The continuous work of CONATEL in the drafting, preparation and review, prior comments by all interested parties, of regulations to the Organic Telecommunications Law such as the Universal Service Regulations are a vivid example of how the public and private sector can cooperate to produce satisfactory legislation in issues that are of utmost interest to both. On the other hand, the long awaited Hydrocarbons Law (which will have to be published prior to November 22, 2001, date on which the Enabling Law will expire) has created certain unfulfilled expectations in the oil industry private sector, given that an official draft has not yet been circulated among interested parties creating uncertainty as to its provisions and possible implications.

Energy:

On July 25, 2001 OPEC announced a reduction of 1 million bpd of crude effective as of September 1, 2001. This is the third reduction this year. Venezuela will have to reduce production in approximately 116,000 bpd. OPEC also announced that it has kept open the option to hold an Extraordinary Meeting soon, if the market so requires. The European Community lamented such a decision and claimed that the consultation between producers and suppliers promised by the OPEC was not carried out.

Reportedly, the government is considering the possibility of carrying out 3 new extraheavy crude oil projects in the Orinoco Belt (additionally to the existing Petrozuata, Cerro Negro, Hamaca and Sincor) in the mid term, for purposes of initially producing 120 thousand, 100 thousand y 200 thousand bpd, respectively for an approximate cost of US$ 9 billion.

Venezuelan ambassador to the US, Mr. Ignacio Arcaya, presented in Houston, the guidelines of the "Four Pillar Strategy for Energy Security", a plan that will be presented to the US government by a Venezuelan delegation headed by Bernardo Alvarez, Vice Minister of Energy and Mines, with the intent of executing an energy investment agreement between Venezuela and the US. The plan reportedly contemplates (i) an increase in crude production capacity to be allocated to the US market; (ii) an increase of refining capacity by Citgo, 100 thousand bpd; (iii) the opening of the Venezuelan gas sector; and (iv) the supply of alternative fuels, Orimulsion.

The Charter/By-laws of PDVSA were modified for purposes of restating certain provisions that had been previously modified pursuant to separate amendments as well as modifying the number of members of the Board of Directors and the powers of the Shareholders’ Meeting, among others.

BITOR announced that China and Venezuela will build an Orimulsion plant in Jose, Venezuela with an estimated investment of US$ 300 million for an approximate production of 6.5 million metric tons per year to be fully exported to China. China Petroleum Corporation will hold 70% of the joint venture and BITOR will hold 30%. The 30-year project has a full value of US$ 6,000 million.

BITOR executed an Orimulsion supply agreement with New Brunswick Power Corporation (NBP) (a Canadian company). The supply agreement has duration of 20 years starting in the year 2004, for the supply of 1.6 million metric tons per year of Orimulsion to feed NBP’s 1.050 MW Coleson Cove plant.

Deltaven is currently tendering the construction of a vertical aviation Jet A-1 fuel tank, with a capacity of 780,000 liters as well as 2 horizontal tanks for piston aviation fuels with a 50,000 liters capacity each for the International Caribbean General Santiago Mariño Airport in Margarita that will give it up to 7 days autonomy in supplying airplanes. The approximate investment is Bs. 1 billion.

The Interconnected Systems Operation Office, "Oficina de Operación de Sistemas Interconectados (Opsis)" requested that Enelven, Electricidad de Caracas and Cadafe (Planta Centro) increase in 15 GW/h their thermoelectric generation for purposes of compensating the drought that limits Guri’s hydroelectric generation (reduced by 15 GW/h).

On June 30, 2001, the joint resolution of the Ministries of Production and Commerce and Energy and Mines was published in the Official Gazette, modifying (i) the values of the parameters considered for the calculation of the electric service tariff adjustments; (ii) the conditions for application of such parameters; and (iii) the methodology for the subsequent adjustment and modification of the parameters values in 2001-2002.

Finance

Mapfre, a Spanish insurance company, was authorized to carry out a Public Offer of Shares for 100% of La Seguridad, one of the main insurance companies in Venezuela of which it already owns 62%. Banco Provincial, an affiliate of Banco Bilbao Vizcaya Argentaria holds 32% of La Seguridad.

