Fernandez-Concheso

maritime Law

Second Quarter 2020 Report –Venezuela –

I.NEWS

This section highlights excerpts of relevant press releases and brief comments on our views regarding such.

“The government of Guaido introduced new legal actions to protect Citgo from the regime”

The representatives of the government of Juan Guaido, appeared before a Delaware Court to oppose the sale of the shares of CITGO. Crystallex seeks compensation for the expropriation made by President Hugo Chavez in 2008 of the “Las Cristinas” mines.

This action took place after a Delaware Court almost allowed the sale of the shares of CITGO to satisfy the debt of Venezuela. The main claimant and creditor of the shares is Crystallex, although there is a separate claim by ConocoPhillips. The government of Juan Guaido relies on the Department of State’s Office of Foreign Assets Control (OFAC). Nonetheless, Crystallex has already applied for a license to proceed with the sale.

https://www.elnacional.com/economia/gobierno-de-guaido-introdujo-nuevas-acciones-legales-para-proteger-a-citgo-del-regimen/

https://www.argusmedia.com/en/news/2108248-us-court-clears-sale-of-citgo-shares

“Greek shipping companies ceased their operations with Venezuela due to US sanctions”

After the latest United States sanctions, some Greek shipping companies have decided to discontinue their business with Venezuela. Dynacom Tankers Management reported that it will refrain from any future businesses involving Venezuela. Similarly, NGM Energy SA, reported it will maintain a strict policy on the service of ships with cargo from Venezuela, as long as it does not have the express authorization of the United States.

https://www.elnacional.com/economia/navieras-griegas-paralizaron-operaciones-con-venezuela-debido-a-las-sanciones-de-ee-uu/

“PDVSA stopped operations in the Orinoco Oil Basin”

The Venezuelan state-owned oil company has ceased operations with crude oil at Petropiar, which is a joint venture with Chevron Corporation, and also ceased the transportation of hydrocarbons in the Petrosinovensa and Petromonagas Projects. This decision comes as a result to the surplus in the inventories and that the storage tanks reached their maximum capacity.

https://www.elnacional.com/economia/pdvsa-detuvo-las-operaciones-en-la-faja-petrolifera-del-orinoco/

“Iran seeks to continue unloading its excess gasoline and will ship it to Venezuela”

Iran will send monthly cargos of gasoline to Venezuela, helping them to dispose part of their inventories. However, triggering conflict with the government of the United States, who has been trying to block Iran’s trade and sanction those who facilitate the exchange of hydrocarbons to Venezuela.

https://lta.reuters.com/articulo/iran-venezuela-gasolina-idLTAKBN23M2GL-OUSLT

“El Palito refinery might have resumed gasoline production at 23.5% of its capacity”

The El Palito refinery, located in the State of Carabobo has resumed operations and might be processing approximately 33.000 barrels per day of 91 octane gasoline, despite having the capacity to process 140.000 barrels per day. The arrival of the Iranian shipment of petrochemicals allowed the refinery to continue operating, although not at full capacity.

https://www.el-carabobeno.com/el-palito-habria-reiniciado-produccion-de-gasolina-a-235-de-su-capacidad-instalada/

“Mexican company received oil from Venezuela in exchange for corn”

Venezuela is relying on Mexican companies to help them sell their crude abroad and evade US sanctions. Libre Abordo, Schlager Business Group, a subsidiary of Abordo, Jomadi Logistics & Cargo, Elemento Ltd and Swissoil Trading SA are being investigated by the United States Department of the Treasury and by the Federal Bureau of Investigation of the United States (FBI) for doing business with Venezuela, despite that these Mexican and European companies have been warned about the possible consequences. Nonetheless, the first has received Venezuelan oil and copper in exchange for corn and water tanks.

https://www.bloomberg.com/news/articles/2020-07-10/biggest-u-s-banks-set-for-worst-quarter-since-financial-crisis

https://www.elnacional.com/economia/petroleo/fbi-investiga-si-companias-mexicanas-y-europeas-violaron-sanciones-a-pdvsa/

