Daily Management Review

To Avoid U.S. Sanctions, Citgo Collateral Deal Discussed Between Russia And Venezuela - Reuters


07/21/2017




To Avoid U.S. Sanctions, Citgo Collateral Deal Discussed Between Russia And Venezuela - Reuters
In a move to avoid complications from U.S. sanctions, to swap its collateral in Venezuelan-owned, U.S.-based refiner Citgo for oilfield stakes and a fuel supply deal, Russia's top oil producer Rosneft is negotiating, reported Reuters quoting two sources with knowledge of the negotiations.
 
For a loan last year, of about $1.5 billion to the OPEC nation, which is reeling from low oil prices and a severe recession, the state-owned Rosneft holds a 49.9 percent stake in Citgo as collateral,
 
U.S. senators who do not want Russia in a position to own a substantial stake of U.S.-based energy assets in potential violation of existing economic sanctions and the arrangement with Venezuela's state-owned oil firm, PDVSA, has drawn fire from them.
 
This week, unless embattled leftist President Nicolas Maduro aborts plans to establish a new legislature with powers to rewrite the nation's constitution, U.S. President Donald Trump threatened to impose "strong economic actions" on Venezuela, and therefore the negotiations took on more urgency, sources reportedly told Reuters.
 
Citgo's business model could be undermined and Venezuelan or Russian ownership of the U.S-based firm in the long term would be threatened by such sanctions which could include a ban on U.S. oil imports from Venezuela.
 
The collateral stake in Citgo would be exchanged for a package of eight key deals, under a new proposal being discussed this week in Moscow by top executives from Rosneft and PDVSA, says Reuters.
 
Rosneft would be in charge of procurement for major purchases and be allowed to preside over its joint ventures with PDVSA on a rotating basis, under the proposal. Sources said that the arrangement would give Rosneft something foreign minority partners have craved in Venezuela for years - more control over operations.
 
At joint ventures that are majority owned by cash-strapped PDVSA, frequent complaints of delays, inefficiencies, and opaque procurement contracts, are often made by foreign oil executives.
 
There were no comments from Venezuela's Oil Ministry, PDVSA, Citgo and Rosneft, said Reuters.
 
Should the government of Venezuela default on its bondholders, Rosneft - which has been under U.S. sanctions since 2014 - would be among the top creditors according to the deal in place now.
 
But if Rosneft ever collected the collateral, whether the deal could violate U.S. sanctions - designed to punish Moscow for aggression in Ukraine, is being questioned by Senators.
 
Foreign companies seeking compensation for nationalizations by the socialist government of Venezuela under the late Hugo Chavez, have also objected to the deal.
 
For instance, charging that Venezuela is seeking to reduce its exposure to assets in the United States to prevent Crystallex from ever collecting on its award, issued by a World Bank arbitration panel, Canadian miner Crystallex, for instance, has objected to the use of Citgo as collateral for Rosneft's loan.
 
Provided the proposed package has a similar value as the Citgo collateral, extricating itself from a thorny legal dispute could be a boon for Rosneft.
 
But Venezuela's already troubled state-owned energy company, PDVSA, could be further squeezed by such an arrangement. The firm had taken a more than $50 billion in loans from Russia and China that it must pay back with shipments of crude and fuels and it is struggling to produce enough oil to cover those payments as it is laboring under a severe cash shortage.
 
(Source:www.reuters.com) 






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