Exhibit D

This description of the Bolivarian Republic of Venezuela is dated as of September 30, 2016, and appears as Exhibit D to the Bolivarian Republic of Venezuela’s Annual Report on Form 18-K to the United States Securities and Exchange Commission for the fiscal year ended December 31, 2015.

TABLE OF CONTENTS

	Page
PRINCIPAL ECONOMIC INDICATORS		1
CURRENCY OF PRESENTATION		2
INTRODUCTION AND RECENT DEVELOPMENTS		2
BOLIVARIAN REPUBLIC OF VENEZUELA		10
THE VENEZUELAN ECONOMY		32
PRINCIPAL SECTORS OF THE VENEZUELAN ECONOMY		66
THE FINANCIAL SYSTEM		94
PUBLIC FINANCE		102
PUBLIC DEBT		111
TABLES AND SUPPLEMENTARY INFORMATION		115

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PRINCIPAL ECONOMIC INDICATORS

	As of or For the Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014(1)			2015(1)
	(percentage change)
Real Gross Domestic Product(2),(3)		4.2			5.6			1.3			(3.9	)		(5.7	)
Petroleum sector		0.6			1.4			0.9			(4.2	)		(0.9	)
Non-petroleum sector		4.5			5.8			1.8			(3.1	)		(5.6	)
Consumer prices(2),(4)
End of period		27.6			20.1			56.2			68.5			180.9
Average		26.1			21.1			40.6			62.2			121.7
Wholesale prices(2),(5)
End of period		20.7			16.6			52.4			66.5			251.9
Average		22.2			15.8			37.6			62.1			146.2
Unemployment (in %)(5)		8.3			8.1			7.8			7.1			6.7
	(in millions of U.S. dollars, except where noted)
Balance of Payments(2),(7)
Exports (f.o.b.)		93,747			97,877			88,753			74,714			29,527
Imports (f.o.b.)		(52,575	)		(65,951	)		(57,183	)		(47,508	)		(27,978	)
Trade balance		41,172			31,926			31,570			27,206			1,549
Current account		16,342			2,586			4,604			3,598			(13,037	)
Overall balance		(4,032	)		(996	)		(4,590	)		(718	)		(4,139	)
International reserves(2)
Gross international reserves		29,889			29,887			21,478			22,077			16,447
Net international reserves		29,508			29,356			20,767			21,257			16,272
Liquid operating reserves		5,998			5,964			2,064			3,719			3,198
Net liquid operating reserves		5,617			5,433			1,353			2,899			3,023
Other international monetary assets(2),(8)		72			0			0			0			0
Stabilization fund(2)		3			3			3			3			3
Average petroleum export price (U.S.$/barrel)		101.0			103.4			99.5			88.4			44.7
Imports coverage(2),(9)		6.8			5.4			4.5			5.6			5.3
	(in millions of 1997 Constant Bolívares)
Central Government
Total revenues		16,384.5			17,067.8			19,286.8			20,939.9			20,010.1
Total expenditures		19,291.3			20,596.9			20,737.1			21,510.1			19,135.5
Overall balance		(2,906.8	)		(3,529.1	)		(1,450.5	)		(570.2	)		874.5
(as percentage of real GDP)(10)		(5.0	)%		(5.7	)%		(2.3	)%		(1.0	)%		1.6	%
	(in millions of 1997 Constant Bolívares)
Consolidated Public Sector
Total Revenues		21,693.6			18,207.7			18,818.6			20,958.8			22,183.6
Total Expenditures		27,020.8			28,951.0			29,328.4			29,111.9			28,051.5
Overall Surplus (Deficit)		(5,327.2	)		(10,743.3	)		(10,509.8	)		(8,153.0	)		(5,867.9	)
(As percentage of GDP)(10)		(9.2	)%		(17.5	)%		(16.9	)%		(13.6	)%		(10.4	)%
Monetary aggregates(11)
Monetary base		(0.4	)		15.6			17.5			19.8			(5.5	)
Money supply (M2)		5.2			28.3			19.8			8.3			10.7

(1) Preliminary figures.

(2) 2015 figures are preliminary and are presented as of and for the nine-month period ended September 30, 2015.

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(3) Based on constant Bolívares of 1997 purchasing power (“1997 Constant Bolívares”). Calculations of real GDP growth figures include indirect taxes that are not included as components of petroleum or non-petroleum sectors.

(4) Figures correspond to the National Consumer Price Index (“NCPI”), Base: December 2007.

(5) Calculated with taxes.

(6) Average of semiannual figures. 2015 figure is the semi-annual average unemployment rate for the six-month period July-December 2015.

(7) Preliminary figures based on fifth edition of IMF Balance of Payment (BCV).

(8) Includes PDVSA rotatory fund.

(9) Calculated as gross international reserves divided by average annual level of imports.

(10) As a percentage of real GDP.

(11) The monetary aggregates were calculated in real terms using the Consumer Price Index (Base: 2007 = 100).

n.a. = Not available.

Sources: Banco Central (Banco Central de Venezuela or “Banco Central”), Ministry of Popular Power for Banking and Finance (Ministerio del Poder Popular de para la Banca y Finanzas or “Ministry of Finance”) and National Institute of Statistics (Instituto Nacional de Estadística or “INE”).

CURRENCY OF PRESENTATION

Unless otherwise specified or the context requires, references to “dollars,” “U.S. dollars,” “U.S.$” and “US$” are to U.S. dollars; references to “Bolívares” and “Bs.” are to Venezuelan Bolívares (“Bolívares”), the currency of the Republic; references to “Euro,” “EUR” and “€” are to the lawful currency of the European Union; references to “¥” are to Japanese yen; references to “CNY” or “RMB” are to Chinese yuan renminbi; and references to “bpd” are to barrels per day. As used herein, the term “billion” means one thousand million, or 1,000,000,000, and the term “trillion” means one thousand billion, or 1,000,000,000,000. Historical amounts translated into Bolívares or U.S. dollars have been converted at historical rates of exchange, unless otherwise stated. Unless otherwise noted herein, all references to Venezuelan Bolívares refer to nominal Bolívares. Certain amounts that appear herein have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not represent an arithmetical aggregation of the amounts that precede them. Certain tables, as indicated, contain preliminary figures.

Since 2003, foreign currency exchange in Venezuela has been subject to exchange controls that centralize the purchase and sale of foreign currency with Banco Central. The Ministry of Finance, together with Banco Central, is in charge of setting the exchange rate with respect to the U.S. dollar and other currencies. As of September 15, 2016, there were three exchange systems, which convert currency at different rates: the protected exchange rate (operaciones de devisas con tipo de cambio protegido or “DIPRO”), the Complementary System for Foreign Currency Exchange Administration rate (Sistema Complementario de Administración de Divisas or “SICAD”) and the complementary floating market rate (operaciones de divisas con tipo de cambio complementario flotante de mercado or “DICOM”). As of September 15, 2016, the exchange rates are: DIPRO: Bs.10.00 = U.S.$1.00, SICAD: Bs.13.50 = U.S.$1.00, and DICOM: Bs.652.66 = U.S.$1.00. The exchange rate for public external debt is based on the rate set by the DIPRO rate (ask). Current exchange rates are published daily on Banco Central’s website; however, the DICOM rate is published under the name “SIMADI” and “Convenio Cambiario No. 33.” For further information concerning the exchange control regime of the Republic and applicable exchange rates during the periods of presentation, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

INTRODUCTION AND RECENT DEVELOPMENTS

References to “Venezuela,” “Republic,” “Central Government,” “Government” and “National Executive”

References to the “Republic” or “Venezuela” are to the Bolivarian Republic of Venezuela. References to the “Central Government” refer to the national and federal branches of the government of the Republic. The “National Executive” refers to the national executive branch of the Central Government. The consolidated public sector is divided, in general terms, into three parts: the Central Government, the regional and local governments of the Republic and the decentralized state entities, which are collectively referred to as the “Government.” The decentralized state entities are corporations that are majority or wholly owned by the Republic.

Recent Social and Political Developments

Following the National Assembly elections in December 2015, in which members of the Democratic Unity Roundtable (Mesa de la Unidad Democrática or “MUD”) won a majority of seats in the National Assembly, members of the Partido Socialista Unido de Venezuela (“PSUV”), challenged the election of eight National Assembly members (five from the state of Aragua, two from the State of Amazonas and one from the State of Yaracuy). In December 2015, the challenges to the members from the State of Aragua and Yaracuy were dismissed by the Venezuelan Supreme Tribunal of Justice (Tribunal Supremo de Justicia or the “Supreme Tribunal”). On January 11, 2016, the Supreme Tribunal agreed to hear the remaining two challenges and expanded the scope of the inquiry to include all the election results from the State of Amazonas including one indigenous seat located in the State. Three of the Assembly

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members whose seats are under review are members of parties aligned with MUD and one is a member of a party aligned with PSUV. The Supreme Tribunal issued a temporary injunction prohibiting these four legislators from Amazonas (including two legislators whose seats were not initially challenged) from taking office until the Supreme Tribunal had ruled on the matter. On July 28, 2016, the National Assembly attempted to reinstate three of these legislators in violation of the injunction; however, the Supreme Tribunal ruled this was an unconstitutional exercise of the National Assembly’s authority. As of September, 2016, the election results for the four seats from Amazonas are still under review by the Supreme Tribunal. The next elections for the National Assembly are scheduled to be held in 2020. For more information on the National Assembly election and the recall process, see “Bolivarian Republic of Venezuela—Form of Government and Political Parties—National Assembly.”

In April 2016, members of MUD began a referendum process to recall President Maduro from office. The Venezuelan Constitution provides that the office of all magistrates and other elected officials, including the President, can be revoked after the first half of such individual’s term of office has elapsed, provided that certain legal requirements are met. To initiate the recall process, 1% of registered voters must sign a petition that is submitted to the National Electoral Council (Consejo Nacional Electoral or “CNE”). The CNE must certify these signatures and then, within three days of such certification, 20% of all registered voters must sign a second petition. After those signatures are certified, a referendum may be held. To succeed in recalling an official, the votes in favor of recall must equal or exceed the number of votes the official received in the initial election and a number of voters equal to or greater than 25% of the total number of registered voters must vote in the recall referendum. If a recall removes a sitting president from office, new elections will be held if the recall occurred during the first four years of the President’s current term. If the recall removes the President during the final two years of the term, the Vice President will serve out the term until the next election. In May 2016, citizens requested that the CNE certify signatures on a petition to recall President Maduro. Between June 20 and June 24, 2016, the CNE reviewed and validated the signatures to the petition. On August 1, 2016, the CNE certified signatures on the recall petition representing more than the 1% of registered voters needed to trigger the second stage of the recall process. The CNE has announced that the process of gathering signatures for the second petition is scheduled to occur between October 26-28, 2016. For more information on the recall process, see “Bolivarian Republic of Venezuela—Organization of the Venezuelan Government—The Executive Branch.”

In 2015 and 2016, political and social unrest has continued due to general shortages of basic consumer goods as a result of a drop in domestic food production; limited access to imports as a result of currency restrictions; smuggling; hoarding and other distribution problems. Consequently, the food distribution network has become an official target, and in some areas, long lines at food markets are not uncommon, contributing to the shortages of consumer goods. In addition, during the same period, Venezuela experienced a severe drought that contributed to an electricity crisis due to the country’s dependence on hydroelectric power, which further exacerbated these tensions.

During 2016, the National Executive continued its efforts to improve food access for the Venezuelan population and has distributed food to low-income populations in response to recent food shortages as part of its Nutrition Mission (Misión Alimentación), which was founded in 2003 to promote the equitable distribution of quality and low cost food by overseeing the wholesale and retail sale of food products. In 2016, the National Executive deployed Local Committees of Supply and Production (Comités Locales de Abastecimiento y Producción or “CLAPs”) as part of a direct distribution model designed to improve access to food and other necessities and prevent smuggling. In July 2016, the Central Government launched the Great Mission of Sovereign Supply (Gran Misión Abastecimiento Soberano) (Decree No. 2,367, published in Official Gazette No. 40,941, dated July 11, 2016), which created a national command, consisting of representatives of the National Executive, including the President, and headed by the Venezuelan Defense Minister, with the authority to oversee and coordinate food production and distribution. The Mission aims to use the operational capacity of the Venezuelan military to improve the production and distribution of food, medicine and other essential goods. For more information on food access and distribution, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

To address smuggling, crime, violence, and gang activity contributing to the social unrest, the Central Government launched a security plan in July 2015 known as Operation Liberation and Protection of the People (Operación Liberación y Proteccion del Pueblo or “OLP”), which was designed to coordinate the efforts of the Ministry of Interior Affairs, Justice and Peace (Ministerio de Interior, Justicia y Paz), the national armed forces and other security agencies to increase national security. OLP is comprised of the Homeland Security Plan (Plan Patria Segura), the Movement for Peace and Life (Movimiento por la Paz y la Vida), the Comprehensive Preventative Intelligence (Inteligencia Preventiva Integral) and programs designed to strengthen the implementation of justice to ensure peace in the country. Pursuant to the Homeland Security Plan, the National Executive conducted operations to dismantle 157 criminal gangs between July 2015 and July 2016.

In 2016, President Maduro issued a series of emergency decrees to combat the various economic, social and energy crises. For more information on the emergency decrees, see “Recent Legislative Developments—Emergency Decrees.” The measures President Maduro implemented pursuant to these powers to address the electricity crisis included the adoption of a load-management plan restricting electricity usage, a realignment of the country’s time zone to take advantage of longer daylight hours, and a shortened work schedule for public sector employees. Improving weather conditions and increased rainfall allowed the progressive lifting of these measures, including the load-management plan, which was in effect until July 4, 2016.

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In December 2015, the National Assembly appointed 34 new judges to the Supreme Tribunal, consisting of 13 principal judges and 21 substitutes. On January 7, 2016, the newly elected National Assembly created a special commission to review these judicial appointments made by the former National Assembly to ensure they complied with the proper procedures. On July 7, 2016, the commission issued a final report calling for the annulment of the appointments of the 34 judges. On July 19, 2016, the Supreme Tribunal nullified the actions of the National Assembly in creating the commission and the actions of the commission, finding that the National Assembly lacked the authority to review and revoke the judicial appointments.

In January 2016, President Maduro reorganized the executive cabinet, appointing a number of new ministers to offices including the Vice Presidency of the Republic (Vicepresidencia de la República), Vice Presidency for Economic Affairs (Vicepresidencia Sectorial de Economía), head of the Ministry of Popular Power for Industry and Commerce (Ministerio del Poder Popular para Industria y Comercio) and head of the Ministry of Finance (Decree No. 2,181, published in the Extraordinary Official Gazette No. 40,826, dated January 12, 2016). In addition, the following 4 ministries were created: (1) Ministry of State for Productive Economy (Ministerio de Estado para la Economía Productiva); (2) Ministry of Popular Power of Fisheries and Aquaculture (Ministerio del Poder Popular de la Pesca y Acuicultura); (3) Ministry of Popular Power of Urban Agriculture (Ministerio de Poder Popular de Agricultura Urbana); and (4) Ministry of Popular Power for Foreign Trade and International Investment (Ministerio del Poder Popular para el Comercio Exterior e Inversión Internacional). On February 15, 2016, President Maduro appointed the Minister of Popular Power for Industry and Commerce as Vice President for Economic Affairs in accordance with Decree No. 2,235, published in the Official Gazette No. 40,848, dated February 15, 2016, to replace the current Vice President for Economic Affairs. On March 9, 2016, President Maduro, in accordance with Decree No. 2,269, published in the Official Gazette No. 40,865, further reorganized the executive cabinet through the General Organization for the National Public Sector (Organización General de la Administración Publica Nacional). In June 2016, the Ministry of Popular Power for Oil and Mining (Ministerio del Poder Popular de Petróleo y Minería or “MPPPM”) was dissolved and responsibility for the oversight of the oil and mining sectors vested in two new ministries, the Ministry of Popular Power for Oil (Ministerio del Poder Popular de Petróleo or the “Ministry of Oil”) and the Ministry of Popular Power for Ecological Mining Development (Ministerio del Poder Popular de Desarollo Minero Ecológico or the “Ministry of Mining”) (Decree No. 2,350, published in Official Gazette No. 40,922, dated June 9, 2016). Also in June 2016, the Ministry of Popular Power for Essential, Strategic and Socialist Industries (Ministerio del Poder Popular de Industrias Básicas, Estratégicas y Socialistas) was created pursuant to Decree No. 2,357, published in Official Gazette No. 40,931, dated June 22, 2016. In August 2016, President Maduro replaced the Minister of Popular Power for Industry and Commerce (Decree No. 2,404, published in Official Gazette No. 40,957, dated August 2, 2016) and the Vice President for Economic Affairs (Decree No. 2,417, published in Official Gazette No. 40,960, dated August 5, 2016). Currently, there are 31 Ministries, two State Ministries, one Council of Ministers and five sectoral vice-presidents consisting of the Vice Presidency for Economic Affairs, the Vice Presidency of Planning (Vicepresidencia Sectorial de Planificación), the Vice Presidency for Social Development and Missions of the Revolution (Vicepresidencia Sectorial para el Desarrollo Social y Revolución de las Misiones), the Vice Presidency of Political Sovereignty, Security and Peace (Vicepresidencia Sectorial de la Soberanía Política, Seguridad y Paz), the Vice Presidency for the Development of Territorial Socialism (Vicepresidencia Sectorial del Desarrollo del Socialismo Territorial) and the Executive Vice Presidency (Vicepresidencia Ejecutiva).

In February 2015, the United States announced that it had imposed additional visa restrictions on a number of former and current Venezuelan government officials on grounds they were allegedly responsible for or complicit in human rights abuses against persons in Venezuela and were allegedly responsible for acts of public corruption. In March 2015, President Obama issued Executive Order 13692, which imposed sanctions against seven Venezuelan officials for their role in human rights violations and corruption within the Government. On March 4, 2016, President Obama notified the U.S. Congress that Executive Order 13692 was to continue in effect, because, in his view, the emergency situation in Venezuela had not improved, citing the Government’s human rights record, abuses in response to anti-government protests, and government corruption, among other factors. In response to the extension of Executive Order No. 13692, the Republic recalled its chargé d’affaires from Washington, D.C. on March 9, 2016. On July 15, 2016, the U.S. President’s authority to impose sanctions on individuals responsible for human rights violations in Venezuela was extended through December 31, 2019. For more information on sanctions imposed by the United States, see “Bolivian Republic of Venezuela—External Affairs and Membership in International Organizations.”

Recent Legislative Developments

Legal Challenges to Legislation

The newly elected National Assembly has passed several laws since assuming office in January 2016, which the National Executive has sent to the Supreme Tribunal to review on constitutional grounds. These laws include:

• Amnesty and National Reconciliation Law (Ley de Amnistía y Reconciliación Nacional), which would grant amnesty to people convicted of crimes relating to harm to people and damage to property during their participation in political protests and demonstrations.

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• Law of Partial Reform of Decree No. 2,179, the Organic Law of Partial Reform of the Venezuelan Central Bank Law (Ley de Reforma Parcial del Decreto No 2,179 de Ley Orgánica de Reforma Parcial de la Ley del Banco Central de Venezuela) (enacted by the National Assembly on March 3, 2016), which would amend Decree No. 2,179 to give the National Assembly oversight powers over Banco Central, including ratification powers over the appointment and removal of the President of Banco Central and its directors.

• Law of Partial Reform of the Organic Law of the Supreme Tribunal of Justice (Ley de Reforma Parcial de la Ley Orgánica del Tribunal Supremo de Justicia), which would increase the number of lead judges on the Supreme Tribunal, require that the Supreme Tribunal notify the National Assembly if the President requests a constitutional review of any legislation passed by the National Assembly and provide for a public hearing on any challenged legislation.

• Food and Drug Bond Law for Retirees and Pension Holders (Ley de Bono de Alimentación y Medicamentos para Jubilados y Pensionados), which would grant benefits to the elderly to permit them to buy food and medicine without having to spend pension resources.

• Law Granting Property Title to Beneficiaries of the Great Housing Mission (Ley de Otorgamiento de Títulos de Propiedad a Beneficiarios de la Gran Misión Vivienda Venezuela), which would grant title to beneficiaries of houses built through the Central Government’s Great Housing Mission (Gran Misión Vivienda Venezuela).

• Special Law to Address the Humanitarian Health Crisis (Ley Especial para Atender la Crisis Humanitaria en Salud), which would establish parameters through which Venezuelans may obtain free, high-quality medicine and acquire and distribute such medicine.

• Law of Partial Reform of Decree No. 2,165, the Organic Law that Reserves to the State the Activities of Exploration and Exploitation of Gold (Ley de Reforma Parcial del Decreto N° 2165 de Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación de Oro), which, among other things, would require the authorization of the National Assembly to conduct the exploration and exploitation activities contemplated by the law.

All of these laws were submitted to the Supreme Tribunal for constitutional review and found to be unconstitutional and therefore invalid.

New Legislation

On April 20, 2016, the National Assembly approved a bill that would amend the Constitution to reduce the presidential term from six years to four years and impose a two-term limit. To become effective, the bill would have to be approved in a referendum called by the CNE. On April 25, 2016, the Supreme Tribunal ruled that if the bill were passed, it would not apply retroactively to reduce President Maduro’s term in office because doing so would violate the Constitution.

Emergency Decrees

On January 14, 2016, President Maduro issued Economic Emergency Decree No. 2,184 (Decreto de Emergencia Económica), published in the Extraordinary Official Gazette No. 6,214, which imposed a 60-day state of emergency throughout Venezuela in order to ensure access to food and essential services and combat the economic crisis and high inflation. The decree gave President Maduro the power to: (1) dictate economic policies, (2) access funds allocated to the 2015 budget and make expenditures outside the appropriations made under the 2016 budget law, (3) avoid the exchange procedures established by CENCOEX and Banco Central in order to facilitate the importation of essential goods and (4) promote foreign investment and the socialist missions. The state of emergency was extended for an additional 60-day period on March 11, 2016 (Economic Emergency Decree No. 2,270, Extraordinary Official Gazette No. 6,219). On May 13, 2016, President Maduro issued Exception and Economic Emergency Decree No. 2,323 (Decreto de Estado de Excepción y Emergencia Económica), published in the Extraordinary Official Gazette No. 6,227, which declared a 60-day state of emergency due to extraordinary social, economic, political and ecological events. The decree granted additional emergency powers to President Maduro to combat the economic crisis and the electricity crisis, such as the power to impose controls on the production and distribution of goods and the power to maintain public order through the use of the armed forces. On July 12, 2016, President Maduro’s emergency powers under Exception and Economic Emergency Decree No. 2,323 were extended for a further 60-day period by Decree No. 2,371, published in Official Gazette No. 40,942 dated July 12, 2016. On September 13, 2016, President Maduro issued a new Exception and Economic Emergency Decree No. 2,452 (Extraordinary Official Gazette No. 6,256), which renewed President Maduro’s emergency powers, giving him the authority to promote food production and distribution, implement security plans and impose limited suspensions of sanctions against high-ranking government officials.

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The Constitutional Chamber of the Supreme Tribunal upheld the constitutionality of Economic Emergency Decrees No. 2,170 and No. 2,184 and Exception and Economic Emergency Decrees No. 2,323, No. 2,371 and No. 2,452, through ruling No. 4 dated January 20, 2016, ruling No. 184 dated March 17, 2016, ruling No. 411 dated May 19, 2016, ruling No. 615 dated July 19, 2016, and Ruling No. 810 dated September 21, 2016, respectively, when the National Assembly failed to approve them. For more information, see “The Venezuelan Economy—Economic Plan—Introduction and Overview.”

External Affairs

In May 2016, the National Assembly requested that the Organization of American States (“OAS”) apply the Inter American Democratic Charter (the “OAS Charter”) to convene a meeting of the Permanent Council to intervene in Venezuela. On May 31, 2016, Secretary General Luis Almagro requested that the Permanent Council invoke the OAS Charter against Venezuela, which could ultimately result in Venezuela’s suspension from the OAS. In June 2016, the OAS Permanent Council held an emergency meeting to discuss the request, which resulted in no action against Venezuela.

In July 2016, the Latin American Reserve Fund approved a three-year loan of U.S.$482.5 million to the Republic. The fund is the successor to the Andean Reserve Fund and is financed by eight Latin American countries: Bolivia, Colombia, Venezuela, Peru, Ecuador, Uruguay, Paraguay and Costa Rica.

In August 2016, the Republic assumed the pro tem presidency of Mercosur from Uruguay. In September 2016, Argentina, Brazil, Paraguay and Uruguay requested that the Republic comply with the conditions of its membership.

Recent Economic Developments

GDP

From 2011 to 2014, the economy grew at an average annual rate of 1.8%.

As of September 30, 2015, GDP totaled approximately Bs.56.4 billion in 1997 Constant Bolívares, a decrease of 5.7%, as compared to 2014. The decrease in 2015 was primarily due to a decrease in GDP derived from non-petroleum sector activities in the construction, manufacturing, commerce and financial sectors.

The 2016 Budget

In December 2015, the National Assembly approved the budget for 2016. The 2016 budget, as approved, projects total revenues of approximately U.S.$226 billion, excluding borrowing, and total expenditures of approximately U.S.$246 billion. The 2016 budget also contemplates a legal limit on borrowing by the Republic of U.S.$20 billion. The 2016 budget is based on certain assumptions, including a decline in real GDP of 1.7%, an average price for the Venezuelan oil basket of U.S.$40.00 per barrel, an exchange rate of Bs.6.30 = U.S.$1.00 and an annual inflation rate of 60%. Actual figures have materially differed from some of these assumptions. For example, as of September 30, 2015, real GDP declined by 5.7%, the average price of the Venezuelan oil basket as of September 15, 2016, was U.S.$38.71 and on March 9, 2016, the official exchange rate was increased to Bs.10.00 = U.S.$1.00.

As of May 2016, the National Executive approved U.S.$60.9 billion in supplemental budget allocations to several sectors, including education, social security, energy, mines and petroleum. For more information on the annual budget and the pluriannual framework which serves as the basis for the annual budget, see “The Venezuelan Economy—Economic Policy and Legislation—The Budget and the Pluriannual Framework.”

Exchange Control Regime

On March 9, 2016, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 35 (Convenio Cambiario No. 35), published in Official Gazette No. 40,865, dated March 9, 2016 and effective as of March 10, 2016. Currency Exchange Agreement No. 35 modified the exchange control regime by replacing the rate known as CENCOEX rate with a new protected exchange rate, DIPRO, used for the payment of public debt, priority imports, pension payments to Venezuelans living abroad and payments in certain priority government sectors such as health, sports, culture and scientific research and was initially set at Bs.10.00 = U.S.$1.00. Currency Exchange Agreement No. 35 also replaced the Marginal Currency System (Sistema Marginal de Divisas or “SIMADI”) rate with a complementary floating market rate, DICOM. The new DICOM rate is intended to promote national production and non- petroleum exports and was initially set at a rate of Bs.206.92 = U.S.$1.00. For more information on the exchange control regime, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

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Inflation

Venezuela has historically experienced high and volatile inflation rates. Inflation, as measured by the year-on-year change in the National Consumer Price Index (“NCPI”), increased 68.5% in 2014 and 180.9% in 2015. The increase in the NCPI in 2015 was primarily driven by increases in prices for food, restaurants and hotels, clothing and shoes, transportation, education and health services. For more information on inflation, see “The Venezuelan Economy—Inflation.” The Central Government has implemented programs and policies aimed at combatting inflation and its effects, such as programs designed to promote food production and distribution and improve food access and the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods. For more information on these programs, see “Recent Social and Political Developments.” In addition, the Central Government has reformed the exchange control regime, most recently through Currency Exchange Agreement No. 35 (discussed further under “The Venezuelan Economy—Exchange Control Regime—Currency Exchange Agreements.”

Foreign Trade and Balance of Payments

In May 2015, the Republic and Russian oil company Rosneft agreed to make investments of over U.S.$14 billion to increase oil production, through three joint ventures (empresas mixtas or “Joint Ventures”) between PDVSA and Rosneft within the Orinoco Oil Belt: Petromonagas, Petromiranda and Petrovictoria. In February 2016, Rosneft agreed to pay U.S.$500 million to PDVSA to increase its stake in Petromonagas. The deal will increase Rosneft’s ownership percentage to 40% with PDVSA owning the remaining 60%.

In May 2016, the Republic entered into an agreement with Trinidad and Tobago for the exploitation of gas shared between the two countries.

Employment and Labor

The average monthly unemployment rate for April 2016, the most recent available period, was 7.3%. The minimum wage has been increased three times in 2016: it was raised to Bs.11,577.81 on March 1, to Bs.15,051.15 on May 1 and to Bs.22,576.73 September 1.

Public Debt

On December 1, 2015, the 2016 Special Debt Law (Ley Especial de Endeudamiento Anual) was enacted, which authorizes the Republic to issue up to Bs.159.3 billion in new bonds and up to Bs.195.2 billion in total debt during 2016. As of June 2016, the Republic’s external public debt totaled U.S.$41.5 billion and internal public debt totaled to U.S.$89.7 billion.

Recent Developments in the Sectors of the Venezuelan Economy

PDVSA

In December 2015, charges were filed in the United States District Court for the Southern District of Texas against representatives of certain contractors and suppliers to PDVSA affiliates for the violation of anti-corruption and anti-money laundering laws, among other charges, in connection with international supply contracts and service contracts with a PDVSA affiliate during the period between 2009 and 2014. Additionally, certain former workers of a foreign subsidiary of PDVSA were accused of the same offenses. All the accused parties pleaded guilty to the charges between December of 2015 and June 2016.

On February 10, 2016, the National Executive authorized the creation of the Military Company of the Mining, Oil and Gas Industries (Compañía Anónima Militar de Industrials Mineras, Petrolíferas, y de Gas or “CAMIMPEG”) (Decree No. 2,231 published in Official Gazette No. 40,845). CAMIMPEG was established to provide services to the petroleum and mining sectors, such as the maintenance and repair of oil wells and rigs, the distribution and sale of chemical products and construction and transportation services.

In June 2016, PDVSA entered into agreements with three oil services firms, Halliburton, Schlumberger and Weatherford, and committed to provide lines of credit for the oil industry of up to U.S.$2.0 billion. In September 2016, PDVSA announced a U.S.$3.2 billion project to drill 480 wells in the Orinoco Belt, as part of a public tender where it awarded contracts to Schlumberger, Horizontal Well Drillers and Venezuelan entity Y&V.

On September 16, 2016, PDVSA launched an exchange offer for its 5.250% senior notes due April 2017 and 8.50% senior notes due November 2017. The new exchange notes mature in 2020 and bear interest at a rate of 8.50% per annum. The new exchange notes will be secured by a 50.1% equity stake in CITGO and will be guaranteed by a subsidiary, PDVSA Petróleo, S.A. (“PDVSA Petróleo”). The consummation of the offer is contingent upon the tender of at least 50% in aggregate principal amount of the existing notes.

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Mining

In February 2016, to combat the recent decline in oil prices and generate revenue, President Maduro announced a program to promote the development of the mining sector in the Orinoco belt, the Mining Engine (Motor Minero). The Mining Engine was created to (1) supply goods and services necessary to promote the exploration and exploitation of minerals such as gold, diamonds and coltan; (2) develop the potentialities of mineral reserves in the Orinoco belt; (3) implement a certification of mineral reserves; (4) reserve to the Republic the strategic mineral exploration and extraction rights through the Law for Productive Mining Development 2016–2018; (5) enter into international agreements to conduct development and exploration activities through joint ventures and (6) increase international reserves. As part of the program, the President created the Orinoco Mining Arc, a National Strategic Development Zone comprising approximately 112 square kilometers in the Bolívar State, to exploit the region’s mineral reserves in accordance with sustainable practices and respect for the environment (Decree No. 2,248, published in Official Gazette No. 40,855, dated February 24, 2016). In addition, the Republic signed agreements with operators from China, Canada and the Republic of Congo to exploit concessions in the region. On June 21, 2016, pursuant to ruling No. 177, the Supreme Tribunal agreed to hear a challenge to the designation of the Orinoco Mining Arc as a National Strategic Development Zone filed by certain citizens, including some former cabinet ministers. The claimants allege that the plan to develop the Orinoco Mining Arc violates applicable land use regulations as well as environmental and indigenous rights established by the Venezuelan Constitution.

