive orders due to expire in 2023 protect Citgo from being auctioned and lost to the people of Venezuela.

"The council adds one more bureaucratic element for control. This decision was not made out of need, but as result of political conflict," attorney general Sanchez told Reuters.


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