“The US interrupted the delivery of two gasoline shipments to Venezuela”

Greek-owned vessels with gasoline and oil products from Iran were thwarted by the United States on their way to Venezuela. In addition, they were warned on possible sanctions if they continued to sail into Venezuelan territorial waters.

https://www.elnacional.com/economia/ee-uu-interrumpio-envio-de-dos-buques-de-gasolina-a-venezuela/

“Iran will not be able to fix Venezuela’s refineries, as Russia could not either”

Iran will not be able to solve Venezuela’s gasoline supply problem, just as happened with Russia’s Rosneft Trading and TNK Trading International. However, the difficulties in production may be eased by the remaining activities of Chevron and Repsol in the territory.

Since the activities of the refineries of Amuay and Cardon ceased by late January, the gasoline supply for internal use in the country has been critic. Although with the collaboration of Iran these have been able to resume some of the operations and produce some fuel, the facilities still do not have the necessary technology and electric supply, in addition to other drawbacks that do not seem to be permanently resolved.

https://www.abc.es/internacional/abci-iran-no-podra-arreglar-refinerias-venezuela-como-no-pudo-rusia-202005130202_noticia.html

“The Treasury Department allowed Rosneft to complete their operations in the country before May 20”

A general license was granted so that the oil company Rosneft can settle its transactions and activities in Venezuela before May 20. The sanctions against the company will be withdrawn once they sell all of their joint assets.

https://www.elnacional.com/economia/departamento-del-tesoro-permite-a-rosneft-culminar-operaciones-en-venezuela-en-mayo/

“PDVSA assigns oil cargo to Petrozamora’s partner”

GPB Global Resources BV, a partner of Petroleos de Venezuela (PDVSA), was appointed to receive cargos of Venezuelan crude as part of an agreement to settle the outstanding debt of its Petrozamora Project.  This in an attempt to avoid the ban on PDVSA.

https://lta.reuters.com/articulo/venezuela-petroleo-socio-idLTAKBN22O2C5

“Venezuela requested the Bank of England to sell their gold throughout the UN due to the needs caused by Coronavirus”

The Venezuelan Central Bank made efforts to negotiate part of the gold that was deposited in the Bank of England, offering it to channeled by the United Nations, in order to face the crisis of COVID-19. This proposal was made by the government of Maduro, however, the Bank of England has refused to hand it over to the Maduro administration.

https://es.euronews.com/2020/07/06/el-disputado-oro-de-venezuela-por-que-el-banco-de-inglaterra-ha-dado-las-reservas-a-guaido

https://lta.reuters.com/articulo/venezuela-economia-oro-idLTAKBN22B31K

“PDVSA proposed restructuring the oil industry to improve their private partners’ role”

Petroleos de Venezuela proposed a radical restructuring of the oil industry in Venezuela to boost the role of private companies. The company is planning to allow private partners to participate in joint ventures in the oil fields, so that they can operate them by themselves. Likewise, it was proposed to PDVSA reduce their participation in various fields, allowing private companies to operate the refineries.

https://www.nasdaq.com/articles/venezuelas-pdvsa-proposes-oil-industry-reform-to-boost-private-partners-role-2020-04-28

“Coposa’s food consortium will be temporarily occupied”

For 180 days, Maduro’s government will occupy Consorcio Oleaginoso Portuguesa S.A., in order to guarantee and preserve food production in the country.

https://www.elnacional.com/economia/regimen-de-maduro-anuncio-ocupacion-del-consorcio-de-alimentos-coposa/

“The US agreed to allow Chevron to keep its assets in Venezuela, but without operating them until Maduro leaves”

The Treasury Department renewed Chevron’s operations license in Venezuela until 1 December 2020. Even though this extension allows them to maintain their assets in the country, it limits their activities and operations, since it does not allow them to drill or transport oil during that time.