Banking

In February 2016, the Ministry of Finance authorized the restructuring of the Industrial Bank of Venezuela (Banco Industrial de Venezuela or the “Industrial Bank”) (Official Gazette No. 40,846, dated February 11, 2016). In connection with the restructuring, the Industrial Bank will be liquidated and its assets and liabilities will be absorbed by the Treasury Bank. In June 2016, the Industrial Bank entered into an assignment agreement under which its credit portfolio will be assigned to the Treasury Bank. (Official Gazette No. 40,978, dated August 31, 2016).

Telecommunications

In July 2016, CONATEL announced a rate freeze on telecommunications services following price increases by telecommunications operators in Venezuela. As of September 15, 2016 the exchange rate applicable to public telecommunications companies is the DIPRO rate and the exchange rate applicable to private telecommunications companies is the DICOM rate.

In June 2016, Argentina withdrew from the consortium of countries sponsoring the TeleSur network. Currently, TELESUR is jointly owned by six countries: Venezuela, Cuba, Uruguay, Bolivia, Ecuador, and Nicaragua.

Agriculture and Livestock

In January 2016, President Maduro launched a 100-day urban agriculture scheme designed to promote farming in urban and semi-urban environments.

Disputes

In September 2002, Crystallex International Corporation (“Crystallex”) signed a contract with the Venezuelan Corporation of Guayana (Corporación Venezolana de Guayana or “CVG”) for the development and operation of the Las Cristinas mines. On February 3, 2011, CVG informed Crystallex that the contract had been cancelled due to non-performance of the project. On February 16, 2011, Crystallex filed a request for arbitration before the International Centre for Settlement of Investment Disputes (“ICSID”) against the Republic, alleging violations of the Bilateral Investment Treaty (“BIT”) between Venezuela and Canada seeking in excess of U.S.$3 billion in damages. The request was registered by the Secretary General of ICSID on March 9, 2011. The ICSID tribunal was constituted on October 5, 2011. Hearings were held in 2013 and 2014 in the matter. On November 25, 2015, while an award in the arbitral proceeding was pending, Crystallex filed a complaint in U.S. federal district court in Delaware seeking to recover U.S.$2.2 billion from PDVSA and CITGO Holding, alleging that PDVSA used a series of debt offerings to transfer assets out of CITGO Holding in anticipation of adverse arbitral awards against the Republic that rendered CITGO Holding effectively insolvent. These proceedings remain pending. On April 4, 2016, an ICSID arbitral tribunal awarded Crystallex. U.S.$1.2 billion plus interest in a proceeding relating to the Republic’s expropriation of Crystallex’s interest in the Las Cristinas mine. On April 7, 2016, Crystallex initiated a proceeding in the U.S. District Court for the District of Columbia for recognition and enforcement of the arbitral award. On July 5, 2016, the Republic filed a motion to set aside the award, contending that it violated provisions of the U.S. Federal Arbitration Act. On July 26, 2016, Crystallex filed a motion seeking an order that the Republic post a bond guaranteeing enforcement of the award. These proceedings before the federal district court are ongoing. In April 2016, a PDVSA affiliate was notified by the Court of The Hague that PDVSA’s ownership interest in certain European affiliates was subject to attachment for an amount of U.S.$1.5 million, based on a claim that PDVSA is jointly and severally liable for the debts of the Republic. Crystallex has filed requests for recognition and enforcement of the award in several other jurisdictions, including Canada. On July 20, 2016, the Superior Court of Justice of Ontario, Canada issued an order recognizing and permitting enforcement of the award.

On November 9, 2009, Gold Reserve Inc. (“Gold Reserve”) initiated an ICSID arbitration against the Republic for the expropriation of the copper and gold mines Las Brisas and Choco 5, respectively. The ICSID tribunal was constituted on March 9, 2010. On September 19, 2014, the tribunal rendered an award of U.S.$713 million plus interest in favor of Gold Reserve. The Republic

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appealed and on November 20, 2015, the Luxembourg Court of Appeal entered an order confirming the award, and entering judgment for Gold Reserve against the Republic. On the same date, the U.S. Federal District Court in Washington, D.C. issued an order also confirming the award and entering judgment in favor of Gold Reserve. As of November 2015, the total judgment exceeded U.S.$760 million. In February 2016, the Republic and Gold Reserve signed a memorandum of understanding that contemplated settling the arbitration and entering into a new joint venture to exploit the Las Brisas and Las Cristinas mines. In August 2016, the Republic entered into a settlement agreement with Gold Reserve under which the Republic agreed to pay a total of U.S.$770 million in two tranches in October and December 2016. The settlement also contemplates that the Republic will purchase mining data from Gold Reserve for an additional U.S.$240 million and that the parties will form a new joint venture to exploit the Las Brisas and Las Cristinas mines.

In 2007, ConocoPhillips initiated an ICSID arbitration against the Republic. The arbitration concerns ConocoPhillips’ interest in two extra-heavy oil projects located in the Orinoco Oil Belt—the Petrozuata Project and the Hamaca Project, and in an offshore project for the extraction of light to medium crude oil—the Corocoro Project. ConocoPhillips claims that the Republic breached provisions under the Netherlands-Venezuela BIT and the Foreign Investment Law when the Central Government increased the income tax rate and the extraction tax and mandated the transfer of operational control of oil projects, including the Petrozuata, Hamaca and Corocoro Projects, and the transfer of the exploration, production and commercialization rights to PDVSA. ConocoPhillips sought U.S.$30.0 billion in damages. On September 3, 2013, the arbitral tribunal decided that it had jurisdiction under the Netherlands-Venezuela BIT, but not under the Foreign Investment Law. Several claims were dismissed, but by majority vote, the tribunal concluded that the Republic “breached its obligation to negotiate in good faith for compensation for its taking of the ConocoPhillips assets.” The calculation of compensation was to be determined at a later date. The Republic requested the arbitral tribunal hold a hearing for submissions on the issue of good faith negotiations and consider new evidence, but on March 10, 2014, the arbitral tribunal dismissed the Republic’s request for reconsideration. On August 10, 2015, the Republic appealed for the second time to the arbitral tribunal to, as stated by the Republic’s Attorney General, “reconsider its position with respect to the ruling by the ICSID.” In February 2016, the tribunal declined to reconsider the ruling in favor of ConocoPhillips for the second time. The damages portion of the arbitration remains ongoing.

In June 2010, the Government took control of eleven oil rigs that were the property of U.S. driller, Helmerich & Payne, Inc. (“H&P”), after H&P and PDVSA could not agree on renegotiated rates and service plans. PDVSA intended to use the drills to increase oil production and to strengthen the country’s sovereignty over the oil sector. In September 2011, H&P brought a claim in the United States in federal court in the District of Columbia against PDVSA and the Republic, claiming unspecified damages resulting from the nationalization of the eleven oil rigs. On May 1, 2015, the United States Court of Appeals for the D.C. Circuit affirmed the district court’s denial of the Republic’s motion to dismiss H&P’s expropriation claim and remanded the case for further proceedings. On June 28, 2016, the United States Supreme Court granted the Republic’s petition for certiorari to review certain questions of law related to the expropriation exemption under the U.S. Foreign Sovereign Immunities Act. Supreme Court proceedings remain pending.

On July 25, 2016, Agroinsumos Ibero-Americanos, S.L. initiated an ICSID arbitration against the Republic claiming that the Republic violated a BIT with Spain when it appropriated its investments in two agriculture joint-ventures. A tribunal has not yet been constituted in the case.

On August 1, 2012, Canadian Mining Company, Rusoro Mining Ltd. (“Rusoro”) initiated an ICSID arbitration against the Republic, alleging that the Republic unlawfully expropriated its investments without compensation and imposed restrictions on gold exports in violation of the BIT between Canada and Venezuela. Rusoro operated two gold mines as well as other development projects in Venezuela. The ICSID tribunal was constituted on January 4, 2013 and on August 23, 2016, the tribunal issued an award in favor of Rusoro for U.S.$968 million plus interest.

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BOLIVARIAN REPUBLIC OF VENEZUELA

Geography and Population

Geography

Venezuela is situated on the northern coast of South America. To the north, it has a coastline of approximately 2,813 kilometers on the Caribbean Sea and the Atlantic Ocean. Colombia borders it on the west, Brazil on the south and Guyana on the east. Venezuela’s national territory of approximately 916,445 square kilometers includes 72 islands in the Caribbean. The Venezuelan territory varies from tropical to mountainous to Amazonian regions. Environmentally-protected areas comprise approximately 40% of the Venezuela territory.

Caracas, Venezuela’s capital and largest city, is Venezuela’s political, financial, commercial, communications and cultural center. According to calculated projections based on the 2011 Census prepared by the INE, Caracas (including the Capital District) had an estimated population of 2,084,074 million in 2016. The population of Maracaibo, the nation’s second-largest city, located near Venezuela’s most important petroleum fields and richest agricultural areas, had an estimated population of 1,678,570 million in 2016, based on the same data.

Part of the eastern border with Guyana is subject to a border dispute. Venezuela has claimed that certain territory occupied by Guyana should be considered part of Venezuela’s national territory. The area of dispute is currently under the control of Guyana. Under international accords, Venezuela and Guyana have agreed to seek a settlement of the territorial dispute; however, there is no deadline for resolving the matter. Since the signing of the accords, Venezuela and Guyana have periodically engaged in negotiations regarding the status of the territory. Nevertheless, the negotiations to date have not resulted in a final accord. In May 2015, the Republic created the Integrated Defense Zone Marine and Insular (“ZODIMAIN”), which claimed the waters off the Essequibo River region in the disputed territory. In July 2015, President Maduro requested that the United Nations mediate the dispute between Venezuela and Guyana. On July 6, 2015, Venezuela recalled its ambassador to Guyana and in early September 2015, delayed its acceptance of Guyana’s nominee for ambassador to the Republic. On September 27, 2015, the Republic and Guyana restored their respective ambassadors following a meeting between the President of the Republic, Guyana’s President and U.N. Secretary General Ban Ki-moon in New York.

Drug traffickers and guerrilla incursions from Colombia and other incidents present a continuing problem along the Venezuela/Colombia border. Venezuela has stationed armed forces on the sparsely-populated western border to control incursions and to protect Venezuelan ranchers residing in this area. In August 2014, the National Executive announced steps to close the border with Colombia during certain hours at certain times of the day in order to combat smuggling across the border. Subsidized goods available for sale under the Missions in Venezuela are hoarded and sold at higher prices in Colombia, leading to shortages in Venezuela and contributing to inflationary pressures. On August 19, 2015, President Maduro initially closed two border crossings to Colombia for 72 hours after three members of the Venezuelan military, who were conducting an anti-smuggling exercise, were shot dead. Between August and October 2015, the National Executive issued several decrees declaring a state of emergency in most of the municipalities in the affected states of Táchira, Zulia, Apure and Amazonas in October for an initial period of 60 days, along the Colombian border, closing several border crossings and restricting the movement of goods and enabling security forces to carry out vehicle checks in efforts to combat smuggling and drug-trafficking. On September 28, 2015, the Republic and the South American Union of Nations (Unión Sudamericana de Naciones or “UNASUR,”) agreed that Colombian citizens who were required to leave Venezuela from August 19, 2015 were permitted to return. The regional state of emergency was extended for subsequent 60-day periods until it was superseded by a nation-wide state of emergency instituted on January 14, 2016. Following two temporary border openings in July 2016, in which Venezuelans were permitted to cross into Colombia temporarily to buy necessities, Venezuela and Colombia agreed to gradually reopen the border starting on August 13, 2016. The reopening of the border is part of a larger framework to create a zone of peace along the border between the two countries involving five strategic objectives: combatting smuggling, strengthening bilateral trade, customs regulation, transport and health.

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Population

Venezuela’s estimated population in 2016 was approximately 31,028,637 million, of which approximately 67.5% were between the ages of 15 and 64 years. According to INE, as of December 31, 2014, the poor represented approximately 38.2% of the Venezuelan population. Figures for 2015 are not currently available. The following table sets forth comparative GDP figures for Venezuela and other selected Latin American countries:

	Venezuela(1)		Argentina(2)			Brazil		Chile		Colombia		Mexico		Peru
	(in U.S. dollars)
GDP (billions) (2015)(3)	$	371.3	$	548.1		$	1.775.0	$	240.2	$	292.1	$	1.144.3	$	192.1
GDP per capita (2015)(4)	$	18,309.15	$	12,751.39	(5)	$	15,359.33	$	22,316.21	$	13,800.79	$	17,276.64	$	12,402.42

(1) 2013 figures.

(2) 2014 figures.

(3) The World Bank national accounts data is based on the current U.S. dollar (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD).

(4) The World Bank Data: GDP per capita is based on purchasing power parity, except for Argentina (http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD).

(5) Calculated based on GDP (current U.S.$) divided by 2014 total population.

Source: The World Bank.

Form of Government and Political Parties

Venezuela is divided into 23 states, a capital district and various federal dependencies.

Venezuela has had a democratically-elected government since 1958, following the overthrow of a military dictatorship. The current Constitution, adopted in 1999, establishes the structure of the government, including the division of powers among the executive, legislative, judicial, civic and electoral branches, as well as individual and collective rights and duties.

On December 16, 2012, the most recent gubernatorial elections were held and candidates from the PSUV, the party of then-President Chávez and President Maduro, won 20 of the 23 gubernatorial offices. Candidates associated with opposition parties were elected in Miranda, Lara and Amazonas. The most recent elections for mayors and local officials were held on December 8, 2013, and candidates from the PSUV won 242 of the 335 local offices, with candidates from the opposition winning elections in certain major metropolitan areas, including Metropolitan District of Caracas and Maracaibo. The date for the next elections for governors has not been determined. The next scheduled election for mayors and local officials are expected to be in 2017.

On March 5, 2013, then Vice-President Nicolás Maduro became President of the Republic after the death of former President Hugo Chávez. On March 8, 2013, the Supreme Tribunal issued a decision confirming that under the Venezuelan Constitution, President Maduro could continue to serve as acting President and be a presidential candidate at the same time. President Maduro initially served as acting president and was elected to serve the remainder of President Chávez’s six-year term on April 14, 2013, capturing 50.6% of the vote. The next scheduled Presidential elections are expected to be in 2018.

On December 6, 2015, elections were held for all 167 seats in the National Assembly. The PSUV won 55 seats, members of the MUD opposition alliance won 109 seats and indigenous parties aligned with MUD won the remaining 3 seats. In December 2015, members of the PSUV challenged the election of eight National Assembly members (five from the state of Aragua, two from the State of Amazonas and one from the State of Yaracuy). In December 2015, the challenges to the members from the State of Aragua and Yaracuy were dismissed by the Supreme Tribunal. On January 11, 2016, the Supreme Tribunal agreed to hear the remaining two challenges and expanded the scope of the inquiry to include all the election results from the State of Amazonas including one indigenous seat located in the State. Three of the Assembly members whose seats are under review are members of parties aligned with MUD and one is a member of a party aligned with PSUV. The Supreme Tribunal issued a temporary injunction prohibiting these four legislators from Amazonas (including two legislators whose seats were not initially challenged) from taking office until the Supreme Tribunal had ruled on the matter. On July 28, 2016, the National Assembly attempted to reinstate three of these legislators in violation of the injunction; however the Supreme Tribunal ruled this was an unconstitutional exercise of the National Assembly’s authority. As of September 2016, the election results from the four seats from Amazonas are still under review by the Supreme Tribunal. The next elections for the National Assembly are scheduled to be held in 2020.

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Political Parties

Prior to the mid-1990s, the two largest political parties in Venezuela had been Acción Democrática (“AD”), and Partido Social Cristiano, (“COPEI”). These parties attracted support from a wide spectrum of political interests. Between 1958 and 1993, representatives of AD held the presidency five times and representatives of COPEI held the presidency twice. Commencing with the presidential election in 1993, voters became dissatisfied with AD and COPEI and several new coalition parties recorded electoral victories. In 1993, Rafael Caldera was elected President on the Convergencia party ticket. Former President Caldera had previously served as President between 1974 and 1979 as the COPEI candidate. In elections held in December 1998, Hugo Chávez Frias was elected as the candidate from the Movimiento Quinta República party, with support from other minor parties to the left of AD and COPEI. In accordance with the results of a popular referendum held in 1999, a constituent assembly was created to propose a new Constitution. The constituent assembly proposed a new Constitution, which was approved by the Venezuelan electorate and became effective on December 30, 1999. Former President Chávez was subsequently re-elected as President in elections held in 2000 following the adoption of the new Constitution and again in elections held in 2006 and 2012.

In December 2006, President Chávez proposed the creation of a unified political party, the PSUV, comprised of those political parties that supported the President. The PSUV officially registered with the National Electoral Council (Consejo Nacional Electoral) on April 17, 2008. In 2010, the PSUV joined other political parties that supported President Chávez and created the Alianza Patriótica, or Patriotic Alliance, to campaign for the September 2010 National Assembly elections. Parties that support the President are not obligated to join PSUV and can remain autonomous. The Great Patriotic Pole Simón Bolívar (El Gran Polo Patriótico Simón Bolívar) is a coalition of political parties and social movements in Venezuela on the left side of the political spectrum that was created in 2012 to support the re-election of President Chávez, which includes the PSUV. The Great Patriotic Pole Simón Bolívar obtained 5,616,639 votes in the 2015 National Assembly elections, representing 32.93% of the vote, which entitled the coalition to appoint 55 members of the National Assembly.

The MUD was created on January 23, 2008, as an alliance of various parties in opposition to then-President Chávez. The MUD opposition alliance was restructured on June 8, 2009. MUD held primary elections on February 12, 2012, to select a presidential candidate to run against President Chávez in the 2012 elections. The candidate elected during the primary elections was Henrique Capriles Radonski, governor of the Miranda State. On October 7, 2012, former President Chávez was re-elected President for a six-year term, receiving 55% of the vote. On December 16, 2012, Mr. Capriles was elected Governor of the Miranda State. In the 2015 National Assembly elections, candidates from parties in the MUD opposition alliance obtained 7,482,252 votes, representing 65.27% of the vote, which entitled the MUD opposition alliance to appoint 109 seats.

Current Presidential Administration

On March 5, 2013, President Chávez died. Pursuant to the Venezuelan Constitution, Vice-President Nicolas Maduro became acting interim President and new elections were planned for April 2013 to elect a president to serve the remainder of the Presidential term. On March 8, 2013, the Supreme Tribunal issued a decision that Mr. Maduro could serve as acting President and be a presidential candidate at the same time under the Venezuelan Constitution. Henrique Capriles Radonski temporarily withdrew from his position as governor of Miranda State to run as the opposition candidate to Mr. Maduro. In the election held on April 14, 2013, acting President Maduro was elected President for a six-year term, obtaining 50.6% of the vote, with Mr. Capriles receiving 49.0% of the votes cast.

The Maduro administration is currently pursuing policies initiated by the Chávez administration. President Maduro presented the Plan of the Nation, first introduced by former President Chávez during his 2012 presidential campaign and later implemented by President Maduro, which is a roadmap for the second stage of Venezuela’s transition to socialism. The Plan of the Nation establishes a series of macroeconomic targets and social programs and is founded on five strategic objectives: (1) the preservation of Venezuela’s independence; (2) the continued development of Bolivarian socialism for the 21st century; (3) the transformation of Venezuela into a regional social, economic and political power; (4) contribution to the development of a multipolar geopolitical order to promote peace and stability; and (5) preserving life on earth and saving the human race.

In September 2014, President Maduro initiated a reform agenda, referred to as the Five Revolutions (Cinco Revoluciones) designed to advance the transformation of the Republic to a communal State and to enhance popular power. The Five Revolutions consist of:

• the Economic Productivity Revolution (Revolución Económica Productiva), which aims to promote economic stability by developing a productive and diverse economy;

• the Knowledge, Science, Culture and Technology Revolution (Revolución del conocimiento, de la ciencia, cultura y tecnología), which aims to develop a new society founded on solidarity, community and development by promoting science, education, culture, technology;

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• the Revolution of the Socialist Missions (Revolución de las misiones socialistas), which aims to improve the quality of life for all Venezuelans and create a new society that guarantees basic social rights and life by promoting the Mission system;

• the Revolution of the Political State (Revolución Política del Estado), which aims to transform the Government to create a new administrative state founded in principals of democracy and justice and to increase popular power by implementing measures, including technology, to combat smuggling, corruption and bureaucratic inefficiencies; and

• the Revolution of Territorial Socialism (Revolución del Socialismo Territorial), which to aims to consolidate the communal model with environmental principles by establishing a new ecosocialism.

In April 2016, members of MUD began a referendum process to recall President Maduro from office. The Venezuelan Constitution provides that the office of all magistrates and other elected officials, including the President, can be revoked after the first half of such individual’s term of office has elapsed, provided that certain legal requirements are met. In May 2016, citizens requested that the CNE certify signatures on a petition to recall President Maduro. Between June 20 and June 24, 2016, the CNE reviewed and validated the signatures to the petition. On August 1, 2016, the CNE certified signatures on the recall petition representing more than the 1% of registered voters needed to trigger the second stage of the recall process. The CNE has announced that the process of gathering signatures for the second petition is scheduled to occur between October 26-28, 2016. For more information on the recall process, see “Bolivarian Republic of Venezuela—Organization of the Venezuelan Government—The Executive Branch.”

In January 2016, President Maduro reorganized the executive cabinet, appointing a number of new ministers, to offices including the Vice Presidency of the Republic, Vice Presidency for Economic Affairs, head of the Ministry of Popular Power for Industry and Commerce and head of the Ministry of Finance (Decree No. 2,181, published in the Extraordinary Official Gazette No. 40,826, dated January 12, 2016). In addition, the following 4 ministries were created: (1) Ministry of State for Productive Economy; (2) Ministry of Popular Power of Fisheries and Aquaculture; (3) Ministry of Popular Power of Urban Agriculture; and (4) Ministry of Popular Power for Foreign Trade and International Investment. On February 15, 2016, President Maduro appointed the Minister of Popular Power for Industry and Commerce as Vice President for Economic Affairs to replace the current Vice President for Economic Affairs in accordance with Decree No. 2,235. On March 9, 2016, President Maduro, in accordance with Decree No. 2,269, further reorganized the executive cabinet through the General Organization for the National Public Sector. In June 2016, the MPPPM dissolved and responsibility for the oversight of the oil and mining sectors vested in two new ministries, the Ministry of Oil and the Ministry of Mining pursuant to Decree No. 2, 350. Also in June 2016, the Ministry of Popular Power for Essential, Strategic and Socialist Industries was created pursuant to Decree No. 2,357. In August 2016, President Maduro replaced the Minister of Popular Power for Industry and Commerce (Decree No. 2,404, published in Official Gazette No. 40,957, dated August 2, 2016) and the Vice President for Economic Affairs (Decree No. 2,417, published in Official Gazette No. 40,960, dated August 5, 2016). Currently, there are 31 Ministries, two State Ministries, one Council of Ministers and five sectoral vice-presidents consisting of the Vice Presidency for Economic Affairs, the Vice Presidency of Planning, the Vice Presidency for Social Development and Missions of the Revolution, the Vice Presidency of Political Sovereignty, Security and Peace, the Vice Presidency for the Development of Territorial Socialism and the Executive Vice Presidency.

Organization of the Venezuelan Government

The Government is comprised of five branches at the national level, as well as state and local governments. The following is a description of the role of the various branches of Government:

Federal Government

The Executive Branch. Executive power is vested in the President and the Vice President, who is appointed by the President. Under the Constitution, the President is elected for a term of six years and may be re-elected for unlimited six-year terms. These Ministers together constitute the Council of Ministers. Under the Constitution, the President is the commander-in-chief of Venezuela’s armed forces. The different services within Venezuela’s armed forces report to the Minister of Defense.

The Constitution provides that the public can call for a legally-binding recall referendum at any time after the midpoint of the President’s six-year term. To initiate the recall process, 1% of registered voters must sign a petition that is submitted to the CNE. The CNE must certify these signatures and then, within three days of such certification, 20% of all registered voters must sign a second petition. After those signatures are certified, a referendum may be held. To succeed in recalling an official, the votes in favor of recall must equal or exceed the number of votes the official received in the initial election and a number of voters equal to or greater than 25% of the total number of registered voters must vote in the recall referendum. If a recall removes a sitting president from office, new elections will be held if the recall occurred during the first four years of the President’s current term. If the recall removes the President during the final two years of the term, the Vice President will serve out the term until the next election.

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The Legislative Branch. National legislative power is vested in the National Assembly. National Assembly members are elected by universal suffrage for terms of five years and may be re-elected for unlimited five-year terms. The number of members of the National Assembly is determined by the National Electoral Council on the basis of proportional representation by state.

The Judicial Branch. Judicial power is vested in the Supreme Tribunal and various lower tribunals. The Supreme Tribunal is the final court of appeals. It has the power to declare null and void laws, regulations and other acts of the executive or legislative branches that conflict with the Constitution. The Constitution provides that the National Assembly will appoint the justices of the Supreme Tribunal for twelve-year terms. Initially, the Supreme Tribunal Law (Tribunal Supremo de Justicia) provided for 20 judges of the Supreme Tribunal. In May 2004, the National Assembly approved an amendment to the Supreme Tribunal Law which increased the number of judges to 32. An absolute majority of the National Assembly can fill the new positions created by the amendment. On December 20, 2015, the National Assembly appointed 34 new judges to the Supreme Tribunal, consisting of 13 principal judges and 21 substitutes. On January 7, 2016, the newly elected National Assembly created a special commission to review these judicial appointments made by the prior National Assembly to ensure they complied with the proper procedures. On July 7, 2016, the commission issued a final report calling for the annulment of the appointments of the 34 judges. On July 19, 2016, the Supreme Tribunal nullified the actions of National Assembly in creating the commission and the actions of the commission, finding that the National Assembly lacked the authority to review and revoke the judicial appointments.

The Civic Branch. The civic branch is responsible for preventing, monitoring and sanctioning ethical and moral violations in connection with public administration. This branch is comprised of three entities: the Ombudsman (Defensoría del Pueblo), which promotes and monitors the protection of human rights; the Prosecutor General’s Office (Fiscalía General de la República), which promotes the fair administration of justice and judicial processes; and the Comptroller General of the Republic (Contraloría General de la República), which monitors and controls the administration of the Republic’s assets, revenues and public debt. The heads of these entities are appointed by the National Assembly. Candidates are evaluated and qualified by a committee of the National Assembly based on various criteria, such as education level and experience. Appointments are for seven-year terms. In December 2014, the National Assembly selected new appointees for the positions of Ombudsman, Prosecutor General’s and Comptroller General of the Republic for the period of 2015–2022.

The Electoral Branch. The electoral branch, which was created under the Constitution, is responsible for promulgating rules and regulations concerning elections. The electoral branch also monitors electoral processes, campaign financing and campaign advertising. The electoral branch operates through the CNE. The head and board of directors of the CNE are appointed by a two-thirds majority vote of the National Assembly. In the absence of a two-thirds majority, the Supreme Tribunal may appoint members of the CNE. The most recent appointments to the CNE in December 2014, were made by the Supreme Tribunal.

State Government

State executive power is exercised by a Governor who is elected by universal suffrage within each state. State legislative power is vested in state assemblies whose members are also elected by universal suffrage within each state.

Local Government

Mayors and Local Councils. Local executive powers is exercised by local mayors who is elected by universal suffrage within each municipality. Local legislative power is vested in local assemblies whose members are also elected by universal suffrage within each state.

Popular Power. On December 15, 2015, the National Assembly created the first National Community Parliament (Parlamento Comunal Nacional), which brought together representatives of Venezuela’s grassroots decision-making bodies, known as communal councils and communes, to promote the expression of popular power within communities.

National Assembly

On December 6, 2015, elections were held for all 167 seats in the National Assembly. The PSUV won 55 seats, members of the MUD opposition alliance won 109 seats and indigenous parties aligned with MUD won the remaining 3 seats. In December 2015, members of the PSUV challenged the election of eight National Assembly members (five from the state of Aragua, two from the State of Amazonas and one from the State of Yaracuy). In December 2015, the challenges to the members from the State of Aragua and Yaracuy were dismissed by the Supreme Tribunal. On January 11, 2016, the Supreme Tribunal agreed to hear the remaining two challenges and expanded the scope of the inquiry to the election results from the State of Amazonas including one indigenous seat located in the State. Three of the Assembly members whose seats are under review are members of parties aligned with MUD and one is a member of a party aligned with the PSUV. The Supreme Tribunal issued a temporary injunction prohibiting these four legislators from the State of Amazonas (including two legislators whose seats were not initially challenged) from taking office until the Supreme Tribunal had ruled on the matter. On July 28, 2016, the National Assembly attempted to reinstate three of these legislators in violation of the injunction; however, the Supreme Tribunal ruled this was an unconstitutional exercise of the National Assembly’s authority. As of September 2016, the four remaining challenges are still pending before the Supreme Tribunal. The next elections for the National Assembly are due to be held in 2020.

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While a three-fifths majority is required to enact enabling laws (Leyes Habilitantes), legislation that gives the President the power to issue laws without the approval of the National Assembly, a two-thirds majority is required to pass organic laws (Leyes Orgánicas), laws related to the structure and function of the Republic. A simple majority is required to approve ordinary laws. An absolute majority of the members present is required to override a presidential veto. Currently, the MUD opposition alliance has enough seats in the National Assembly to pass ordinary laws. Most of the National Assembly Committees are led by the MUD opposition alliance. The next elections for the National Assembly are expected to be held in 2020. The following table sets forth the number and party affiliations of the National Assembly as of September 2016:

Political Party(1)	No. of Seats
PSUV		52
Partido Comunista de Venezuela(2)		2
Vanguardia Bicentenaria Republicana(2)		1
Primero Justicia(3)		33
Acción Democratica(3)		26
Un Nuevo Tiempo(3)		22
Voluntad Popular(3)		15
Representación Indígena(3)		3
Others(3)		13
Total		167

(1) Four Assembly seats from the state of Amazonas are under review by the Supreme Tribunal.

(2) Aligned with the PSUV.

(3) Aligned with the MUD opposition alliance.

Enabling Laws

In December 2010, the National Assembly passed the 2010 Enabling Law, granting former President Chávez the power to legislate and approve laws by decree for a period of 18 months in a number of areas, including, among others, infrastructure, transportation, housing and public services. The passage of the 2010 Enabling Law resulted in part from the need for the National Executive to act quickly and decisively in response to record rains and floods that left thousands of Venezuelans without homes, jobs and access to basic services and seriously affected agricultural production. For the period during which the 2010 Enabling Law was in effect until its expiration in June 2012, former President Chávez issued 54 decrees for the following purposes, among others:

• addressing the need for permanent housing for those persons who lost their homes to floods or mudslides;

• creating an emergency fund to direct resources towards large-scale housing projects. For information about the emergency fund, refer to “Bolivarian Republic of Venezuela—Housing Programs;”

• a law on fair costs and prices that, as of November 2011, created a new commission to regulate prices and profit margins;

• creating the Socialist Agricultural Development Fund (Fondo para el Desarrollo Agrario Socialista or “FONDAS”) for the reconstruction of the agricultural sector;

• strengthening the Institutional Law of the Banking Sector (Ley de Reforma Parcial de la Ley de Instituciones del Sector Bancario);

to increase protection against fraud;

• providing persons of limited resources in Venezuela with decent housing through the Great Housing Mission;

• amending the existing labor law to improve labor conditions for workers;

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• amending the Law Creating the Special Tax on Extraordinary Prices and Exorbitant Prices in the International Hydrocarbons Market (Ley que crea Contribución Especial por Precios Extraordinarios y Precios exorbitantes en el Mercado Internacional de Hidrocarburos) (the “Oil Windfall Profits Tax”) to repeal certain provisions governing PDVSA’s contributions to the National Development Fund (Fondo de Desarollo Nacional or “FONDEN”), as well as allocating funds to various projects. For more information, see “The Venezuelan Economy—International Reserves—Banco Central Transfers;”

• nationalizing several companies in key sectors of the economy to improve productivity;

• creating the State Council to address matters of national interest; and

• reforming the Organic Law of the Financial Administration of the Public Sector (Ley Orgánica de la Administración Financiera del Sector Público or “the Public Sector Financial Administration Law”) to allow the National Executive to issue debt that exceeds the limits established by the annual Special Debt Laws in order to cover extraordinary expenses in emergency situations. For more information on the Public Sector Financial Administration Law, see “The Venezuelan Economy—Economic Policy and Legislation— Financial Administration of the Public Sector.”

