- 1.How common is project finance in your jurisdiction? In what sectors is project financing most common?
During the last decade project finance has not been very common in Venezuela. Sectors in which project finance has been used the most include energy, oil, gas and mining. However, project finance is still used rather than other types of financing, such as issuance of securities, since capital markets in Venezuela have been minimised in recent years. Issuing securities abroad is not that easy for Venezuelan project companies, since they would have to comply with procedures and requirements more demanding and cumbersome than the ones usually required in Venezuela.
- 2.What kinds of institutions typically act as sponsors and lenders in your jurisdiction? Why?
As for project financing, lenders had historically been multilaterals such as, the Overseas Private Investment Corporation (OPIC) and the International Finance Corporation (IFC). Commercial banks have acted as trustees in the arrangements and in some cases also as lenders. Sponsors have been mainly oil companies as well as midstream companies with major infrastructure investments. During recent years most of the lenders have been financial institutions incorporated in countries with whom Venezuela has broadened its commercial relationships. Accordingly, most of the investment is coming from such countries. It is worth mentioning, as an example, the Agreement between the Government of the Bolivarian Republic of Venezuela and the People’s Republic of China on Long Term Financial Cooperation (published in the Official Gazette No. 39.511, 16 September 2010) whereby the China Development Bank Corporation agreed to grant to the Social and Economic Development Bank of Venezuela certain revolving facilities, to be repaid through the delivery of Venezuelan crude oil and to be used mainly for investment in construction of infrastructure, energy and social, mining and agricultural development in Venezuela. The most important project finance opportunities ahead pertain to mandatory financing that the successful bidders in the Venezuelan heavy oil belt are committed to undertake and obtain. The private partners are in charge of that portion, and it should be underway soon.
- 3.What structures are most common?
In general, financings in Venezuela are mostly implemented by credit facilities or loans granted to the project company. However, for major infrastructure there have been both BOT as well as BOO. PPPs are not commonly used in Venezuela.
Also, de facto, a lot of the oil and gas financing in Venezuela is obtained by Petróleos de Venezuela, SA (PDVSA) simply by asking the foreign investors to carry its interest for a period of time. At some point, PDVSA then buys into the project. As an example, certain licences for non-associated gaseous hydrocarbons that were granted by the Ministry of the People’s Power for Energy and Petroleum (MENPET) as of the year 2003, establish the possibility for certain state-owned companies to acquire, once the declaration of commerciality is issued, a percentage of the gas project to constitute the association that will execute the development of the area, or a percentage of the licensee’s capital, in exchange for an acquisition price.
In such case, the ownership of the facilities and assets used in the gas activities will revert to the Republic upon termination of the right to perform the gas activities, without the Republic having to pay any indemnification.
- 4.Does local law require that the project company be organised under the laws of your jurisdiction? What is the typical legal form of a project company and why? Does local law require that any of the project company’s equity be held by local investors?
Generally speaking project companies do not have to be organised under the Venezuelan legislation, and their equity can be held by foreign investors.
Exceptionally, Venezuelan legislation may require that certain activities be performed by companies organised or domiciled in accordance with Venezuelan laws, or by companies where the state has direct or indirect shareholding participation.
For example, according to the Mining Law (published in the Official Gazette, No. 5,382, 28 September 1999); companies performing mining exploration and production activities must be domiciled in Venezuela. Also, according to the Organic Hydrocarbons Law (OHL; published in the Official Gazette No. 38.493, 4 August 2006) primary activities (exploration in search of hydrocarbon reservoirs, production of hydrocarbons in their natural state, gathering, and initial transportation and storage of such hydrocarbons) can only be performed by the state, either directly or through exclusively owned companies or companies in which the state has decision making control by holding over 50 per cent of the capital stock.
In certain other cases even though the legislation is silent the specific granting instruments or bidding protocol may require that the relevant company be organised under the laws of Venezuela.
