PDVSA did not respond to a request for comment.
Their arrests come just a week after Saab announced the apprehension of a deputy minister and nine PDVSA officials for allegedly doctoring crude production figures. The likely reason why the government has resorted to such a drastic decision, one which will significantly cut into Venezuela's only source of dollar funding, is to deal with intermittent, and increasingly acute fuel shortages plaguing the nation because of the poor condition of its refineries, which in some cases are working at a third of capacity.
But Citgo's effort to compensate for PDVSA's export problems might not last, one of the sources said, as the growing supply of the joint ventures' crude to Venezuelan refineries is undermining its ability to purchase upgraded oil.
"PDVSA started requesting some cargoes from Petrocedeno for the Paraguana Refining Center (CRP)".
PDVSA's U.S. refining unit, Citgo Petroleum, in July started boosting its imports of Venezuelan upgraded crude from the joint ventures as a way of offsetting declining purchases from its parent company, which is struggling to cover oil-for-loan agreements to Russian and Chinese companies amid falling output. It is seeking 2 million barrels, or 45 percent of Petropiar's total production for November.
Meanwhile, Venezuela's domestic oil industry is crashing as PDVSA's finances are so weak it is struggling to find the funds to drill wells, maintain oilfields and keep pipelines and ports working, Reuters notes. The diversions are adding new strains to the ventures' cash flow.
According to Curaca Chronicle, the scheme took place in the world's largest oil deposit, the Orinoco Belt.
That is setting the scene for all holders of Venezuela government and PDVSA debt to possibly call in their IOUs at once - an impossible call for Caracas, which has less than USD 10 billion in hard currency reserves left. The defendants effectively put up Citgo as collateral for loans to PDVSA on unfavorable terms while arranging for intermediaries to collect millions of dollars in commissions, the attorney general said. It is not a solicitation to make any exchange in commodities, securities or other financial instruments.
"And the most serious violation was having offered as a guarantee the entire Citgo subsidiary", said the prosecutor.
"We inform this meeting of the arrest, at this time, of approximately 50 executives of PDVSA, six of whom are senior managers", said Attorney-General Tarek William Saab to a summit of Ibero-American attorney generals in Buenos Aires on Monday.
The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc.
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