In November 2013, the National Assembly passed the 2013 Enabling Law, granting President Maduro the power to legislate by decree on economic and other matters for a period of twelve months, without requiring the separate approval of the National Assembly. The 2013 Enabling Law was enacted to permit the National Executive to fight corruption and take quick, decisive action on economic matters. Through November 2014, President Maduro issued decrees covering a number of domestic security and economic areas, including, the following:

• The law establishing the National Center for Foreign Trade (Centro Nacional de Comercio Exterior or “CENCOEX”) and Venezuelan Foreign Trade Corporation (Corporación Venezolana de Comercio Exterior or “CORPOVEX”), published in the Extraordinary Official Gazette No. 6,116, Decree No. 601, dated November 29, 2013, aimed to manage all import and export activities of Venezuela. CENCOEX was created for the purpose of developing and implementing policies on foreign exchange, exports, imports and foreign investment into the country and investments abroad. CORPOVEX was created to oversee and rationalize imports, ensure that the Republic obtained the best quality and price of imported products and goods; achieve maximum efficiency in the country’s import/export process and centralize the provision of non-oil exports. For more information, see “Introduction and Recent Developments—Recent Economic Developments” and “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

• The Organic Law of Fair Prices superseded the Law on Fair Costs and Prices, published in the Official Gazette No. 40,340, Decree No. 600, dated January 23, 2014, and aimed to reduce inflationary pressures by supplementing existing regulations on fair pricing. The law established a maximum profit of 30% for each entity in the supply chain. The law also created the Superintendency for the Defense of Socio-Economic Rights (Superintendencia Nacional para la Defensa de los Derechos Socioeconómicos or “SUNDDE”) by merging the Institute for Defense of People in the Access to Goods and Services (Instituto para la Defensa de las Personas en el Acceso a los Bienes y Servicios or “INDEPABIS”) and the Superintendentcy for Fair Costs and Prices (Superintendencia Nacional de Costos y Precios “SUNDECOP”), the governmental entities previously charged with verification of fair prices. SUNDDE’s objectives include: (1) determining fair prices for goods and services through cost structure analysis; (2) establishing a profit ceiling; and (3) controlling economic and commercial activity in order to protect citizens’ incomes and wages. Decree No. 1,467 amended the Organic Law of Fair Prices, (Extraordinary Official Gazette No. 6,156, dated November 19, 2014) to (a) increase the penalties for violations of the fair price rules; (b) create the National Intendancy for the Protection of Worker’s Salary (Intendencia Nacional para la protección del salario del Obreno y Obrera) to provide a legal platform for workers to file claims against businesses that engage in alleged hoarding or speculation and (c) provide a mechanism for the continual adjustment of fair pricing in all stages of the chain of production, distribution, importation, transportation and marketing of goods and services. The Organic Law of Fair Prices was further amended by Decree No. 2,092 Organic Law of Fair Prices (Ley Orgánica de los Precios Justos) under which (1) SUNDEE has the authority to establish or modify the prices of goods and services; (2) SUNDEE and CENCOEX are jointly tasked with ensuring that the cost of a good or service conforms to the established rate; (3) penalties for violations of the fair price laws were increased; and (4) additional sanctions were enacted (Extraordinary Official Gazette No. 6,202, dated November 8, 2015). For more information, see “The Venezuelan Economy—Inflation.”

• The Law Regulating Real Estate Leases for Commercial Use (Extraordinary Official Gazette No. 40,418, Decree No. 929, dated May 23, 2014), imposed limits on the amount of rent commercial property owners may charge. The law allows the lessor and lessee to choose among a fixed rental payment, variable rental payment based on the percentage of sales, or a mixed rental payment (including fixed and variable rental payments components). The law also provides formulas and guidelines to determine the rental amounts assessable.

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• The Law of the Exchange Regime and its Crimes (Extraordinary Official Gazette No. 6,150, Decree No. 1,403, dated November 18, 2014), provided that (i) any person who uses foreign currency acquired for a purpose prohibited by the Republic’s exchange rate mechanism may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (ii) the falsification or forgery of financial statements may be punished by imprisonment for between one to three years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (iii) those who directly or indirectly promote or encourage the commission of illegal acts may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per dollar or equivalent currency. Decree No. 2167 amended the Law of the Exchange Regime and its Crimes, as published in the Extraordinary Official Gazette No. 6,210, dated December 30, 2015. The new law (1) repealed the Law of the Exchange Regime and its Crimes of 2014; (2) mandated the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; and (3) criminalized the use of exchange rates other than the official exchange rates. For more information, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime—Law of the Exchange Regime and its Crimes.”

• The Organic Law of Missions, Great Missions and Micro-Missions (Extraordinary Official Gazette No. 6,154, dated November 19, 2014), established social programs aimed in the areas of education, food, health and others, to improve the social welfare of poor Venezuelans. Micro-Missions focus on resolving discrete problems that confront communities from time to time. Missions focus on addressing the root causes of poverty in order to increase the social welfare of Venezuelan citizens. Great Missions focus on resolving socioeconomic problems that require collaboration between different sectors of the economy and Government agencies. For more information, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

• Regulations under the Law of Disarmament, Arms Control and Ammunition, published in the Extraordinary Official Gazette No. 6,129, Decree No. 881, dated April 8, 2014, aims to regulate and control the use, registration, manufacture, sale, supply, storage, registration, import, export, transit and transportation of all kinds of weapons, ammunition and components.

In March 2015, the National Assembly passed the Enabling Anti-Imperialist Act (Ley Habilitante Antiimperialista para la Paz) published in the Extraordinary Official Gazette No. 6,178 dated March 15, 2015, granting President Maduro the authority to pass laws by presidential decree between March 15 and December 31, 2015, on matters relating to the economy and other areas. Between December 28 and December 30, 2015, President Maduro exercised this authority to issue a number of decrees, including the following:

• Reforms to the Law of the Central Bank of Venezuela (Ley del Banco Central de Venezuela) (Decree No. 2,179, Extraordinary Official Gazette No. 6,211, December 30, 2015), which (1) gives the President the power to appoint the president of Banco Central; (2) eliminates the need for the approval of the National Assembly in connection with appointments and removals of directors of Banco Central and (3) gives Banco Central the authority to regulate the import or export of or other trade in Venezuelan and foreign currency.

• Reforms to the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (Decree No. 2,163, Extraordinary Official Gazette No. 6,210, dated December 30, 2016), which (1) imposes new measures to limit tax deductions; (2) modifies inflation adjustments to promote the banking, financial and insurance sectors; (3) streamlines the tax regime applicable to cooperative associations and foundations and rebates for investment and (4) regulates the availability of revenues.

• The Law of Taxation on Major Financial Transactions (Ley de Impuesto a las Grandes Transacciones Financieras) (Decree No. 2,169, Extraordinary Official Gazette No. 6,210, December 30, 2015), which imposes a tax on certain financial transactions, such as withdrawals from call deposits and money market funds, certain transfers of checks, securities and negotiable financial instruments and certain inter-bank loan operations.

• Reforms to the Law of Exchange Regime and its Crimes (Ley del Régimen Cambiario y sus Ilicitos) (Decree No. 2,167, Extraordinary Official Gazette No. 6,210, December 30, 2015), which (1) repeal the Law of the Exchange Regime and its Crimes of 2014; (2) mandate the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; (3) criminalize the use of exchange rates other than the official exchange rates; (4) simplify the process for obtaining foreign currency and (5) establish an alternative currency market.

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• The Organic Law that Reserves to the State the Exploration and Exploitation of Gold and Other Strategic Minerals (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro y demás Minerales Estratégicos) (Decree No. 2,165, Extraordinary Official Gazette No. 6,210, December 30, 2015) (the “Mining Law”), which aims to promote economic development and curb Venezuela’s dependence on oil through economic diversification and which vests authority for all mining operations with the Ministry of Mining. For further information on the Mining Law, see “Principal Sectors of the Venezuelan Economy—Mining.”

• The Organic Law for the Development of Petrochemical Activity (Ley Orgánica para el Desarrollo de las Actividades Petroquímicas) (Decree No. 2,171, Extraordinary Official Gazette No. 6,210, December 30, 2015), which reserves to the state the right to produce basic and intermediate petrochemicals, including chemical or physical transformation of raw materials based on gaseous and liquid hydrocarbons and minerals, and grants to the Ministry of Oil the authority to regulate petrochemical production.

• The Capital Markets Law (Ley de Mercado de Valores) (Decree No. 2,176, Extraordinary Official Gazette No. 6,211, December 30, 2015), which (1) establishes a legal framework to promote the financing of productive companies through national public debt instruments by brokerage firms; (2) renews and expands the authority of the national securities regulator, the National Securities Superintendency (Superintendencia Nacional de Valores or “SNV”), to regulate the capital markets to include new issuers, such as small and medium-sized companies; (3) gives the National Securities Superintendency the discretion to accept more limited disclosure from certain small and medium-sized companies; (4) promotes capital markets in accordance with international financial standards and protects the financial resources of investors while minimizing risks through regulation; (5) allows licensed broker-dealers to participate in the market for public bonds; (6) sets forth special authorization requirements for foreign corporations that wish to conduct the same activities as brokerage companies or stock exchanges; and (7) establishes procedures for the imposition of sanctions for violating the capital markets laws.

• The Law of the National Integrated Service for the Administration of Customs Duties and Taxes (Ley del Servicio Nacional Integrado de Administración Aduanera y Tributaria or “SENIAT”) (amended by Decree No. 2,177, Extraordinary Official Gazette No. 6,211, December 30, 2015), which is intended to modernize SENIAT and prohibit speculation, counterfeiting and drug trafficking activities that impact taxation.

• The Law on Insurance (Ley de la Actividad Aseguradora) (Decree No. 2,178, Extraordinary Official Gazette No. 6,211, December 30, 2015), which grants special powers to the Superintendency of Insurance to intervene in the insurance industry, such as the ability to order the payment of insurance claims and impose fines for wrongdoing on the part of insurance companies, and places certain restrictions on insurance and reinsurance companies.

• The Law of Presidential Councils of the Government of Popular Power (Ley de Consejos Presidenciales de Gobierno del Poder Popular) (Decree No. 2,161, Extraordinary Official Gazette 6,209 dated December 29, 2015), which creates a system of Presidential Councils to promote grass-roots decision-making and popular power.

• further reforms to the Public Sector Financial Administration Law (Ley Orgánica de la Administración Financiera del Sector Público) (Decree No. 2,174, Extraordinary Official Gazette No. 6,210, December 30, 2015), which (1) allow the President and the Council of Ministers to modify budgetary allocations created through legislation or other administrative acts; (2) reduce the National Assembly’s control over credit operations by enabling the National Executive to execute some of the transactions contemplated by the Special Debt Laws without the need for further authorization from the National Assembly.

• reforms to the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (Decree No. 2,163, Extraordinary Official Gazette No. 6,210, dated December 30, 2016), which (1) impose new measures to limit tax deductions; (2) modify inflation adjustments to promote the banking, financial and insurance sectors; (3) streamline the tax regime applicable to cooperative associations and foundations and rebates for investment and; (4) regulate the availability of revenues.

For more information, see “The Venezuelan Economy—Economic Plan—Introduction and Overview.”

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Legal Challenges to Legislation

The newly elected National Assembly has passed several laws since assuming office in January 2016, which the National Executive sent to the Supreme Tribunal to review on constitutional grounds. These laws include:

• Amnesty and National Reconciliation Law which granted amnesty to people convicted of crimes relating to harm to people and damage to property during their participation in political protests and demonstrations.

• Law of Partial Reform of Decree No. 2,179 of the Organic Law of Partial Reform of the Venezuelan Central Bank Law, which amended Decree No. 2,179 to give the National Assembly oversight powers over Banco Central, including ratification powers over the appointment and removal of the President of Banco Central and its directors.

• Law of Partial Reform to the Organic Law of the Supreme Tribunal of Justice, which increased the number of lead judges on the Supreme Tribunal, required that the Supreme Tribunal notify the National Assembly if the President requests a constitutional review of any legislation passed by the National Assembly and provided for a public hearing on any challenged legislation.

• Food and Drug Bond Law for Retirees and Pension Holders, which granted benefits to the elderly to permit them to buy food and medicine without having to spend pension resources.

• Law Granting Property Title to Beneficiaries of the Great Housing Mission, which granted title to beneficiaries of houses built through the Central Government’s Great Housing Mission.

• Special Law to Address the Humanitarian Health Crisis, which would establish parameters through which Venezuelans may obtain free, high-quality medicine and acquire and distribute such medicine.

• Law of Partial Reform of Decree No. 2,165, the Organic Law that Reserves to the State the Activities of Exploration and Exploitation of Gold, which, among other things, would require the authorization of the National Assembly to conduct the exploration and exploitation activities contemplated by the law.

All of these laws were submitted to the Supreme Tribunal for constitutional review and found to be unconstitutional and therefore invalid.

On April 20, 2016, the National Assembly approved a bill that would amend the Constitution to reduce the presidential term from six years to four years and impose a two-term limit. To become effective, the bill would have to be approved in a referendum called by the CNE. On April 25, 2016, the Supreme Tribunal ruled that if the bill were to be passed, it would not apply retroactively to reduce President Maduro’s term in office because doing so would violate the Constitution.

Emergency Decrees

On January 14, 2016, President Maduro issued Economic Emergency Decree No. 2,184, published in the Extraordinary Official Gazette No. 6,214, which imposed a 60-day state of emergency throughout Venezuela in order to combat the economic crisis and high inflation. The decree gave President Maduro the power to: (1) dictate economic policies; (2) access funds allocated to the 2015 budget and make expenditures outside the appropriations made pursuant to the 2016 budget law; (3) avoid the exchange procedures established by CENCOEX and Banco Central, in order to facilitate the importation of essential goods and (4) promote foreign investment and socialist missions. The state of emergency was extended by decree for an additional 60-day period on March 11, 2016. On May 13, 2016, President Maduro issued the Exception and Economic Emergency Decree No. 2,323, which declared a 60-day state of emergency due to extraordinary social, economic, political and ecological events. The decree granted additional emergency powers to President Maduro to combat the economic crisis and the electricity crisis, such as the power to impose controls on the production and distribution of goods and the power to maintain public order through the use of the armed forces. On July 12, 2016, President Maduro’s emergency powers under the Exception and Economic Emergency Decree No. 2,323 were extended for a further 60-day period by Decree No. 2,371. On September 13, 2016, President Maduro issued a new Exception and Economic Emergency Decree No. 2,452, which renewed President Maduro’s emergency powers, giving him the authority to promote food production and distribution, implement security plans and impose limited suspensions of sanctions against high-ranking government officials.

The Constitutional Chamber of the Supreme Tribunal upheld the constitutionality of the Economic Emergency Decrees No. 2,170 and No. 2,184 and the Exception and Economic Emergency Decree No. 2,323 and No. 2,371, through ruling No. 4 dated January 20, 2016, ruling No. 184 dated March 17, 2016, ruling No. 615 dated July 19, 2016, and ruling No. 810 dated September 21, 2016, respectively, when the National Assembly failed to approve them.

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The Federal Government Council

On February 22, 2010, the Organic Law of the Federal Government Council (Ley Orgánica del Consejo Federal de Gobierno) was passed, creating the Federal Government Council (Consejo Federal de Gobierno). The Federal Government Council is chaired by the Vice President of the Republic and is composed of all the Ministers and Governors, one Mayor of each state and 20 citizens of communal entities created under the Popular Power regime. It is the body responsible for planning and coordinating policies and actions in order to continue with the process of transferring authority from the national government to states and municipalities. Its executive arm is the Inter-Territorial Compensation Fund (“ICF”), which finances public investment aimed at promoting balanced regional development, cooperation and support of policies and development initiatives from the various regional public bodies, focusing on essential services and projects in the regions of the less developed communities. Pursuant to the law, the President may create special development districts to promote economic, social, scientific and technological projects within a given region. One of the priorities of the Federal Government Council is to fund, promote and monitor compliance of all planned investments and priorities including those related to the development of adequate housing throughout the country, with the support and cooperation of regional and local governments. The Federal Government Council’s budget is funded by executive branch contributions, assigned resources, other earned income, donations, and sources arising from other laws, such as those relating to the Law of Special Economic Assignments Derived from Mining and Hydrocarbons Activity (Ley de Asignaciones Económicas Especiales Derivadas de Minas e Hidrocarburos). In 2015, an additional Bs.112.7 million (U.S.$17.9 million) was transferred to the Federal Government Council, bringing the total amount transferred to the Federal Government Council since its inception to Bs.224.8 million (U.S.$35.7 million, calculated at the official exchange rate as in effect on December 31, 2015).

In 2014, the Federal Government Council approved two investment plans to fund local governments throughout Venezuela. In February 2014, the Federal Government Council allocated 70% of the annual ICF investments to local governments to finance local projects. In June 2014, the Federal Government council approved the second investment plan to reapportion ICF funding in accordance with the needs of local projects.

Domestic Initiatives

The Maduro administration is pursuing the policies initiated by the Chávez administration that are aimed at transforming Venezuelan society within a model that is broadly referred to as “Socialism for the 21st Century,” in which the concepts of political participation and social inclusion are cornerstones.

Given the profound economic disparities across social stratums, the domestic initiatives focus on the need to redirect economic resources to the poorer segments of society to create the proper conditions for sustainable growth and to maximize welfare for the inhabitants of Venezuela. In addition, the initiatives aim to give a greater voice to workers in business enterprises. The following are examples of initiatives that are being or have been undertaken:

• the reallocation of unproductive business assets to more productive activities to promote job creation;

• the creation of new ministries with responsibility for housing, nutrition, gender equality and financial aid;

• the creation of the Great Mission of Sovereign Supply, which gives the Venezuelan Defense Minister the authority to oversee and coordinate food production and distribution;

• the creation of a plan to construct mobile structures with the ability to process, store and sell fish, which will be installed in rural and suburban areas and operated by the CLAP and the Ministry of Fisheries and Aquaculture;

• the creation of a 100-day urban agriculture scheme designed to promote farming in urban and semi-urban environments;

• the mandatory allocation of a portion of commercial banks’ credit portfolios to pivotal economic areas such as housing, agriculture, tourism and manufacturing;

• the strengthening of existing, and creation of new, national development and social funds to provide specific resources to major infrastructure projects and massive social programs;

• the introduction of diverse initiatives of co-management and self-management among workers, employers and supervisors, as options to reshape either state companies and/or abandoned manufacturing facilities, as a fast-track measure to utilize these entities and to promote stable job generation;

• the creation of government-owned entities to provide low-cost commercial services with a high level of social impact, such as airlines, telecommunications and food chain distribution;

• the formation of joint ventures for certain cement and chemical companies and foodstuff producers and retailers;

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• the creation of the National Company for Public Works (Empresa Nacional de Obras Públicas) for carrying out public works;

• the creation of the Agrifood Presidential Commission to ensure food security and sovereignty through increased coordination among the various governmental agencies and enterprises and the private sector;

• the enactment of a joint resolution earmarking 20% of annual gross credit portfolio of banks to mortgages for the purchase, construction and improvement of primary residences;

• the enactment of the laws regulating fair prices, for the purpose of reducing inflation by establishing a cost structure and controlling excessive profits of companies;

• the formation of funds by public sector financial institutions to provide financing for the acquisition and repair of rental housing;

• the creation of Missions with the objective of providing social services in sectors such as health, education and employment;

• the formation of two funds: National Savings Fund for the Working Class (Fondo de Ahorro Nacional la Clase Obrera or “FANCO”) and the Popular Savings Fund (Fondo de Ahorro Popular or “FAP”), for purposes of promoting savings and alternative methods for the payment of social debts;

• the implementation of the plan Street Government (Gobierno de Calle), which seeks to establish direct contact with workers, students and communities throughout the country;

• the purchase of all companies in the electricity sector and the National Telephone Limited Company of Venezuela (Compañía Anónima Nacional Teléfonos de Venezuela or “CANTV”), Venezuela’s largest telephone carrier, to secure stability in service rates and minimize their impact on inflation;

• the purchase of all companies in the cement sector and Siderúrgica del Orinoco, C.A., (“SIDOR”), Venezuela’s largest steelmaker, to help reduce prices in Venezuela;

• the purchase of Bank of Venezuela (Banco de Venezuela, S.A.), the largest bank in Venezuela;

• the creation of the “Tarjeta Somos” program, which provides young people access to various financial services and financial and economic activities;

• the creation of a joint venture between Venezuela and Mabe de Venezuela to increase the domestic production of household goods, such as kitchens and washing machines; and

• the execution of agreements and engagement in joint ventures between Venezuela and several automobile and automotive-related companies to assemble cars, tractors and trucks as well as automobile engines.

Since the beginning of 2013, the Government has adopted and/or implemented certain legislation and related plans to address priority areas, including the following:

• The Plan of the Nation, first introduced by former President Chávez during his 2013 presidential campaign (published in Extraordinary Official Gazette No. 6,118, dated December 4, 2013) and later implemented by President Maduro, is a roadmap for the second stage of Venezuela’s transition to socialism. The Plan of the Nation establishes a series of macroeconomic targets and social programs and is founded on five strategic objectives: (1) the preservation of Venezuela’s independence; (2) the continued development of Bolivarian socialism for the twenty-first century; (3) the transformation of Venezuela into a regional social, economic and political power; (4) contribution to the development of a multipolar geopolitical order to promote peace and stability; and (5) the preservation of life on earth and saving the human race.

• On May 13, 2013, President Maduro announced the creation of the Homeland Security Plan to combat violent crime. The Ministry of Popular Power for Interior Affairs, Justice and Peace is charged with implementing the Homeland Security Plan, which aims to decrease crime rates and enhance public safety by promoting violence prevention and social inclusion. The Homeland Security Plan also centralizes crime statistics in the Venezuelan Observatory of Public Safety (Observatorio Venezolano de Seguridad Ciudadana), an agency of the Ministry of Popular Power for Interior Affairs, Justice and Peace, in order to better monitor results and improve efficiency by replicating successful strategies across agencies. The Homeland Security Plan focuses on 79 priority municipalities and has more than 37,000 employees deployed throughout the nation. Pursuant to the Homeland Security Plan, the National Executive conducted operations to dismantle 157 criminal gangs between July 2015 and July 2016.

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• In April 2013, President Maduro created the Presidential Commission for Peace and Life, charged with advancing the Movement for Peace and Life (el Movimiento por la Paz y por la Vida). The Movement for Peace and Life aims to promote culture, sport, recreation and healthful living and the development of youth through engagement in productive activities. In order to further the goals of the Movement for Peace and Life, President Maduro presented the National Plan for Peace and Coexistence (Plan Nacional de Paz y Convivencia) in February 2014. The National Plan for Peace and Coexistence has ten goals: (1) to improve the efficiency of the Republic’s protection and surveillance systems; (2) continuing the Plan for Disarmament (Plan de Desarme) and demobilization of violent gangs; (3) expanding the Movement for Peace and Life to cover the whole country; (4) conducting a national tour with sporting, cultural and artistic activities; (5) unveiling a territorial plan to ensure the delimitation of public spaces; (6) developing a new culture of communication based on the fostering of social values; (7) transforming the Republic’s prisons into centers for education and discipline; (8) building Peace Communities (Comunidades de Paz) to improve the justice system; (9) creating Peace Territories (Territorios de Paz) in communities across the country to address crime; and (10) creating a special brigade composed of policemen and soldiers to combat drug trafficking. On April 12, 2014, President Maduro announced that the Movement for Peace and Life would work in conjunction with the Republic’s Great Missions (Grandes Misiones) to further promote national development.

• On September 2, 2014, President Maduro reorganized the executive cabinet and appointed a new president of PDVSA. 14 ministers were retained and 12 new ministers were appointed. In January 2016, President Maduro further reorganized the executive cabinet, (1) appointing a number of new ministers, to offices including the Vice Presidency of the Republic, Vice Presidency for Economic Affairs, head of the Ministry of Popular Power for Industry and Commerce and head of the Ministry of Finance, and (2) creating the following ministries: (a) Ministry of State for Productive Economy; (b) Ministry of Popular Power of Fisheries and Aquaculture; (c) Ministry of Popular Power of Urban Agriculture; and (d) Ministry of Popular Power for Foreign Trade and International Investment. On February 15, 2016, President Maduro appointed the Minister of Popular Power for Industry and Commerce as Vice President for Economic Affairs to replace the current Vice President for Economic Affairs in accordance with Decree No. 2,235. On March 9, 2016, President Maduro once again reorganized the executive cabinet through the General Organization for the National Public in accordance with Decree No. 2,269. In June 2016, the MPPPM was dissolved and responsibility for the oversight of the oil and mining sectors vested in two new ministries, the Ministry of Oil and the Ministry Mining. Also in June 2016, the Ministry of Popular Power for Essential, Strategic and Socialist Industries was created pursuant to Decree No. 2,357. In August 2016, President Maduro replaced the Minister of Popular Power for Industry and Commerce and the Vice President for Economic Affairs. Currently, there are 31 Ministries, two State Ministries, one Council of Ministers and five sectoral vice-presidents consisting of the Vice Presidency for Economic Affairs, the Vice Presidency of Planning, the Vice Presidency for Social Development and Missions of the Revolution, the Vice Presidency of Political Sovereignty, Security and Peace, the Vice Presidency for the Development of Territorial Socialism and the Executive Vice Presidency.

• On September 2, 2014, as part of the National Executive’s financial policy aimed at strengthening the country’s international accounts, President Maduro announced the creation of a strategic account at Banco Central, known as the Strategic Reserve Fund, where funds including FONDEN, the Sino-Venezuelan Joint Fund and the Large Volume and Long-Term Financing Fund could be consolidated in order to strengthen the Republic’s foreign asset account. To further strengthen the country’s international accounts, on September 5, 2014, this strategic account at Banco Central received an initial deposit of U.S.$750 million. On November 19, 2014, the Republic deposited a U.S.$4.0 billion loan from China into the Strategic Reserve Fund.

• In July 2015, the Government also launched a security plan known as Operation Liberation and Protection of the People to combat criminal gang activity and allocated over 20,000 National Guard officials to this effort. OLP was designed to coordinate the efforts of the Ministry of Interior Affairs, Justice and Peace, the national armed forces and other security agencies to increase national security. OLP is comprised of the Homeland Security Plan, the Movement for Peace and Life, the Comprehensive Preventative Intelligence and programs designed to strengthen the implementation of justice to ensure peace in the country.

Social Programs

The National Executive’s comprehensive programs to promote social welfare have resulted in improvements in some quality of life metrics, such as:

• a decrease in the percentage of homes in structural poverty (as measured by unmet basic needs) to 4.9% in 2015 from 5.4% in 2014;

• a decrease in the percentage of households in critical overcrowding reduced from 9.1% in 2014 to 8.3% in 2015; and

• an increase in the percentage of the population entitled to receive a pension from 72.6% in 2014 to 84.8% in 2015.

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Missions

Beginning in 2002, the Government initiated social programs, called Missions, to provide social services in sectors such as health, education and employment in order to address the most pressing issues affecting those in need. The national budgets for 2011, 2012, 2013, 2014, and 2015 allocated Bs.6.1 billion, Bs.8.0 billion, Bs.5.9 billion, Bs.25.4 billion and Bs.27.2 billion, respectively, to the Missions.

The Complementary Special Indebtedness Annual Law for Fiscal Year 2011 incorporated three new Missions: The Great Mission Agro-Venezuela (La Gran Misión AgroVenezuela), the Great Housing Mission (La Gran Misión Vivienda Venezuela) and the Knowledge and Work Mission (La Gran Misión Saber y Trabajo Venezuela) (Decree No. 8,143 published in the Extraordinary Official Gazette No. 6,021, dated April 6, 2011). The Great Mission Agro-Venezuela was aimed at achieving food sovereignty by providing financing, agricultural infrastructure and equipment and agricultural machinery. The Housing Mission aimed to provide financing for the production of construction material, the proper preparation of lands for building, and the building of housing. The Knowledge and Work Mission was focused on the development and continuity of large transportation infrastructure, energy, agroindustrial, and industrial projects. The law aimed to provide Bs.45.0 billion for social investment under these Missions in the wake of natural disasters affecting Venezuela.

In 2014, the Law for Great Missions was passed, to relaunch of the system of Missions and Great Missions. As part of this initiative, the National Executive undertook review of all Missions, merging programs with similar aims and beneficiaries, and the refinement of Mission mandates. The law also contemplates a new Mission management system. The Missions were divided and grouped into seven areas: education, work, public health, social protection, food, housing and habitat, and security and basic services.

Notable Missions in operation as of December 31, 2015, include:

• The Plan Barrio Nuevo, Barrio Tricolor, created in August 2009 to renovate beautify and maintain the water, waste removal and electrical infrastructure of Venezuela’s barrios (suburbs), and was redesignated a Great Mission in November 2013. The Mission has renovated 200 communities, benefitting approximately two million families.

• The Gran Misión a Toda Vida Venezuela, created in July 2012 to combat crime and security threats in the country with the aim of reducing crime rates and addressing the structural and situational factors that generate violence and crime.

• Gran Misión Eficiencia o Nada, created in 2013 to improve government efficiency, combat corruption and to assess the progress of projects undertaken by the Executive branch.

• Misión Negro Primero, created in May 2013 to provide social support and protection to members of the Bolivarian National Armed Force and their families through the provision of credits for housing, vehicles and the purchase of domestic appliances.

• Misión Eléctrica de Venezuela, created in September 2013 to transform the National Electricity System and to coordinate the various institutions, communities and companies involved in the program.

• Misión Jóvenes de la Patria, created in October 2014 to promote the personal development, mobilization and social inclusion of young Venezuelans by promoting their potential and fostering a new culture based on solidarity and responsible enjoyment.

• Gran Misión Hogares de la Patria, created in June 2014 to provide comprehensive care for the most vulnerable sectors and those Venezuelan households in poverty and extreme poverty.

• Misión Nevado, created in December of 2013 to rescue and protect street animals.

• Misión Transporte, created in March of 2014 to develop Venezuela’s public transportation system.

• Misión Alimentación, created in April of 2003 to promote the equal distribution of food to the Venezuelan population, especially the low income population.

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The Missions have been credited with helping to: reduce the percentage of households in extreme poverty from 10.8% in 1998 to 8.3% in 2015; increase life expectancy from 72 years in 1998 to 75 years in 2015; lower the level of income inequality, measured through the Gini coefficient, from 0.486 in 1998 to 0.550 in 2015; increase the average number of years in schooling for those aged 25 years and above from 7.35 years in 1998 to 8.9 years in 2015; and advance the country to the high human development category in the United Nations’ Human Development Index.

