Venezuelan oil industry subject to special transitory regime on operational and administrative matters

On April 12, 2018, the president of the Bolivarian Republic of Venezuela issued a Decree published in Official Gazette N° 41,376, also dated April 12, 2018, establishing a special and transitory regime on operational and administrative matters applicable to the Venezuelan oil industry (the Decree).

Purpose

The Decree sets forth a series of temporary measures on operational and administrative matters concerning the oil industry, which measures include granting certain powers to the Minister of the People’s Power for Petroleum (the Petroleum Minister), with the purpose of increasing the productive capabilities of Petróleos de Venezuela (PDVSA), its affiliates and the national petroleum industry (the Transitory Regime).

Powers granted to the Petroleum Minister

The Decree sets forth that the Petroleum Minister shall exercise the broadest powers in respect to organizing, managing and administering public sector oil companies, particularly PDVSA and its affiliates. Such new powers allow the Petroleum Minister to:

• Create, suppress or incorporate amendments to public sector oil companies, which includes the power to create, suppress, modify or centralize directive or management bodies of such companies, and/or their attributions or procedures.
• Set forth, suppress, amend or centralize attributions or procedures in specific companies, or standardize those corresponding to a group of them.
• Order the amendment of by-laws, procedure guidelines, internal rules and other internal governance instruments applicable to public sector oil companies.
• Create and regulate conglomerates formed by public sector oil companies in accordance with efficiency requirements.
• Issue general rules to be complied with by all public sector oil companies.
• Create, suppress, modify or centralize procurement commissions.
• Establish rules and procedures for the registration, engagement and suspension of clients and suppliers, or to directly suspend clients or suppliers if the results of the evaluation of such clients or suppliers, or the continuation of their engagement, is deemed a risk to the company’s patrimony or operability.
• Establish special rules and procedures for procurement based on category of products, goods and services.

Representatives, directors or individuals responsible for public sector oil companies must carry out the steps required to materialize the above-mentioned amendments, as instructed by the Petroleum Minister.

Amendments to rules or by-laws of public sector oil companies made pursuant to the Decree may modify the provisions of the respective incorporation decrees of the companies of the petroleum public sector.

New rules applicable to procurement

PDVSA and its affiliates are now required to acquire certain goods, services and works based on a price comparison methodology. Such goods, services and works include:

• Hydrocarbons and by-products, gas, LNG, diluents, lubricants, petrochemicals, packaging materials, among others;
• Infrastructure works complementary to the rendering of services for the oil industry; and
• Acquisition and supply of services related to food, transportation, vessel chartering, communication systems, computer systems, equipment and licenses, among others.

In addition, according to the Decree, the following goods, services and works will be acquired through the direct award of contracts methodology:

• Materials and chemical products, spare parts and equipment related to the following: drilling, well services, pumping facilities, production facilities, compressor plants and electrical systems, pipelines, chemicals and catalysts, oils, lubricants, equipment and spare parts for land, maritime and air vehicles, among others;
• Infrastructure works necessary for the oil industry; and
• Services related to maintenance, systems, equipment, devices and operation of infrastructure pertaining to the oil industry, which includes, but is not limited to: integral services related to drilling, maintenance of wells, cleaning, stimulation, and completion of wells; maintenance for facilities, compressor plants, production facilities, pipelines; among others.

Contracting entities must guarantee observance with principles of rationality and efficiency in contracting, and have available mechanisms to optimize the procedures of price consultation and purchases, avoiding intermediaries and giving preference to direct purchasers to producers.

Personnel

The Decree orders that professional, specialized, technical and administrative personnel and workers currently in national and international assignments must return to their original positions in order to consolidate efforts in their corresponding areas in accordance with the needs of the national oil industry.

Compliance with the Decree

The Petroleum Minister must provide quarterly reports to the president and notify the comptroller general of the republic about compliance with the Decree.

The Petroleum Minister may decide to cease the application of the special transitory regime and administrative measures set forth in the Decree.

Effective date

The Decree entered into force on the date of its publication in the Official Gazette and is valid until December 31, 2018, but its validity may be extended for a one-year period.