22 Jun Gas Law
On April 26, 1999, by means of a special law (the «Enabling Law»), Congress granted special powers to the President of the Republic of Venezuela (the «Republic») to issue several decrees having the force of law. Amongst those decrees handed down was Decree 310 of September 23, 1999, which includes the Ley Orgánica de Hidrocarburos Gaseosos (hereinafter the «Gas Law»). The Gas Law came into effect at the time of its publication in the Official Gazette.
- Scope.
Article 1 of the Gas Law provides that all existing gas deposits in Venezuela, including those in Venezuelan territorial waters, belong to the Republic. These are considered goods of public domain and therefore cannot be sold to third parties. This principle had already been set forth in the “Law that Reserves to the State the Industry and Commerce of Hydrocarbons” of 1975.
However, under the Gas Law, licenses may be granted to private sector parties (including multinational companies) for the direct exploration and exploitation of gas that is not associated with oil. All other activities related to the exploitation, collecting, storage and use of natural gas, its processing, industrialization, transportation, distribution and its internal and external commercialization are also subject to the provisions of the Gas Law. Such activities can be carried out directly by public sector, or by private, national or foreign entities, with or without the participation of the Republic. All matters pertaining to liquid hydrocarbons and non-hydrocarbon components contained in gas hydrocarbons, as well as the gas resulting from oil refining, are also subject to the provisions of the Gas Law.
Activities directly or indirectly related to the transportation and distribution of gas for public use are deemed a public service (Article 5). This implies that the Republic can set the tariffs for such activities.
- Licenses and Permits.
In order to perform the activities, set forth in the Gas Law, it is necessary to obtain a license or a permit.
(a) Licensing – Exploration and Exploitation (Article 24):
National or foreign private entities (Investor) wishing to perform non-oil-associated gas hydrocarbon exploration or exploitation activities must obtain a license from the Ministry of Energy and Mines, currently Ministry of Oil and Mining. To obtain a license, the Investor must comply with the requirements set forth in Article 24 of the Gas Law (including: presentation of a description of the project, establishing a maximum 5-year period for the exploration program, delimitation of the exploration block, reference to any special payment made to the Republic). The maximum duration of a license is 35 years, and it may be extended for a term not to exceed 30 additional years.
(b) Permits – Other Related Activities (Article 27):
To carry out activities other than exploration and exploitation activities related to hydrocarbon gas (associated or not) produced by other persons, a permit from the Ministry of Oil and Mining must be obtained. The provisions for licensing, set forth in Article 24 of the Gas Law (above), are also applicable to permits.
Producers of hydrocarbon gas, associated or not, may enter into supply agreements with the parties, having obtained the permits referred to in Article 27 of the Gas Law.
- Supervision of Gas-Related Activities
The Ministry of Oil and Mining is responsible for supervising all activities related to the gas sector. The Ministry of Oil and Mining will take several steps aimed to encourage national capital to invest in Gas Law projects and to promote the use of goods and services produced in Venezuela where gas projects are concerned.
- Antimonopoly Provisions.
According to Article 9 of the Gas Law, the same entity cannot exercise or simultaneously control two or more production, transportation or distribution activities in one region. However, the Ministry of Oil and Mining may permit two or more activities to be carried out by the same entity when the project so requires. In such cases, the entity must keep separate accountings for each activity and treat each one as a separate business unit (Article 9).
- Pricing.
The Ministry of Oil and Mining will establish a fair price for gas hydrocarbons from the production and processing centers. The Ministry of Oil and Mining and the Ministry of Commerce, will jointly establish the tariffs applicable to final consumers and to services rendered under the law. Tariffs for minor consumers will be calculated on the basis of the price of acquisition of the gas, plus transportation and distribution rates. The determination of the tariff must take into account the following principles:
(i) transporters, distributors or warehouses must be permitted to obtain sufficient income in order to be able to cover their reasonable operational and maintenance costs as well as taxes, the depreciation and amortization of their investment, and thereafter clear a reasonable profit when compared with other similar activities which entail comparable risks;
and also
(ii) allowance must be made for the differences that may exist between various providers of similar services, due to disparities in the way such services are rendered by each, their location and distance between the point of sale and the extraction and processing plants.
Taking into account the principles indicated above, the tariffs should result in the lowest possible cost for the eventual consumers.
- Royalties.
Article 34 of the Gas Law provides that the exploitation of gas which is not re-injected into the bed will be subject to a 20% royalty. These royalties can be paid in cash or in kind, according to the stipulations of the Ministry of Oil and Mining. Where there are no such express stipulations, it will be deemed that royalties must be paid in cash.
- National Gas Entity.
The Gas Law provides for the creation of an entity to handle all matters related to the gas sector in Venezuela. For such purposes, the National Gas Entity was created under the supervision of the Ministry of Oil and Mining. The National Gas Entity enjoys functional autonomy. It is in charge of promoting the gas sector and its competence in all those phases of the gas hydrocarbon industry related to transportation and distribution. The National Gas Entity is managed by a Board of Directors composed of 5 members, appointed by the Ministry of Oil and Mining, following upon consultation with the President of the Republic.
- Prior Laws.
All previous regulations regarding gas matters enacted prior to the publication of the Gas Law will remain in effect in all those aspects that do not conflict with the Gas Law. The “Law that Reserves to the Republic the Industry of Natural Gas of 1971” was repealed by the Gas Law.
May 31, 2022