Other Social Programs and Policies

In 2014 the Bases of Socialist Missions (Bases de Misiones Socialistas) were created in order to deliver health, nutrition and education services to poor communities, as part of the National Campaign for the Eradication of the Extreme Poverty. The first base was inaugurated on June 7, 2014. As of December 31, 2015, a total of 750 mission bases have been built throughout the country. The goal for 2016 is to install 1,005 mission bases and 38 major mission bases for the 1,500 poorest communities in the country.

The country also provides old-age pension, which, under the Venezuelan Constitution, is equal to the minimum wage. As of December 31, 2015, the old-age pension was Bs.9,649 per month (U.S.$1,531.59 per month) and as of September 2016, the old age pension was Bs.22,576.13 (U.S.$2,257.61). The number of pensioners in Venezuela has been increasing; as of 2011, 2012, 2013, 2014 and 2015, there were 1,998,180; 2,426,493; 2,620,674; 2,722,624 and 2,855,731 pensioners, respectively. In 2015, Bs,317.4 billion (U.S.$50.4 billion) was spent on pensions.

The Central Government has created a number of state-owned entities to provide low-cost commercial services and to stimulate domestic production. The state-owned entities created since 2011 include:

• Conviasa, a state-owned international airline company;

• the National Company for Public Works, created in 2011 to develop highways, infrastructure and housing projects;

• Inmobioliaria Nacional S.A., created in 2011 to provide real estate services for primary residence housing;

• Venedom S.A., created in 2011 to promote the development of the coffee industry;

• Venvidrio C.A., created in 2011 to produce and commercialize glass products;

• Corposervica, created in 2012 to provide for private security services to various government institutions;

• Farmapatria, C.A., created in 2012 to a network of discount drug stores across the country;

• Fábrica de Productos para la Higiene y Mantenimiento del Hogar, Industrias e Instituciones, S.A. (Limpihogar), created in 2012 to provide cleaning and housing maintenance products;

• Venezolana de Motores (Venmotor), created in 2012 to assemble and produce engines;

• Venezolana de Envases de Aluminio (Venenvases), created in 2013 to produce products of all kinds including packaging;

• Venezolana de Cerámicas, Forjas y Aceros (Forjacero), created in 2013 to produce and commercialize various steel products for the national industry;

• Venezolana del Cartón (Vencarton), created in 2013 to produce and commercialize cartons and laminated paper;

• Venezolana de Válvulas y Grifos (Valerisa), created in 2013 to produce and commercialize various non-ferrous metal products, including brass, copper and aluminum, for infrastructure projects;

• Venezolana de Motos (Vemoca), created in 2013 to produce and commercialize motorcycles and automotive components;

• Café Venezuela y Cacao Venezuela, a chain of sixteen stores created in 2014 to provide a forum for women’s social organizations to sell food products and to foster women’s participation in the economy generally; and

• Machinery Barinas (Maquinarias Barinas), created in 2015 to assemble and market heavy machinery for the construction industry.

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Political and Social Unrest

Towards the end of 2013, street demonstrations against the policies of National Executive began to protest rising crime, food shortages and rising inflation. In February 2014, these protests turned violent, resulting in road blocks and property crimes. The protestors’ demands extended to other rights, including political participation and freedom of expression. Opposition groups and certain international human rights groups later alleged there were human rights violations that occurred during the protests. The National Executive disputed those claims and maintained that security officials were acting under Venezuelan law and in accordance with internationally accepted policing methods that respect human rights. From the time the protests began until order was restored in mid-2014, scores of people were killed, injured and arrested. The protests and street closures experienced in some of the country’s major cities during the first five months of 2014, adversely affected the production, distribution and sale of consumer goods and services.

In response to public discontent, President Maduro inaugurated the first National Peace Conference (Conferencia Nacional de Paz) on February 26, 2014, to promote dialogue and peace. The result of the first National Peace Conference was the National Pacification Plan (Plan de Pacificación Nacional), a key element of which involved holding forums to bring together the various political, economic, public and private stakeholders on key issues. Subsequent National Peace Conferences were held in March 2014 in different regions of the country and participants included mayors, governors, representatives from the Federation of Chambers and Associations of Commerce and Production of Venezuela (Federación de Cámaras y Asociaciones de Comercio y Producción de Venezuela), industry heads, trade unions, and indigenous and religious groups. However, the MUD opposition alliance did not attend the National Peace Conference.

President Maduro convened a separate dialogue on April 14, 2014, with members of MUD, the National Executive and observers from international organizations from UNASUR in attendance. A proposal was formulated to find a model of coexistence that would strengthen democracy in Venezuela and generate space for different political viewpoints. A roundtable was scheduled for May 15, 2014, to continue the dialogue, but members of MUD refused to participate.

Following the December 2015 elections, which proceeded without significant disruptions, and in which MUD won a majority of the seats in the National Assembly, in April 2016, MUD began a referendum process to recall President Maduro. For more information on the election and the referendum process, see “Introduction and Recent Developments—Recent Social and Political Developments.” Also in 2016, social and political protests continued in response to food shortages and the recall effort, which is further discussed under “Introduction and Recent Developments—Recent Social and Political Developments.” In response to the continued political turmoil, in May 2016, the National Executive and UNASUR relaunched efforts to continue the dialogue with MUD; however, MUD again refused to participate.

In 2015 and 2016, political and social unrest has continued due to shortages of basic consumer goods as a result of a drop in domestic food production; limited access to imports as a result of currency restrictions; smuggling; hoarding and other distribution problems. Consequently, the food distribution network has become an official target, and in some areas, long lines at food markets are not uncommon, contributing to the shortages of consumer goods. In addition, during the same period, Venezuela experienced a severe drought that contributed to an electricity crisis due to the country’s dependence on hydroelectric power, which further exacerbated these tensions.

The National Executive has continued its efforts to improve food access for the Venezuelan population in 2016 as part of its Nutrition Mission, which was founded in 2003 to promote the equal distribution of quality and low cost food by overseeing the wholesale and retail sale of food products, and has distributed food to low-income populations in response to recent food shortages. In 2016, the National Executive deployed CLAPS as part of a direct distribution model designed to improve access to food and other necessities and prevent smuggling. In July 2016, the Central Government launched the Great Mission of Sovereign Supply, which created a national command, consisting of representatives of the National Executive, including the President, and headed by the Venezuelan Defense Minister, with the authority to oversee and coordinate food production and distribution. The Mission aims to use the operational capacity of the Venezuelan military to improve the production and distribution of food, medicine and other essential goods. To address smuggling, crime, violence, and gang activity contributing to the social unrest, the Central Government launched, OLP, a security plan in July 2015 designed to coordinate the efforts of the Ministry of Interior Affairs, Justice and Peace the national armed forces and other security agencies to increase national security. The OLP is comprised of the Homeland Security Plan, the Movement for Peace and Life, the Comprehensive Preventative Intelligence and programs to strengthen the implementation of justice to ensure peace in the country. Pursuant to the Homeland Security Plan, the National Executive conducted operations to dismantle 157 criminal gangs as between July 2015 and July 2016.

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In addition, President Maduro issued a number of emergency decrees which conferred on the National Executive additional emergency powers to address the economic crisis and the emergency crises. For more information, see “Emergency Decrees.”

Housing Programs

In November 2010, in response to heavy flooding caused by two weeks of torrential rains, the Central Government declared a 90-day state of emergency in several states and announced a U.S.$2.3 billion (Bs.10.0 billion) special fund for flood victims. The torrential rains, flooding and landslides caused approximately 130,000 people to flee their homes in 11 of the 23 states. Approximately 35 bridges collapsed, 264 roads were damaged or destroyed and 46,000 hectares (113,620 acres) of cultivated land were ruined.

President Chávez, through the Enabling Law of 2010, issued a decree to create the Simón Bolívar Fund for Reconstruction (Ley Orgánica de Creación del Fondo Simón Bolívar para la Reconstrucción) to provide relief aid for the construction of housing in order to help thousands of people displaced by heavy flooding in November 2010. The fund was reorganized in March 2012 and Fondo Simón Bolívar para la Reconstrucción, S.A., a company created by the National Council of Housing and Habitat (Organo Superior de Sistema Nacional de Vivienda y Habitat) became the fund manager. As of December 31, 2015, the fund managed approximately Bs.384.3 billion (U.S.$61.0 billion), which was provided by various public sector entities between 2010 and 2015.

On January 18, 2011, President Chávez issued a decree to create the Decree of Decent Shelters to Protect the Population in Case of Emergency or Disaster (Ley Especial de Refugios Dignos Para Proteger a la Población en Caso de Emergencias o Desastres), published in the Official Gazette No. 39,599, dated January 21, 2011, establishing a shared responsibility between the Government and the population to protect the well-being of all those affected by natural disasters. The law classified all shelters into categories and stipulated that economic support such as scholarships, pensions and special allotments of resources must be provided to resident families depending on the situation of each family unit.

Between 2011 and 2015, the Central Government spent approximately Bs.347.5 billion (U.S.$55.2 billion) to build approximately 1 million new homes in the western and central regions of Venezuela that were most affected by the torrential rains. In 2016, the Central Government allocated a further Bs.198.5 billion (U.S.$31.5 billion) to the program. As of September 2016, 117,716 new homes, in the aggregate, have been built through the Great Housing Mission.

Broadcasting Guidelines

On December 22, 2010, the Social Responsibility in Radio and Television Law (Ley de Responsabilidad Social en Radio y Televisión) (Official Gazette N^o 39,610, dated February 7, 2010) was reformed to strengthen national content production and incorporate within its scope the regulation of messages distributed through electronic media. The legislation prohibits the dissemination on television, radio or electronic media of messages that incite or promote hatred and intolerance based on race, religion, politics, gender as well as racist or xenophobic messages. The legislation also prohibits the dissemination via the media of any messages that incite or promote and/or justify crime, constitute war propaganda, provoke unrest in the population or disturb the public order, disregard a public officer’s authority, or promote the violation of the law. Providers of electronic media are required to establish mechanisms to restrict the dissemination of messages in violation of the law, otherwise they are subject to penalty as delineated by the law.

Two Administrative Orders were enacted and subsequently published in the Official Gazette No. 40,415, dated May 20, 2014, establishing additional broadcasting guidelines:

(1) Administrative Order No. 27, establishing the Technical Standard on Domestic Audio-Visual Production Services, with the aim of developing the legal regime applicable to national audio-visual production services in accordance with the Social Responsibility in Radio and Television Law.

(2) Administrative Order No. 28, establishing, in accordance with the Telecommunications Organic Law (published in the Official Gazette No. 39,610, dated February 7, 2011), the conditions for the provision of Domestic Audio-visual Production Services, with the aim of developing the legal regime applicable to the establishment, operation, supervision, inspection, control, regulation and monitoring of domestic audio-visual production services.

In 2013, the Government created the Integrated Media System (“SIBCI”), pursuant to Decree 9,411, published in the Official Gazette No 40,130 dated March 18, 2013. SIBCI was conceived as a system to integrate, socialize and carry out the Government’s communications policy, which includes areas of communication beyond the conventional media, such as billboards, flipcharts, loudspeakers, among many other forms of popular media. The SIBCI consists of two AM operators, two FM operators, seven operators in free-to-air broadcast television and seven operators in open digital television (TDA/ISDBT-Tb). The total number of stations managed by SIBCI is 19 AM stations, 66 FM stations, 93 free-to-air broadcast television stations and 22 digital TV stations.

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In relation to the communications sector, in July 2014, Administrative Order No. 104 was approved, which established regulations governing international long distance telephone services and the transit charges applicable to the delivery of calls to fixed and mobile telephone networks in Venezuela (Extraordinary Official Gazette No. 40,469, dated August 6, 2014).

Popular Power Initiatives

In September 2005, former President Chávez issued a decree creating Social Production Companies (Empresas de Producción Social or “EPSs”) to provide the Venezuelan labor force with opportunities to participate in a variety of sectors of the economy, including the petroleum and mining sectors. EPSs are community-based, socially-minded economic entities funded by the Government, dedicated to generating and providing goods and services necessary to satisfy the basic needs of the community. They are primarily operated by the Ministry of Popular Power for Industries and Commerce (Ministerio del Poder Popular de Industrias y Comercio or “MPPIC”) through CVG and by PDVSA. As of December 31, 2015, PDVSA was operating 20,000 EPSs and contributed U.S.$8.2 billion in support of social projects developed by the Central Government.

The National Assembly approved five “popular power” organic laws in December 21, 2010. The five laws consist of: (1) the Organic Law of Popular Power (Ley Orgánica del Poder Popular); (2) the Organic Law of Popular and Public Planning (Ley Orgánica de la Planificación Pública y Popular); (3) the Organic Law of Communes (Ley Orgánica de las Comunas); (4) the Organic Law of Social Auditing (Ley Orgánica de la Contraloría Social); and (5) the Organic Law for the Communal Economic System (Ley Orgánica del Sistema Económico Comunal). These communal laws are intended to strengthen popular power and complement already existing laws such as the Communal Council Law and the Federal Government Council Law.

The Organic Law of Popular Power aimed to develop and consolidate popular power to foster a more participatory democracy and create communal forms of self-government. The Organic Law of Popular and Public Planning outlines the organization and functions of the National System of Public Planning, a system that aims to optimize the processes of defining, formulating, executing and evaluating public policies. The Organic Law of Popular and Public Planning was amended on November 18, 2014, pursuant to Decree No. 1,406 (Extraordinary Official Gazette No. 6,148, dated November 18, 2014) to increase the participation of Venezuela’s citizens in the decision-making process through the participation of communes and communal councils. The Organic Law of Communes relates to the establishment and organization of communes in the country as well as the creation of Communal Parliament. The Organic Law of Social Auditing gives organized communities responsibility for auditing both public and private entities. This law was passed by the National Assembly in order to create a culture of social responsibility and to gain better control of public, private and community affairs that affect public welfare. The Organic Law for the Communal Economic System establishes a collective ownership regime. Under this law, people are permitted to organize in direct collective social ownership of businesses, household production units and exchange groups.

The National Assembly approved the Organic Law of Extraordinary Jurisdiction for the Adjudication of Communal Peace Issues (Ley Orgánica de la Jurisdicción Especial de la Justicia de Paz Comunal) in May 2012. The law aimed to resolve community-related issues through “peace judges” who would help facilitate the resolution of local disputes through approaches that seek value-creating solutions in contrast to traditional adversarial court systems. Peace judges are elected to four-year terms by the local area or commune in which they live and are eligible for reelection. Although the peace judges do not have formal legal training, they are required to have basic competency in rules regarding inheritance, property ownership and renting.

Nationalizations and Expropriations of Private Companies

Commencing in 2007, President Chávez announced a plan to nationalize various strategic areas of the economy in order to further state control of the development of these sectors in Venezuela, including the acquisition of majority control of joint ventures in the Orinoco Oil Belt (heavy oil projects that had been authorized in the 1990s) in connection with the development of those resources. For information about nationalizations or expropriations in the oil industry, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Disputes Concerning the Oil Industry.” Also, during 2007, the Government acquired majority interests in certain electricity and telecommunications companies that had been operated and controlled by the private sector through a process of negotiated acquisitions with the controlling shareholders of those entities.

In 2008, the Government nationalized companies in the steel and cement industries to provide for better control of inputs for construction and infrastructure. Although certain of the companies whose assets were nationalized initially filed claims under BITs for arbitration to determine amounts owed to them, the former owners ultimately reached mutual agreement with the Government regarding the amounts to be paid for the assets and the terms of the repayments.

During 2009 and 2010, the Government took control of certain hotels, banks, energy plants and oil rigs, insurance firms, farms, industrial warehouses, investment firms and supermarkets, among other entities and assets. The Government has consolidated the acquired assets into several state-owned banks in an effort to organize the banking sector.

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More recently, between 2010 and 2013, the Government nationalized companies in the food industry, including food producers and distributors and companies involved in the production of inputs for the food industry, such as glass manufacturers, in an effort to expand the supply of essential food items and control inflation in this sector of the economy.

External Affairs and Membership in International Organizations

Venezuela is a member of the United Nations and a founding member of the Organization of American States. It is also a member of OPEC, the International Monetary Fund (“IMF”), the World Bank, the Inter-American Development Bank (“IADB”), the General Agreement on Tariffs and Trade (“GATT”), the World Trade Organization (“WTO”), Corporación Andina de Fomento, a multilateral development bank headquartered in Caracas (“CAF”), the OPEC Fund for International Development (“OFID”), the International Fund for Agricultural Development (“IFAD”), as well as other significant/ international organizations.

Venezuela has traditionally consulted with various multilateral institutions, including the IADB, the World Bank and the IMF, on its economic programs, objectives, projections and policies. Under Article IV of the IMF’s Articles of Agreement, the IMF holds annual bilateral discussions with members. During those consultations, the IMF reviews the overall economic developments in the country, as well as its policy measures aimed at maintaining of economic stability, in order to ensure a sustainable external balance of trade and to liberalize foreign trade. Venezuela’s last annual consultation with the IMF took place in 2004 and compliance with the IMF’s Article IV consultation requirements is delayed. In January 2012, Venezuela formally withdrew from the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”). Pursuant to the ICSID Convention, Venezuela’s withdrawal became effective on July 25, 2012, six months after the receipt of the formal notice. However, the Republic has signed and ratified a number of BITs and a number of free trade agreements, which give investors the right to use other arbitration forums. In addition, certain arbitral forums may be available to investors by contractual agreement or under Venezuelan law.

Venezuela became a member of the Andean Community, an Andean regional integration alliance, whose other members include Bolivia, Ecuador, Colombia and Peru, in 1973. On April 22, 2011, Venezuela withdrew from the Andean Community; however, trade relations with Colombia, Peru, Bolivia and Ecuador continued on a bilateral basis on similar terms to those applicable to Andean Community members. The Republic is also a member with observer status of the Caribbean Community and Common Market, known as CARICOM.

The Republic has entered into a number of bilateral and multilateral trade and development agreements with countries in the region, such as: (1) agreements with Brazil covering energy, mining, military cooperation and the development of an offshore natural-gas project; (2) an agreement among Venezuela, Bolivia and Cuba signed in April 2006, and the subsequent addition of Honduras, Nicaragua and the Caribbean nation of Dominica, covering initiatives in trade, health and energy, among other matters; and (3) agreements to construct gas pipelines from Venezuela to Colombia, Brazil, Argentina, Uruguay, Paraguay and Bolivia. In 2014, Venezuela entered into several agreements with the Republics of Uruguay and Argentina covering cooperation in the fields of energy, health, defense, rail, science, technology and agribusiness.

On March 24, 2015, the Republic announced the execution of the Partial Agreement of Economic Complementation No. 69 with Brazil (published in Official Gazette No. 40,627). The agreement is intended to promote economic integration between the Republic and Brazil and establishes preferential tariff rates on certain imports. Implementation of the agreement is a condition to Mercosur membership.

Regional Initiatives

The Maduro administration has continued to develop initiatives commenced by President Chávez designed to strengthen economic, financial and technical cooperation and promote regional integration among Latin American and Caribbean countries under the banner: “Bolivarian Alternative for the Americas,” which include:

• Mercosur. In 2004, Venezuela became an associate member of Mercosur, a trade bloc promoting free trade among its member countries. In May 2006, the Republic agreed to the protocol for admission as a full member, including a timetable for bringing down mutual trade barriers and a final deadline of January 1, 2014, for full liberalization of trade among all members. Under the protocol, the Republic agreed to adhere to all key Mercosur codes and adopt Mercosur’s common external tariffs before admission as a full member. Lawmakers from Argentina, Brazil and Uruguay had approved Venezuela’s entry as a full member of Mercosur. In 2012, Venezuela was accepted as a full member of Mercosur and a Presidential Commission was created to assist with the full integration of Venezuela in Mercosur. According to the protocol, the Republic has four years after becoming a full member to adopt the rules and the common tariffs of the regional bloc. In July 2013, when the Venezuelan government assumed temporary leadership of Mercosur, it developed an agenda covering various topics related to foreign trade, health, public safety, science and technology, transportation, education, consistent with the assumption of the presidency. On December 18, 2013, Paraguay ratified Venezuela’s membership in Mercosur. In August 2016, the Republic assumed the pro tem presidency of Mercosur from Uruguay. In September 2016, Argentina, Brazil, Paraguay and Uruguay requested that the Republic comply with the conditions of its membership.

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• ALBA. In December 2004, the Bolivarian Alternative for the Americas (“ALBA”) commenced when the Republic and Cuba signed the first ALBA exchange agreement. Since that time, ALBA has become an international cooperation organization based upon the concept of social, political and economic integration between the countries of Latin American and the Caribbean. As of September 2016, ALBA countries included Venezuela, Antigua and Barbuda, Bolivia, Ecuador, Cuba, Grenada, Haiti, Nicaragua, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis and Dominica. In January 2008, the member nations of ALBA created the Bank of the ALBA primarily to advance industrial and agricultural production among its members and support social projects, as well as multilateral cooperation agreements among its members, particularly in the energy field. Also in 2008, the Bank of the ALBA began participating in a joint venture with PetroCaribe as part of an effort to address food shortage problems in Central American and Caribbean countries. During 2015, ALBA entered into a treaty to establish a drug distribution and regulation center. Also during 2015, ALBA member countries entered into bilateral agreements establishing reciprocal recognition of university degrees. In March 2015, ALBA pledged U.S.$200 million toward development initiatives in Caribbean countries and the financing of alternative energy sources. The Bank of the ALBA had an initial start-up capital of U.S.$1.0 billion and is headquartered in Caracas. As of December 31, 2015, the Bank of the ALBA had committed capital of U.S.$850 million and paid in capital of U.S.$127 million. The Republic is the principal contributor to the Bank of the ALBA; its contributions represent 72.9% of the bank’s capital.

• SUCRE. In October 2009, the member countries of the ALBA signed a treaty to establish the Unitary System for Regional Compensation (Sistema Unitario de Compensación Regional de Pagos or “SUCRE”). In January 2010, SUCRE officially entered into effect, creating an instrument for commercial transactions among ALBA member countries. The SUCRE system allows those ALBA member countries that buy goods from each other to pay and receive payment using their domestic currency. This enables countries to conserve foreign currency and lower transaction costs, enabling further trade developments between the member countries. During SUCRE’s initial stage, it will only be available for use by member countries. During SUCRE’s next stage, it is expected to be available for use by importers and exporters. At its final stage, SUCRE is expected to reach consolidation, which will give SUCRE value as a method of payment and value in its reserve among the member countries. As of December 31, 2015, one (1) unit of SUCRE was the equivalent of U.S.$1.2447, which represents an intermediate value between the U.S. dollar and the Euro. Transactions processed by SUCRE amounted to U.S.$270.0 million in 2011, U.S.$1.1 billion in 2012, U.S.$909.0 million in 2013, U.S.$497.0 million in 2014 and U.S.$344.8 million in 2015.

• Petroamérica. The Republic has been instrumental in the creation of Petroamérica, an energy union among Latin American countries to use strategic energy resources to improve societies throughout the continent. The regional integration of state energy companies are divided into Petrosur, comprising Argentina, Brasil, Uruguay and Venezuela, PetroCaribe, comprising the Caribbean, and Petroandina, comprising of Bolivia, Ecuador, Colombia, Peru and Venezuela. In addition, PDVSA has been involved with several energy developments in Latin America through its subsidiaries in Bolivia, Ecuador, Argentina, Brazil, Uruguay and Paraguay to develop the energy market in the region. These regional arrangements are intended to strengthen Venezuela’s presence in the international markets by eliminating trade barriers, increasing its refining infrastructure and reducing costs. In March 2015, a Petrocaribe economic zone was created to promote the diversification of energy supply based on oil, gas and alternative energy through investments in the energy sector. The Petrocaribe Counsel of Ministers also set a target for commerce within the zone of at least 30% by 2018.

• Banco del Sur. Venezuela is a charter member of Banco del Sur, a regional development finance institution which will serve to foster regional integration through the financing of major integration projects in South American countries. The bank was established in 2007 through a treaty signed by seven countries: Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela. In March 2009, the countries agreed to contribute a total of U.S.$7.0 billion in initial capital, and in September 2009 the seven countries signed the constitutive act officially creating Banco del Sur. In April 2012, the Banco del Sur treaty was ratified by the National Assembly. In June 2013, Banco del Sur held its first meeting of the Council of Ministers in order to address operational issues.

• UNASUR. The UNASUR, was officially established on May 23, 2008, when the leaders of the 12 member nations signed the Constitutive Treaty of UNASUR. The UNASUR members are: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. UNASUR was created as an intergovernmental regional body aimed at improving economic and political integration in South America. UNASUR acted as an international observer to support the April 2013 Presidential election and 2015 National Assembly elections in Venezuela. It has also acted to support negotiations between the Maduro Administration and members of the opposition aimed at addressing the recent unrest in Venezuela. On March 15, 2015, UNASUR requested the United States government lift sanctions against Venezuela. It also urged the international community to abstain from any unilateral action against Venezuela. More recently, the UNASUR countries committed to help address the shortages of food, medicine and other essential goods in the country.

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• CELAC. The Community of Latin American and Caribbean States is a regional bloc of Latin American and Caribbean states was created on December 3, 2011. CELAC’s purpose is to promote Latin American integration by creating a forum where Latin American countries can engage in political dialogue. There are 34 members: Antigua, Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominica, Ecuador, El Salvador, Guatemala, Grenada, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Paraguay, Peru, Panama, Dominican Republic, Saint Kitts and Nevis, Saint Vincent and The Grenadines, St. Lucia, Suriname, Trinidad and Tobago, Venezuela and Uruguay.

• OAS. The OAS was created in 1948 upon signing of the Charter of the OAS in Bogotá, Colombia. Today, 35 independent states belong to the OAS, including Venezuela, a founding member, and 69 states have been granted permanent observer status. The OAS was established to promote peace, justice and solidarity, strengthen collaboration and defend sovereignty, territorial integrity, and independence among member states. In May 2016, the National Assembly requested that the OAS apply the OAS Charter to convoke a meeting of the Permanent Council to intervene in Venezuela. On May 31, 2016, Secretary General Luis Almagro requested that the Permanent Council invoke the OAS Charter against Venezuela, which could ultimately result in Venezuela’s suspension from the OAS. In June 2016, the OAS Permanent Council held an emergency meeting to discuss the request, which resulted in no action against Venezuela.

• LARF. The Latin American Reserve Fund was created in 1978 as the successor to the Andean Reserve Fund (Fondo Andino de Reservas or “FAR”) and is financed by eight Latin American countries: Bolivia, Colombia, Venezuela, Peru, Ecuador, Uruguay, Paraguay and Costa Rica. LARF’s three major objectives are: (i) to provide balance of payments support to member countries by granting loans or guaranteeing third-party loans; (ii) to improve the conditions of international reserve investments made by member countries; and (iii) to help harmonize its member’s exchange rate, monetary and financial policies. In July 2016, the Latin American Reserve Fund approved a U.S.$482.5 million, three-year loan to the Republic.

Relations with the United States

In May 2011, the United States imposed sanctions on seven companies, including PDVSA, under the Iran Sanctions Act of 1996, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, for their activities in support of Iran’s energy sector. PDVSA was sanctioned due to the delivery of at least two cargoes of reformate to Iran between December 2010 and March 2011, worth approximately U.S.$50 million. Reformate is a blending component that improves the quality of gasoline. The sanctions imposed on PDVSA prohibit the company from competing for U.S. government procurement contracts, from securing financing from the Export-Import Bank of the United States and from obtaining U.S. export licenses. These sanctions do not apply to PDVSA subsidiaries and do not prohibit the export of crude oil to the United States.

In February 2013, the United States imposed sanctions on the Compañía Anónima Venezolana de Industrias Militares (“CAVIM”) a state-owned Venezuelan weapons company after it traded with Iran, North Korea and Syria. The sanctions prohibit the U.S. government from entering into contracts with these companies and individuals. In May 2013, the U.S. government expanded the list of entities found to have violated Iran sanctions, including the Iranian Venezuelan Bi-National Bank, which it accused of having helped Iran evade Western prohibitions on oil sales and financial dealings.

Since July 2014, the United States has imposed sanctions, consisting of visa restrictions and/or asset blocking, on more than fifty former and current Venezuelan officials for involvement in human rights violations. On July 31, 2014, the United States responded to reports of mass detentions and violence towards opposition protesters in Venezuela by restricting, pursuant to the U.S. Immigration and Nationality Act of 1965 (the “INA”), the issuance of U.S. visas to certain Venezuelan officials allegedly responsible for the violence. Although the names of the sanctioned individuals have been withheld, the sanctions include individuals at various levels of government, from government ministers and presidential advisors to judicial officials, law enforcement and military officials.

In February 2015, the United States announced that it had imposed additional visa restrictions against a number of former and current Venezuelan government officials on grounds they were allegedly responsible for or complicit in human rights abuses against persons in Venezuela and considered allegedly responsible for acts of public corruption. In March 2015, President Obama issued Executive Order 13692, which imposed sanctions against seven Venezuelan officials for their role in human rights violations and corruption within the Government. These sanctions were extended in March 2016 and remain in effect.

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On March 4, 2016, President Obama notified the U.S. Congress that Executive Order 13692 was to continue in effect because, in his view, the emergency situation in Venezuela had not improved, citing Venezuela’s human rights record, abuses in response to anti-government protests, and government corruption, among other factors. On July 15, 2016, the U.S. President’s authority to impose sanctions on individuals responsible for human rights violations in Venezuela was extended for a further three years through December 31, 2019.

Tensions at the diplomatic level between the Republic and the United States have led to the expulsion of their respective ambassadors. On January 14, 2012, President Chávez announced the closure of the Consulate of Venezuela in Miami, Florida, after the U.S. State Department expelled the Consul General in connection with alleged cyber-attacks within U.S. territory. This friction has not resulted in a commercial disruption to date. On May 7, 2013, President Maduro designated a new chargé d’affaires for the Venezuelan Embassy in Washington, D.C. as a step to normalize diplomatic relations with the United States. In June 2013, U.S. Secretary of State John Kerry and the Republic’s Foreign Minister met in an effort to improve relations. In September 2013, however, the Republic expelled three U.S. diplomats, including the U.S. Embassy’s chargé d’affaires. The U.S. State Department in turn expelled three Venezuelan diplomats in October 2014, including the chargé d’affaires of the Venezuelan Embassy in Washington, D.C. On February 28, 2015, the Republic announced that the Central Government would limit the number of U.S. diplomats working in the country in response to the additional sanctions imposed by the United States in February 2015. President Maduro recalled the chargé d’affaires from the Venezuelan embassy in Washington, D.C. in response to the extension of sanctions against the Republic in Executive Order 13692.

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THE VENEZUELAN ECONOMY

Overview

Venezuela has been a major petroleum exporter since the early twentieth century. According to Petroleum Intelligence Weekly 2015, Venezuela is the eleventh largest oil producer in the world. From 2011 through 2015, petroleum products accounted for an average of 95.7% of Venezuela’s total exports. During the same period, the petroleum sector and royalties revenues accounted for an average of 18.1% of Venezuela’s total Central Government revenues and petroleum sector activities accounted for an average of 11.1% of GDP. In 2015, petroleum activities accounted for 11.3% of GDP, compared to 10.8% in 2014.

Venezuela’s economy is diversified, with non-petroleum activities generating an average of 78% of GDP between 2011 and 2015. As of September 30, 2015, non-petroleum sector activities comprised 78.6% of GDP. The most significant components of GDP derived from non-petroleum sector activities in 2015 were government services (14.1%), manufacturing (13.1%), professional, real estate and rental services (10.3%) and trade (8.8%). The Government anticipates that petroleum will continue to be the main source of export earnings and fiscal revenues for the foreseeable future. For more information or the petroleum sector, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas.”

Through PDVSA, CVG and other government-owned entities, the Government controls significant proportions of GDP in the petroleum, electricity, telecommunications and mining sectors of the economy. Moreover, PDVSA’s exports account for the bulk of Venezuela’s total exports. The Government also supplies the majority of basic public services, such as water, electricity, health and education and is an important distributor and provider of food to the population through the Missions. The private sector owns and operates businesses with respect to most other economic activities.

