The Paradox of Citgo, an Arm of Venezuela

Last weekend, President Chavez of Venezuela visited Fidel Castro. The two men are much in sync, and Mr. Castro no doubt approves of Mr. Chavez's use of a national oil company, Petróleos de Venezuela, or PDVSA, to expropriate the property of American companies, including Exxon Mobil and ConocoPhillips, and to rewrite the contracts of other oil companies such as Chevron.

The vulnerability of American businesses in Venezuela stands in contrast to the security that Venezuelan businesses enjoy in America. In addition to expropriating property in Venezuela, PDVSA owns one of the largest petroleum refining and distribution companies in America, Citgo.

Mr. Chavez and his regime inherited Citgo from earlier Venezuelan governments, which acquired half of the company in 1986 and the remainder in 1990, eight years before his leftist party was elected to power.

Citgo is only a small part of PDVSA's portfolio. PDVSA has a stake in practically all petroleum activities in Venezuela, one of the largest petroleum producers in the world and a major supplier to America. Venezuela recently announced it would expand the size of its petroleum reserves, which are the largest in the Western Hemisphere and among the largest in the world.

If PDVSA did not own Citgo and were today attempting to purchase it, our federal government would almost certainly block the transaction for national security reasons. In this hypothetical scenario, a Venezuelan-controlled Citgo would pose a threat to America's well-being. The reality of Venezuelan ownership of Citgo is much more subtle and complex. Citgo is in an extremely competitive industry, and while much of its board and senior management are from Venezuela, it behaves for the most part like its American counterparts.

It employs thousands of Americans, and its products are distributed by hundreds of independent gas stations around the country. With their American flags and products that are indistinguishable from those of competing gas stations, Citgo stations sell gasoline and related products to millions of Americans with few customers ever knowing it is owned by the Venezuelan government. Citgo contributes generously to the United Way, the Muscular Dystrophy Association, and Habitat for Humanity. It sponsors a racing car team and promotes Major League Baseball, particularly in Hispanic communities. These and other activities make Citgo indistinguishable from similar American-owned corporations. In some of its charitable activities, Citgo is associated with the Venezuelan government. The Citgo-Venezuela Heating Oil Program (citgoheatingoil.com) is billed almost as a direct form of foreign aid to disadvantaged Americans from Venezuela. The program aims to distribute more than 100 million gallons of heating oil to hundreds of thousands of disadvantaged households.

For all of the competitive and charitable activities of Citgo, one might expect Venezuela to be welcomed anywhere in America. It is not. Just last week, an elected official in Maryland's Montgomery County withdrew an invitation to Venezuela's U.S. ambassador, Bernardo Alvarez, to meet with community leaders about the possible funding of social programs. Groups with Venezuelan and Cuban backgrounds objected vigorously.

It turns out that the competitive provision of services and charity that Citgo offers in America are largely proscribed in Venezuela. In America, Citgo operates freely with the full protection of American law. In Venezuela, foreign companies face intimidation and expropriation. Many foreign companies exercise the option of simply leaving the country and their investments behind. Many Venezuelans have fewer options and simply live in fear. Mr. Chavez has turned off opposition television and radio stations as part of a campaign to silence dissent.

The situation involving the government-owned PDVSA is a great paradox. In America, its subsidiary Citgo enjoys the same legal rights as all companies and competes against every major oil corporation in the world; in Venezuela, PDVSA sets the rules and has free rein to take foreign companies' property. In America, PDVSA engages in charitable activities as part of its competition with thousands of other businesses; in Venezuela, it is part of a government that governs by fear and frowns on dissent. Throughout the world, individuals seeking freedom from repressive regimes yearn to come to America. It turns out that even government-owned enterprises in those countries have the same aspirations.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He is organizing a seminar series at the Hudson Institute. He can be reached at hfr@furchtgott-roth.com.