CFIUS Under Scrutiny as Critical U.S. Energy Infrastructure at Stake in a Potential Rosneft Takeover of Citgo Holdings

On May 18, Secretary of the Treasury Steve Mnuchin announced that the Committee on Foreign Investment in the United States (CFIUS) would review concerns raised by agreements between Rosneft and Venezuela’s PDVSA that implicate Citgo.

As previously reported, a November 2016 UCC filing against Venezuela’s state-owned oil company PDVSA shows that the company mortgaged key energy assets in the United States in exchange for a $1.5 billion loan from Russian oil giant, Rosneft.

The UCC filing showed that Rosneft had provided a loan to the company citing 49.9% of Citgo assets as collateral.  In October 2016, a struggling PDVSA had used the remaining 50.1% of Citgo Holding as collateral against the restructuring of $2.8 billion of debt (with the specific identities of these creditors not known, but worthy of scrutiny), which was to mature within the year.  The loan was extended into a new four-year amortizing bond, with the collateral hanging in the balance in the event of default.

PDVSA’s heavy debt burden and growing potential for default now raises the realistic prospect of Rosneft taking ownership of 49% (possibly more) of three critical refineries, nine pipelines and about 50 petroleum platforms owned and operated by Citgo in the United States.

The Treasury Department’s announcement was preceded by a bipartisan congressional effort in April to pressure them and other authorities to expand their scrutiny of Rosneft’s (and consequently the Russian government’s) increasing leverage over Citgo.

Although the Treasury is addressing this issue as a national security threat, uncertainty remains over the capacity and scope of existing U.S. government institutions to stop this “back door” takeover of critical U.S. energy infrastructure on account of the unique way it would take place (i.e., the forfeiting of collateralized assets by one foreign entity to another).  This scenario, however, certainly ought to be within the mandate and authority of CFIUS or its constituent agencies, as it resembles (albeit through other means) the purchase of U.S. assets.

Specifically, among CITGO assets in the U.S. are three refineries in Corpus Christi, Texas; Lemont, Illinois; and Lake Charles, Louisiana—the sixth largest refining facility in the United States.  The company’s U.S. assets refine 749,000 barrels a day.