INDEPENDENT NEWS

Cablegate: Citgo Sells Lyondell Refinery

Published: Tue 15 Aug 2006 09:21 PM
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TAGS: ECON ENRG EPET EINV VE
SUBJECT: CITGO SELLS LYONDELL REFINERY
This message is sensitive but unclassified, please treat
accordingly.
1. (U) SUMMARY: Energy Minister Rafael Ramirez announced
that PDVSA's wholly owned U.S. subsidiary Citgo was selling
its interest in Houston's Lyondell-Citgo Refinery to partner
Lyondell Chemical Company. The sale comes as no surprise and
is the result of a long running dispute between the two
partners. PDVSA expects to clear 1.3 billion USD from the
sale. The deal also includes a five year supply contract
that supersedes previous contracts. END SUMMARY
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LONG AWAITED SALE FINALLY HAPPENS
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2. (U) Energy Minister Rafael Ramirez announced on August 15
that Citgo has agreed to sell its 41.25 percent interest in
the Lyondell-Citgo Refinery to its partner Lyondell Chemical
Company, which has a 58.75 percent stake in the refinery.
The refinery, which refines heavy, high-sulfur crude oil, is
located in Houston, Texas and has a capacity of 268,000
barrels per day. According to the Venezuelan press, PDVSA
expects to clear 1.3 billion dollars from the deal after
taxes and relevant charges. The profits will be placed in
the National Economic Development Fund (Fondo Nacional de
Desarrollo Economico or Fonden). The deal also includes a
five year supply contract that supersedes previous contracts.
3. (U) The sale is the direct result of a long running feud
between Lyondell and PDVSA/Citgo. Under two contracts signed
in 1993, Lyondell agreed to invest over 1.1 billion USD in
the refinery so that it could refine heavy, high-sulfur crude
oil. Citgo agreed to contribute to the upgrading of the
refinery and purchase the bulk of its products. PDVSA
committed to supply 230,000 barrels of oil per day for 25
years. During the period of April 1998 to September 2000,
PDVSA declared force majeure citing OPEC quota cuts and
reduced its deliveries. PDVSA restored deliveries but cut
them again in January 2002 on the same grounds. Lyondell
sued PDVSA but the suit was dismissed after Citgo agreed to
sell its stake in the refinery. On July 20, 2006 Lyondell
announced that the parties had received offers of over 5
billion USD for the refinery but decided not to sell out to a
third party because the offers did not "overcome the
significant benefit of retaining an ownership position".
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COMMENT
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4. (SBU) The refinery's sale does not come as any surprise.
The sales price also seems to be reasonable given the
previous offers of around 5 billion USD for the entire
refinery. Although Citgo is still trying to sell its two
U.S. asphalt refineries, we have not seen any indications at
present that the BRV and PDVSA are seriously trying to sell
Citgo. Given the substantial profits that it is generating
as well as the fact that it is the ideal platform for the
BRV's subsidized heating oil/propaganda program, we do not
expect the BRV to change its stance on Citgo in the near
future.
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