The Spanish company Interandina de Fomento acquired 29.56% of Banco Exterior, for Bs. 15.705 million, (approximately US$ 22 million). On June 21, Interandina began a Public Offer of Shares up to

32% of Banco Exterior’s shares for Bs. 585.6 per share.

The Venezuelan National Securities Commission (VNSC) modified the rules regarding the authorization and registry of investments advisers for purposes of requiring that advisers regarding securities investments outside of Venezuela must be authorized by the VNSC. Other modifications deal with the documents to be filed to obtain the pertinent authorization from the VNSC and the value that they represent in the pertinent evaluation of the investment advisor.

Labor:

The amendments to the Law that Regulates the Health, Pension and Integral Social Security Subsystems "Ley que Regula el Subsistema de Salud, el Subsistema de Pensiones y de Seguridad Social Integral" were published in the Official Gazette of July 11, 2001 stipulating their entering into effect on January 1st, 2002.

On July 13, Presidential Decree 1368 was finally issued containing the increases in the different types of national minimum salaries as follows:

  • Bs. 158,400,oo for urban workers;
  • Bs. 145.200,oo for workers of companies which employ less than 20 workers;
  • Bs. 142.560,oo for rural workers;
  • Bs. 118.800,oo for apprentices; and,
  • Bs. 158.400,oo for concierges of residential buildings.

The minimum salary increase was submitted to the National Legislative Assembly for its ratification and it shall come into effect as of the date of publication of such ratification in the Official Gazette. The salary for apprentices was rectified in the Official Gazette of July 31, 2001, to the amount indicated above.

The Constitutional Chamber of the Supreme Court of Justice annulled article 195 of the Organic Labor Law, which established that the maximum night shift could not exceed 40 hours per week. Pursuant to article 90 of the National Constitution of 1999, such night shift cannot exceed 35 hours. In view of the foregoing, the Supreme Court of Justice ratified that the Constitution prevails over the law and annulled the above-mentioned article 195.

Taxation:

Decree N° 1.343, issued on July 11, 2001 (Official Gazette N° 37.237), exonerates all acquisition of goods and services to be made for the engineering project, construction of civil works, supply, installation and start up of the equipment that comprises the first stage (Caracas-Tuy Medio) of the rail system Caracas-Tuy Medio-Maracay-Valencia-Puerto Cabello from Value Added Tax. The exoneration also covers the Fees for Use of Customs and Customs Duties for all goods imported for said project.

Decree 1.356, published on July 30, 2001 (Official Gazette N° 37.249) exonerated the import of elements and parts of the Venezuelan Pavilion at the Expo 2000 Hannover from Valued Added Tax and fees for custom use.

Decree 1.367, published on July 30, 2001 (Official Gazette N° 37.249), granted an 80% exoneration from the Stamp Tax applicable to: (i) the obtaining of hunting licenses of certain species (Venezuelan Cayman), which are hunted for scientific purposes; and (ii) the obtaining of permits for the installation and operation of Cayman and other wild species breeding facilities.

Reportedly, Venezuela and Canada executed a Double Taxation Treaty which will need to be approved by the Legislative bodies of each country before entering into effect.

Telecommunications:

The National Chart of Frequency Bands (Cuadro Nacional de Atribución de Bandas de Frecuencias - CUNABAF) was published in Official Gazette No. 5.540-A Extraordinary dated July 4, 2001. The CUNABAF establishes what services can be rendered in the different frequency bands of the radio spectrum attending to the provisions of the Venezuelan Telecom Law and the International Telecommunications Union. The Resolution containing the portions of the radio spectrum that will be subject to public offer was also published in the Official Gazette of July 4, 2001. This resolution was issued as per the provisions of article 85 of the Telecom Law.

