President Hugo Chavez is promising to build new public housing complexes, boost social programs and renovate the long-neglected Caracas subway — and he needs money.
The ambitious plans will squeeze Venezuela's coffers at a time when oil earnings have slipped and Chavez is sending his foreign allies generous amounts of crude on credit. So he has raised a possibility that once seemed remote: selling off Venezuela's U.S.-based oil company, Citgo Petroleum Corp.
For Chavez, it's an idea driven both by hard-money realities and by politics.
Getting rid of the company and its refineries in the U.S. would give Chavez billions of dollars for domestic spending as he approaches his 2012 re-election bid and seeks to remedy problems including an acute shortage of affordable housing. A sale would also fit with the leftist leader's interest in distancing Venezuela from the U.S. while building stronger ties with allies such as Russia, China and Iran.
Citgo has delivered oil to Venezuela's No. 1 client for two decades, but judging by Chavez's complaints about Citgo not turning a profit, he seems more than ready to sell it, if a buyer can be found.
"Citgo is a bad business, and we haven't been able to get out of it," Chavez said in a televised speech late last month. He ordered his oil minister, Rafael Ramirez, to look at options for selling off the state oil company's assets in the United States.
Chavez says the Houston-based company could be worth at least $10 billion, but analysts say it would likely fetch much less — perhaps half that — and it might be hard to find a buyer in a difficult economic climate.
The government's budget next year — not counting the additional spending often approved by Chavez's congressional allies — is the equivalent of $47.5 billion, making the possible sale of Citgo a potential shot in the arm for the president's efforts to shore up support.
Critics say that selling Citgo could endanger Venezuela's long-term business interests since oil is the lifeblood of the economy and much of the earnings come from the U.S.
Chavez, meanwhile, has increasingly sold oil elsewhere under less profitable deals aimed at cementing relationships with friends abroad.
"It's hard for rational observers to understand that (Chavez) would take oil away from U.S. clients that pay cash for Venezuelan oil, in order to supply countries that consider Venezuelan oil almost as a right or as a political gift," said Gustavo Coronel, an energy consultant and former executive of state oil company Petroleos de Venezuela SA (PDVSA). "However, Chavez is no longer driven by economics but by ideology."
If Chavez were to go ahead with a sale, Venezuela would likely seek to negotiate a supply contract to keep selling crude to U.S. refineries.
Even so, Venezuela's oil exports to the U.S. have been declining while Chavez has sought to diversify the country's markets, shipping more crude under preferential deals to allies including Belarus, Cuba and other Caribbean islands. Some buyers are granted low-interest loans, decreasing upfront revenue.
Oil shipments to the U.S. declined from 49 million barrels in February 1999, when Chavez took office, to 31.9 million barrels during the same month last year.
Venezuela's overall oil output has also been declining due to lower OPEC quotas and — experts say — inadequate maintenance at some oil fields. While Venezuela says it produces about 3 million barrels of oil a day, the U.S. Energy Information Administration estimates 2.2 million barrels a day in 2009, down about 190,000 barrels from 2008.
Coronel said that when Venezuela bought Citgo, it was a good deal. PDVSA purchased 50 percent of the company in 1986 from Southland Corp. for $290 million as part of a drive to have its own refineries and other facilities in its key markets, the U.S. and Latin America. The state oil company purchased the remaining 50 percent of Southland's shares in Citgo in 1990 for $675 million.
Since then, Citgo has grown. It now operates three refineries in Texas, Louisiana and Illinois, and sells fuel through thousands of gas stations. Citgo has been used by Chavez to distribute discounted heating oil to poor American families in a high-profile program aimed at criticizing Washington's approach to the needy.
Another motive for selling Citgo could be to reduce Venezuela's exposure to U.S. court suits over Chavez's expropriations of U.S. company assets.
U.S.-based Exxon Mobil Corp. has sought international arbitration to claim billions of dollars in compensation after it refused to accept the government's terms for a 2007 nationalization of an oil project in which it had invested heavily.
Citgo, for its part, took a $201 million loss last year, and issued $3.5 billion in bonds this year as its profits plummeted. Profits were battered by lower world prices and a declining flow of heavy, sulfur-laden crude.
"I don't think there would be much interest now" in buying Citgo, said Lou Pugliaresi, president of the Energy Policy Research Foundation, a Washington-based think tank. "But Chavez might find a buyer at the right price."
None has publicly stepped forward yet. Exxon and other major U.S. refiners such as Chevron Corp. and ConocoPhillips might end up being interested in Citgo or some of its assets, said Guaicaipuro Lameda, a former PDVSA president and government critic.
"It has the potential to be a good business if it's well managed," Lameda said. "But it's not being well managed, and that's causing problems."
- Chevron Corp.
- Exxon Mobil Corp.
- President Hugo Chavez