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Leopoldo Ustáriz (Caracas)
Tel: (58-2) 276-5111
Fax: (58-2) 264-1532
SENIAT authorized the reimbursement of import duties to 114 exporting companies (Order No. 198 of 22 January 1996, O.G. No. 35,899 of 12 February 1996). SENIAT's Customs Management is in charge of enforcing this Order.
Leopoldo Ustáriz (Caracas)
Tel: (58-2) 276-5111
Fax: (58-2) 264-1532
A new system for the conversion of public debt into equity has been established, modifying and updating the system set forth by Decree No. 99 of 23 March 1994, now abrogated (Decree No. 1,217 of 14 February 1996, O.G. No. 35,907 of 26 February 1996). The principal aspects and innovations of the new system that will become effective on 26 March 1996 are the following:
(i) The areas for which conversion operations may be authorized were substantially reviewed and modified. Now, the areas that qualify for conversion are agricultural and agro-industrial production; irrigation and environmental remediation systems; industrial production and technical services in high technology sectors, especially in telecommunications, computer science, micro-electronics and biotechnology, petrochemical and coal production; processing of wood, cellulose and by-products; the production or acquisition of capital goods and services; tourism activities, including the endowment, expansion and remodeling of infrastructures; technological research and development; construction and improvement of infrastructure and equipment in projects under concession systems; the construction, remodeling, expansion and equipment of educational and research institutes; the construction, remodeling, expansion or equipment of medical assistance centers; the construction of low-income housing projects; and the development of small and medium enterprises, as well as community services.
(ii) The terms and conditions to be met by the applications for conversion shall be fixed by Cordiplan through a resolution.
(iii) The authority to approve conversion transactions continues to lie with the President of the Republic in Council of Ministers. The authorization shall set forth the total percentage of planned investment that will be funded through the conversion and the terms within which the conversion transactions must be made, as well as the follow-up mechanisms regarding project execution. The President in Council of Ministers must also approve the reformulation of projects authorized and the rescheduling of conversion programs.
(iv) The requirement that interested parties agree not to distribute annual dividends in excess of 10 percent of the investment during the 3 years following the date of the last conversion was eliminated, but the requirement to agree not to re-export the capital arising from the conversion during the 5 years following said date remains in force.
(v) When the agreement for the assignment of public debt bonds is entered into with the Central Bank of Venezuela (BCV), the paid-in capital of the company receiving the investment must be 5 percent of the total investment.
(vi) The price to be paid by BCV for the bonds will be: (a) thirty percent above the market price (average ten banking days prior to the date of the conversion), for projects in areas relating to research and educational institutes, medical assistance centers, social interest housing and small and medium enterprises. If the average price in this case is equal or higher than 76.92 percent of the security's par value, the BCV will buy it without discount; or (b) twenty percent above the average market price, for projects in the remaining areas. If the average price in this case is equal or higher than 83.33 percent of the security's par value, BCV will buy without discount.
(vii) Payments shall be made in bolivars, calculated at the rate of exchange set by the BCV pursuant to applicable exchange provisions. All bolivar proceeds from the conversion must be used for the authorized project.
(viii) Before signing the agreement for the assignment of the securities, investors must post a bond issued by domestic or foreign financial institutions or insurance companies, in an amount equivalent to 5 percent of the total amount of the conversion. The purpose of this bond is to guarantee BCV that the proceeds of the conversion will be used in the authorized project. The bond shall remain in force until the receiving company proves to BCV that the funds have been properly invested and the authorized project has been completed.
(ix) The investor must still establish a trust with a financial institution or an insurance company, who will act as trustee, for the administration of the proceeds of the conversion.
(x) While the converted funds not still transferred to the trustee remain with the BCV, they shall bear interest at the rate set by the BCV.
(xi) If the bond assignment agreement is not signed on the date set in the conversion program, the right to that portion of the conversion will be lost. In this case, the corresponding investment will be covered with resources from other financing sources.
(xii) Companies receiving the investment must file their audited financial statements by independent public accountants every six months to CORDIPLAN.
(xiii) Investors whose projects have been authorized prior to publication of Decree No. 1,217 and who did not make the investment, must reimburse the difference between the price at which they acquired the securities in the secondary market and the price actually paid by the BCV.
Leopoldo Olavarría (Caracas)
Tel: (58-2) 276-5111
Fax: (58-2) 264-1532
The Administration has agreed to increase the domestic price of gasoline to eliminate the losses of Petróleos de Venezuela, S.A. (PDVSA). PDVSA's operating subsidiaries have been forced to sell gasoline on the local market for less than their production costs. Increasing domestic gasoline prices is no easy task because of the social impact, the problem being that gas hikes cause increases in the cost of public transportation. To soften this impact and improve public transportation, the Government designed a "Program for the Improvement of Urban Transportation." An integral part of this program is the elimination of the current indirect subsidy for gasoline prices and its replacement with a direct subsidy to the owners of public transportation vehicles, on the theory that the recipients of the subsidy would not transfer the higher price of gasoline on to their users. The purpose of this article is to explain the mechanism used by the Government to implement the new system of direct subsidies.
By virtue of Resolution No. 45 of the Ministry of Energy and Mines, dated 22 March 1996, PDVSA's operating subsidiaries (i.e., Maraven, Lagoven and Corpoven) will receive a discount of one bolivar for every liter of gasoline they sell on the internal market, regardless of type or price. This discount is from the tax established in Article 43 of the Hydrocarbons Law. The tax is equivalent to 50 percent of the import duties on the importation of all the refined products that PDVSA's operating subsidiaries sell in the internal market. According to the Resolution, the amount of the discount could be increased in the future if the Government thinks it is necessary.
The monies resulting from this tax discount must be placed by PDVSA's operating subsidiaries into independent trusts to benefit the National Fund for Public Transportation (Fundación Fondo Nacional de Transporte Urbano, or Fontur). In turn, Fontur must use these monies only for the National Plan to Modernize Land Transportation. The trust agreements entered into by these subsidiaries with local banks will provide that Fontur may only use the amounts transferred to the trusts to invest in the renewal of the public transportation vehicles. Fontur will distribute the trust money among the various States and the Federal District on the basis of gasoline consumption.
Alvaro Posada (Caracas)
Tel: (58-2) 276-5111
Fax: (58-2) 264-1532
Resolution No. 96-02-01 of the Venezuelan Central Bank provides that for purposes of the mandatory legal reserve, liabilities assumed by financial institutions as a result of schemes adopted by the Financial Emergency Board shall not be computed by banks and financial institutions regulated by the General Law of Banks and Other Financial Institutions. This Resolution reduces the amount of reserves that must be maintained by financial institutions that have assumed financial liabilities as a direct result of the measures adopted by the Financial Emergency Board such as the so-called "migration or transfer of deposits." (Resolution No. 96-02-01 was published in O.G. No. 35,905 of 22 February 1996).
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