Economic Performance in 2015

Between 2010–2014, the economy grew at an average annual rate of 1.8%. For the nine-month period ended September 30, 2015, non-petroleum sector activity declined by 5.6%, reflecting the contraction experienced by the construction, financial institutions, transportation, trade and manufacturing sectors. The petroleum sector decreased by 0.9% for the same period in 2015, driven by the drop in oil prices.

For the year ended December 31, 2015, the rate of inflation was 180.9%, as measured by NCPI, and 159.7% as measured by the Consumer Price Index (“CPI”), compared to 68.5%, as measured by NCPI, and 64.7%, as measured by CPI, in 2014. The increase in NCPI was primarily driven by a decline in the supply of foreign currency driven by a drastic decrease in the price of oil, resulting in a decrease in imports; overvaluation of the dollar due to distortion in exchange rates from the illegal currency market, resulting in distorted pricing; and a reduction in the supply of domestic goods and services.

To combat inflation and its effects, the Government has implemented a series of actions to increase the supply of goods and services to the public including: (1) the provision of financial assistance, machinery, intermediate goods and technical support to producers to promote agricultural activity; (2) increasing the supply of foreign currency by restructuring the currency exchange system and introduction of a floating exchange rate for some operations; (3) the creation of the SUNDDE, whose objective is to determine the fair prices for goods and services in order to reduce inflation; (4) the adoption of a biometric system in the public food distribution networks and in border areas of the country; (5) adopting measures to curb the smuggling of food, fuel and other goods and essential supplies out of the country; (6) programs designed to promote food production and distribution and improve food access; (7) the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods and (8) implementing increased inspections of importers and exporters to combat currency arbitrage (among the three official exchange rates) and fraud.

During the fourth quarter of 2015, short-term interest rates on commercial bank loans averaged 20.9%, compared to 18.8% for the fourth quarter of 2014. In 2015, the rate of interest on time deposits averaged 15.1%.

In 2015, Central Government revenues totaled Bs.20.0 billion in 1997 Constant Bolívares and Central Government expenditures totaled Bs.19.1 billion in 1997 Constant Bolívares. As a result, the Central Government accounts recorded a surplus of Bs.874.5 million in 1997 Constant Bolívares, or 1.6% of real GDP, for 2015.

Gross international reserves held by Banco Central (excluding amounts deposited in the Fondo de Estabilización Macroeconómica or “Stabilization Fund”) as of December 31, 2014, totaled U.S.$22.1 billion, a decrease of U.S.$599 million as compared to December 31, 2013. This decrease was due to the decline in currency sales from PDVSA to Banco Central, which was in turn due to the sharp decrease in oil prices. As of September 30, 2015, gross international reserves held by Banco Central totaled U.S.$16.4 billion.

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For the nine-month period ended September 30, 2015, the overall balance of payments recorded a deficit of U.S.$4.1 billion, the current account had a deficit of U.S.$13.0 billion, the capital and financial account had a surplus of U.S.$10.8 billion, and the errors and omissions account recorded a deficit of U.S.$1.9 billion. The deficit in the balance of payments for this period was primarily due to the drop in oil prices.

In order to provide balance of payments support, the Central Government implemented the floating exchange rate mechanism, now known as DICOM. The official exchange rate, now known as DIPRO, was also increased from Bs.6.30 to U.S.$1.00 to Bs.10.00 to U.S.$1.00.

On February 12, 2015, the Republic’s exchange rate system was restructured to introduce SIMADI. Under this system, the three exchange rates were the CENCOEX (official) rate, the SICAD rate (combining the old SICAD I and SICAD II tiers) and the SIMADI rate. The CENCOEX rate was used for the importation of government-authorized priority goods, until it was replaced by DIPRO in March 2016. The SICAD rate is used for non-essential goods. Use of the CENCOEX rate and the SICAD rate require government authorization. SIMADI was administered by Banco Central in conjunction with the Ministry of Finance, under the rules of the Currency Exchange Agreement No. 33, which allowed both individuals and companies to buy and sell foreign currency in cash and bonds. The SIMADI rate was set by the market, pursuant to a platform supervised by Banco Central, and operated until March 2016 when it was replaced by DICOM.

In March 2016, the exchange control regime was further restructured as discussed below under “Economic Policy and Legislation—Exchange Control Regime.”

PDVSA is the single largest contributor to Venezuela’s GDP, exports and fiscal reserves, and as a result, it has a significant influence on the Venezuelan economy. PDVSA’s profit during 2015 decreased by U.S.$1.7 billion, or 19.1%, to U.S.$7.3 billion from U.S.$9.1 billion in 2014. The reason for this decrease was principally due to a significant decrease in sales of crude oil, products and related products, mainly due to the decline in the average price of the Venezuelan export basket; PDVSA’s production of crude oil and liquid petroleum gas averaged 2.8 million bpd in 2015 compared to an average of 2.9 million bpd in 2014. PDVSA’s exports averaged 2.4 million bpd in 2015, which remained stable from 2014. For more information, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Petróleos de Venezuela, S.A.” and “—Petróleos de Venezuela, S.A.—PDVSA and the Venezuelan Economy.”

Economic Plan

Introduction and Overview

In 2012, the Central Government released an outline of the Plan for the Socialist and Bolivarian Administration 2013–2019, referred to as the “Plan of the Nation,” which is a roadmap for the second stage of Venezuela’s transition to socialism. In this declaration, the Central Government set forth its commitment to continue the transition to a socialist economic system and as a means to achieve a system of social and productive relations founded on the principles of knowledge and effort. The Plan of the Nation is intended to achieve a new socialist model, based on the development of the productive forces of the economy. The general objectives of the Plan of the Nation contain a number of guidelines for the design and implementation of economic policy, including:

• development of the oil-production capacity of the country to align with its vast oil reserves and consolidate the role of the Republic as a world energy power;

• strengthening of the existing tax regime relating to the hydrocarbons sector to develop more effective mechanisms of capturing the income generated by oil exploitation;

• increasing food production independence and security by developing the agricultural and agroindustrial potential of the country; and

• development of scientific and technological capacities directly linked to the national productive structure.

Pursuant to his legislative powers under the enabling laws and emergency decrees, President Maduro has issued a set of decrees addressing economic matters, including the following:

• Decree No. 1,405 establishing the Integrated National Agrifood System Law (Ley del Sistema Nacional Integral Agroalimentario) (Extraordinary Official Gazette No. 6,150, dated November 18, 2014), which establishes and integrates a national agrifood system that monitors the dispatch, traffic, transportation and receipt of food products and raw materials within Venezuela.

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• Decree No. 1,408, amending the Law on Fisheries and Aquaculture (Ley de Pesca y Acuicultura) (Extraordinary Official Gazette No. 6,150, dated November 18, 2014), which requires prior authorization from the Socialist Institute of Fishing and Aquaculture to engage in fishing, aquaculture and related activities.

• Decree No. 1,415, establishing the Antitrust Law (Ley Antimonopolio) (Extraordinary Official Gazette No. 6,151, dated November 18, 2014), which promotes, protects and regulates competition in various industries.

• Decree No. 1,434, amending the Organic Tax Code (Ley del Código Orgánico Tributario) (Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which eliminates the statute of limitations for the tax authorities to pursue claims of tax fraud and fraudulent bankruptcy for tax purposes.

• Decree No. 1,435, amending the Income Tax Law (Ley de Reforma de la Ley de Impuesto Sobre la Renta) (Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which excludes companies performing banking, financial, insurance and reinsurance services from the inflation adjustments set forth in the Income Tax Law (Ley de Impuesto Sobre la Renta).

• Decree No. 1,436, amending the Value Added Tax Law (Ley de Reforma que Establece el Impuesto al Valor Agregado) (Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which gives the National Executive the power to modify the general tax rates, outside passage of the Annual Budget Law.

• Decree No. 1,438, establishing the Foreign Investment Law (Ley de Inversiones Extranjeras) (Extraordinary Official Gazette No. 6,152, dated November 18, 2014), which requires that any foreign investment must remain in Venezuela for a minimum period of five years from the date of investment.

• Decree No. 1,400, establishing the Agricultural Bank of Venezuela, CA, Universal Bank (Ley del Banco Agrícola de Venezuela C.A. Banco Universal) (Extraordinary Official Gazette No. 6,154, dated November 19, 2014). The bank is authorized to provide loans with terms of up to twenty years to agricultural producers, grant or execute direct subsidy programs and provide other incentives to the agricultural sector.

• Decree No. 2,167, amending the Law of Exchange Regime and its Crimes (Ley del Régimen Cambiario y sus Ilicitos) (Extraordinary Official Gazette No. 6,210, December 30, 2015), which (1) repeals the Law of the Exchange Regime and its Crimes of 2014, (2) mandates the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies, (3) criminalizes the use of exchange rates other than the official exchange rates, (4) simplifies the process for obtaining foreign currency and (5) establishes an alternative currency market.

• Decree No. 2,169, establishing the Law of Taxation on Major Financial Transactions (Ley de Impuesto a las Grandes Transacciones Financieras) (Extraordinary Official Gazette No. 6,210, December 30, 2015), which imposes a tax on certain financial transactions, such as withdrawals from call deposits and money market funds, certain transfers of checks, securities and negotiable financial instruments and certain inter-bank loan operations.

• Decree No. 2,165, establishing the Organic Law that Reserves to the State the Exploration and Exploitation of Gold and Other Strategic Minerals (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro y demás Minerales Estratégicos) (Extraordinary Official Gazette No. 6,210, December 30, 2015), which aims to promote economic development and curb Venezuela’s dependence on oil through economic diversification and which vests authority for all mining operations with the Ministry of Mining.

• Decree No. 2,171, establishing the Organic Law for the Development of Petrochemical Activity (Ley Orgánica para el Desarrollo de las Actividades Petroquímicas) (Extraordinary Official Gazette No. 6,210, December 30, 2015), which reserves to the state the right to produce basic and intermediate petrochemicals, including chemical or physical transformation of raw materials based on gaseous and liquid hydrocarbons and minerals, and grants to the Ministry of Oil the authority to regulate petrochemical production.

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• Decree No. 2,176, establishing the Capital Markets Law (Ley de Mercado de Valores) (Extraordinary Official Gazette No. 6,211, December 30, 2015), which (1) establishes a legal framework to promote the financing of productive companies through national public debt instruments by brokerage firms, (2) renews and expands the authority of the national securities regulator, the National Securities Superintendency (Superintendencia Nacional de Valores), to regulate the capital markets to include new issuers, such as small and medium-sized companies, (3) gives the National Securities Superintendency the discretion to accept more limited disclosure from certain small and medium-sized companies, (4) promotes capital markets in accordance with international financial standards and protects the financial resources of investors while minimizing risks through regulation, (5) allows licensed broker-dealers to participate in the market for public bonds, (6) sets forth special authorization requirements for foreign corporations that wish to conduct the same activities as brokerage companies or stock exchanges, and (7) establishes procedures for the imposition of sanctions for violating the capital markets laws.

• Decree No. 2,177, establishing the Law of the National Integrated Service for the Administration of Customs Duties and Taxes (Ley del Servicio Nacional Integrado de Administración Aduanera y Tributaria) (Extraordinary Official Gazette No. 6,211, December 30, 2015), which is intended to modernize SENIAT and prohibit speculation, counterfeiting and drug trafficking activities that impact taxation.

• Decree No. 2,178, establishing the Law on Insurance (Ley de la Actividad Aseguradora) (Extraordinary Official Gazette No. 6,211, December 30, 2015), which grants special powers to the Superintendency of Insurance to intervene in the insurance industry, such as the ability to order the payment of insurance claims and impose fines for wrongdoing on the part of insurance companies, and places certain restrictions on insurance and reinsurance companies.

• Decree No. 2,163, amending the Income Tax Law (Reforma Parcial de la Ley de Impuesto sobre la Renta) (Extraordinary Official Gazette No. 6,210, dated December 30, 2016), which (1) imposes new measures to limit tax deductions, (2) modifies inflation adjustments to promote the banking, financial and insurance sectors, (3) streamlines the tax regime applicable to cooperative associations and foundations and rebates for investment and (4) regulates the availability of revenues.

For more information, see “Bolivarian Republic of Venezuela—Enabling Laws” and “—Emergency Decrees.”

Special Economic Zones

In 2014, the Government created Special Economic Zones (“SEZ”) with policy incentives to attract foreign and national investment with the aim of promoting the industrial, commercial and economic development of selected regions and decreasing Venezuela’s dependence on exports. These zones will benefit from sovereign international agreements and exemption from VAT, among other incentives. In December 2014, President Maduro established the two SEZs in Paraguaná (located in the Falcon state) to promote wind power generation and in Urena (located in the western border of the Tachira state) to promote textile and shoe production. In 2015, a medical equipment company was founded within the SEZ in Paraguaná in order to supply the national health sector.

Economic Policy and Legislation

Fiscal Policies

The Government’s fiscal policies have combined a macroeconomic stabilization program with structural reforms that are intended to strengthen public finances for the future and reduce volatility in the fiscal accounts.

On September 2, 2014, as part of the National Executive’s financial policy aimed at strengthening the country’s international accounts, President Maduro announced the creation of a strategic account at Banco Central, known as the Strategic Reserve Fund, where funds including FONDEN, the Sino-Venezuelan Joint Fund and the Large Volume and Long-Term Financing Fund could be consolidated in order to strengthen the Republic’s foreign asset account.

Throughout 2015, the Central Government’s fiscal policies focused on maximizing projects through FONDEN and developing new funding schemes to reallocate resources to high-impact projects in strategic sectors such as manufacturing. In 2015, the Central Government granted a total of Bs.6.6 billion (U.S.$1.1 billion) in credit applications consisting of both long-term and short-term loans. In addition, a series of legislative reforms were implemented to increase tax revenues. Also in 2015, a Presidential Commission was created to reduce excess public spending and rationalize public administrative expenditures with a view to reallocating savings from these initiatives towards food production and efforts to combat inflation.

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Financial Administration of the Public Sector

The administration of public sector finances in Venezuela is governed by the Public Sector Financial Administration Law, a law enacted in 2000 that consists of a set of systems, administrative bodies and procedures relating to the collection of public revenues and their application to implement the Central Government’s objectives. The Public Sector Financial Administration Law addresses the creation and the administration of the budget as well as the administration of public credit and the treasury, accounting systems, taxes and Government assets.

The National Treasury manages the Central Government’s finances, supervises and records the payment of expenditures authorized in the annual budget, retains custody of the funds and securities belonging to the Republic, records all Treasury revenues and evaluates opportunities for the issuance of Treasury bonds. The Public Sector Financial Administration Law provides that public monies must be maintained in a single account, known as the Single Account (Cuenta Única), in order to centralize the collection of revenues and the making of payments. The Single Account is administered by the Ministry of Finance through Banco Central and domestic and foreign commercial banks. The Public Sector Financial Administration Law permits the establishment of subaccounts under the Single Account.

The Public Sector Financial Administration Law seeks to increase the integrity of the treasury in the management of public monies. To that end, the Public Sector Financial Administration Law prohibits civil servants responsible for determining and recording the amount of revenues owed to the Central Government, such as taxes and royalties, from participating in the collection and custody of such revenues. In addition, it requires that civil servants held liable for mismanagement of public monies must indemnify the Central Government for such losses in addition to any other criminal or administrative actions that may be taken against such persons. The Public Sector Financial Administration Law created the National Office of Public Accounts as the office responsible for the establishment of public sector accounting standards. The National Office of Public Accounts is also responsible for the preparation of the General Report of the Treasury, which the Ministry of Finance must present to the National Assembly every year. In addition, the Public Sector Financial Administration Law sets forth guidelines with respect to the accounting treatment given to expenditures and revenues. Under the Public Sector Financial Administration Law, expenditures may not be accounted for until they are actually incurred, although they may have been approved in a prior year and revenues are to be recorded only after they have been collected. All accounts close on December 31 of each year.

The Public Sector Financial Administration Law requires the President to submit an annual borrowing law, referred to as a “Special Debt Law,” to the National Assembly for approval each year. The annual Special Debt Law must set forth the maximum amount of public credit that the Republic may contract and the maximum amount of net indebtedness that the Republic may incur for that fiscal year. As originally drafted, the Public Sector Financial Administration Law had provided that, after the annual borrowing law had been approved by the National Assembly, the President would have the ability to enter into public credit operations when he was able to obtain favorable financial conditions for the Republic and thereafter to periodically inform the National Assembly of such transactions. As amended, the Public Sector Financial Administration Law required the President to obtain approval from the Permanent Finance Committee of the National Assembly (La Comisión Permanente de Finanzas de la Asamblea Nacional) prior to undertaking each public credit operation. Additionally, each such request for approval must be accompanied by an opinion from Banco Central. Approval is granted if the National Assembly does not deny such request within ten days.

In March 2007, former President Chávez amended the Public Sector Financial Administration Law by decree within the legislative power conferred by the 2007 Enabling Law. Although the first Pluriannual Framework (Marco Plurianual) legally approved by the National Assembly corresponded to the period from 2011 through 2013, the Public Sector Financial Administration Law contained transitory provisions that were applicable from 2005 through 2010. For more information about the Pluriannual Framework, see “The Budget and the Pluriannual Framework.” Beginning with the period 2011 through 2013, the Pluriannual Framework had to be approved by the National Assembly covering three-year periods in the manner contemplated by the Public Sector Financial Administration Law. Previously, during the transition period, the National Assembly submitted the Pluriannual Framework to the National Assembly for the periods of 2005 through 2007 and 2008 through 2010; however, they were for informational purposes only and were not formally approved. On July 14, 2010, the Public Sector Financial Administration Law was again amended. Pursuant to the amendment, the National Assembly was required to submit the Pluriannual Framework to the National Assembly for the period 2011 through 2013, for informational purposes, when presenting the budget for 2011 for approval. The Pluriannual Framework was presented to the National Assembly on October 14, 2010, covering a three-year period in the manner contemplated by the Public Sector Financial Administration Law. The objective of the Pluriannual Framework was to generate confidence in the economy by implementing a series of economic policies that could be sustained over time without resorting to devaluation, high inflation or adjustment programs.

In March 2012, a reform of the Public Sector Financial Administration Law became effective. The reform allows the Executive branch to issue debt that exceeds the limits established by a Special Debt Law. These modifications allow additional liabilities to be incurred under unexpected or unforeseen circumstances, with such amounts to be applied against the maximum indebtedness of the following fiscal year. The modifications also allow the National Executive to directly approve operations and additional credits and to spend such resources in accordance with the law. As a result, the National Executive is no longer required to obtain the authorization of the National Assembly or the opinion of Banco Central in approving such credits.

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On December 9, 2013, Article No. 178 of the Public Sector Financial Administration Law was amended to require that the National Executive submit the Pluriannual Framework comprising of the years 2014 through 2016 to the National Assembly for informational purposes. Additionally, the amendment clarifies that for fiscal years 2017 through 2019, the Pluriannual Framework will be made and published according to the provisions of the Public Sector Financial Administration Law.

On November 19, 2014, the Government amended and restated the Public Sector Financial Administration Law pursuant to Decree No. 1,401 (published in Extraordinary Official Gazette No. 6,154, dated November 19, 2014). Material provisions of the amended law include Article 90, which provides that the Government can issue debt that exceeds the limits established by the annual Special Debt Law to cover any shortfalls in the Republic’s revenues as compared to expected targets that cannot be covered with funds from the Stabilization Fund.

On December 30, 2015, President Maduro issued a decree amending the Public Sector Financial Administration Law to (1) allow the President and the Council of Ministers to modify budgetary allocations created through legislation or other administrative acts and (2) reduce the National Assembly’s control over credit operations by enabling the National Executive to execute some of the transactions contemplated by the Special Debt Laws without the need for further authorization from the National Assembly.

The Budget and the Pluriannual Framework

The Public Sector Financial Administration Law establishes two budgetary documents, the Pluriannual Framework and the Annual Budget (Presupuesto Anual).

The Pluriannual Framework, which serves as the basis for the Annual Budget and is prepared every three years, projects expected fiscal results and places maximum limits on the amount of public expenditures and debt that may be authorized over a three-year period. It also contains the economic policy targets for the three fiscal years which it covers.

The Annual Budget projects revenues and expenditures for the forthcoming fiscal year. Before the National Assembly approves the Annual Budget, the Ministry of Finance must submit to the National Assembly a projected budget and financial information related to estimated pension expenditures and other contingent liabilities. The Public Sector Financial Administration Law requires the President to submit a report evaluating the execution of the Annual Budget during the previous year to the National Assembly by July 15 of each year. If the National Assembly does not approve the Annual Budget for the forthcoming year by December 15, the then-current Annual Budget will continue to apply.

In addition to the Annual Budget, the National Executive may introduce supplemental budgets (créditos adicionales) for approval by the National Assembly to provide additional funding to Government programs that are insufficiently funded by the Annual Budget. In 2015, supplemental budgets constituted more than 189.9% of the Government’s total public spending.

Pursuant to the Emergency Decree and the Exception and Emergency Decree, President Maduro was granted the authority to approve supplemental budget allocations without requiring the approval of the National Assembly.

In December 2015, the National Assembly approved the budget for 2016. The 2016 budget, as approved, projects total revenues of approximately U.S.$226 billion, excluding borrowing, and total expenditures of approximately U.S.$246 billion. The 2016 budget also contemplates a legal limit on borrowing by the Republic of U.S.$20 billion. The 2016 budget is based on certain assumptions, including a decline in real GDP of 1.7%, an average price for the Venezuelan oil basket of U.S.$40 per barrel, an average exchange rate of Bs.6.30 = U.S.$1.00 and average inflation at a rate of 60%. Actual figures have materially differed from some of these assumptions. For example, as of September 30, 2015, real GDP declined by 5.7%, the average price of the Venezuelan oil basket as of September 15, 2016, was U.S.$38.71 and on March 9, 2016, the official exchange rate was increased to Bs.10.00 = U.S.$1.00.

From January to May 2016, pursuant to his authority under the emergency decree, President Maduro approved U.S.$60.9 billion in supplemental budget allocations to several sectors, including education, social security, energy, mines and petroleum.

Macroeconomic Coordination

The Public Sector Financial Administration Law requires that the Minister of Finance and the President of Banco Central execute an Annual Coordination Agreement. The Annual Coordination Agreement is designed to harmonize the fiscal, monetary and financing policies of Banco Central and the Central Government in order to achieve macroeconomic stability and must specify the economic objectives of Banco Central and the Ministry of Finance. The Public Sector Financial Administration Law expressly prohibits the inclusion of provisions that may be interpreted as infringing upon Banco Central’s independence from the Central Government. Both the Minister of Finance and the President of Banco Central are accountable to the National Assembly with respect to performance under the Annual Coordination Agreement.

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In addition, the Council of the Productive Economy (El Consejo de la Economía Productiva), the Vice Presidency for the Productive Economy (Vicepresidencia de Economía Productiva) and the Great Mission of Sovereign Supply work together to coordinate the policy response to the economic crisis. Their policies are designed to stabilize the economy by promoting productive activity, increasing supply, rationalizing the allocation of resources, reducing trade balances, reducing the deficit and stabilizing prices.

Stabilization Fund

Commencing with the enactment of a law in 1998 providing for the Stabilization Fund, the Government sought to provide fiscal stability to the Venezuelan economy through the savings of unanticipated revenues from petroleum sales. Since its original enactment, the law governing the Stabilization Fund has been amended several times. The operational management of the funds is carried out by the Treasury Bank (Banco del Tesoro), created in August 2005 by decree on August 17, 2005. These funds do not constitute part of the Republic’s international reserves nor part of Treasury Bank’s assets. Following the 2005 amendment of the Banco Central Law (Ley del Banco Central de Venezuela or the “BCV Law”), which was enacted by the National Assembly on October 3, 2001 (published in Official Gazette No. 37,296, dated December 3, 2001), which mandated that excess oil revenues be contributed to FONDEN, the law governing the Stabilization Fund was amended and the Republic is no longer required to deposit excess oil revenues in the Stabilization Fund.

The balance in the Stabilization Fund was approximately U.S.$832 million as of December 31, 2010. In February 2011, PDVSA withdrew U.S.$829 million from the Stabilization Fund in order to build houses and refurbish shelters for people made homeless by heavy rains. As a result of the withdrawal, the balance of the Stabilization Fund was reduced to approximately U.S.$3 million. As of December 31, 2015, the balance in the Stabilization Fund remains at U.S.$3 million.

Financing Policy

The Government’s primary financing efforts have been directed at tapping local investor funds in order to use the national savings generated by individuals and corporations. This enables the Government to minimize foreign exchange risk and reduce the cost of debt by increasing domestic debt in comparison to external debt.

The current financing policy contemplates access to the domestic and international capital markets to extend the Republic’s debt payments profile, as well as strengthening medium and long-term benchmarks in the domestic and international capital markets.

The Central Government has taken actions focused on improving its debt payment profile, with the goal of reducing concentration through extension of maturities combined with strategies aimed to reduce interest rates and loan costs. In this regard, the Central Government has emphasized its strategy with debt instruments that allow it to increase the average life of the debt and maintain relatively constant levels of interest rates in order to keep debt service payments within tolerable ranges.

Moreover, the Central Government has focused on sustaining a positive correlation between the amount of debt and the country’s GDP, evaluating the sustainability and maintaining controlled levels of this ratio. The debt strategy implemented has enabled the Central Government to pay its domestic and external debt obligations, reducing its volume of outstanding labor liabilities and ensuring resources for investment projects.

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Exchange Control Regime

A general work stoppage that began in December 2002 resulted in a significant decrease in the availability of foreign currency generated from the sale of oil. This decrease was coupled with an extraordinary increase in the demand for foreign currency, resulting in a significant decline in the level of the Republic’s international reserves and a substantial depreciation of the Bolívar against the U.S. dollar during the first few weeks of 2003. The substantial reduction of oil exports resulting from the work stoppage also damaged the country’s trade balance. These problems disrupted Venezuela’s economy and threatened to affect negatively the Republic’s ability to service its external debt. In response to those developments and in an attempt to achieve monetary stability as well as to ensure the Republic’s future ability to continue to meet its external debt obligations, the Republic suspended foreign exchange trading on January 21, 2003. On February 5, 2003, the Central Government adopted a series of exchange agreements, decrees and regulations establishing a new exchange control regime. The exchange control regime centralized the purchase and sale of foreign currencies in Banco Central. The Ministry of Finance, together with Banco Central, is in charge of setting the exchange rate with respect to the U.S. dollar and other currencies.

The Commission of Foreign Currency Administration (Comisión de Administración de Divisas or “CADIVI”) was created in February 2003 for the administration, control and establishment of the new exchange control regime. CADIVI was composed of five members who were appointed by the President.

In an effort to promote and encourage the development of the Republic’s national economy and stimulate exports, then-President Hugo Chávez announced on January 8, 2010, the implementation of Currency Exchange Agreement No. 14 (Convenio Cambiario No. 14) (Official Gazette No. 39,342 dated January 8,2010), which established a new exchange rate system that included two official prices for the dollar. The first exchange rate was set at Bs.2.60 = U.S.$1.00, which was the official exchange rate for essential goods, including food, health, imports of machinery and equipment, science and technology, as well as all non-petroleum public sector transactions and other special cases. The second exchange rate, which was used for all other transactions, was set at Bs.4.30 = U.S.$1.00 for sale operations, with the exception of the provisions of Article 5 of Currency Exchange Agreement No. 14, which covers, among others, transactions within the automotive sector, the telecommunications sector, the steel sector and the construction sector.

On December 30, 2010, the Central Government eliminated the dual-exchange rate regime and established a single-exchange rate. Pursuant to amended Currency Exchange Agreement No. 14 (Official Gazette No. 39,584 dated December 30, 2010), the Ministry of Finance, together with Banco Central, established an exchange rate of Bs.4.30 = U.S.$1.00 for all transactions. Effective January 1, 2011, the U.S. dollar exchange rate was set at Bs.4.2893 = U.S.$1.00 for purchase operations and Bs.4.30 = U.S.$1.00 for sale operations.

In May 2010, the Central Government implemented the Exchange Crimes Law (Ley de Ilícitos Cambiarios) which was published in the Extraordinary Official Gazette No. 5,975, dated May 17, 2010. Pursuant to the law, all firms or individuals who imported or exported an amount exceeding U.S.$10,000, had to declare their transactions to CADIVI. This law excluded securities issued by the Republic and foreign currency of non-resident individuals in Venezuela for a limited period. The Central Government instituted a partial reform of the Exchange Crimes Law to prevent the local market from circumventing the CADIVI system through trading securities denominated in foreign currency. To prevent these types of trading activities, Banco Central was designated as the sole entity to manage the system. The reform extended the foreign exchange control regime to include securities that were denominated, or could be settled, in foreign currency. Prior to this reform, these types of activities were typically made through authorized exchange operators, including banks and brokerage firms.

In June 2010, Currency Exchange Agreement No. 18 (Convenio Cambiario No. 18) was enacted in an effort to curtail inflationary pressures due in part to local currency trading. The new regulation gave Banco Central control over local currency trading of all international bonds issued by the Republic, its decentralized entities or any other issuer denominated in foreign currency. In addition, the Transaction System for Foreign Currency Denominated Securities (Sistema de Transacciones con Títulos en Moneda Extranjera or “SITME”) came into operation. SITME was an electronic system which regulated the purchase and sale operations in Bolívares of foreign currency denominated securities, in which only financial institutions could participate. Under SITME, Banco Central determined which securities were to be traded and the price parameters for such trades in Venezuela and also determined the qualifications of the buyers and sellers that could participate in SITME. SITME allowed private entities and individuals to obtain U.S. dollars in exchange for Bolívares by paying Bolívares in exchange for foreign currency denominated securities issued by the Republic or entities directly or indirectly owned by the Republic that were ultimately sold in exchange for U.S. dollars. Private entities could only use SITME to purchase U.S. dollars to pay for imported goods, capital goods and services which were not eligible to be paid through CADIVI, or, if they were eligible to be paid through CADIVI, the importer could not have purchased U.S. dollars through CADIVI for 90 days prior to submitting the request to SITME. Private entities could acquire up to U.S.$50,000 per day, up to a U.S.$350,000 non-cumulative limit per month.

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Also in June 2010, the System for the Initial Placement of Bonds denominated in Foreign Currency (Sistema de Colocación Primaria de Títulos en Moneda Extranjera or “SICOTME”) came into operation. SICOTME is an electronic system which regulates the initial placement of the Republic’s securities denominated in foreign currency and sold in Bolívares, in which only financial institutions authorized by Banco Central may participate, either on their own behalf or on behalf of their clients.

Trading on the foreign exchange has decreased since the Central Government intervened in trading companies and has been stagnant since securities regulators shut down and took over management of 47 brokerage companies in 2010. The Central Government has defended its takeover of 47 private brokerage businesses during 2010 relying on the fact that those firms had arbitrarily undervalued Venezuela’s currency in a bond market that was widely used for currency trading and that the practices of the brokerage firms that were shut down contributed to capital flight. During 2011, the Central Government intervened and took over management of an additional 35 brokerage businesses.

On July 12, 2012, Currency Exchange Agreement No. 20 (Convenio Cambiario No. 20) was enacted in order to allow companies and individuals to open Venezuelan bank accounts in U.S. dollars. These accounts could only contain U.S. dollars obtained through SITME or SICOTME. This new regulation permitted public sector exporting companies to maintain in their Venezuelan bank accounts up to 5% of their monthly revenues in U.S. dollars in order to purchase public debt bonds from the international markets and sell them on SITME. The regulation allowed accounts to be fully or partially withdrawn at the then-existing official exchange rate. The withdrawals could be made in several ways, including through wire transfers, bank checks and debit cards. Each bank maintaining these accounts was required to provide a monthly report to Banco Central with detailed information on the funds that are held in U.S. dollars.