The typical legal form of a project company incorporated under the Venezuelan law is of a sociedad anónima, where the responsibility of the shareholders, with respect to liabilities arising in connection with the activities carried out by the sociedad anónima, is limited to their participation in the capital stock of the sociedad anónima. This limited liability (of the shareholders of a sociedad anónima) is legally well protected except for very specific cases in which Venezuelan legislation and case law has allowed the lifting of the corporate veil.
- 5.Please describe the foreign investment regime in your jurisdiction.
Article 301 of the Constitution of the Bolivarian Republic of Venezuela (Constitution; published in the Official Gazette, No. 5.453, 24 March 2000) establishes as a general principle that foreign investment is subject to the same conditions of the local investment, but at the same time it states that foreign persons and companies shall not enjoy more favourable regimes than those established for national persons and companies. This provision also provides for the possibility that the Venezuelan state defends, through its commercial policy, the economic activities of the national companies. This general principle has been developed mainly through:
- Decree No. 2,095 issuing the Regulations of the Common Regime for Treatment of Foreign Capitals and on Trademarks, Patents, Licences and Royalties, approved by Decisions 291 and 292 of the Cartagena Treaty Commission (Decree 2,095, which is still being applied by Venezuelan foreign investment authorities even though some years ago Venezuela abruptly withdrew from the Andean Community; published in the Official Gazette, No. 34.930, 25 March 1992); and
- Decree with Rank and Force of Law for the Promotion and Protection of Investments (Investment Law; published in the Official Gazette, No. 5,390, 22 October 1999).
In this regard, article 13 of Decree 2,095 establishes that foreign investors have the same rights and obligations than the national investors, except for what it is expressly established in such Decree 2,095 and special laws.
On the other hand, the Investment Law contains several rights and incentives to protect foreign investors. Also, the Investment Law provides that treaties or agreements signed by Venezuela may contain provisions that offer greater protection for investments than those provided by the aforementioned law. Until this date, Venezuela has signed several agreements on encouragement and reciprocal protection of investments with several countries, including Canada, France, Germany, Russia, Spain, Switzerland and United Kingdom.
The Investment Law also creates the so-called ‘stabilisation agreements’ whereby the Venezuelan government guarantees that certain economic conditions will remain constant for the investment, subject to the agreement and during the term of the same, thereby allowing the specific investment to be unaffected by subsequent less favourable Venezuelan regulations.
- 6.Are there any restrictions on payments abroad or repatriation of capital by foreign investors?
An exchange control regime has been in place in Venezuela since the year 2003. Under this exchange control regime, the purchase and sale of foreign currency at the official exchange rate (currently 4.30 bolivars per US$1) can only be made through the exchange control authority (Comisión de Administración de Divisas - CADIVI) and the Central Bank of Venezuela (BCV).
Payments abroad can be freely made by any individual or legal entity if such payments are made from an offshore account held by such individual or legal entity.
With respect to payments abroad made from Venezuela and repatriation of capital, note that the exchange control rules establish the limited cases in which individuals and legal entities may acquire foreign currency at the official exchange rate through CADIVI. These cases include the import of goods, the payment of certain financial debts and the repatriation of capital. In these cases the individual or legal entity requesting the foreign currency has to comply with a procedure before CADIVI, which involves a registration requirement and authorisation to acquire foreign currency. Additionally, for purposes of repatriating capital the foreign investor must have its foreign investment registered with the respective foreign investment authority (such as the Superintendencia de Inversiones Extranjeras - SIEX). Alternatively, the acquisition of foreign currency in Venezuela (at an exchange rate usually higher than the official exchange rate) can be made:
- through the System of Transactions with securities denominated in Foreign Currency (Sistema de Transacciones con Títulos en Moneda Extranjera - SITME) which is only available for the import of goods and services (and therefore not available for repatriation of capital); and
- once active, it is anticipated also through the purchase of public debt bonds denominated in foreign currency, which can be acquired in Bolivars through the Bicentenary Public Stock Exchange (Bolsa Pública de Valores Bicentenaria) in Venezuela and then sold in foreign currency through stock exchanges outside Venezuela (where such bonds are listed).
