The easing of sanctions related to Venezuela (not as ambitious as it seems)
Source: US Treasury
On October 18, 2023, the U.S. Treasury announced several modifications in the sanctions framework applicable to Venezuela in response to “the signing of an electoral roadmap agreement between Venezuela’s Unitary Platform and representatives of Maduro”. Therefore, sanctions worked as an incentive for the electoral agreement signed on October 17, 2023. As we explained following the April Bogota Declaration, “sanctions have not failed. In fact, they are considered the main—if not the only—incentive to negotiate better electoral conditions”.
The main reform is that, at least in appearance, the sanctions against PDVSA were broadly eased, facilitating oil and gas agreements with private investors. However, the context under which this measure was adopted demonstrates the limited impact that it may have, not only because of its short extension (six months) and the uncertainty about its renewal but also because of the six-week lapse imposed by the State Department to achieve two specific democratization measures.
Besides this important change, some specific transactions were authorized regarding gold commercialization, deportation flights, and external debt. In addition, OFAC renewed the license suspension that prevents PDVSA 2020 noteholders from foreclosing Citgo Holding´s shares.
The conditional flexibilization of PDVSA´s sanctions
Although PDVSA remains a sanctioned subject, general license nº 44 authorized, only for six months, all the prohibited transactions with PDVSA and its affiliates regarding gas and oil operations in Venezuela. Within the authorized operations, the license mentions four:
- Production, lifting, sale, and export of oil or gas from Venezuela, and provision of related goods and services.
- Payment of invoices for goods or services related to oil or gas sector operations in Venezuela.
- New investment in oil or gas sector operations in Venezuela, and
- Delivery of oil and gas from Venezuela to creditors of the Government of Venezuela, including creditors of PdVSA Entities, for the purpose of debt repayment.
According to the Frequented Asked Questions, this license “suspends Venezuela-related sanctions applicable to most oil and gas sector operations in Venezuela, including the sale of oil and gas from Venezuela to the United States and other jurisdictions, as well as the payment of taxes, royalties, costs, fees, dividends, and profits related to oil and gas sector operations or transactions involving PdVSA”.
Therefore, from an operational perspective, PDVSA -and its affiliates- are no longer subject to the prohibitions that prevent operations in the U.S., with U.S. persons, and, eventually, with third parties (secondary sanctions). Specific bans and the blocked property (including PDV Holding´s shares) remain.
The license will be renewed if “representatives of Maduro follow through with their commitments and take continued concrete steps toward a democratic election by the end of 2024”.
Despite the appearance of a broad flexibilization, in practical terms, three conditions restrict the scope of the license:
- The license was granted only for six months. Despite other licenses, it does not have an automatic renewal clause.
- The renewal is subject to achieving specific steps by the electoral agreement (before April 18, 2023)
- In any case, the State Department imposed six weeks to attain specific democratization objectives. Otherwise, licenses will be revoked.
The short lapse of the license and the risk of a revocation -or modification- in the next six weeks may prevent the investments the Venezuela oil sector needs. A possible consequence is that oil and gas companies will reduce the scope of their activities until there is more clarity about the fulfillment of the democratization objectives in the next six weeks or the possible renewal of the license considering the achievement of the compromises adopted in the electoral agreement, after April 18, 2024.
The two democratization reforms in the next six weeks.
Although the license nº 44 was issued for six months, the Secretary of State, in a press release dated October 18, 2023, clarified that before the end of November, the following steps should be adopted:
- A specific timeline and process for the expedited reinstatement of all candidates. All who want to run for President should be allowed the opportunity and are entitled to a level electoral playing field, freedom of movement, and assurances for their physical safety. That provision applies to the disqualifications of political bans (inhabilitaciones).
- Begin the release of all wrongfully detained U.S. nationals and Venezuelan political prisoners.
According to the statement, “failure to abide by the terms of this arrangement will lead the United States to reverse steps we have taken“. Therefore, the new licenses could be revoked if those conditions are not met before the end of November.
General license nº 43 authorized prohibited transactions involving CVG Compania General de Mineria de Venezuela CA (Minerven) or its affiliates. According to the FAQ, “Given recent positive steps taken towards competitive elections in Venezuela, OFAC does not intend to target anyone solely for operating in the gold sector of the Venezuelan economy. This policy is contingent on continued concrete steps toward a democratic solution in Venezuela”. Therefore, this license is intended to authorize Minerven´s gold operations.
The ban prohibited trading Venezuelan bonds in the secondary market between U.S. persons was lifted (general licenses nº 3I and 9H). Consequently, bondholders can sell those debt titles to U.S. persons.
All transactions ordinarily incident and necessary to the repatriation of Venezuelan nationals from non-U.S. jurisdictions in the Western Hemisphere to Venezuela and are exclusively for such repatriation, performed by Consorcio Venezolano de Industrias Aeronauticas y Servicios Aereos, S.A. (Conviasa), or its affiliates, are authorized (general license nº45).
PDVSA 2020 Notes.
General license nº 5 was differed again until January 18, 2024 (general license nº 5M). Therefore, the PDVSA 2020 noteholders cannot foreclose Citgo Holding´s shares (although the enforcement of the notes is stayed, pending the decision by the New York Supreme Court).
How this new framework affects Citgo.
Because PDVSA is still a sanctioned corporation, PDV Holding, Inc.’s shares are still blocked properties. Therefore, to enforce writs of attachment through the auction sale of those shares, it is still necessary to obtain a license.
The legal representation of the Government of Venezuela in the U.S.
The new frameworks create doubts about the representation of the Government of Venezuela in the U.S. Although Maduro is still deemed an illegitimate ruler, several licenses authorize administrative bodies of that Government, under Maduro´s control, to conduct operations with the U.S.
Particularly, PDVSA was authorized to conduct operations in the U.S. However, the legal representation of the national oil company in that country is vested in the ad-hoc board created in 2019 by the then interim president. Therefore, the Maduro-led PDVSA cannot legally act in the U.S. despite the license. To overcome that obstacle, it will be necessary to conduct operations in the U.S. indirectly, through a contractor, for instance, an international oil company exporting oil to the U.S., as currently happens with Chevron (without prejudice of the legal formalities according to the Venezuelan Law).
Maduro and the repayment of the debt.
General license nº 44 authorized the Maduro-led PDVSA to “deliver oil and gas from Venezuela to creditors of the Government of Venezuela, for the purpose of debt repayment”. Therefore, Maduro can repay PDVSA´s debt, including in the U.S. More particularly, PDVSA can repay the debt regarding the pending claims in the Delaware Court.
However, Maduro cannot legally represent PDVSA in the U.S. Therefore, Maduro can settle the debt claims through agreements signed abroad by the U.S.
Maduro and the Unitary Planform delegates agreed to a joint effort to preserve Citgo. Therefore, to fulfill that commitment, the Maduro-led PDVSA can enter into settlement agreements regarding the pending claims at the Delaware Court.