On February 9, 2013, pursuant to Currency Exchange Agreement No. 14, SITME was terminated. Also in February 2013, the Central Government created the High Body for Optimizing the Exchange System (Órgano Superior para la Optimización del Sistema Cambiario), to oversee foreign exchange policy, which was composed of three institutions: the Ministry of Finance, Banco Central and the MPPPM and its main functions consisted of establishing priorities in the assignment of foreign currency, determining the quality and quantity of imports needed to achieve macroeconomic goals, and coordinating the inflow of foreign currency from oil and other sources until it was abolished in November 2013.

In March 2013, the Central Government created Complementary System for Foreign Currency Exchange Administration (Sistema Complementario de Administración de Divisas I or “SICAD I”) to replace SITME in the Currency Exchange Agreement No. 21 (Convenio Cambiario No. 21). SICAD I was a complementary mechanism to distribute foreign currency among economic agents, through special auctions whose terms and conditions were determined by the High Body for Optimizing the Exchange System.

CENCOEX was established in November 2013 as a decentralized entity, attached to the ministerial office of the Deputy Chairman of the Council of Revolutionary Ministers for the Economic Sector (Despacho Ministerial del Vicepresidente del Consejo de Ministros Revolucionarios para el Área Económica), under the auspices of the Ministry of Finance (Decree No. 601, Extraordinary Official Gazette No. 6,116, dated November 29, 2013). CENCOEX replaced the High Authority for Foreign Exchange System Optimization. CENCOEX is managed by five directors appointed by the President of the Republic and it develops and implements policies on foreign exchange administration, exports, imports, foreign investment into the country, and investment abroad. The CENCOEX official exchange rate superseded the CADIVI system, which was wound down on December 31, 2015 (Decree No. 1,710, Official Gazette No. 40,638, April 13, 2015). The law establishing CENCOEX also established CORPOVEX. CORPOVEX was created to oversee and rationalize imports, ensure that the Republic obtained the best quality and price of imported products and goods, achieve maximum efficiency in the country’s import/export process, and centralize the provision of non-oil exports.

From November 1, 2013 to July 31, 2016, CENCOEX made total currency awards of U.S.$38.5 billion, calculated at the then-current exchange rates, including allocations of U.S.$20.6 billion to priority sectors such as food, health and chemicals.

In 2014, CADIVI approved approximately U.S.$20.3 billion in foreign currency, compared with approximately U.S.$29.7 billion and U.S.$33.2 billion in currency approved in 2013 and 2012, respectively. During the five years prior to the introduction of the exchange control regime, Venezuela spent an average of about U.S.$1.3 billion per month on imports. In March 2014 the Central Government created the Complementary System for Foreign Currency Exchange Administration II (Sistema Complementario de Administración de Divisas II or “SICAD II”), pursuant to Currency Exchange Agreement No. 27 (Convenio Cambiario No. 27), published in Official Gazette No. 40,368, effective as of March 10, 2014, as a new system for currency exchange to operate in parallel with SICAD I. Together, SICAD I and SICAD II determined exchange rates and allocated foreign currency for imports, supplementing CADIVI’s allocation of foreign currency. The new SICAD II system created a new legal variable exchange rate, which, unlike SICAD I, operated via auctions that were held on a daily basis by Banco Central and were open to the general public in Venezuela for the exchange of U.S. dollars and Bolívares. Also in contrast to SICAD I, the proceeds from SICAD II transactions were not restricted to a specific list of uses; however, SICAD II was not available for use by PDVSA directly. The SICAD II exchange rate could not be lower than the exchange rate established in Currency Exchange Agreement No. 14, dated February 8, 2013, which was published in Official Gazette No. 40,108 (Bs.6.30 = U.S.$1.00 for the sale of foreign currency and Bs.6.2842 = U.S.$1.00 for the purchase of foreign currency).

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On April 3, 2014, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 28 (Convenio Cambiario No. 28), published in Official Gazette No. 40,387, effective as of April 4, 2014. Pursuant to this Currency Exchange Agreement, foreign currency originating from activities and transactions other than from sales and/or exports of hydrocarbons by PDVSA, its affiliates and joint ventures created under the Hydrocarbons Law (Ley Orgánica de Hidrocarburos), Extraordinary Official Gazette No. 37,323, November 13, 2001, could only be sold at an exchange rate based on the most recent foreign currency auction granted through SICAD II, as published by Banco Central, less 0.25%. Pursuant to Currency Exchange Agreement No. 14, the sale of foreign currency originating from oil exports by PDVSA, its affiliates and joint ventures were made at the exchange rate of Bs.6.2842 = U.S.$1.00 and, foreign currency originating from activities carried out by service companies that are part of the Petroleum Industrial National Conglomerate (Conglomerado Nacional Industrial Petrolero), a group of organizations and individuals that provide services to the oil industry in Venezuela, could only be sold at an exchange rate equivalent to the most recent foreign currency auction granted through SICAD II, as published by Banco Central.

On February 12, 2015, the Central Government combined SICAD I and SICAD II and renamed the combined exchange rate systems SICAD. On June, 2015, SICAD held its first sale of 2015 and auctioned approximately U.S.$350 million directed towards auto parts companies, vehicle assembly equipment, machinery for construction and maintenance supplies for public roads at an exchange rate Bs.12.80 = U.S.$1.00. On August 31, 2015, SICAD auctioned approximately U.S.$150 million directed towards machinery, spare parts and supplies to increase domestic agricultural production at an exchange rate of Bs.13.50 = U.S.$1.00.

On February 10, 2015, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 33 (Convenio Cambiario No. 33), published in Extraordinary Official Gazette No. 6,171, dated February 10, 2015, which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI, intended to liberalize the exchange controls by establishing a market rate system of exchange the use of which does not require government authorization.

On April 9, 2015, the Central Government imposed restrictions on the ability of Venezuelan residents to acquire foreign currency for the payment of goods and services outside the country. Under Ruling No. 011 dated April 9, 2015, as published in the Official Gazette 40,636, Venezuelans can purchase a maximum of U.S.$3,000 per year or its equivalent in another currency through the DICOM exchange rate (prior to the enactment of Currency Exchange Agreement No. 35, the SICAD rate applied) and withdraw a maximum of U.S.$200 from ATMs outside Venezuela in any single trip. Amounts charged to credit cards for foreign transactions are deducted from the aforementioned limits. Any requests for foreign currency above the prescribed limits must be made through Banco Central. Ruling No. 011 also forbids making a foreign currency request above the established limits.

On May 28, 2015, pursuant to Resolution No. 038 published in the Official Gazette No. 40,670, the Central Government granted CENCOEX the exclusive authority to enforce the Republic’s exchange rate mechanism and the power to apply punitive measures against those who violate the exchange controls. CENCOEX is required to submit reports to the Ministry of Finance on all procedures and actions taken.

On December 30, 2015, President Maduro issued a decree amending the Law of the Exchange Regime and its Crimes to combat currency arbitrage and fraud, which requires that importers obtain a production certificate in connection with the importation of certain supplies and provides for criminal penalties for the use of foreign currency in contravention of the established exchange control regime. For more information, see “—Law of the Exchange Regime and Its Crimes.”

On March 9, 2016, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 35, which replaced the existing CENCOEX rate with the DIPRO rate and the SIMADI rate with the DICOM rate. For more information, see “—Currency Exchange Agreements.” As of December 31, 2015, the CENCOEX rate was Bs.6.30 = U.S.$1.00, SIMADI rate was Bs.199.69 = U.S.$1.00 and the SICAD rate was Bs.13.50 = U.S.$1.00.

The current exchange control regime consists of three exchange rates: (1) the official DIPRO rate used for the payment of public debt, priority imports, pension payments to Venezuelans living abroad, sale operations generated by exports and the sale of hydrocarbons and payments in certain priority sectors such as health, sports, culture and scientific research; (2) the SICAD rate, used for certain special currency auctions; and (3) the DICOM rate, which is set by the market, pursuant to a platform supervised by Banco Central, and which is used for all other transactions, including sale operations to embassies and consular offices, sale operations generated by exports and the sale of hydrocarbons, sale operations to essential industries and other entities in the non-petroleum sector and sale operations for foreign travel.

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Private sector individuals or entities acquiring foreign currency must be registered and authorized by the Central Government to use the DIPRO rate or the SICAD rate; however, the DICOM rate requires no such governmental authorization. As of September 15, 2016, the DIPRO rate was Bs.10.00 = U.S.$1.00, the SICAD rate was Bs.13.50 = U.S.$1.00 and the DICOM rate was Bs.652.66 = U.S.$1.00. All foreign currency that enters the country must be registered through banks and financial institutions authorized by CENCOEX for the administration, control and establishment of the exchange control regime. CENCOEX is only responsible for approving private sector imports. Public and oil imports are not handled by CENCOEX.

All foreign currency income generated through public or private sector operations must be sold to Banco Central at the exchange rate established at the current exchange control regime. However, there are six exceptions: First, pursuant to Currency Exchange Agreement No. 9 (Convenio Cambiario No. 9), PDVSA can retain foreign currency (which it is otherwise required to sell to Banco Central, to cover operational expenditures and tax payments denominated in local currency) in order to fulfill its operational and capital expenses abroad, with the authorization of Banco Central. Second, under Currency Exchange Agreement No. 35, PDVSA, its affiliates and certain public-private companies (which are identified in the Hydrocarbons Law), the Organic Law on Hydrocarbon Gases (Ley Orgánica de Hidrocarburos Gaseosos) and the Organic Law for the Development of Petrochemical Activities, may sell foreign currency generated from export activities and the sale of hydrocarbons to Banco Central at any of the existing exchange rates discounted by 0.25%. Third, pursuant to Currency Exchange Agreement No. 34 (Convenio Cambiario No. 34) (Official Gazette No. 40,985, dated September 9, 2016), individuals and private companies may retain up to 60% of their foreign currency denominated income received from exporting activities. Fourth, pursuant to Currency Exchange Agreement No. 9, joint ventures that have production agreements with PDVSA may maintain foreign currency denominated reserves with no pre-set limits but which vary depending on the amount of the joint venture’s obligations with PDVSA. Fifth, pursuant to Currency Exchange Agreement No. 11, public sector entities may retain foreign currency with the permission of Banco Central. Finally, pursuant to Currency Exchange Agreement No. 35, essential industries and for-profit public entities in sectors other than the petroleum sector may sell currency to Banco Central obtained from their productive activity, at the floating complementary market exchange rate, DICOM, reduced by 0.25%, in accordance with those specific authorizations issued by the Vice President for Economic Affairs, the Ministry of Finance and Banco Central.

Unless otherwise expressly authorized, the obligation of the public sector to sell foreign currency to Banco Central includes any foreign currency: (1) introduced into Venezuela through the Bank of the Economic and Social Development of Venezuela (Banco de Desarrollo Económico y Social de Venezuela or “BANDES”), the Social Protection Fund of Banking Deposits (Fondo de Protección Social de los Depósitos Bancarios or “FOGADE”), and other public financial institutions; (2) obtained by the Republic through public credit operations or otherwise; or (3) obtained by other public sector entities by any other means. In turn, the private sector must sell to Banco Central any foreign currency that is generated from the export of goods and services; introduced into Venezuela for investment purposes; generated by companies incorporated to develop the activities regulated by the Hydrocarbons Law; or generated from transportation services, travel and tourism operations, bank transfers, investment, lease agreements and other commercial, industrial, professional or personal services or activities.

The exchange control regime requires Banco Central to approve the Republic’s foreign currency budget with respect to purchases of foreign currency. This budget is subject to adjustment in accordance with the level of international reserves and the flow of foreign currency. Banco Central only sells foreign currency if it determines that there are sufficient international reserves.

Pursuant to Articles 4 and 5 of Currency Exchange Agreement No. 11 (Convenio Cambiario No. 11) published in Official Gazette No. 40,565, dated December 18, 2014, public bodies and public sector entities have to request foreign currency directly from Banco Central for the following: (1) payments of external public debt; (2) transfers required for the Republic’s foreign service representatives abroad or delegations of the executive, legislative, judicial, civic or electoral branches participating in special missions abroad; (3) international commitments of the Republic; (4) payments related to national security; (5) foreign travel expenses of public officials; and (6) the currency required by the Republic for the administration and management of the National Treasury through accounts held at Banco Central. Pursuant to Articles 2 and 3 of Currency Exchange Agreement No. 11, Banco Central will settle the following foreign currency denominated obligations with authorization from CENCOEX: (a) payments for urgent health and food provisions; (b) foreign currency expenditures related to the productive activity of the body or organ of the public sector, and/or which the National Executive determines are important; (c) the provision of foreign currency to BANDES and Banco de Comercio Exterior; and (d) payments resulting from imports occurring prior to February 5, 2003. The acquisition of currency required by public entities in accordance with Currency Exchange Agreement No. 11 is calculated at the sale exchange rate provided for in Article 1 of the Currency Exchange Agreement No. 35. The exchange control regime contains provisions that are specific to PDVSA, effectively allowing PDVSA and its affiliates to maintain offshore accounts up to a specified dollar amount approved by Banco Central.

Private sector individuals or entities have to obtain approval from CENCOEX for the following purposes: (1) the purchase of foreign currency for transfers of money abroad, payments of certain imported goods and services and payments of interest or principal on external indebtedness; (2) the purchase of foreign currency for the payment of dividends, capital gains and interest that are the product of foreign investment in Venezuela, as well as for payments of service contracts, technology contracts or royalties; (3) the acquisition of foreign currency for payments under American Depositary Shares, American Depositary Receipts, Global Depositary Shares and Global Depositary Receipts programs implemented prior to February 5, 2003; and (4) in the case of individuals, to utilize the allocations for traveling outside of Venezuela.

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Law of the Exchange Regime and its Crimes

On February 19, 2014, the Law of the Exchange Regime and its Crimes was enacted and published in Extraordinary Official Gazette No. 6,126, dated February 19, 2014. This law abrogated the former Law against Exchange Crimes (Ley Contra Los Ilicitos Cambiarios). Pursuant to the new law, any individual, Banco Central or PDVSA may sell foreign currency or securities denominated in foreign currency to any person in Venezuela through the systems established by the Currency Exchange Agreements set forth below and pursuant to the regulations of Banco Central. Additionally, any state-owned entity (other than PDVSA or Banco Central) must obtain prior approval from the Ministry of Finance in order to sell foreign currency.

The 2014 Law of the Exchange Regime and its Crimes required that transactions in foreign currency or securities denominated in foreign currency must be consummated through authorized brokers, such as universal and microfinance banks, as well as through stock brokers duly authorized by the Venezuelan Securities Superintendency pursuant to the Venezuelan Securities Law. In addition, it relaxed certain exchange controls.

The 2014 Law of the Exchange Regime and its Crimes was further reformed on November 18, 2014. These amendments provided that (i) any person who uses foreign currency acquired for a purpose not in line with the Republic’s exchange rate mechanism may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (ii) the falsification or forgery of financial statements may be punished by imprisonment for between one to three years and a fine of 0.5 taxable units per U.S. dollar or equivalent foreign currency; (iii) those who directly or indirectly promote or encourage the commission of illegal acts may be punished by imprisonment for between two to six years and a fine of 0.5 taxable units per dollar or equivalent currency. As of February 2015, one taxable unit equaled Bs.150 or approximately U.S.$24 (published in Official Gazette No. 40,608, dated February 25, 2015).

On December 30, 2015, the National Executive passed a new Law of the Exchange Regime and its Crimes (Extraordinary Official Gazette No. 6,210, December 30, 2015), which (1) repealed the 2014 Law of the Exchange Regime and its Crimes; (2) mandated the creation of a production certificate system requiring importers to obtain production certificates to import certain supplies; (3) criminalized the use of exchange rates other than the official exchange rates; (4) simplified the process for obtaining foreign currency and (5) established an alternative currency market.

Currency Exchange Agreements

In March 2013, the Central Government created SICAD I to replace SITME in the Currency Exchange Agreement No. 21. SICAD I was a complementary mechanism to distribute foreign currency among economic agents, through special auctions whose terms and conditions were determined by the High Body for Optimizing the Exchange System.

On March 10, 2014, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 27 published in Official Gazette No. 40,368 (Convenio Cambiario No. 27), effective as of March 10, 2014, which established SICAD II. SICAD II created a new legal variable exchange rate, and unlike SICAD I, SICAD II operated via auctions that were held on a daily basis by Banco Central and were open to the general public in Venezuela for the exchange of U.S. dollars and Bolívares. Unlike SICAD I, the proceeds from SICAD II transactions were not restricted to a specific list of uses, however SICAD II was not available for use by PDVSA directly. The SICAD II exchange rate could not be lower than the exchange rate established in Currency Exchange Agreement No. 14 (Bs.6.30 = U.S.$1.00 for the sale of foreign currency, and Bs.6.2842 = U.S.$1.00 for the purchase of foreign currency). Banco Central published a reference exchange rate for SICAD II operations on a daily basis on its official website.

On April 3, 2014, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 28 published in Official Gazette No. 40,387, effective as of April 4, 2014. Pursuant to this Currency Exchange Agreement, foreign currency originating from activities and transactions other than from sales and/or exports of hydrocarbons by PDVSA, its affiliates and joint ventures created under the Hydrocarbons Law, could only be sold at an exchange rate based on the most recent foreign currency auction granted through SICAD II, as published by Banco Central, less 0.25%. Pursuant to Currency Exchange Agreement No. 14, the sale of foreign currency originating from oil exports by PDVSA, its affiliates and joint ventures were made at the exchange rate of Bs.6.2842 = U.S.$1.00 and, foreign currency originating from activities carried out by service companies that are part of the Petroleum Industrial National Conglomerate, a group of organizations and individuals that provide services to the oil industry in Venezuela, may only be sold at an exchange rate equivalent to the most recent foreign currency auction granted through SICAD II, as published by Banco Central. On February 10, 2015, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 33 (published in Extraordinary Official Gazette No. 6,171, dated February 10, 2015), which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI. For more information, see “Exchange Control Regime.”

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On September 24, 2014, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 30 (Convenio Cambiario No. 30) published in Official Gazette No. 40,504, which allows PDVSA to exchange U.S. dollars with Banco Central for sale operations at any of the official exchange rates in order to make the mandatory contributions in Bolívares to FONDEN pursuant to the Oil Windfall Profits Tax Law.

On December 30, 2014, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 32 (Convenio Cambiario No. 32) published in Extraordinary Official Gazette No. 6,167, which provided that the settlement of foreign currency sales transactions made by PDVSA to the Banco Central from financing, financial instruments and the collection of debts, export and/or hydrocarbons sales activities or transactions conducted within the framework of energy cooperation agreements could be made at any of the official exchange rates agreed to under the exchange agreements in effect.

On February 10, 2015, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 33, published in Extraordinary Official Gazette No. 6,171, which largely repealed Currency Exchange Agreement No. 28 and revamped the exchange rate mechanism through the introduction of SIMADI, intended to liberalize the exchange controls by establishing a market rate system of exchange the use of which does not require government authorization.

On September 9, 2016, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 34, published in Official Gazette No. 40,985, which allows individuals and private entities participating in the export of goods and services to retain and manage up to 60% of the income obtained in foreign currency in order to cover expenses derived from their export activities. They are allowed to use said currency freely, for the purpose of covering expenses, making payments or any other outlay needed to carry out export activities.

On March 9, 2016, the Ministry of Finance and Banco Central enacted Currency Exchange Agreement No. 35, published in Official Gazette No. 40,865, which is effective as of March 10, 2016. Currency Exchange Agreement No. 35 modified the exchange control regime by replacing the CENCOEX rate with a protected exchange rate, DIPRO, used for the payment of public debt, priority imports, pension payments to Venezuelans living abroad, and payments in certain priority government sectors such as health, sports, culture and scientific research and was initially set at Bs.10.00 = U.S.$1.00. Currency Exchange Agreement No. 35 also replaced the SIMADI rate with a complementary floating market rate, DICOM. The new DICOM rate is intended to promote national production and non-oil exports and was initially set at a rate of Bs.206.92 = U.S.$1.00. Under Currency Exchange Agreement No. 35, foreign currency sale transactions generated through the export and sale of hydrocarbons by PDVSA and certain other joint ventures in the petroleum sector can be effected at any lawful exchange rate discounted by 0.25%.

The following table sets out the average Bolívar/U.S. dollar official exchange rates for the periods indicated:

	Exchange
Year and Quarter	(Bolívar / United States dollar)
2011
First Quarter	Bs. 4.30
Second Quarter	4.30
Third Quarter	4.30
Fourth Quarter	4.30
2012
First Quarter	Bs. 4.30
Second Quarter	4.30
Third Quarter	4.30
Fourth Quarter	4.30
2013
First Quarter(1)	Bs. 4.30 / Bs. 6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30

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	Exchange
Year and Quarter	(Bolívar / United States dollar)
2014
First Quarter	Bs. 6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30
2015
First Quarter	Bs. 6.30
Second Quarter	6.30
Third Quarter	6.30
Fourth Quarter	6.30
2016
First Quarter(2)	Bs. 6.30 / Bs. 10.00
Second Quarter	10.00
Third Quarter	10.00

(1) Pursuant to Currency Exchange Agreement No. 14, the U.S. dollar exchange rate was set at Bs.6.2842 = U.S.$1.00 for purchase operations and Bs.6.30 = U.S.$1.00 for sale operations and for payments of public external debt.

(2) Pursuant to Currency Exchange Agreement No. 35, the U.S. dollar exchange rate was set at Bs 9.975 = U.S.$1.00 for purchase operations and Bs.10.00 = U.S.$1.00 for sale operations and for payments of public external debt, effective as of March 10, 2016.

Source: Banco Central.

Gross Domestic Product

Between 2011–2014, the economy grew at an average annual rate of 1.8%.

In 2011, GDP totaled Bs.58.1 billion in 1997 Constant Bolívares, representing growth of 4.2% as compared to 2010. GDP growth in 2011 was primarily due to an increase of 4.5% in the non-petroleum sector. The petroleum sector increased by 0.6% in 2011 as compared to 2010. The growth in the non-petroleum sector in 2011 resulted primarily from a 5.8% increase in transportation, 5.5% increase in general government and 5.2% increase in mining.

In 2012, GDP totaled Bs.61.4 billion in 1997 Constant Bolívares, representing growth of 5.6% as compared to 2011. GDP growth in 2012 was primarily due to an increase of 5.8% in the non-petroleum sector. The petroleum sector increased by 1.4% in 2012 as compared to 2011. The growth of the economy in 2012 was positively influenced by an increase in government investment in construction, a larger supply of foreign exchange, and a substantial expansion of the flow of credit towards productive activities.

In 2013, GDP totaled Bs.62.2 billion in 1997 Constant Bolívares, representing growth of 1.3% as compared to 2012. GDP growth in 2013 was primarily due to an increase of 1.8% in the non-petroleum sector, in particular with regard to financial institutions, commerce, communications, and enterprise storage services. The petroleum sector increased by 0.9% in 2013.

In 2014, GDP totaled Bs.59.8 billion in 1997 Constant Bolívares, a decrease of 3.9%, as compared to 2013. The petroleum sector decreased by 4.2% in 2014, driven by the rise in extraction of oil and natural gas, which was partially offset by a decline in refining. The petroleum sector accounted for 10.8% of GDP and accounted for the same percentage of GDP as the petroleum sector in 2013. In 2014, non-oil activity declined by 3.1%, reflecting the contraction experienced by manufacturing, trade and construction.

For the nine-month period ended September 30, 2015, GDP totaled approximately Bs.56.4 billion in 1997 Constant Bolívares.

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The following tables set forth the Republic’s GDP in 1997 Constant Bolívares for each of the periods indicated:

	As of or For the Year Ended, Millions of Bolivares December 31,
	2011					2012					2013					2014				2015(1)
	Value Bs.		Share %			Value Bs.		Share %			Value Bs.		Share %			Value Bs.		Share %		Value Bs.		Share %
Aggregate Global Demand(2)		82,775.9		100.0			92,057.2		100.0			89,913.0		100.0			82,359.9		100.0		74,761.4		100.0
Aggregate Internal Demand		74,585.0		90.1			83,735.8		91.0			82,105.0		91.3			74,915.5		90.9		67,367.6		90.1
Gross Capital Formation(3)		17,665.5		21.3			21,783.0		23.7			19,815.2		22.0			16,463.8		19.9		13,563.1		18.1
Consumption		51,145.5		61.8			54,656.6		59.4			57,082.4		63.5			55,629.2		67.5		51,924.5		69.5
Public		10,603.2		12.8			11,266.7		12.2			11,643.3		12.9			11,717.9		14.2		11,439.6		15.3
Private		40,542.3		49.0			43,389.9		47.1			45,439.1		50.5			43,911.4		53.3		40,484.9		54.1
Inventories		5,774.1		7.0			7,296.2		7.9			5,207.3		5.8			2,822.5		3.4		1,880.1		2.5
External Demand		8,190.9		9.9			8,321.4		9.0			7,808.0		8.7			7,444.3		9.0		7,393.8		9.9
Gross Domestic Product		58,138.3		100.0			61,409.1		100.0			62,233.9		100.0			59,810.3		100.0		56,430.2		100.0
Petroleum activities		6,593.1		11.3			6,682.7		10.9			6,741.5		10.8			6,456.7		10.8		6,397.2		11.3
Non-petroleum activities		45,055.6		77.5			47,648.4		77.6			48,515.2		78.0			46,997.5		78.6		44,380.7		78.6
Mining		278.5		0.5			261.2		0.4			206.1		0.3			191.590		0.3		184.8		0.3
Manufacturing		8,405.2		14.5			8,555.5		13.9			8,530.1		13.7			7,913.8		13.2		7,376.2		13.1
Electricity and water		1,322.1		2.3			1,372.6		2.2			1,417.7		2.3			1,403.1		2.3		1,363.1		2.4
Construction		4,209.4		7.2			4,907.1		8.0			4,793.2		7.7			4,456.2		7.5		3,397.6		6.0
Trade		5,585.1		9.6			6,096.1		9.9			6,301.6		10.1			5,614.6		9.4		4,954.6		8.8
Transportation		2,052.5		3.5			2,187.8		3.6			2,115.3		3.4			1,962.3		3.3		1,826.4		3.2
Communications		3,820.2		6.6			4,086.5		6.7			4,350.8		7.0			4,548.0		7.6		4,672.8		8.3
Financial institutions		2,541.5		4.4			3,392.8		5.5			4,127.3		6.6			4,653.4		7.8		4,050.8		7.2
Professional, real estate, rental services		5,678.9		9.8			5,917.7		9.6			6,062.9		9.7			5,965.7		10.0		5,803.1		10.3
Community, social, personal services		3,430.3		5.9			3,684.3		6.0			3,852.6		6.2			3,868.3		6.5		3,701.5		6.6
General government		7,171.5		12.3			7,543.4		12.3			7,777.8		12.5			7,895.0		13.2		7,975.2		14.1
Other(4)		3,410.0		5.9			3,517.3		5.7			3,533.4		5.7			3,365.9		5.6		2,930.1		5.2
Minus: Sifmi(5)		2,849.8		(4.9	)		3,873.9		(6.3	)		4,553.6		(7.3	)		4,840.3		8.1		3,855.5		6.8
Net indirect taxes		6,489.6		11.2			7,078.0		11.5			6,977.2		11.2			6,356.1		10.6		5,652.3		10.0

(1) Preliminary figures for the nine-month period ended September 30, 2015.

(2) Based on 1997 Constant Bolívares.

(3) Includes: acquisitions less disposal of valuables.

(4) Includes: agriculture, hotels and restaurants, and diverse public activities.

(5) Financial intermediation services measured indirectly.

.

Source: Banco Central.

	2011		2012		2013			2014			2015(1)
	% change from previous year
Aggregate Global Demand		7.3		11.2		(2.3	)		(8.4	)		(9.2)
Aggregate Internal Demand		7.6		12.3		(1.9	)		(8.8	)		(10.1)
Gross Capital Formation		4.4		23.3		(9.0	)		(16.9	)		(17.6)
Consumption		4.4		6.9		4.4			(2.5	)		(6.7)
Public		5.9		6.3		3.3			0.6			(2.4)
Private		4.0		7.0		4.7			(3.4	)		(7.8)
Inventories		68.7		26.4		(28.6	)		(45.8	)		(33.4)

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	2011			2012			2013			2014			2015(1)
	% change from previous year
External Demand		4.7			1.6			(6.2	)		(4.7	)		(0.7	)
Gross Domestic Product		4.2			5.6			1.3			(3.9	)		(5.7	)
Petroleum activities		0.6			1.4			0.9			(4.2	)		(0.9	)
Non-petroleum activities		4.5			5.8			1.8			(3.1	)		(5.6	)
Mining		5.2			(6.2	)		(21.1	)		(7.0	)		(3.6	)
Manufacturing		3.8			1.8			(0.3	)		(7.2	)		(6.8	)
Electricity and water		5.0			3.8			3.3			(1.0	)		(2.9	)
Construction		4.8			16.6			(2.3	)		(7.0	)		(23.8	)
Trade		6.5			9.1			3.4			(10.9	)		(11.8	)
Transportation		5.8			6.6			(3.3	)		(7.2	)		(6.9	)
Communications		7.3			7.0			6.5			4.5			2.7
Financial institutions		12.0			33.5			21.6			12.7			13.0
Professional, real estate, rental services		3.5			4.2			2.5			(1.6	)		(2.7	)
Community, social, personal services		5.8			7.4			4.6			0.4			(4.3	)
General government		5.5			5.2			3.1			1.5			1.0
Other(2)		(1.4	)		3.1			0.5			(4.7	)		(12.9	)
Minus: Sifmi(3)		13.4			35.9			17.5			6.3			(20.3	)
Net indirect taxes		5.9			9.1			(1.4	)		(8.9	)		(11.1	)

(1) Preliminary figures for the nine-month period ended September 30, 2015.

(2) Includes: agriculture, hotels and restaurants, and diverse public activities.

(3) Financial intermediation services measured indirectly.

Source: Banco Central.

Inflation

In April 2008, INE, in affiliation with the Ministry of Finance and Banco Central, issued Resolution No. 08-04-01 regulating the NCPI effective as of January 1, 2008. NCPI covers the same items as the CPI, but with a national geographic scope. The previous system only covered the Caracas and Maracaibo metropolitan areas. Inflation figures from January 1, 2008, have been calculated using NCPI. Figures prior to January 1, 2008 will not be re-calculated. NCPI has December 2007 as its base period and is published monthly within the first ten days of each month.

Venezuela has historically experienced high and volatile inflation rates. For the year ended December 31, 2011, the rate of inflation was 27.6%, as measured by NCPI, and 29.0%, as measured by CPI. For the year ended December 31, 2012, the rate of inflation was 20.1%, as measured by NCPI, and 19.5%, as measured by the CPI. For the year ended December 31, 2013, the rate of inflation was 56.2%, as measured by NCPI, and 52.7%, as measured by the CPI. For the year ended December 31, 2014, the rate of inflation was 68.5%, as measured by NCPI and 64.7%, as measured by the CPI. For the year ended December 31, 2015, the rate of inflation was 180.9%, as measured by NCPI and 159.7%, as measured by the CPI. The increase in the NCPI in 2015 was primarily driven by increases in prices for food, restaurants and hotels, clothing and shoes, transportation, education and health services.

To combat inflation and its effects, the Government has implemented a series of actions to increase the supply of goods and services to the public including: (1) providing financial assistance, machinery, intermediate goods and technical support to producers to promote agricultural activity; (2) increasing the supply of foreign currency by restructuring the currency exchange system and introduction of a floating exchange rate for some operations; (3) creating the SUNDDE, whose objective is to determine the fair prices for goods and services in order to reduce inflation; (4) adopting a biometric system in the public food distribution networks and in border areas of the country; (5) adopting measures to curb the smuggling of food, fuel and other goods and essential supplies out of the country; (6) introducing programs designed to promote food production and distribution and improve food access; (7) the creation of a national command to oversee and coordinate the production and distribution of food and other essential goods and (8) implementing increased inspections of importers and exporters to combat currency arbitrage (among the three official exchange rates) and fraud.

