My answer: Yes

Will Venezuela sell Citgo?

It’s no secret that Hugo Chávez doesn’t see eye to eye with the “Yankee imperialists” up north. His government expressed characteristic disdain yesterday at Republican Senator Connie Mack’s recent request that a Cuba-style embargo be slapped on Venezuela, and that it be included in the list of “state sponsors of terrorism”.

Today it railed against the US State Department’s request for Venezuela to allow the Organization of American States to visit hunger striking students seeking the release of two political prisoners. But Venezuela’s socialist president often likes to point out that he has nothing against the average US citizen.

The renewal last month of a subsidised heating oil programme run by Citgo, a US-based subsidiary of Venezuela’s state oil company PDVSA, is not just a poke in the eye for Washington, but a public relations coup, warming not just the bodies but the hearts and minds of some 500,000 citizens across 25 states.

Alejandro Granado, the president of Citgo, which owns several major refineries in the US as well as an extensive distribution network, proudly described the programme as “without doubt one of the most important and long-lasting social development initiatives implemented by any large energy corporation in the US and around the world” on the initiative’s recent sixth anniversary.

Is Venezuela’s provocative leader really willing to give all this up? That’s what he suggested last year, when he rubbished Citgo as a “bad business”, arguing that profits were measly and that the money would be better invested in a bank account. Energy minister Rafael Ramírez subsequently said the government was “evaluating” a sale. Only last year Venezuela raised $5bn with the sale of its network of refineries in Germany.

A sale of Citgo could in part be motivated by fears that its assets – which Chávez thinks are worth about $10bn – could be seized in the event that Venezuela loses major arbitration suits in the International Court for the Settlement of Investment Disputes filed by ExxonMobil and Conoco Philips after the nationalisation of multibillion dollar projects in the Orinoco Belt in 2007.

“Chávez doesn’t want a significant asset in the US at a time when Venezuela is engaged in legal problems . . . Venezuela might well lose, and Citgo is a sitting duck,” says Gustavo Coronel, a former director at PDVSA.

Citgo would also be vulnerable in the event that Venezuela defaulted on its debt, something that analysts think is increasingly likely. London-based Capital Economics said in a note this week that “there is a growing risk that the government will default on its obligations in 2012.”

But there are other perhaps more pressing reasons why Venezuela might want to get rid of Citgo. Despite recovering oil prices, the government is short of cash, increasingly borrowing from countries like China, while debt issuance has ballooned to finance an ambitious spending programme, including several major oil projects in the Orinoco Belt.

Still, most analysts doubt Citgo will fetch as much as Chávez hopes, reckoning it is worth more like $5-7bn, while pointing out that it would be difficult to sell Citgo at the moment with the US refinery market enduring tough times and struggling to maintain profits.

“No one is knocking at the door to buy Citgo,” says Jorge Piñon, former president of Amoco Oil Latin America and research fellow at Florida International University. “It would have to be sold at a competitive price,” he adds, while admitting that Chávez’s decisions are often driven more by politics than economics.

Indeed, another reason for selling Citgo, whose refineries receive about 900,000 barrels a day from PDVSA, would be because Venezuela wants to diversify away from US markets, which receive the bulk of its exports, particularly towards China, to whom Venezuela has already committed to sending increasing amounts of oil in return for its loans.

Even so, analysts point out that the US is a natural market for Venezuela, not just because its proximity permits low transport costs, but also because it is one of Venezuela’s few clients that pays with cash. As such, Citgo guarantees Venezuela a foothold in its biggest market.

For such reasons, Piñon and others suspect Citgo will remain in Venezuelan hands for now. “I don’t think sale is imminent,” he said.