Cablegate: New Fx Regulation for the Hydrocarbon Sector

This record is a partial extract of the original cable. The full text of the original cable is not available.

251834Z Nov 05




E.O. 12958: N/A

1. SUMMARY: A new foreign exchange regulation states all
foreign currency derived from oil and gas exports must be
sold to the Venezuelan Central Bank (BCV). However, PDVSA
must only sell to the BCV the amount of foreign currency
equal to its domestic operating expenses and tax obligations
in Venezuela. PDVSA contractors may be paid directly in USD
but only for the foreign component of goods and services
provided to PDVSA. Associations and joint venture companies
may keep foreign currency required for payments to be made
outside Venezuela. END SUMMARY

2. The GOV published Exchange Agreement Number 9 (Agreement
9) in the Official Gazette on November 21. The new
regulation covers companies carrying out activities under the
Organic Hydrocarbons Law and the Organic Gas Law. Although
the regulation states that all foreign currency derived from
oil and gas exports must be sold to the BCV, it specifically
allows PDVSA to maintain offshore any foreign currency that
it needs to carry out its activities. PDVSA is obligated to
sell to the BCV the amount of FX necessary to pay its
domestic operating expenses and its tax obligations. Any
excess foreign currency that PDVSA holds above the amount
needed to cover its operating expenses denominated in foreign
currency and the obligatory sales to the BCV must be
transferred to a special public investment fund. Article 2
of Agreement 9 states PDVSA and its affiliates may retain
their rotating fund to pay obligations denominated in foreign

3. PDVSA and its affiliates are permitted to pay contractors
directly in USD but only for the foreign component of goods
and services. The goods and services can not be produced in
Venezuela, must be necessary to PDVSA or its affiliates'
activities, and the property or use must be transferred to
PDVSA or its affiliates. Maintenance is also included in
this exception provided it requires technology or knowledge
that is not available in Venezuela. The local component of
goods and services must be paid for in Bolivars. The Foreign
Exchange Adminstration Commission (CADIVI) will issue new
regulations for the repatriation of the Bolivars received for
the local component of goods and services.

4. Entities operating under association agreements as well
as joint venture companies may maintain offshore bank
accounts denominated in foreign currency in order to make
payments outside of Venezuela. Any remaining foreign
currency that is held after the payments are made must be
sold to the BCV. Entities operating under association
agreements and joint ventures will not have access to
official foreign currency from the BCV. (NOTE: We believe
they will still have access to currency via CADIVI. End

5. COMMENT: It is not clear where companies operating under
Operating Service Agreements fall under Agreement 9. One
prominent law firm has argued that they fall under the
contractor provisions of the new regulation. Another firm
did not hazard a guess on whether they would be treated as
contractors but did note that they clearly did not fall under
the provisions for association agreements and joint venture
companies. END COMMENT.

© Scoop Media

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