On July 26, 2001 CONATEL published Resolution No. 66 in the Official Gazette, complementing Resolution No. 16 dated February 19, 2001 which contains the Maximum Tariffs for the Established Operator. The purpose of Resolution No. 66 is to regulate the maximum tariffs that can be charged by CANTV (the "Established Operator") for local calls originated from CANTV’s network and terminated at: (i) a different local network; and (ii) a cellular network.

CONATEL has posted on its web page, www.conatel.gov.ve, the draft of the Regulations of the Telecommunications Universal Service for purposes of public consultation with all interested parties. The purpose of the Regulations of the Telecommunications Universal Service is to govern the assignment, subsidy and control of Universal Service obligations as well as the management and control of the Universal Service Fund. It is very important that these regulations be thoroughly reviewed by telecom operators and/or companies in the process of becoming operators since they may be directly affected by Universal Services obligations. On August 3 CONATEL extended the period for comments until August 10.

CONATEL announced that the registry of telecom equipment under the Automated Telecom Equipment Registry (Registro Automatizado de Equipos de Telecomunicaciones (RAETEL) for purposes of preparing a list of certified equipment (equipos homologados) began in December 2000 concluded on July 31, 2001. The result was the registration of 109 companies and a total of 3.882 equipment installed prior to January 1, 2001.

Reportedly, CONATEL has delayed the LMDS Tender Offer Procedure until 2002. We consider that this decision is appropriate due to the economic conditions affecting telecoms worldwide.

Foreign Investment:

Reportedly, Venezuela and France have executed a Treaty for the Reciprocal Promotion and Protection of Investments. According to such treaty the investments made by individuals or companies of one country will enjoy in the other, full security and protections as well as guarantees of free remittance of interest payments, dividends, benefits as well as income derived from the investment process. The trade between the two countries increased 20% in the year 2000.

Competition:

Procompetencia has submitted a draft Law against Monopolies and other Illicit Acts against Free Competition, to the consideration of the National Assembly. This draft supersedes the proposed Law of Amendment to the current Procompetition Law, presented to the National Executive last September, which apparently did not receive much support. The main aspects proposed in the new draft are: (i) transform the Procompetition Superintendency into a Commission for the Defense of Competition "Comisión de la Defensa de la Competencia" (under the figure of an autonomous institute, with budget, financial and management autonomy) whose function would be to promote competition policy and supervise and investigate violations of the competition law; (ii) the creation of a collegiate economic court, "Tribunal de la Defensa de la Competencia", whose functions would be to decide on any competition violations and enforce the pertinent decisions; and (iii) the introduction of a new chapter on unfair competition that thoroughly describes the acts that constitute unfair competition which up until now had been developed by Procompetencia’s doctrine, granting a greater juridical security in this sense.

Procompetencia announced the resolution taken in the procedure opened ex-officio by the agency against the Venezuelan baseball league and its sponsors: Although Procompetencia determined that the Polar group companies, Cedesa, Dipomesa, Dipolorca, Sopresa (now called Pepsi-Cola Venezuela, C.A.) and the professional baseball league had breached Article 6 of the Procompetition Law (related to exclusionary practices), it did not impose fines for considering that these entities had invested significant amounts to improve sports facilities, which among other things, according to the Superintendency, "contribute to the development of the Venezuelan sports activity."

The agency, however, ordered that: (i) the sports sponsorship contracts not be performed once the 2001-2002 baseball season (which starts in October) ends; (ii) the league and teams implement a mechanism to select sponsors for future contracts, under principles of transparency and competition, for which they must publish an ad in the newspaper to disclose to all interested parties the conditions to obtain said contracts; (iii) future contracts not be executed for periods longer than four (4) years, and (iv) sponsor selection be made by categories of products, i.e., beer, juices and sodas must be negotiated separately. These contracts must be presented to Procompetencia for evaluation and authorization, before execution.