Chevron has already resolved many service contracts and joint ventures because of the dropping oil prices. Therefore, it is a way for Chevron to end their business in the country and definitively cease their operations with PDVSA. Foreign companies, such as Baker Hughes Co, Halliburton Co, Schlumberger NV and Weatherford International are also affected by this measure, although their operations in the country had been winding down.

https://www.elnacional.com/economia/ee-uu-renovo-licencia-de-chevron-para-operar-en-venezuela-pero-no-podra-perforar-o-transportar-petroleo/

https://www.elnacional.com/economia/ee-uu-acordo-permitir-que-chevron-mantenga-sus-activos-en-venezuela-aunque-sin-operarlos-hasta-que-salga-maduro/

“New vessels for Public Use by the Aquatic Transport Project (TAP) are in the phase of accommodation, paint and assembly.”

The construction work of passenger vessels by the Aquatic Transport Project (TAP), which is carried out by the National Institute of Aquatic Spaces in alliance with Venezuelan shipyards, continues to move forward despite of COVID-19, as stated by the Maritime Authority in order to reactivate the naval industry in the country.

http://www.inea.gob.ve/action/noticia?id=324

“The Political Opposition plans to reduce the royalties for oil companies in gas re-injection“

The plan is to implement the reduction of royalties to oil companies for gas re-injected into the fields, in order to attract investors after a possible political transition in Venezuela. The proposal consists of a 1% royalty on the re-injected gas, with the possibility of a complete exemption to prevent oil field operators from burning gas, in contrast to the Maduro regime, which occasionally charges companies a royalty of 30%.

The project is lined up with the reform to the Hydrocarbons Law proposed by the National Assembly, which is still under debate. This modification would allow national and foreign oil companies to maintain major control in joint ventures with Petroleos de Venezuela.

https://www.elnacional.com/economia/oposicion-planea-reducir-la-regalia-por-reinyeccion-de-gas/

“The Venezuelan Central Bank rejected the transfer of their funds in Citibank to the US Federal Reserve”

The Venezuelan Central Bank rejected the measure of the US Department of State that ordered Citibank to transfer the funds of the entity to the account of the US Federal Reserve. All of this as a result to the authorization by the National Assembly to transfer said balance.

https://www.elnacional.com/economia/el-bcv-rechazo-la-transferencia-de-fondos-en-citibank-a-la-reserva-federal-de-ee-uu/

“The National Institute of Aquatic Spaces facilitated maritime quarantine areas to anchor vessels with suspicion or certainty of COVID-19 cases on board”

In the midst of the COVID-19 pandemic, the National Institute of Aquatic Spaces enabled quarantine maritime areas in the aquatic districts of Las Piedras in the State of Falcon, Puerto Cabello in the State of Carabobo and Puerto La Cruz in the State of Anzoategui. Thus, any vessel suspected or known to have its crew or passengers affected with COVID-19, must anchor at the determined areas by the Maritime Authorities.

http://www.inea.gob.ve/action/noticia?id=300

  1. CASE LAW

This section comments on relevant case law during the corresponding quarter and our brief comments to it.

The Courts have been closed due to COVID-19 restrictions since 16 March. This has been extended on a monthly basis, most recently up to 12 August 2020.

III. LEGISLATION

This section expands on National and International Legislation adopted in the country and relevant to the industry.

National Decree N° 4.255 dated 4 June 2020

Sabina Nazareth Rodríguez Palencia was appointed as acting Vicepresident of Bolivariana de Puertos S.A. (BOLIPUERTOS).

National Decree N° 4.220 dated 29 May 2020

Value Added Tax, Import Tax and the Tariff determined by the Customs Regime, as well as any other tax or tariff applicable in accordance with the Law, will be exempted from paying in all import and sales of hydrocarbon-derived fuels, along with the supplies and additives intended to improve the quality of gasoline, whether this is carried out directly by the State, by companies exclusively owned by the State, by mixed companies or by private companies. This benefit will last for one year from the date of publication.

