Is Venezuela’s President Hugo Chavez selling off his country’s oil and gas assets to pay off debts? Reports say his government is selling overseas assets owned by Petroleos de Venezuela SA (PDVSA) and its US-based refining branch, Citgo Petroleum Corp.
In fact, a share of the proceeds from such sales has been earmarked for the National Development Fund, a mechanism that is increasingly used to pay off domestic expenses.
In net terms, after discounting taxes and standing debts, ever since 2006 the combined revenues from asset sales of PDVSA and Citgo have totaled $3.42 billion, of which $2.77 billion has actually entered Venezuela or is in the process of entering the country.
Most of this money comes from the 2006 dissolution the Lyondell-Citgo association, netting Venezuela about $1.31 billion, which was deposited into the NDF.
Selling the silverware
One year later, Citgo sold its 6.8% stake in the Explorer oil pipeline, as well as a 15.8% share in Colonial products pipeline. Both stakes were valued at $765 million.
A few months later, Citgo sold Nustar, owner of the Paulsboro and Savannah refineries. According to Energy and Petroleum Minister Rafael Ramirez, the $600 million from the sale would be deposited in the NDF.
But a wrinkle has appeared in the sell-off plan in the form of a lawsuit filed in the US by Road Ranger, a chain of travel centers and convenience stores.
Road Ranger became a franchisee of Citgo in 1991 and, in the next 14 years, expanded from four Citgo-branded gas stations to 39, helping build the Citgo brand in America’s heartland of Illinois, Wisconsin, Indiana, and Iowa.
Road Ranger has filed claims against Citgo for breach of contract and violations of the Petroleum Marketing Practices Act caused by the Venezuelan firm’s unnecessary failure to supply gasoline to Road Ranger gas stations, for damaging the Citgo brand, and for dealing in bad faith.
Damage to Road Ranger
Citgo’s actions threatened the existence of the Midwestern chain and caused damages estimated by Road Ranger to be in excess of $30 million. Road Ranger will also be seeking punitive damages under the Petroleum Marketing Practices Act for Citgo’s dishonest conduct.
In fact, Road Ranger claims that Chavez further damaged the Citgo brand when he engaged in “vitriolic” personal attacks against the US and President George W. Bush.
“These unrelenting attacks provoked an organized consumer boycott against Citgo gas stations in the US, including boycotts of Road Ranger stores by its customers,” the suit states.
“Despite 14 years of promises and its contractual responsibility to supply Road Ranger with gasoline, when we needed them most, Citgo did not even try to help us,” said Dan Arnold, Road Ranger’s founder and president.
There’s a lesson here, we think, especially for those countries, governments, and corporations around the world who think they can do business with Chavez. That lesson is very simple indeed: “caveat emptor.”