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The Law on Fair Cost and Prices became effective as of November 22, 2011, and was implemented in order to address the high inflation rate, guarantee access to goods and stabilize prices. The law provided a mechanism for setting maximum retail prices on goods across various economic sectors and included the creation of a special committee called SUNDECOP, which monitored and regulated the cost structures of the companies involved in importing and selling goods, established the standards for the National Registry of Prices of Goods and Services and set maximum retail prices or the price range for goods and services. SUNDECOP was also empowered to sanction any company or person that establishes excessive prices on goods and services. In addition to SUNDECOP, INDEPABIS was also charged with verification of fair prices. INDEPABIS was formed on May 27, 2008, pursuant to Decree 6,092, as the Republic’s consumer protection agency.

The 2011 Law on Fair Cost and Prices was superseded by the Organic Law of Fair Prices (Ley Orgánica de los Precios Justos) in January 2014. The 2014 Organic Law of Fair Prices aimed to reduce inflationary pressures by supplementing existing regulations in fair pricing. The law established a maximum profit of 30% for each entity in the supply chain. The law also created SUNDDE by merging INDEPABIS and SUNDECOP. The objectives of SUNDDE include determining fair prices for goods and services through cost structure analysis and establishing maximum percentage of profits and effective control of economic and commercial activity in order to protect citizens’ incomes and wages. On February 7, 2014, SUNDDE approved the criteria to be used for the determination of fair prices. Decree No. 1,467 amended the Organic Law of Fair Prices (Official Gazette No. 6,156, dated November 19, 2014) to grant SUNDDE new powers including the ability to impose sanctions. Additionally, a mechanism was introduced for the continual adjustment of fair pricing in all steps of the chain of production, distribution, importation, transportation and marketing of goods and services.

On November 8, 2015, the Organic Law of Fair Prices was further amended pursuant to Decree No. 2,092 (Extraordinary Gazette No. 6,202) to (1) grant SUNDDE the authority to establish or modify the prices of goods and services; (2) grant SUNDDE and CENCOEX joint responsibility for ensuring that they conform to the established rate; (3) increase penalties for violations of the fair price laws; and (4) establish consumer prices additional sanctions for violations.

In the last six years, SUNDDE’s actions to promote fair prices and business practices have included:

• Fixing the prices for a 19-item basic basket of goods and setting a maximum price retail, which affects the entire supply chain, from importers to producers, wholesalers, retailers and the final consumer.

• Monitoring registration with the Single Registry for Persons who engage in Economic Activities (Registro Único para Personas que Desarrollan Actividades Económicas or “RUPDAE”). Registration with RUPDAE is a prerequisite for all companies that import, distribute or trade in goods and services in Venezuela in accordance with in Article 22 of the Organic Law of Fair Prices.

• Implementing Plan “Eficiencia Mata Cola,” which imposed penalties of up to 10,000 tax units for food vending establishments whose cash registers did not operate efficiently and caused delays to consumers who were paying for their purchases.

• Implementing a biometric system to capture fingerprints, in order to obtain a purchasing profile for every citizen and thus identify internal smugglers and implementing a plan against smuggling.

• Implementing a strong price matching system, with access to companies’ accounting records by category, to establish costs and subsequent profits.

• Deploying leading SUNDDE authorities to supervise major bus terminals during peak travel times to ensure that all Venezuelans purchase tickets at a fair price.

From February 7, 2014, until June 1, 2015, 19 administrative rulings for the adjustment of fair prices for food and personal care products have been approved, including the adjustment of the fair prices of chicken, beef, sugar, rice, corn and coffee, milk, soap, shampoo, detergent, and toothpaste.

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The following table sets forth five price indices for the periods indicated:

	2013										2014										2015
	I		II		III		IV		Year		I		II		III		IV		Year		I		II		III		IV		Year
Consumer prices(1)
Average		8.6		12.9		12.2		13.5		40.6		9.6		15.2		13.8		15.1		62.2		19.0		21.7		35.9		37.2		121.7
End of period		7.9		15.8		11.0		12.6		56.2		10.1		16.7		13.4		15.7		68.5		19.1		26.1		38.9		34.6		180.9
Producer prices index
Manufacturing goods
Average		6.7		11.7		10.3		11.0		32.3		7.8		10.4		10.1		16.0		47.8		19.2		31.0		46.1		38.9		144.5
End of period		7.8		12.7		9.3		10.8		47.1		9.5		9.2		11.5		16.0		54.7		22.9		35.3		48.8		35.2		234.6
Raw materials (construction)
Average		11.3		19.1		14.0		20.9		54.3		8.0		6.7		8.5		12.6		54.7		18.9		32.1		64.3		38.4		156.6
End of period		15.0		21.1		9.2		20.6		83.4		7.2		7.0		8.9		11.6		39.5		27.4		34.7		65.2		35.2		283.5
Wholesale prices
Domestic goods
Average		7.0		11.5		14.3		11.8		37.4		8.1		18.8		13.9		12.8		62.1		17.4		26.3		55.6		39.1		146.2
End of period		5.6		16.0		12.4		11.0		52.8		8.9		21.6		12.1		12.2		66.5		19.5		34.1		58.2		38.8		251.9
Imported goods
Average		10.0		12.8		13.0		9.2		38.7		3.4		8.9		9.7		9.5		38.0		14.4		49.2		48.9		25.8		144.9
End of period		12.4		13.3		11.9		5.5		50.5		5.9		9.1		8.9		10.3		38.8		23.8		42.3		51.8		23.4		230.0

(1) National Consumer Price Index.

Note: Manufacturing, raw materials and wholesale prices were calculated with tax.

Source: Banco Central.

The following table sets forth the NCPI for the periods indicated:

National Consumer Price Index

(Base: December 2007 = 100)

Year and Month	NCPI
2011
January		213.9
February		217.6
March		220.7
April		223.9
May		229.6
June		235.3
July		241.6
August		246.9
September		250.9
October		255.5
November		261.0
December		265.6
2012
January		269.6
February		272.6
March		275.0
April		277.2
May		281.5
June		285.5
July		288.4
August		291.5
September		296.1
October		301.2
November		308.1
December		318.9

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Year and Month	NCPI
2013
January		329.4
February		334.8
March		334.1
April		358.8
May		380.7
June		398.6
July		411.3
August		423.7
September		442.3
October		464.9
November		487.3
December		498.1
2014
January		514.7
February		526.8
March		548.3
April		579.4
May		612.6
June		639.7
July		666.2
August		692.4
September		725.4
October		761.8
November		797.3
December		839.5
2015
January		904.8
February		949.1
March		1,000.2
April		1,063.8
May		1,148.8
June		1,261.6
July		1,397.5
August		1,570.8
September		1,752.1
October		1,951.3
November		2,168.5
December		2,357.9

Source: Banco Central.

Foreign Trade and Balance of Payments

Foreign Trade

Foreign trade plays a vital role in the Venezuelan economy. Until recently, the Republic traditionally had a favorable balance of trade. Average annual exports between 2011-2014 were U.S.$88.8 billion. During the same period, average annual imports were U.S.$55.8 billion. Venezuela’s exports totaled U.S.$74.7 billion in 2014 and U.S.$29.5 billion for the nine-month period ended September 30, 2015. Imports totaled U.S.$47.5 billion in 2014 and U.S.$28.0 billion for the nine-month period ended September 30, 2015.

Petroleum products represent the largest component of total exports, totaling U.S.$27.8 billion for the nine-month period ended September 30, 2015. In 2014, exports of petroleum products totaled U.S.$71.7 billion.

As of September 30, 2015, imports consisting mainly of intermediate and capital goods, totaled U.S.$28.0 billion. In 2014, imports totaled U.S.$47.5 billion.

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In order to provide balance of payments support, the Central Government implemented the floating exchange rate mechanism, now known as the DICOM. The official exchange rate, now known as DIPRO, was also increased from Bs.6.30 to U.S.$1.00 to Bs.10.00 to U.S.$1.00.

Trade Policy

The basic goals of the Republic’s trade policy are to generate sustainable growth and macroeconomic stability by diversifying production and promoting Venezuelan products in the international market. The policy contemplates reinforcing current trade alliances and developing new trade alliances with an emphasis on South American and Caribbean countries.

The Republic is a member of the GATT and the WTO. The Republic has entered into a number of bilateral, regional and multilateral agreements, including with countries in South America and the Caribbean basin, as well as countries in the European Union, Africa, the Middle East and Asia, regarding the promotion of bilateral trade and economic and technological development, as well as the facilitation of purchases of petroleum and refined petroleum products. In 2005, former President Hugo Chávez launched PetroCaribe, an energy initiative designed to supply Venezuelan crude oil to countries in the Caribbean region at discounted prices. Under the PetroCaribe program, the member countries that purchase oil from Venezuela pay for a certain percentage of the oil (depending on world oil prices) within 90 days, and the remainder is paid over a period of 25 years with an interest rate of one to two percent annually. Part of the cost also may be offset by the provision of goods or services. Within the PetroCaribe framework, the Republic entered into several agreements with the Caribbean countries to supply oil and products under preferential financing conditions similar to those established by other agreements between the Republic and Central American and South American states, such as Argentina, Bolivia, Ecuador and Uruguay, under which the Republic supplies crude oil and oil by-products to state-owned oil companies of the PetroCaribe countries. Venezuela provided oil to state-owned oil companies of PetroCaribe members in the amounts of 94.6 thousand bpd in 2011, 121.0 thousand bpd in 2012, 118.0 thousand bpd in 2013, 75.0 thousand bpd in 2014 and 61.0 thousand bpd in 2015. In exchange, these countries supplied the Republic with goods and services in several areas as well as technical assistance, including agricultural consulting and medical personnel. For more information on PetroCaribe, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Regional Developments.”

CORPOVEX was created in 2013 as one of several initiatives to strengthen domestic production and export capacities and improve economic conditions. For more information, see “—Economic Policy and Legislation—Exchange Control Regime.”

On December 2, 2014, President Maduro announced the creation of a national office for exports. This special export authority works in collaboration with the Bank for Foreign Trade (Banco de Comercio Exterior or “BANCOEX”) CENCOEX and CORPOVEX, as well as a selection of exporting companies to centrally manage all procedures related to the export of products.

Venezuela Exports (Venezuela Exporta), an export promotion program established in 2013 and led by BANCOEX, has toured 23 countries including Brazil, China, Colombia, France, Japan, Russia and the United Kingdom, exhibiting hundreds of products of export quality including flagship products such as rum, cocoa and granite, and garnering U.S.$370.0 million in export commitments for Venezuelan products in 2015.

On August 22, 2014, the Central Government banned the exportation of products including various food items, basic supplies, medicines and other locally-consumed products, pursuant to Presidential Decree No. 1190.

The Central Government is also pursuing a variety of regional initiatives, including ALBA, UNASUR, Mercosur and Petrosur. For more information, see “Bolivarian Republic of Venezuela—External Affairs and Membership in International Organizations.” On November 5, 2014, the National Assembly authorized an additional loan of Bs.3.0 billion to the ALBA-Mercosur Bicentennial Fund (Fondo Bicentenario ALBA-Mercosur), which is aimed at boosting domestic production and increasing exports to Latin America and the Caribbean. The ALBA-Mercosur Bicentennial Fund was established in January 2010 with an initial capital contribution of Bs.2.6 billion (U.S.$1.0 billion at the then-current exchange rate).

Trading Partners

United States

The United States is Venezuela’s most important trading partner. As of December 2015, Venezuela was the third largest exporter of petroleum products to the United States. In addition to the United States, Venezuela’s significant trading partners include various Latin American, European and Asian countries.

For the year ended December 31, 2011, the United States accounted for 27.6% of Venezuela’s total imports, China accounted for 12.4% of Venezuela’s total imports, Brazil accounted for 8.2% of Venezuela’s total imports and Colombia accounted for 3.0% of Venezuela’s total imports. In the same year, the United States accounted for 17.9% of Venezuela’s total non-petroleum exports, China accounted for 8.8% of Venezuela’s total non-petroleum exports, Colombia accounted for 8.0% of Venezuela’s nonpetroleum exports and Brazil accounted for 7.4% of Venezuela’s total non-petroleum exports.

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For the year ended December 31, 2012, the United States accounted for 19.6% of Venezuela’s total imports, China accounted for 13.8% of Venezuela’s total imports, Brazil accounted for 7.7% of Venezuela’s total imports and Colombia accounted for 3.8% of Venezuela’s total imports. In the same year, the United States accounted for 40.3% of Venezuela’s total oil exports, China accounted for 14.7% of Venezuela’s total oil exports and India accounted for 12.2% of Venezuela’s total oil exports. Also in the same year, the United States accounted for 20.8% of Venezuela’s total non-petroleum exports, China accounted for 9.9% of Venezuela’s total non-petroleum exports, Colombia accounted for 8.6% of Venezuela’s total non-petroleum exports and Brazil accounted for 4.9% of Venezuela’s total non-petroleum exports.

For the year ended December 31, 2013, the United States accounted for 16.6% of Venezuela’s total imports, China accounted for 13.6% of Venezuela’s total imports, Brazil accounted for 6.8% of Venezuela’s total imports and Colombia accounted for 3.7% of Venezuela’s total imports. In the same year, the United States accounted for 20.7% of Venezuela’s total non-petroleum exports, China accounted for 8.1% of Venezuela’s total non-petroleum exports and Brazil accounted for 5.6% of Venezuela’s total non-petroleum exports.

For the year ended December 31, 2014, the United States accounted for 17.4% of Venezuela’s total imports, China accounted for 13.2% of Venezuela’s total imports, Brazil accounted for 10.1% of Venezuela’s total imports and Colombia accounted for 4.9% of Venezuela’s total imports. In the same period, the United States accounted for 25.8% of Venezuela’s total non-petroleum exports, China accounted for 5.1% of Venezuela’s total non-petroleum exports and Brazil accounted for 5.8% of Venezuela’s total non-petroleum exports.

As of September 30, 2015, the United States accounted for 18.5% of Venezuela’s total imports, China accounted for 15.7% of Venezuela’s total imports, Brazil accounted for 9.4% of Venezuela’s total imports and Colombia accounted for 5.9% of Venezuela’s total imports. During this period, the United States accounted for 23.4% of Venezuela’s total non-petroleum exports, China accounted for 3.1% of Venezuela’s total non-oil exports and Brazil accounted for 6.0% of Venezuela’s total non-oil exports.

China

In 2007, Venezuela and China signed several agreements which provided for the construction of three refineries in China to process Venezuelan crude oil and also explored building a refinery to upgrade heavy crude oil to lighter quality using Chinese technology and to process crude oil from the Orinoco Oil Belt. Venezuela’s Joint Ventures with China include: Petrolera Sinovenezolana (established on October 2006), Petrozumano (established on November 2007), Sinovensa (established on January 2008) and Petrourica (established on October 2010). For the year ended December 31, 2015, Petrolera Sinovenezolana, Petrozumano, Sinovensa and Petrourica produced an average of 0.9 thousand bpd, 3.9 thousand bpd, 160.4 thousand bpd and 1.1 thousand bpd, respectively.

In November 2007, the governments of Venezuela and China, through BANDES and the China Development Bank (“CDB”), respectively, created a joint investment fund to finance socio-economic projects in the areas of health, housing, welfare, infrastructure, mining and oil related projects in Venezuela, referred to as the Sino-Venezuelan Joint Fund (Fondo Financiamiento Conjunto Chino-Venezolano) by entering into a credit facility in the aggregate amount of U.S.$4.0 billion. The credit facility had a term of three years, extendible for a total of 15 years. In connection with the credit facility, PDVSA entered into a supply agreement for crude oil and refined products with China National United Oil Corporation (“CNPC”). The proceeds of sales under the supply agreement were applied to pay amounts due under the BANDES loan with the CDB. The Sino-Venezuelan Joint Fund is financed by contributions from FONDEN and the CDB and the funds are administered by BANDES. The Sino-Venezuelan Joint Fund is divided into four Funds:

1. Heavy Fund I (Fondo Pesado I), “Tranche A,” was signed in November 2007 with contributions of U.S.$4.0 billion from CDB and U.S.$2.0 billion from FONDEN. Tranche A was repaid in full in November 2010 to CDB and FONDEN. The first rollover of Tranche A was signed in June 2011 and was repaid in full by May 2014. A second rollover of Tranche A was signed in July 2014 with contributions of U.S.$4.0 billion from CDB and the equivalent of U.S.$2.0 billion in Bolívares from FONDEN. The disbursement of the second rollover was made in November 2014.

2. Heavy Fund II (Fondo Pesado II), “Tranche B,” was signed in February 2009 with contributions of U.S.$4.0 billion from CDB and U.S.$2.0 billion from FONDEN and was repaid in full by February 2012. The first rollover of Heavy Fund II was signed in February 2012 and was repaid in February 2015. The second rollover of “Tranche B” was signed in April 2015 with contributions of U.S.$5.0 billion from CDB and Bs.6.3 billion (U.S.$1.0 billion) from FONDEN.

3. Heavy Fund III (Fondo Pesado III), “Tranche C,” was signed in November 2013 with contributions of U.S.$5.0 billion from CDB and U.S.$1.0 billion from FONDEN.

4. Long Term Facility (Gran Volumen) was signed in September 2010 with contributions of U.S.$20.0 billion from CDB, with payment obligations until September 2020, in which U.S.$10.0 billion was settled for the equivalent amount in renminbi.

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In addition to the contributions of CDB and FONDEN to these funds, in December 2009, BANDES and PDVSA entered into a credit facility with CDB in an aggregate amount of U.S.$500 million. In May 2010, PDVSA entered into a credit facility with CDB and Portugal’s Banco Espírito Santo in the aggregate amount of U.S.$1.5 billion. In March 2011, PDVSA entered into a credit facility with the Industrial and Commercial Bank of China in the aggregate amount of U.S.$4.0 billion. In November 2011, PDVSA entered into a credit facility with CDB in the aggregate amount of U.S.$1.5 billion. In February 2012, PDVSA entered into a credit facility with CDB in the aggregate amount of U.S.$500 million. In May 2012, the National Assembly approved an amendment to the Sino-Venezuelan Joint Fund. This amendment allows the governments of Venezuela and China to renew the U.S.$12.0 billion credit facility between CDB and BANDES indefinitely. On August 10, 2012, the Republic announced that CDB would contribute an additional U.S.$4.0 billion to the Sino-Venezuelan Joint Fund and FONDEN would contribute an additional U.S.$2.0 billion. On September 18, 2013, BANDES and PDVSA entered into a credit facility with CDB in the aggregate amount of U.S.$5.0 billion.

On February 18, 2009, the Republic and China entered into 12 cooperation agreements in the areas of oil, agriculture and telecommunications and increased the Sino-Venezuelan Joint Fund, in which PDVSA participates as a crude oil supplier, by selling approximately 230.0 thousand bpd to the CNPC. Collection on the volumes delivered by PDVSA was received by BANDES to secure compliance with the commitments undertaken by the Republic with respect to that agreement. During 2015, 2014, 2013, 2012 and 2011, BANDES transferred to PDVSA U.S.$3.0 billion (including CNY 2.6 billion / (U.S.$6.4 billion), U.S.$8.1 billion, U.S.$9.7 billion, U.S.$12.4 billion, U.S.$6.7 billion and U.S.$1.3 billion, respectively, corresponding to collections received. The volumes delivered in 2009 through 2014, on behalf of the Republic, according to Article 45 of the Hydrocarbons Law, were considered part of the fulfillment of PDVSA’s obligations for production taxes.

In November 2011, the Republic and China Aluminum International Engineering Company (“Chalieco”) agreed to a U.S.$403 million loan to improve the performance of the Republic’s primary aluminum smelters operated by CVG Aluminio del Caroni S.A., (“CVG Alcasa”). The funds came from the Sino-Venezuela Joint Fund. In addition to the Chalieco funds, former President Chávez approved U.S.$90.4 million to be provided by FONDEN to support CVG Alcasa’s operations.

In March 2015, the Republic agreed a U.S.$10.0 billion loan from China for general economic support, and in September 2015, the Republic agreed a further U.S.$5.0 billion loan from China to finance oil projects. Under the terms of the agreement, the Republic may repay the loans through deliveries of oil and fuel by PDVSA. In May 2016, China and the Republic agreed to new commercial conditions for their oil-for-loans program that improve the terms for the Republic. Since 2007, China has loaned the Republic more than U.S.$55.0 billion through this program.

In June 2015, the Republic and China executed an amendment to the Agreement on Joint Financing (Extraordinary Official Gazette No. 40,692, dated 30 June 2015). In September 2015, the Republic and China executed a Framework Agreement for Cooperation on Special Economic Zones in the Bolivarian Republic of Venezuela.

In September 2015, the Republic and China signed a Joint Development Plan for 2015–2025 accompanied by a Chinese undertaking to lend U.S.$5 billion to Venezuela during that period. The Joint Development Plan aims to finance projects in Venezuela with resources from CDB and FONDEN in key sectors, such as education, industry, infrastructure, agriculture, energy, mining and technology, to promote the economic and social development of Venezuela. Additionally, the Republic and China agreed to new projects, such as the construction of a factory for medium and heavy trucks, a factory in Anzoategui State to support the Great Housing Missing, a factory for tire manufacturing, and the expansion of the Orinoquia joint venture between Telecom Venezuela and Huawei, which manufactures mobile devices.

Russia

On June 2, 2009, the Republic ratified a BIT with the Russian Federation. The BIT provides for, among other things, an arbitration framework that Venezuela and Russia can use to settle any investment differences or disputes between the two countries. On the same date, the Republic ratified a separate treaty between Russia and Venezuela for cooperation in the areas of oil, gas and electrical energy (Ley Aprobatoria del Convenio entre el Gobierno de la República Bolivariana de Venezuela y el Gobierno de la Federación de Rusia sobre Cooperación en el Área Energética).

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In March 2010, the National Assembly approved the establishment of the joint venture Empresa Mixta PetroMiranda, S.A., formed between PDVSA and the National Oil Consortium of Russia, to operate in the Junin-6 block deposit in the Orinoco Oil Belt (Official Gazette No. 39,393, dated March, 24, 2010). In April 2010, the National Oil Consortium of Russia paid the Republic a U.S.$600 million bonus for participation in the development of the Junin-6 block deposit. According to PDVSA, the project is expected to produce an estimated 116 thousand bpd of extra heavy crude oil. In January 2013, the Empresa Mixta PetroMiranda, S.A., began oil production. As of December 31, 2015, the joint venture reported production of 40 thousand bpd and as of July 2016, it reported production of approximately 163 thousand bpd. The investment for this project is estimated to be approximately U.S.$20.0 billion and the National Oil Consortium of Russia owns a 40% stake in the joint venture and PDVSA owns the remaining 60%. The joint venture will have a duration of 25 years.

In September 2009, former President Chávez announced that Russia would finance arms purchases valued at U.S.$2.2 billion. The arms purchase would increase the Republic’s defensive capacity with more tanks, missiles and anti-aerial defense systems. In 2011, Russia and the Republic signed an agreement for an additional U.S.$4.0 billion loan to be used towards additional Russian weaponry.

In April 2013, PDVSA signed three cooperation agreements with the Russian state oil company, Rosneft, to create a joint venture called Petrovictoria in order to develop the Orinoco Heavy Oil Belt. In May 2013, PDVSA and Rosneft signed a U.S.$1.5 billion loan agreement in order to develop several oil projects. As of July 2015, Petrovictoria carried out crude oil and associated natural gas exploration and production activities in the Carabobo area of the Orinoco Oil Belt. The expected production of Petrovictoria is 400 million bpd when fully operative and 163 million bpd by 2025.

In May 2015, the Republic and Rosneft agreed investments of over U.S.$14 billion to increase oil production, particularly through three joint ventures between PDVSA and Rosneft within the Orinoco Oil Belt: Petromonagas, Petromiranda and Petrovictoria. In June 2015, PDVSA and Rosneft entered into a memorandum of understanding for a joint investment on production and refining projects. In February 2016, Rosneft agreed to pay $500 million to PDVSA to increase its stake in Petromonagas. The deal will increase Rosneft’s ownership percentage to 40% with PDVSA owning the remaining 60%. The Republic and Rosneft also evaluated new investment opportunities in respect of non-associated gas resources in offshore areas of Venezuela.

In May 2015, the Republic and Russia established a work programme within the framework of the Memorandum of Understanding on Scientific and Technical Cooperation in the field of Metrology between the National Autonomous Service for Standardization, Quality, Metrology and Technical Regulations (SENCAMER) and the Federal Agency of Technical Regulations and Metrology of the Russian Federation.

Other Countries

In June 2015, the Republic signed an agreement with Iran for a U.S.$500 million credit line to fund joint investments and improve supplies of goods.

In August 2015, the Republic signed several agreements with Vietnam in the energy and agricultural sectors. PDVSA and Petrovietnam signed agreements to extend their energy alliance and start oil and gas projects. In addition, the two countries agreed to the Special Plan for Agricultural Development, aimed at increasing food production and trade between the two countries.

In September 2015, during United Nations General Assembly meetings in New York, the Republic and Palestine agreed to form the Petropalestine alliance between PDVSA and the General Petroleum Cooperation of the State of Palestine. The Republic and Palestine have existing agreements to strengthen cooperation in the areas of health, oil, food, agriculture and mining. The Republic and Palestine also signed a memorandum of understanding to establish a company to produce drugs and medical supplies.

In September 2015, the Republic and Saudi Arabia created the First High Level Joint Commission, the mission of which is to strengthen relations between the two nations, covering a broad spectrum including petrochemical, industrial, agricultural, cultural, educational, diplomatic and financial areas.

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In November 2015, the Republic and Qatar signed a memorandum of understanding between the Chamber of Commerce and Industry of Qatar and the Federation of Chambers and Associations of Artisans, Micro, Small and Medium Industries and Enterprises of Venezuela (FEDEINDUSTRIA). Also in November 2015, the Republic and Qatar signed a memorandum of understanding between the Central Bank of Qatar and Banco Central.

In May 2016, the Republic entered into an agreement with Trinidad and Tobago for the exploitation of gas shared between the two countries.

The following tables set out the geographical distribution of Venezuela’s imports and non-petroleum exports for the periods indicated:

	Imports
	Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014(1)			2015(1)(2)
	(as a percentage of total)
Brazil		8.1	%		7.7	%		6.8	%		10.1	%		9.4	%
Colombia		3.0	%		3.8	%		3.7	%		4.9	%		5.9	%
China		12.4	%		13.8	%		13.6	%		13.2	%		15.7	%
Germany		2.2	%		2.0	%		2.2	%		2.2	%		2.4	%
Italy		1.9	%		1.8	%		1.8	%		1.8	%		1.7	%
United States		21.6	%		19.6	%		16.6	%		17.4	%		18.5	%
Others		50.8	%		51.4	%		55.1	%		50.5	%		46.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

(1) Preliminary figures.

(2) 2015 figures are for the nine month period ended September 30, 2015.

Source: Banco Central.

	Non-Petroleum Exports
	Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014(1)			2015(1)(2)
	(as a percentage of total)
Brazil		7.4	%		4.9	%		5.6	%		5.8	%		6.0	%
Colombia		8.0	%		8.6	%		10.2	%		9.2	%		9.3	%
China		8.8	%		9.9	%		8.1	%		5.1	%		3.1	%
Germany		2.2	%		4.0	%		0.6	%		0.2	%		0.1	%
Italy		7.8	%		2.3	%		1.1	%		0.6	%		1.9	%
United States		17.9	%		20.8	%		20.7	%		25.8	%		23.4	%
Others		47.9	%		49.5	%		53.7	%		53.3	%		56.2	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

(1) Preliminary figures.

(2) 2015 figures are for the nine-month period ended September 30, 2015.

Source: Banco Central.

Non-Petroleum Exports

Venezuela’s principal non-petroleum exports include steel, iron ore, chemical products, aluminum, fish and shellfish, cement, paper products, ceramics and tropical fruits. In 2011, non-petroleum exports totaled U.S.$5.6 billion, representing 6.0% of Venezuela’s total exports during that period. In 2012, non-petroleum exports totaled U.S.$4.3 billion, or 4.4% of Venezuela’s total exports during that period. In 2013, non-petroleum exports totaled U.S.$3.2 billion, representing 3.6% of Venezuela’s total exports during that period. For the year ended December 31, 2014, non-petroleum exports totaled U.S.$3.0 billion, representing 4.0% of Venezuela’s total exports during that period. For the nine-month period ended September 30, 2015, non-petroleum exports totaled U.S.$1.7 billion, representing 5.7% of Venezuela’s total exports during that period.

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Balance of Payments

For 2011, the overall balance of payments recorded a deficit of U.S.$4.0 billion and the current account recorded a surplus of U.S.$16.3 billion. For 2012, the overall balance of payments recorded a deficit of U.S.$1.0 billion and the current account recorded a surplus of U.S.$2.6 billion. For 2013, the overall balance of payments recorded a deficit of U.S.$4.6 billion and the current account had a total surplus of U.S.$4.6 billion. For 2014, the overall balance of payments recorded a deficit of U.S.$718 million and the current account had a total surplus of U.S.$3.6 billion. For the nine-month period ended September 30, 2015, the overall balance of payments recorded a deficit of U.S.$4.1 billion and the current account recorded a total deficit of U.S.$13.0 billion.

During 2011, the capital and financial account recorded a deficit of U.S.$18.9 billion. During 2012, the capital and financial account recorded a deficit of U.S.$1.5 billion. During 2013, the capital and financial account recorded a deficit of U.S.$5.8 billion. During 2014, the capital and financial account recorded a deficit of U.S.$750 million. As of September 30, the capital and financial account recorded a surplus of U.S.$10.8 billion.

In 2011, direct investment totaled U.S.$6.1 billion. In 2012, direct investment totaled U.S.$1.7 billion. In 2013, direct investment totaled U.S.$1.9 billion. In 2014, direct investment outflows totaled U.S.$704 million. In 2015, direct investment totaled U.S.$2.5 billion.