On June 29, 2001, six insurance companies (Seguros Caracas, Seguros Pan American, Seguros Orinoco, Seguros Nuevo Mundo, General de Seguros and Seguros Guayana) were fined by Procompetencia after determining that they had violated Article 10, number 1, of the Law, by acting as a cartel which imposed "baremos" or price lists to Hospital de Clínicas Caracas and other private clinics. Two of these companies were also severely fined for their refusal to provide the additional services of letters of guaranty ("carta aval") and of emergency codes ("claves de emergencia") to Hospital de Clínicas Caracas in particular. Other orders issued by the Superintendency in this case were for the insurance companies involved to leave without effect immediately all joint communications to private health centers addressed to the joint and simultaneous application of identical or similar price lists for the most frequent surgeries performed in those clinics, to send new individual price lists to the various clinics, to publish an ad in newspapers for two consecutive days so that their insureds are informed that the 1999 price list agreement is no longer effective, and to restore the additional services of emergency codes and letters of guaranty to Hospital de Clínicas Caracas. Seguros Nuevo Mundo announced on July 13 that it would appeal the decision.

In the "beer war," Procompetencia did not admit the complaint filed by the Polar Group against Venevisión alleging that violations to the right of reply ("derecho a réplica") are not subject to its review. Reportedly, the agency did accept the denunciation of Polar against Produvisa (bottle manufacturer) and Regional, for the withholding and destruction of empty bottles of Polar.

Consumer Protection:

In August, the National Assembly is scheduled to review the draft Amendment to the Law of Consumer and User Protection, the last details of which are being studied by a committee set up by the Permanent Committee of Administration and Public Services of the Assembly. This amendment is needed for purposes of complying with article 117 of the Constitution which establishes that the law will provide for mechanisms to ensure consumer rights, goods and services quality control rules, remedy of damages and sanctions for violations of consumer rights.

Environment:

Venezuela, along with most of the OPEC members, failed to ratify the Kyoto Protocol for the reduction in emissions causing the greenhouse effect. Venezuela was the only Latin-American country that proceeded in line with OPEC’s position. The protocol must be ratified by 55 countries responsible for 55 percent of global greenhouse gas emissions, blamed for warming up the atmosphere. So far, only 30 countries have ratified the protocol, but none of them include the world's largest industrial powers.

Reportedly, the Environmental Protection Agency (EPA) accused Citgo Petroleum Corporation for violation of Clean Air federal norms in its Lemont (Chicago) refinery for emissions with excess content of sulfur. The EPA could impose an administrative fine or sue Citgo. In any event, Citgo has 30 days to request a meeting with the EPA to present its arguments and proposed solutions.

Intellectual Property:

Actions for infringement of rights and the possibility of applying preventive measures is a novel aspect of Decision 486, and one of great value, which had not been present in former Decision 344. Both are compatible with Part III of the TRIPS Agreement, "Observance of Intellectual Property Rights."

Owners of a right protected by virtue of Decision 486 may bring action with the competent national authority against any persons infringing their right and also against any persons performing acts that are extremely likely to result in the infringement of that right. The plaintiff or defendant may request the competent national authority to order one or more of the following measures, such as: a) cessation of all acts that constitute the infringement; b) compensation for damages; c) withdrawal from commercial channels of all products resulting from the infringement, including packaging, wrappings, labels, printed materials or advertising, together with the materials and implements, the predominant use of which has been the commission of the infringement; d) prohibition against the importation or exportation of the products, or materials or implements referred to in the previous item;

In the case of counterfeit trademark goods, the elimination or removal of that trademark shall be accompanied by actions to prevent the introduction of these products into commerce. Furthermore, such goods shall not be allowed to be re-exported in an unaltered state or to be subjected to a different customs procedure. The right to action for infringement shall lapse two years counted as of the date the owner learned about the infringement or, in any case, five years after the infringement was committed for the last time.

Miscellaneous:

The National Council for the Rights of the Child and Adolescent published in the Official Gazette of July 12, 2001, the instructions for the application of the Treaty regarding the Protection of the Child and the Adolescent in International Adoption Matters.

August 5, 2001

Note: this newsletter should not be construed as legal advice on any specific matter, and its contents are intended as a management alert as to current developments in venezuela. Any specific legal questions regarding the possible application of new or proposed legislation to particular situations should be addressed to travieso evans arria rengel & paz.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.