It is important to point out that certain type of companies, such as the joint venture companies (empresas mixtas) created in accordance with the OHL, the Organic Gaseous Hydrocarbons Law (OGHL; published in the Official Gazette, No. 36.793, 23 September 1999) and the Organic Law for the Development of the Petrochemical Activities (Law of Petrochemical Activities; published in the Official Gazette, No. 39.218, 10 July 2009) do not have access or have limited access to foreign currency through CADIVI. This limitation does not apply to the foreign investors that have participating interests in such joint venture companies; however, since the procedure to obtain foreign currency for purposes of repatriation of capital must be carried out by the recipient of the foreign investment (in this case, the joint venture company) we cannot predict what would be the actual position of CADIVI with respect to such request.
- 7.Is it permissible for a project company to maintain offshore foreign currency accounts?
As a general rule, it is possible for a project company to maintain offshore foreign currency accounts. There are certain exceptions to this general rule. For instance, according to the exchange control rules, exporters must sell to the BCV a significant percentage of the foreign currency obtained as a result of the export of goods and services. Also, PDVSA and its affiliates have limitations with respect to the amounts of foreign currency they can keep in offshore foreign accounts. Finally, certain joint venture companies (empresas mixtas) created in accordance with the OHL, the OGHL and the Law of Petrochemical Activities, have the obligation to sell to the BCV the foreign currency that will not be used for purposes of making payments and disbursements abroad.
- 8.What recent measures has your government implemented to make projects in your jurisdiction more attractive to foreign investors? Has this involved making government or other local sources of co-financing more available for projects?
For purposes of increasing foreign investment in oil projects, especially those located in the heavy oil belt, the relevant granting instruments whereby the joint venture companies (empresas mixtas) were granted the rights to perform oil activities, provide for the possibility to grant certain temporary fiscal incentives (including reduction of royalties and extraction tax) to such companies, provided certain conditions are met. For instance, in the newly amended Windfall Profits Tax Law (Law Creating a Special Contribution on Extraordinary Prices and Exorbitant Prices in the International Hydrocarbons Market; published in the Official Gazette, No. 6.022, 18 April 2011) applicable to oil producers and exporters, there is an exemption for projects that are either new or contribute to incremental capacity.
- 9.Will any of the financing or project agreements need to be registered or filed with any government authority or otherwise need to comply with local formalities to be valid or enforceable? Even if not necessary for enforceability, is there any special advantage in complying with local formalities?
As a general rule, financing or projects agreements do not need to be registered or filed with any governmental authority or comply with local formalities (provided they are in written form) to be valid and enforceable. Securities granted as part of financings do require the compliance of certain formalities in order to be valid and enforceable. For instance, mortgages over real estate, chattel mortgages and non-possessory pledges must be registered before the relevant Civil Registry. Pledges (involving transfer of the assets’ possession) must be notarised before a public notary (so that the privilege conferred by the pledge is enforceable).
Lastly, technical assistance agreements and agreements for use of patents or trademarks must be registered before the relevant foreign investment authority (eg, SIEX) in case the recipient entity (the party that benefits from the technical assistance or the use of patents or trademarks) wishes to acquire foreign currency from CADIVI for purposes of making payments abroad under such agreements.
- 10.Are there any advantages in having the project company issue promissory notes that are governed by local law in addition to the credit agreement governed by New York?
Yes, for enforcement purposes. If promissory notes are subject to Venezuelan law and jurisdiction the lenders can be entitled to expedited proceedings and to attach assets.
- 11.Must any agreements be governed by local law?
As a general rule, finance agreements can be and are usually governed by foreign law. Project agreements can be governed by foreign law but they are usually governed by Venezuelan law. Securities involving assets located in Venezuela are usually governed by Venezuelan law. Specifically, securities involving real estate located in Venezuela must be subject to Venezuelan jurisdiction.
- 12.May a collateral agent act as the sole secured party for the benefit of a group of lenders whose composition may change from time to time?
