Venezuela depends on state oil company PDVSA, which includes Citgo, to fund government operations (Maddie Meyer)
Washington (AFP) – A US federal court ordered the seizure of shares in Venezuelan-owned oil company Citgo, which will be sold to pay a $1.2 billion settlement to a Canadian mining company unless Caracas puts up a bond.
It was another blow to crisis-battered Venezuela, which depends on state oil company PDVSA, which includes Citgo, to fund government operations.
US District Court Judge Leonard Stark in an order issued Thursday said, notwithstanding Venezuela’s appeal of the payment, “if PDVSA wishes to prevent execution” of the sale it must post a bond.
However, the shares will not be sold until the court issues a separate order to do so, according to the documents.
The case dates from 2011, when the Venezuelan government seized a mine earlier awarded to Crystallex but failed to repay the company despite reaching a settlement through an arbitration panel.
The judge rejected PDVSA’s argument that it is separate from the government in Caracas and should not be held liable, referring to the company as an “alter ego” of the government.
The development is more bad news for embattled government of President Nicolas Maduro, who has overseen the collapse of the nation’s once-thriving oil-based economy, which is now in default.
Thousands of Venezuelans flee the country daily, malnutrition is rife and the International Monetary Fund said inflation could reach one million percent this year.
PDVSA, once the jewel in the crown of the nation’s economy, has been hamstrung by debt and lack of investment that has shrunk output.
Losing Citgo would dry up one of the last remaining sources of foreign revenue. And even that is already at risk since a nearly 50 percent stake in Citgo was used as collateral for a $1.5 billion loan from Russia’s Rosneft and the rest was used as collateral for government bonds which Rosneft holds.
In a letter to the court, lawyers for Rosneft said PDVSA’s shares of Citgo were “100 percent encumbered.”
PVDSA’s bonds represent 30 percent of Venezuela’s external debt, which is estimated to be around $150 billion.
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