Venezuelan Legal And Economic Newsletter

In the morning of June 29, 2001, the Caracas Room of the Four Seasons Hotel was buzzing in anticipation. The opening of the bids for the rights to explore and exploit 11 areas of non-associated gas was about to begin with the most coveted areas, Yucal Placer Norte and Sur. These two areas were awarded to the Trio Yucal Placer Consortium (Total, Repsol, Otepi and Inepetrol). Throughout the day, few offers were made and the risk takers obtained their areas with little effort and practically no competition. Despite the existence of a sound legal framework for the gas licenses, Venezuela has lost a great opportunity to attract solid foreign investment that would have resulted in greater development and prosperity, due to pricing and contractual uncertainties.

Energy:

On June 1, PDVSA Petróleo y Gas, S.A. announced its change of name to PDVSA Petróleo, S.A., effective as of May 22, 2001. The reason for the change is to distinguish between the activities of PDVSA Gas, S.A. (gaseous hydrocarbons) and those of PDVSA Petróleo, S.A. (liquid hydrocarbons) which will continue to be exploration, exploitation, production, upgrading, refining, supply and trade of crude oil.

As part of CITGO Petroleum Corporation's regional plan to increase its fuel and lubricant markets in Latin America, CITGO International Latin American opened the first CITGO gas station in Puerto Rico.

The Hamaca extra heavy crude oil project secured debt financing for approximately US$ 1.1 billion. The Export-Import Bank of the United States will provide a guarantee supporting approximately $628 million of bank funding. An additional $470 million facility will be provided by a group of lead arrangers comprised of Royal Bank of Scotland, BNP PARIBAS, Bank of Tokyo-Mitsubishi, Barclays Bank, Bayerische Landesbank, Export Development Corporation, ING Bank, and WestLB.

PDVSA and the SWEC Consortium (Williams, Enbridge Inc. and Northville) executed a service agreement for the operation and maintenance of the Jose Terminal in the State of Anzoátegui. According to the agreement, PDVSA will hold title to the assets and the SWEC Consortium will provide personnel, operations and maintenance services for a period of 10 years.

Reportedly Alfa Eko and Lukoil, two Russian oil companies, are negotiating various agreements with PDVSA such as: (i) the sale of oil to the Cuban Cienfuegos refinery, (ii) supply of crude from the Lithuanian port of Ventspils to the Gelsenkirchen refinery in Germany which is 50% owned by PDVSA; and (iii) the purchase of Venezuelan oil for Lukoils' gas stations in the U.S.

The Act of Presentation, Opening of Offers and Announcement of Awards of the Gas Licenses 2000 process was carried out on June 29, 2001. Six (6) of the 11 areas were awarded as follows: (i) Yucal Placer Sur was awarded to the Trio Yucal Placer Consortium (TotalFina (France), Repsol, (Spain) Otepi, (Venezuela) and Inepetrol (Venezuela)) with an offer of 12.5% to be paid in addition to the royalty; (ii) Yucal Placer Norte was also awarded to the Trio Yucal Placer Consortium with an offer of 2.51%; (iii) Barbacoas and Tiznado were awarded to Pluspetrol Resources Corporation (Argentina) with offers of 1.50% for each area; (iv) Barrancas was awarded to Repsol with an offer of 2.59%; and (v) Tinaco was awarded to Perez Companc (Argentina) with an offer of 3.2%.

The Ministry of Finance, PDVSA and the electricity companies as well as the Ministry of Energy and Mines are holding periodic meetings to review and monitor the electricity sector to maintain the quality and efficiency of the service. The problems arising in this sector are due to the poor conditions of the installed capacity of state owned companies such as CADAFE and ENELVEN (west portion of the country), which have not upgraded and/or maintained their infrastructure due to lack of budget.

Finance

Venezuela's third issue of bonds of public debt was offered for a total of 250 million Euros at an interest rate of 11.1% and with maturity of 10 years.

The Venezuelan government has requested the support of the Andean Development Corporation (Corporación Andina de Fomento CAF) in obtaining credit in international capital markets through the Partial Guaranty for Credit systems, originally used by Colombia. Through this system, the CAF partially...