Yes, a collateral agent may act as the sole secured party for the benefit of a group of lenders. However, we must distinguish two scenarios:
- if the collateral agent acts in its own name but for the benefit of a group of lenders, the lenders would not be disclosed as parties to the security and therefore would not be entitled to exercise the rights under the security directly (only through the collateral agent). In this case the composition of the lenders may vary from time to time; and
- if the collateral agent acts in the name and on behalf of the lenders, the lenders would be entitled to exercise their rights under the security directly. However, any change to the composition of the lenders would have to be reflected in the security by way of partial amendments.
- 13.May a security interest be granted with respect to all of a project company’s assets? Are any types of property considered personal in nature or ‘of public interest’ such that granting a security interest therein would not be permissible?
Security interests may be granted with respect to most of a project company’s assets, including its contractual rights and intangibles such as copyright and industrial property. In general, permits cannot be granted as security interest since such permits have been granted taking into account certain requirements that the project company has met. The lender can, however, obtain a security interest in, and foreclose on, the equity interests of the project company holding the permits. Foreclosure on assets ‘of public interest’ may be subject to certain additional procedural requirements. Security interests granted over assets that are thereafter declared as ‘of public utility’ and expropriated cannot be enforced against the expropriating governmental authority, and can only be used to claim a priority in right of payment over the expropriation price payable by the expropriating governmental authority.
With respect to after-acquired property, note that mortgages cannot be created over future assets. Usually, security documents contain an obligation of the borrower (or the person granting the security over the existing assets) to take any action necessary to make sure that the new assets will form part of the security and to execute all necessary documents to achieve such purpose within a specific period of time following the existence or acquisition of the asset. Security interests have preference except for certain privileged credits. Security interests created over after-acquired property would have the same preference as the security created over the existing property, unless there is a pre-existing security over the same assets.
- 14.What costs are associated with registering collateral security interests in your jurisdiction? Are such costs determined with respect to the obligations secured or the approximate value of the property?
Costs associated with notarising or registering collateral security will depend on the type of security that is being created. For example, the creation of a pledge over credits would only involve payment of minimal notarisation fees. On the other hand, registration of mortgages does involve payment of significant taxes which depend on the amount of the secured obligations.
- 15.Does your jurisdiction require lenders to stipulate the value of their collateral security in the relevant security documents? If so, what happens if at the time of foreclosure the property is worth more? Must such amount be stated in local currency even if the financing is in a foreign currency? If so, what protections may be implemented against devaluation of the local currency?
Certain collateral securities are not required by law to stipulate a value. In those cases of collateral securities where such stipulation is required, that value could be expressed in either local currency or foreign currency. However, in certain limited types of collateral securities there needs to be a value stipulated in local currency as a matter of law.
In those cases where the collateral security stipulates a value in local currency, and in order to reduce the economic effects of devaluation, it is possible to include a commitment of the borrower (or the person granting the security) to execute additional documentation to increase the value of the collateral security from time to time so that the relative value thereof remains the same during the life of the collateral security.
- 16.Does each item of collateral need to be individually identified in the security document to grant a valid security interest in that item? Or would a general description of the types of collateral covered be sufficient?
Yes, each item of the collateral must be individually identified (with serial numbers and any distinctive features) in the security document in order to grant a valid security interest over that item.
- 17.How do lenders satisfy themselves with respect to the absence of other liens on their collateral? Are liens centrally recorded or searchable? May contractors file mechanic liens? If so, are lien waivers enforceable?
There are certain types of liens that are required by law to be registered at certain Registry Offices. Even in those cases, liens are not centrally recorded or searchable, and thus in those cases liens could be searchable only on a registry office by registry office basis.
Mechanic liens and title insurance are not recognised or available under Venezuelan law.
- 18.What steps must a lender take to foreclose on a collateral security interest in your jurisdiction? How does a beneficiary of a guarantee provided by a local entity or granted under local law enforce such guarantee? Are any self-help remedies available? Is a public or private sale permissible or required? Is a judicial sale necessary? May lenders participate as buyers in any such sale, including by bidding the debt owed by the project company to them in lieu of cash? May any such sale be for foreign currency? Is foreclosure on a pledge of the ownership interests of the project company more efficient and less time-consuming than a foreclosure on individual assets of the project company?