National Decree N° 4.196 dated 11 May 2020

The Decree creates a new State company, to be called PDV-PUERTOS, S.A., which will be a subsidiary of Petroleos de Venezuela, S.A., (PDVSA). The company will manage, administrate, develop, maintain and operate all the assets that take part of the ports and terminals of the PDVSA. It will carry out the proper control and supervision of import and export activities and all of the transport operations and trade services associated with the oil industry.

National Decree N° 4.197 dated 11 May 2020

Abrahan José Escola Román was appointed as General Manager of PDV-PUERTOS, S.A.

National Decree N° 4.194 dated 4 May 2020

Nicolas Maduro declared once again State of Exception and Economic Emergency, throughout all the national territory, given the extraordinary circumstances that still affect the social, economic and political areas and the security of the Nation.

National Decree N° 4.191 dated 27 April 2020

Asdrúbal José Chávez Jiménez was appointed as President of Petroleos de Venezuela, S.A (PDVSA).

National Decree N° 4.190 dated 27 April 2020

Tareck El Aissami was appointed as Minister of Oil.

Resolution N°090 dated 1 June 2020 from the Ministry of Health

States health regulations aimed to help mitigate and eradicate the spread of COVID-19 within Venezuela. The rules provided in this Resolution are applicable to commercial, banking, transportation, work units, registries, notaries and religious ceremonies.

Resolution N° 022 dated 28 May 2020 from the Ministry of Transportation

The Resolution provides some changes to the tariffs set out by the National Institute of Aquatic Spaces (INEA) in Resolution Nº 033 of 2 May 2018. Thus, the tariffs are set in EUR for national flagged vessels regarding custodial, towing and refloating maneuvers in the use and operation of the tugs according to the following schedule:

This payment already includes the 50% discount provided in the Law on Marine and Related Activities and will be paid to INEA in Bolivares at the exchange rate on the date the maneuver is performed.

For the foreign-flagged vessels the following rates apply:

Resolution N° 0012 dated 6 May 2020 from the Ministry of Ecological Mining Development

The Resolution provides the fees applicable to the activities of surveillance and control over the processes of exploration, exploitation, production, deposit, marketing, transportation of minerals and all activities related to the mining operations in Venezuela. The procedures will be carried out by the Mining Inspection Service (SENAFIM) and the fees will be reflected in PETROS as a reference since the payment is made in Bolivares.

Resolution N° 023 dated 1 April 2020 from the Ministry of Habitat and Housing

Rent payments for to main residences remain suspended until 1 September 2020. The main residence is understood as the real estate usually and permanently occupied by a person. The parties must be able to demonstrate this condition before the National Superintendence of Housing (SUNAVI).

By virtue of this suspension, the payment of the rent may be restructured or refinanced by agreement between the parties. However, the total payment of the rent cannot be immediately claimed at the end of the suspension.

The amounts agreed upon by any of the different payment methods may not be increased by default interest or any other compensatory method.

In line with the foregoing, the application of Article 91 of the Law on the Regularization and Control of Rent, related to evictions will be suspended for a period of 6 months from 23 March 2020.

  1. BILLS

This section lists draft regulations/bills being proposed to and/or discussed in Congress or relevant institutions.

The National Assembly is considering a project to reform the Hydrocarbons Law. Even though the draft has not yet been revealed to the public, sources assure that the proposal of the National Assembly will allow private companies to have a majority participation in the exploration and production processes together with PDVSA, having the capacity of directly exporting the crude. Similarly, PDVSA is allegedly allowed to sell its refineries to private companies. The reforms are aimed at achieving a production of 3 million barrels of oil per day, with the current production being around 660.000, according to OPEC figures.

https://lta.reuters.com/articulo/venezuela-petroleo-ley-idLTAKCN1V5248-OUSLT