Venezuelan Legal And Economic Newsletter

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)...