Save in very specific limited cases (such a naval mortgages), the only way in which the beneficiary of a security can enforce its security interest is by following a judicial procedure for purposes of foreclosing the security. The judicial procedure that must be followed in order to foreclose a security will depend on the type of security, since each type of security is subject to a special judicial procedure. As a general rule, the beneficiary of a security cannot take the collateral in satisfaction of the debt.
Judicial procedures for purposes of foreclosing a security will always end up in a judicial public sale, unless the parties involved (the project company or owner of the asset affected by the security and the lender or beneficiary of the security) agree to solve the dispute in a different way (eg, through the amicable transfer of the collateral as a payment in kind in satisfaction of the debt). Lenders can participate in the public judicial sale and bid the debt owed to them in lieu of cash. Such public judicial sales are always in local currency.
Lastly, note that in terms of procedure foreclosure on a pledge of the ownership interests (eg, shares) of the project company is more efficient and less time-consuming than foreclosures on individual assets of the project company.
- 19.What creditors would enjoy a higher statutory priority with respect to the collateral security than the lenders?
The answer to this question depends on the type of security. For instance, judicial expenses related to conservation acts or foreclosure of movable property for the benefit of creditors, have preference over pledges and chattel mortgages. Also, expenses related to the attachment, deposit or foreclosure of a real estate property for the benefit of creditors, have preference over the mortgage of such real estate property. Certain tax credits have preference over the real estate mortgage registered after the date in which the tax credits became enforceable.
- 20.Would the lenders incur any liabilities upon foreclosure relating to project assets?
If the collateral security relates to a specific asset, the lender would not incur any liability upon foreclosure of the asset. If the collateral security covers a group of assets, such as in the case of a chattel mortgage over an on going concern, the lender could be exposed to certain liabilities (eg, tax and labour). By acquiring the shares of a project company the lenders’ liability would be limited to its participation in the capital stock of the project company (if, for example, the project company is a sociedad anónima).
- 21.What legal restrictions exist with respect to the operation of the project post-foreclosure by the lenders or their designee?
There are no legal restrictions with respect to ownership or operation of the project post-foreclosure by the lenders of their designee. The qualification of the service provided by the project company as a public service depends on a explicit qualification as such by the law and not on the jurisdiction of incorporation of the lender or their designee, but even if such service is so qualified as a public service the jurisdiction of incorporation of the lender or their designee does not, per se, prevent them from selling the project asset.
- 22.Would the agreement by a project company’s equity holders to make capital contributions to the project company be enforceable by the lenders in bankruptcy proceedings of the project company?
According to the Venezuelan Commercial Code (published in the Official Gazette, No. 475, 21 December, 1955), certain acts performed by the debtor during the so-called ‘cessation of payments’ period, or within 10 days before the cessation of payments period begins, are null and without effect with respect to the creditors (eg, the granting of privileges over debtor’s assets to secure payment obligations assumed prior to the above mentioned 10 day period). Additionally, any other onerous acts performed by the debtor after the cessation of payments period has began but before the declaration of bankruptcy may be annulled, if the persons that contracted with the debtor were aware of its situation when executing such acts.
An agreement by a project company’s equity holders to make capital contributions to the project company would be enforceable by the lenders, provided that such rights have been collaterally assigned by the project company to the lenders prior to the 10 day period above mentioned.
- 23.Can a project company organised under local laws validly submit to the jurisdiction of a foreign court?
Yes, a project company organised under local laws can validly submit to the jurisdiction of a foreign court.
There are at least two exceptions to this general rule. Both exceptions refer to the nature of the transaction or the dispute, rather than the nature of the project company involved in the transaction.
One exception is contained in article 151 of the Constitution which states that in contracts of public interest (unless inappropriate according to the nature of the contracts) and even though it is not expressly included, a clause shall be deemed incorporated whereby any doubts and disputes that may arise out of these contracts and that cannot be amicably solved by the contracting parties shall be solved by the competent courts of the Republic, in accordance with their laws, and for no reason or cause they may give rise to foreign claims. In turn, article 151 has an exception, which is that certain contracts of public interests can in fact be subject to foreign law and jurisdiction if their nature so allows that.
Another exception is contained in the International Private Law (published in the Official Gazette, No. 36.511, 6 August 1998), and it refers to the prohibition to subject to foreign courts or foreign arbitral tribunal disputes related to real estate located in Venezuela, or to matters that affect principles of public order.
Certain laws in the natural resources area, including the OHL, the OGHL and the Mining Law, contain a provision suggesting that the controversies arising out of the performance of the oil, gas or mining activities, and which may not be settled in a friendly manner by the parties, including arbitration in the cases permitted by the law, shall be settled by the competent courts of the Republic, under its laws, and for no reasons or causes shall it give rise to foreign claims. Even though these provisions mention the possibility to settle the disputes through arbitration, the provisions are poorly worded and therefore it is not clear whether, for example, such controversies can be subject to foreign arbitration. In the case of gas activities, the Regulations of the Organic Gaseous Hydrocarbons Law (published in the Official Gazette, No. 5.471, 5 June 2000) contain language that clarifies this issue by expressly allowing the resolution of controversies through final and binding arbitration. Unfortunately, in other cases such as the OHL, this has not been clarified. In any event, foreign arbitration is rarely available in the granting instruments issued in the natural resources area.
- 24.Is service of process by mail recognised in your jurisdiction or would the project company need to appoint a process agent?
No, summons in Venezuela are performed through officers of the relevant court or in accordance with the mechanisms expressly set forth in the conventions to which Venezuela is party.
- 25.Are foreign judgments and arbitral awards enforceable in your jurisdiction? If so, does any process of ratification or additional review need to be carried out in the local court system as a condition to such enforcement? Do sovereign or quasi-sovereign entities have the capacity to arbitrate as a matter of local law?
The Venezuelan Supreme Tribunal of Justice is the entity in charge of enforcing final and conclusive judgments obtained from foreign courts (provided that those judgments are issued in countries where judgments issued by Venezuelan courts are enforceable). The process for recognising and enforcing final and conclusive judgments obtained from foreign courts requires a confirmatory judgment (exequatur) by the Venezuelan Supreme Tribunal of Justice. An exequatur will be obtained, provided that certain conditions are met, including, that the foreign judgment concerns matters of private law, constitutes res judicata under the laws of the foreign jurisdiction in which it was rendered and does not relate to a subject matter that violates essential principles of Venezuelan public policy.
On the other hand, arbitration awards issued by arbitration tribunals constituted pursuant to the provisions of an arbitration clause will be recognised and enforced in Venezuela without the need to obtain an exequatur, unless certain issues exist, for example, the subject matter of the arbitration is a matter that pursuant to Venezuelan law may not be decided by arbitration, or the party against whom the arbitration award is to be enforced was, under the law applicable to it, legally incapacitated from entering into arbitration agreements at the time the arbitration agreement was concluded, or was not duly notified of the designation of an arbitrator or of the existence of arbitration proceedings or was otherwise unable to present its case.
Venezuela is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as well as to other conventions such as the Inter-American Convention on Extraterritorial Validity or Foreign Judgments and Arbitral Awards, and the Inter-American Convention on International Commercial Arbitration.
As a general rule, state or state-owned companies can validly agree and execute arbitration clauses, subject to the compliance of certain formalities (eg, authorisations). There is at least one exception to this general rule, which is contained in article 151 of the Constitution (please see question 23).
- 26.Is subordination of debt recognised under the law of your jurisdiction?
Subordination of debt is recognised under Venezuelan law. However, in case of bankruptcy of the project company, the subordination agreement executed during the so-called ‘cessation of payments’ period, or within 10 days before the cessation of payments period begins could be considered null or subject to annulment if the subordination relates to debts originated before the 10 day period prior to the ‘cessation of payments’ period.
- 27.Are there laws in your jurisdiction that regulate how tariffs payable to a service provider must be calculated? If so, please describe briefly.
Yes, there are regulations that govern the tariffs payable for the provision of certain services such as transport and distribution of gas, which tariffs are set in relation to the quantity of gas (expressed in cubic meters) transported or distributed.
- 28.Do environmental, tax or other liabilities relating to the project extend beyond the project company to the direct or indirect owners of the project company or to the lenders?
Liabilities relating to the project do not extend to lenders. There are certain provisions in the Venezuelan legislation that allow the lifting of the corporate veil in order to extend the liability beyond the legal entity to the direct or indirect owners of the project company. One example is the provision contained in article 94 of the Income Tax Law (published in the Official Gazette, No. 38,628, 16 February 2007) which allows the lifting of the corporate veil in those cases where the separate legal entity has been used with the main purpose of avoiding or reducing the effects of the application of taxes. Also, case law in labour matters has lifted the corporate veil in situations where separate legal entities where used for purposes of avoiding the compliance of labour obligations.
- 29.Are there any limitations with respect to importation of equipment or materials to be used in the project?
Yes, there are tax incentives applicable to the import of some categories of goods that the government deems necessary to promote certain economic sectors.
- 30.What land issues might there be in connection with a project financing in your jurisdiction? Are there any restrictions on foreigners’ ownership of land or natural resources? How difficult is it to obtain rights of way?
As a general rule, the ownership and control of the natural resources (oil, gas, mines, mineral reservoirs, etc.) belongs to the Republic; however private participation in the exploitation of such natural resources is possible under the terms and conditions set forth in the relevant regulations. These regulations also contain special procedures allowing beneficiaries of the oil, gas or mining rights to obtain temporary occupation and servitudes of the land on which the natural resources are located.
With respect to land, foreigners must obtain a prior authorisation from the Ministry of the Peoples’ Power on Defence Matters in order to purchase real estate in border security areas and areas surrounding military and basic industry installations. In the event the authorisation is denied, the real estate must be sold to a national citizen within a year, or after that period to the Republic. In the case of seashore and riverside areas and any other area deemed necessary by the National Executive for the security and defence of the Republic, foreigners must notify such acquisition to the competent first civil authority of the area within 90 days of execution of the corresponding acquisition contract.
- 31.Please describe any other relevant legal considerations relating to project finance in your jurisdiction.
There are no other relevant legal considerations relating to project finance in Venezuela.
- 32.Has specific PPP-enabling legislation been passed in your jurisdiction? If so, and if applicable, has it been passed at the federal, state or municipal level and is it sector-specific?
No specific PPP-enabling legislation has been passed in Venezuela. Usually the sate participates in business through incorporated entities. As an example of this, it is worth mentioning that the OHL (which would be the equivalent of a federal law in the US) allows the state to carry out primary oil activities through incorporated joint venture companies (empresas mixtas) owned by the state and one or more private entities (provided that the state holds over 50 per cent of the capital stock). A similar provision is also contained in the Law of Petrochemical Activities.
- 33.What legal limitations, if any, are there on PPP transactions? Are there any limitations on the contracting power of the state, the state’s ability to incur long-term fiscal obligations, or the extent to which certain government functions may be performed by the private sector?
Yes, the contracting power of the state is limited and most of the time subject to authorisations, procedures and formalities, all of which are contained in different regulations that may apply or not, depending on the nature of the contract to be executed by the state.
- 34.What are the most significant PPP transactions that have been completed to date?
As stated (please see question 3) PPPs are not commonly used in Venezuela.
However, it is worth mentioning that until this date several joint venture companies (empresas mixtas) have been incorporated between the state (through an affiliate of PDVSA) and private entities for purposes of carrying out oil activities.
- 35.What do you see as the primary impediments and drivers, both legal and commercial, to the development of PPP in your jurisdiction?
As main driver, we could mention that generally speaking those projects where the state has a participating interest usually enjoy from certain practical advantages, for example, for purposes of obtaining permits and licenses required to develop the project, which are usually granted in short periods of time. We see no impediments but perhaps it is worth mentioning that usually structures where the state has a participating interest, have a decision-making policy which practically requires the approval or favourable vote of the state (through the directors or representatives appointed by the state) for each and all decisions related to the project’s business and management.
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