The following table sets forth Venezuela’s balance of payments for the periods indicated:

	Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014(1)			2015(1)(2)
	(in millions of U.S. dollars)
Current Account	$	16,342		$	2,586		$	4,604		$	3,598		$	(13,037	)
Trade Balance		41,172			31,926			31,570			27,206			1,549
Exports f.o.b.		93,747			97,877			88,753			74,714			29,527
Oil Exports (f.o.b)		88,131			93,569			85,603			71,731			27,833
Non-petroleum Exports (f.o.b)		5,616			4,308			3,150			2,983			1,694
Imports f.o.b.		(52,575	)		(65,951	)		(57,183	)		(47,508	)		(27,978	)
Oil Exports		(6,835	)		(13,308	)		(13,116	)		(10,831	)		(5,816	)
Non-petroleum Imports		(45,740	)		(52,643	)		(44,067	)		(36,677	)		(22,162	)
Services		(14,950	)		(17,238	)		(17,041	)		(15,015	)		(9,639	)
Transportation		(4,801	)		(6,478	)		(5,493	)		(4,733	)		(2,641	)
Travel		(1,844	)		(1,793	)		(2,372	)		(1,681	)		(1,112	)
Communications		(220	)		(261	)		(279	)		(239	)		(152	)
Insurance		(704	)		(897	)		(1,268	)		(736	)		(568	)
Government		(368	)		(734	)		(324	)		(501	)		(305	)
Other		(7,013	)		(7,075	)		(7,305	)		(7,125	)		(4,861	)
Investment Income		(9,079	)		(11,099	)		(8,707	)		(8,375	)		(4,778	)
Employee Salaries		(22	)		(20	)		(24	)		(27	)		(20	)
Investment income		(9,057	)		(11,079	)		(8,683	)		(8,348	)		(4,758	)
Direct Investment		(5,027	)		(5,415	)		(2,761	)		(2,226	)		(403	)
Portfolio Investment		(3,180	)		(4,266	)		(4,584	)		(4,564	)		(3,230	)
Other		(850	)		(1,398	)		(1,338	)		(1,558	)		(1,125	)
Trade, Service and Income Balance		17,143			3,589			5,822			3,816			(12,868	)
Current Transfers		(801	)		(1,003	)		(1,218	)		(218	)		(169	)
Capital and Financial Account		(18,893	)		(1,460	)		(5,776	)		(750	)		10,773
Capital account		0			0			0			0			0
Financial account		(18,893	)		(1,460	)		(5,776	)		(750	)		10,773
Direct Investment		6,110			1,679			1,928			(704	)		2,495
Abroad		370			(4,294	)		(752	)		(1,024	)		1,112
In reporting economy		5,740			5,973			2,680			320			1,383
Portfolio Investment		2,183			2,776			(592	)		3,017			(2,506	)
Active		(60	)		(1,275	)		1,363			2,615			256
Public sector		(246	)		(1,419	)		1,273			2,574			211
Equity Capital		0			(9	)		0			0			(10	)
Bonds		(246	)		(1,410	)		1,273			2,574			221
Private Sector		186			144			90			41			45
Equity Capital		22			9			9			2			10
Bonds		164			135			81			39			35

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	Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014(1)			2015(1)(2)
	(in millions of U.S. dollars)
Passive		2,243			4,051			(1,955	)		402			(2,762	)
Public Sector		2,237			4,085			(1,384	)		353			(2,762	)
Equity Capital		0			0			0			0			0
Bonds		2,237			4,085			(1,384	)		353			(2,762	)
Private Sector		6			(34	)		(571	)		49			0
Equity Capital		6			(34	)		(571	)		49			0
Bonds		0			0			0			0			0
Other		(27,186	)		(5,915	)		(7,112	)		(3,063	)		10,784
Active		(36,769	)		(9,867	)		(8,851	)		(4,721	)		7,047
Public Sector		(23,900	)		(1,915	)		(2,446	)		1,237			4,699
Commercial Credits		(4,102	)		(7,899	)		1,389			1,734			1,676
Loans		54			66			127			156			19
Currency and Deposit		(15,888	)		12,311			1,194			3,456			1,923
Others		(3,964	)		(6,393	)		(5,156	)		(4,109	)		1,081
Private Sector		(12,869	)		(7,952	)		(6,405	)		(5,958	)		2,348
Commercial Credits		23			(31	)		52			(52	)		338
Loans		0			0			0			0			0
Currency and Deposit		(12,708	)		(7,885	)		(5,219	)		(6,654	)		1,322
Others		(184	)		(36	)		(1,238	)		748			688
Passive		9,583			3,952			1,739			1,658			3,737
Public Sector		9,144			2,247			(1,405	)		1,796			4,604
Commercial Loans		(3,207	)		(223	)		(1,812	)		1,480			12
Loans		11,677			2,615			679			166			4,378
Currency and Deposit		(3	)		(16	)		0			19			(9	)
Others		677			(129	)		(272	)		131			223
Private Sector		439			1,705			3,144			(138	)		(867	)
Commercial Loans		325			825			380			194			(465	)
Loans		(119	)		31			27			(154	)		(67	)
Currency and Deposit		233			847			2,737			(183	)		(331	)
Others		0			2			0			5			(4	)
Net Errors and Omissions		(1,481	)		(2,122	)		(3,418	)		(3,566	)		(1,875	)
Balance of Payments on Current, Capital and Financial Transfers	$	(4,032	)	$	(996	)	$	(4,590	)	$	(718	)	$	(4,139	)
Change in Reserves (Increase)	$	4,032		$	996		$	4,590		$	718		$	4,139
Assets		4,012			846			4,410			609			4,784
Banco Central (3)		3,183			846			4,410			609			4,784
Stabilization Fund		829			0			0			0			0
Obligations Banco Central(3)		20			150			180			109			(645	)

(1) Preliminary figures based on fifth edition of IMF Balance of Payment.

(2) 2015 Figures are for nine-month period ended September 30, 2015.

(3) Excludes changes in valuation.

Source: Banco Central.

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International Reserves

Levels of international reserves held by Banco Central are highly dependent on oil prices and gold prices. As of December 31, 2011, Banco Central’s gross international reserves totaled U.S.$29.9 billion, representing a 1.3% increase from December 31, 2010. As of December 31, 2011, international monetary assets totaled U.S.$30.0 billion, total liquid operating reserves at Banco Central totaled U.S.$5.6 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$29.5 billion.

In August 2012, Banco Central changed the method for appraising Venezuelan gold in an effort to curtail the fluctuations of the market. Previously, the appraisal was based on the average recorded by the London gold market in a two month term basis. Under the new appraisal method, the appraisal is based on the average recorded by the London gold market on a six month term basis.

Banco Central’s gross international reserves as of December 31, 2012, totaled U.S.$29.9 billion. In addition, total liquid operating reserves at Banco Central totaled U.S.$5.5 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$29.4 billion.

Banco Central’s gross international reserves as of December 31, 2013, totaled U.S.$21.5 billion. In addition, total liquid operating reserves at Banco Central totaled U.S.$1.6 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$20.8 billion.

Banco Central’s gross international reserves as of December 31, 2014, totaled U.S.$22.1 billion. In addition, total liquid operating reserves at Banco Central totaled U.S.$3.2 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$21.3 billion.

Banco Central’s gross international reserves as of September 30, 2015, totaled U.S.$16.4 billion. As of September 30, 2015, total liquid operating reserves at Banco Central totaled U.S.$2.7 billion and net international reserves (excluding funds in the Stabilization Fund) at Banco Central totaled U.S.$16.3 billion. In the first nine months of 2015, the Republic’s international reserves decreased by U.S.$5.6 billion. This decrease was attributable to the decline in currency sales PDVSA makes to Banco Central as a result of falling oil prices.

Between January 1, 2011 and September 30, 2015, the balance of the Stabilization Fund remained constant at U.S.$3 million.

The following table sets out a breakdown of the international monetary assets of Venezuela for the periods indicated:

	Year Ended December 31,
	2011			2012			2013			2014			2015(1)
	(in millions of U.S. dollars)
Gross International Reserves at Banco Central	$	29,889		$	29,887		$	21,478		$	22,077		$	16,447
Gold(2)		19,959			19,987			15,440			14,621			11,517
Special Drawing Rights		3,438			3,441			3,478			3,271			1,280
IMF Position(3)		494			495			496			466			452
Other(4)		424			508			513			514			516
Total Liquid Operating Reserves at Banco Central		5,574			5,456			1,551			3,205			2,682
Reserves Liabilities of Banco Central		(381	)		(531	)		(711	)		(820	)		(175	)
Net Liquid Operating Reserves at Banco Central		5,193			4,925			840			2,385			2,507
Net International Reserves at Banco Central		29,508			29,356			20,767			21,257			16,272
Stabilization Fund(5)		3			3			3			3			3
Other International Monetary Assets(6)		72			0			0			0			0
International Monetary Assets(7)		29,964			29,890			21,481			22,080			16,450

(1) 2015 figures are as of the nine-month period ended September 30, 2015.

(2) Figures are valued at the market price for gold at the relevant dates and reflect methodological arrangements in the accounting treatment for gold-swap operations.

(3) Includes net IMF Position.

(4) Includes the Latin American Reserve Fund (FLAR) and Caribbean Development Bank (BDC).

(5) Includes the Stabilization Fund portfolio managed by Banco Central.

(6) Includes PDVSA rotatory fund.

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(7) Includes all monetary or similar assets denominated in units of exchange other than Bolívares owned or controlled by the Republic, Banco Central and other public sector entities.

Source: Banco Central.

Banco Central Transfers

In July 2005, the National Assembly amended the BCV Law to coordinate the regulations and activities of Banco Central with the provisions of the Constitution and thus to promote economic development in a more cohesive manner. See “The Venezuelan Economy—Economic Policy and Legislation—Stabilization Fund.” The law permitted PDVSA to maintain its oil and gas export proceeds in offshore accounts in amounts sufficient to cover its foreign currency-denominated investments and expenses. PDVSA was required to contribute the balance of such proceeds, net of applicable corporate income tax, dividends and royalties, to FONDEN.

In April 2011, former President Chávez issued by decree the Oil Windfall Profits Tax Law, which repealed the provisions of the BCV Law governing PDVSA’s contributions to FONDEN. The Oil Windfall Profits Tax Law provides that the revenue from this tax must be deposited directly with FONDEN and used to finance the Missions as well as infrastructure, road, health, education, communication, agriculture and food projects, among others.

The Oil Windfall Profits Tax Law provides that “extraordinary prices” arise when the monthly average of international quotations of the price of Venezuelan liquid hydrocarbons is higher than the price set in the Budget Law for the applicable fiscal year, but is equal to or lower than U.S.$80 per barrel and “exorbitant prices” arise when the monthly average of international quotation of Venezuelan liquid hydrocarbons price is higher than U.S.$80 per barrel. The Oil Windfall Profits Tax Law provides that when there are “extraordinary prices,” a 20% tax will be applied on the difference between both prices.

The Oil Windfall Profits Tax law also provides that:

• when exorbitant prices are higher than U.S.$80 per barrel, but lower than U.S.$100 per barrel, a tax of 80% of the total amount of the difference between the two prices will be applied;

• when exorbitant prices are equal to or higher than U.S.$100 per barrel, but lower than U.S.$110 per barrel, a tax of 90% of the total amount of the difference between the two prices will be applied; and

• when exorbitant prices are equal to or higher than U.S.$110 per barrel, a tax of 95% of the total amount of the difference between the two prices will be applied.

Employment and Labor

Labor Policies

The composition of the labor force in Venezuela has undergone substantial changes during the last 50 years. The most significant change has been a shift in employment from the primary sector, principally consisting of agricultural activities and petroleum and mining exploration and extraction, to the tertiary sector, principally consisting of services, finance, transportation, communications and Government employment.

According to INE, the monthly average percentage of the labor force engaged in the informal sector of the economy in 2015 was 40.1%, as compared with 39.7% in 2014. The informal sector is comprised of domestic workers, self-employed owners, laborers and non-paid family laborers.

Under the Plan of the Nation, the National Executive has promoted the integration of the informal sector into the economy. Government policies have advanced socio-productive programs in the agricultural sector, the formation of cooperatives and other popular power organizations by reducing administrative formalities and initiatives to promote artisans, indigenous crafts and local producers. The Government intends to make technological and financial assistance available to informal sector participants on terms equivalent to those being offered to small-and medium-sized companies in the formal sectors of the economy. The Plan of the Nation also contemplates the implementation of programs to improve the skill level of the Venezuelan labor force and to promote an efficient labor market that would allow optimal mobility for Venezuelan workers. The Government also promotes the improvement of wages while minimizing any inflation that may occur as a result of such wage increases.

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In 2010, the Government implemented a new management model in the companies controlled by CVG and other companies in the essential industries sector, such as the state-owned steel company SIDOR. This management model is referred to as “workers’ control” (“control obrero”), in which all workers can express their opinions and vote in order to take decisions.

Private companies in Venezuela have been asked to introduce “co-management” among workers and boards of directors as the preferred model of corporate governance, as part of the worker control initiative. Under this initiative, companies are invited to adopt the model and have a minimum of 20% worker representation on their governing boards in order to receive new loans from state banks.

In May 2012, a reform to the Labor Law was enacted in an effort to provide job stability and increase worker benefits. The reform established a retroactive calculation of severance compensation for current workers who have remained active since June 19, 1997. Under the reform, all unjust dismissals of workers are prohibited. If employers wish to dismiss an employee, they must first seek a judicial determination that there is a legal basis for that dismissal. The reform also establishes that all workers in Venezuela are entitled to a pension after retirement, generally age 55 for women and 60 for men, regardless of whether they were engaged in formal or informal employment. The reform mandates reduced working hours, eliminating outsourcing and increasing compensation for working on holidays. The number of working hours during the week was reduced from 44 to 40 and employees are now entitled to a mandatory 48-hour rest period each week. This reduction in working hours contributes to inflationary pressure on consumer prices and a reduction in labor productivity as a result of higher unit labor costs.

In November 2014, President Maduro enacted the Law for the Productive Youth (Ley para la Juventud Productiva) (Decree No. 1,392, Official Gazette No. 40,540, dated November 13, 2014) by decree, which aims to improve access to and participation in the job market among young Venezuelans under the age of 30. President Maduro also authorized Bs.500 billion (U.S.$79.4 billion) to fund projects under the program including job training programs for 10,000 youths under the Homeland Youths Mission (Misión Jóvenes de la Patria).

In December 2014, both private and public sector workers received additional job protections as a result of Decree No. 1,583, published in the Extraordinary Official Gazette No. 6,168, dated December 30, 2014. According to this decree, workers may not be dismissed, transferred or penalized without just cause during the period between January 1, 2015 and December 31, 2015. On December 30, 2015, President Maduro passed the Law of Labor Immobility (Ley de Inamovilidad Laboral) (Official Gazette No. 6,207, dated December 28, 2015) which extended for three additional years (until December 31, 2018) this prohibition on dismissals without just cause.

According to Article 91 of the Venezuelan Constitution, “[T]he State guarantees workers in both the public and the private sector a vital minimum salary which shall be adjusted each year, taking as one of the references the cost of a basic market basket.” This provision guarantees annual adjustments to minimum salaries and since 1998, several wage increases have been carried out, including four increases in 2015. On May 21, 2015, the minimum wage was set at Bs.7,422 a month, which was a 57.0% increase as compared to the minimum wage of Bs.4,251 a month on May 1, 2014. On May 1, 2016, the minimum wage was set at Bs.15,051.15, a 103% year- on year increase. On September 1, 2016, the minimum wage was further increased to Bs.22,576.13 per month.

In May 2015, President Maduro announced two decrees related to the compensation of National Public Administration employees. (Extraordinary Official Gazette No. 40,660, dated May 14, 2015). These decrees established the General Salary Schedule and Certification System Charges, as well as the wage scale.

Labor Force

As the labor force of Venezuela has grown in recent years, there have been numerous efforts to absorb the increasing number of workers in Venezuela, particularly migrants from rural to urban areas. Beginning in 2003, social Missions have significantly improved training and education of manufacturing and agricultural workers.

As of December 31, 2011, the labor force totaled approximately 13.4 million. The annual average unemployment rate decreased to 7.8% for the year ended December 31, 2011. As of December 31, 2012, the labor force totaled approximately 13.6 million. The annual average unemployment rate decreased to 7.4% for the year ended December 31, 2012, primarily due to the growth of the national economy. As of December 31, 2013, the labor force totaled approximately 14.0 million. The annual average unemployment rate increased to 7.5% for the year ended December 31, 2013. This modest increase is primarily attributable to a slight increase in the unemployment rate of women. As of December 31, 2014, the labor force totaled approximately 14.3 million. The annual average unemployment rate decreased to 6.7% for the year ended December 31, 2014, driven by an increase in labor force participation, primarily among women and youth, in response to inflation and price volatility. As of December 31, 2015, the labor force totaled approximately 14.1 million. For the semi-annual period July – December 2015, the unemployment rate remained at 6.7%.

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The following table sets forth employment activity by sector for the periods indicated:

	Year Ended December 31,
	2011				2012				2013				2014				2015
Labor Force:
Employed		12,388,204	92.7	%		12,570,783	92.6	%		12,948,068	92.5	%		13,346,297	93.3	%		13,191,175	93.3	%
Unemployed(1)		1,054,485	7.8	%		1,006,400	7.4	%		1,046,663	7.5	%		962,483	6.7	%		945,174	6.7	%
Total		13,442,689	100.0	%		13,577,183	100.0	%		13,994,731	100.0	%		14,308,780	100.0	%		14,136,349	100.0	%
By Sector:
Petroleum and Mining		133,450	1.1			159,770	1.3	%		167,615	1.3	%		183,389	1.4	%		172,221	1.3	%
Agriculture, Fishing and Hunting		980,400	7.9			962,909	7.7	%		961,749	7.4	%		1,060,221	7.9	%		964,632	7.3	%
Manufacturing		1,398,923	11.3			1,355,083	10.8	%		1,461,933	11.3	%		1,561,996	11.7	%		1,597,738	12.1	%
Water, Electricity and Gas		57,506	0.5			60,427	0.5	%		56,125	0.4	%		54,103	0.4	%		60,742	0.5	%
Construction		1,117,714	9.0			1,085,504	8.6	%		1,068,963	8.3	%		1,061,574	8.0	%		1,136,081	8.6	%
Commerce, Restaurant and Hotels		2,962,237	23.9			3,080,127	24.5	%		3,171,831	24.5	%		3,221,375	24.1	%		3,046,629	23.1	%
Transportation, Storage and Communications		1,147,963	9.3			1,135,457	9.0	%		1,201,705	9.3	%		1,199,886	9.0	%		1,127,343	8.5	%
Financial Institutions, Insurance and Real Estate		688,797	5.6			697,278	5.5	%		756,012	5.8	%		755,476	5.7	%		773,040	5.9	%
Community, Social and Personal Services		3,868,307	31.2			3,992,559	31.8	%		4,070,904	31.4	%		4,216,944	31.6	%		4,274,110	32.4	%
Others		32,907	0.2			41,669	0.3	%		31,231	0.2	%		31,333	0.2	%		38,639	0.3	%
Total		12,388,204	100.0	%		12,570,783	100.0	%		1,294,806	100.0	%		13,346,297	100	%		13,191,175	100	%

(1) Figures for 2015 represent the semi-annual average for the period July-December 2015.

Source: INE.

Labor Regulations and Labor Liabilities

The Organic Labor and Workers Law (Ley Orgánica del Trabajo, los Trabajadores y Trabajadoras), sets forth minimum standards for employee benefits and working conditions, such as a minimum wage, a maximum number of working hours, mandatory holidays and vacations, minimum retirement, severance compensation and health and safety regulations. The Organic Labor and Workers Law applies to private sector workers and to most public sector employees. Public sector wages are set by decree, in accordance with the Organic Labor and Workers Law and the Collective Agreement of the Public Sector (Contrato Colectivo del Sector Público). Subject to minimum wage limitations set by the Central Government, private sector wages are competitive or set through collective bargaining contracts.

In June 1997, the Central Government reformed the Organic Labor and Workers Law. The reform implemented a tripartite agreement reached among the Republic, employees represented by unions and their employers. The most significant reform was the elimination of the retroactive calculation of mandatory severance compensation for years of service. Previously, employers had been required to pay severance compensation for years of service calculated retroactively, based on an employee’s salary at the time of termination of the labor relationship, regardless of any changes in the salary over the course of the employment. The law required that severance pay accumulated through December 1996, referred to as the “Labor Liabilities,” be paid out within five years to both public and private employees. After December 1996, employers have been required to calculate severance compensation monthly, based on wages earned at that time, and deposit the amount in an account of the employee. The amounts deposited earn interest tax-free, which interest may be withdrawn by employees on a yearly basis. The account must accumulate during the entire period of employment and at the end of employment the employee can withdraw the entire amount. Under certain circumstances, the employee may withdraw portions of the principal in the account before the end of employment.

Since 1998, the Government has maintained a continuous effort to honor past Labor Liabilities. As of May 31, 2011, the estimated total amount of Central Government’s Labor Liabilities was approximately Bs.24.5 billion (U.S.$5.7 billion). As of August 31, 2012, the estimated total amount of the Central Government’s Labor Liabilities was approximately Bs.77.4 billion (U.S.$18.0 billion). As of August 31, 2013, the estimated total amount of the Central Government’s Labor Liabilities was approximately Bs.40.9 billion (U.S.$6.5 billion). As of December 31, 2014, the estimated total amount of the Central Government Labor Liabilities was approximately Bs.59.0 billion (U.S.$9.4 billion). As of December 31, 2015, the estimated total amount of the Central Government Labor Liabilities was approximately Bs.3.8 billion (U.S.$606 million).

The 1997 labor law was amended to provide for the payment of Labor Liabilities owed to public sector employees over a period of five years, together with interest, at a prescribed rate commencing in 1998. The Central Government created a presidential commission to quantify and oversee the processing of the Labor Liabilities with respect to employees of the Government.

On March 31, 2012, the Republic, through a decree having the effect of an organic law, created FANCO and FAP. The obligations of the funds are fully guaranteed by the Republic. The Funds were created as state enterprises under the Ministry of Finance.

FANCO was created in order to issue and service financial and investment instruments as well as to manage other resources to assist in the payment of Labor Liabilities. The decree creating FANCO states that FANCO may issue securities known as Petro-Orinoco bonds as well as real estate securities (títulos inmobiliarios) to serve as payment instruments for Labor Liabilities. The conditions of FANCO’s payments during 2012 were as follows: (i) the individual nominal amount of the Petro-Orinoco corresponded to the debt and social labor liabilities of each of the benefited workers; (ii) the interest rate of the instrument is variable and reviewable every 180 days; and (iii) the reference rate to determine the interest rate is the social security interest rate published by Banco Central the month prior to the beginning of the period of the coupon payment plus a spread of 260 basis points.

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The income of FANCO consists of:

• allocations under the Republic’s annual budget;

• dividends derived from the shares of PDVSA Social, S.A., which was created under the same decree to support and contribute to FANCO. PDVSA Social, S.A. is entitled to a 4% participation in the ownership interests of PDVSA and its affiliate companies in the Mixed Companies created under the Hydrocarbons Law;

• amounts derived from an additional 2.22% royalty from the joint ventures pursuant to the Hydrocarbons Law;

• amounts derived from the 3.33% of the value of liquid hydrocarbons extracted in any oil field, to be paid by the joint venture under the extraction tax pursuant to the Hydrocarbons Law;

• investment income from the management of the assets of FANCO;

• inflows from public credit operations; and

• other income as determined by the executive branch.

In August 2012, the first U.S.$206.0 million (Bs.886.0 million) of Petro-Orinoco bonds were issued to approximately five thousand current and former employees. Each such Petro-Orinoco bond is denominated in Bolívares and equivalent to Bs.1,000 and has an interest rate of 18% that will be paid on a quarterly basis. Government workers receiving the bonds have the option of collecting the interest on a quarterly basis, selling them to the Bank of Venezuela at any time after August 23, 2012, or trading them on the Bicentennial Stock Exchange at any time after the first anniversary of their issuance. FANCO contributed to a trust managed by the Bank of Venezuela an amount equal to the face value of the first issuance of the Petro-Orinoco bonds which can be collected by the bondholders. As of December 31, 2012, the estimated total amount of Labor Liabilities satisfied during the year through FANCO was U.S.$1.1 billion (Bs.4,746.8 million), to 18,578 people. As of December 31, 2013, Labor Liabilities satisfied during the year through FANCO was U.S.$455.0 million (Bs.2.9 billion) to 15,247 people. As of December 31, 2014, the estimated total amount of the Labor Liabilities satisfied during the year through FANCO was U.S.$466.8 billion (Bs.2.9 billion), to 9,238 people. As of December 31, 2015, the estimated total amount of the Labor Liabilities satisfied during the year through FANCO was U.S.$477.6 million (Bs.3.0 billion) to 7,584 people.

The FAP was created in order to promote national savings through investment mechanisms. The fund will include the participation of various workers’ saving funds, companies and of the general public. The FAP is also allowed to issue securities and to invest in projects related to the national productive sector.

The income of the FAP consists of:

• allocations under the Central Government’s annual budget;

• dividends derived from PDVSA’s joint ventures pursuant to the Hydrocarbons Law;

• dividends derived from the FAP’s participation in hydrocarbon companies;

• investment income from the management of the assets of the FAP;

• inflows from public credit operations; and

• other income as determined by the executive branch.

The FAP bonds are issuable in Bolívares or foreign currency and can be sold after two years. The FAP was deferred in 2015 by decision of the Banco Central until oil market conditions improve. To date, the FAP has not issued any securities.

In April 2007, the Government extended a firing freeze for private and public sector workers governed by the Organic Labor and Workers Law, effective through December 31, 2007. Under the decree, workers may not be fired, demoted or transferred without just cause. The firing freeze has been successively extended and the current firing freeze for all public and private sectors workers runs through December 31, 2018, for workers in the private and public sector, pursuant to Decree No. 2,158, as published in Extraordinary Official Gazette No. 6,207 dated December 28, 2015.

Minimum Wages

The Central Government sets the minimum salary for all public and private sector employees, which it adjusts as necessary to take into account changes in inflation and costs of living. The minimum wage has gradually increased over the years. In setting and adjusting minimum wages, the Central Government has attempted to address losses of purchasing power by the poorer segments of the Venezuelan labor force without creating an inflationary cycle. The minimum wage was increased in 2014 in three instalments. First, in January 6, 2014, the minimum wage was increased by 10% to Bs.3,270.00 (U.S.$519.05). Then on May 1, 2014, the Government increased the minimum wage to Bs.4,251.40 (U.S.$674.83). On December 1, 2014, the minimum wage was further increased to

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Bs.4,889.11 (U.S.$776.05). In 2015, the monthly minimum wage was increased four times: to Bs.5,622.47 (U.S.$892.46) on February 1, Bs.6,746.96 (U.S.$1,070.95) on May 1, in response to inflationary pressures, to Bs.7,421.66 (U.S.$1,178.04) on July 1 and to Bs.9,648.16 (U.S.$1,531.45) on November 1. As of September 2016, the minimum wage has been increased three times during 2016: to Bs.11,578 (U.S.$1,837.78) on March 1, to Bs.15,051.15 (U.S.$1,505.12) on May 1 and to Bs.22,576.73 (U.S.$2,257.67) September 1.

Reforms to the Social Security Laws

The Organic Law of Social Security (Ley Orgánica del Sistema de Seguridad Social) took effect on December 30, 2002. This law sets forth substantial reforms to the national social security system. The services covered by the social security system are divided among three types of services: Health Services, Social Services and Housing Services. The responsibility of managing and administrating these services is shared among the National Health System, the National Housing Bank, the National Geriatric and Gerontology Institute, the National Pension Institute, the National Employment Institute, the National Labor Health Institute and the Worker’s Training and Recreation Institute, which will each be in charge of their respective social services.

Under the terms of the Organic Law of Social Security, both workers and employers contribute to a collective social security system managed by the Central Government. Under the social security system, workers in the informal sector of the economy are able voluntarily to join the social security system and make the contributions necessary to enable them to receive a future retirement pension, with a subsidy from the Central Government of a certain percentage of their contributions. Along with contributions from employees, employers and the Central Government, the social security system is also financed by several other sources, including income from investments made with social security funds. The law created a Social Security System treasury with its own assets, distinct and independent from the National Treasury. The National Treasury’s main responsibilities include collecting, investing and distributing social security funds (which are exempt from all taxes).

On April 30, 2010, then President Chávez issued a temporary Executive Decree No. 7401, published in Official Gazette No. 39,414, dated April 30, 2010, that was in force until December 31, 2010. Under the Decree, all women 55 and older and men 60 and older who were not working and who previously made contributions to the social security system, but not enough to enable them to receive a retirement pension under the terms of the Organic Law of Social Security, could apply to receive a retirement pension. Participants that were previously qualified were still required to make the payments to become eligible, but were able to do so in installments until May 1, 2012. In the meantime, the Republic assumed the responsibility of making these contributions.

On April 30, 2012, President Chávez issued a reform of the Social Security Law and its regulatory framework. Under the reform, self-employed citizens were given the ability to contribute to the social security system in order to become eligible to receive social security benefits.

Labor Unions

Venezuela has numerous labor unions. Unión Nacional de Trabajadores de Venezuela (“UNT”) and Confederación de Trabajadores de Venezuela (“CTV”) are among the largest labor unions in Venezuela. From 2007 to 2009, there was an increase in the number of labor unions, due in part to the nationalizations of the various sectors of the Venezuelan economy. In 2009, there were 6,000 registered labor unions as compared to 1,200 in 1998. Between 1986 and 1999 Venezuela had an increase of 4,198 labor unions, in contrast with Venezuela’s increase of 6,086 labor unions during the previous 13 years, reflecting the Government’s commitment to freedom of association. As of December 31, 2013, there were 6,086 registered labor unions. As of December 31, 2014, there were 6,183 registered labor unions, representing an increase of 97 labor unions since December 31, 2013. Information on the number of labor unions in 2015 is not currently available.

Unions engage in collective bargaining primarily involving the negotiation of contracts on an industry-wide basis. Strikes and lockouts are permitted, but conciliation procedures must be observed prior to calling a strike or lockout.

Pursuant to the 2012 reform of the Labor Law, labor unions must be registered with the National Registry of Union Organizations (Registro Nacional de Organizaciones Sindicales).

Poverty and Income Distribution; Education

Poverty and Income Distribution

The Central Government differentiates between extremely poor, non-extremely poor and non-poor households based on census survey examinations with respect to qualitative factors such as access to electricity and potable water and the number of persons per dwelling unit. INE defines “extremely poor” as individuals who lack sufficient resources to obtain a subsistence-level basket of foodstuffs and “non-extremely poor” as individuals who have resources sufficient to obtain two times a subsistence-level basket of foodstuffs.

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The following table provides statistics comparing the number and percentage of extremely poor, non-extremely poor and non-poor households in Venezuela for the years indicated:

	2011					2012					2013					2014					2015(1)
	Total		%			Total		%			Total		%			Total		%			Total		%
Households:
Non-Poor		5,049,544		73.3	%		5,512,180		78.8	%		5,049,392		72.7	%		4,930,640		67.4	%		4,930,666		66.9
Poor																						1,750,665		23.8
Extremely Poor		482,636		7.0	%		442,965		6.0	%		612,051		8.8	%		692,023		9.5	%		n.a		n.a
Non-Extremely Poor		1,353,591		19.7	%		1,060,299		15.2	%		1,287,539		18.5	%		1,688,258		23.1	%		n.a		n.a
Total		1,836,227		26.7	%		1,483,264		21.2	%		1,899,590		27.3	%		2,380,281		32.6	%		n.a		n.a
All Households		6,685,771		100.0	%		6,995,444		100.0	%		6,948,982		100.0	%		7,310,921		100	%		n.a		n.a
Population:
Non-Poor		19,408,077		68.1	%		21,649,296		74.6	%		19,415,005		67.9	%		18,264,324		61.8	%		n.a		n.a
Poor
Extremely Poor		2,450,621		8.6	%		2,053,928		7.1	%		2,791,292		9.8	%		3,340,343		11.3	%		n.a		n.a
Non-Extremely Poor		6,630,320		23.3	%		5,324,330		18.3	%		6,382,850		22.3	%		7,956,415		26.9	%		n.a		n.a
Total		9,080,941		31.9	%		7,378,258		25.4	%		9,174,142		32.1	%		11,296,758		38.2	%		n.a		n.a
Total Population		28,489,018		100.0	%		29,027,554		100.0	%		28,589,147		100.0	%		29,561,082		100	%		n.a		n.a

(1) 2015 figures are presented through June 30, 2015 where available.

n.a. = Not available.

Source: INE, Household Sample Survey, income poverty line.

The percentage of the poor among the Venezuelan population has remained relatively stable, increasing from 31.9% in 2011 to 38.2% in 2014. In addition to stimulating real growth in the economy and increasing job opportunities, the Central Government has taken measures to improve access to education and reduce truancy with the goal of improving literacy and technological skills among the future Venezuelan workforce, decentralize health and education support systems, reform social security and pension systems, and promote various Missions to target specific community problems and underserved groups of the population. For more information, see “Bolivarian Republic of Venezuela—Social Programs—Missions.”

The following table compares statistics for the distribution of income or consumption in Venezuela and other Latin American countries:

	Venezuela(1)		Brazil(1)		Chile(1)		Colombia(1)		Mexico(1)		Peru(1)
Survey Year(2)		2006		2006		2006		2006		2006		2006
National Gini Index		44.8		56.8		51.8		58.7		48.1		50.9

(1) Rankings are based on per capita income.

(2) Data refers to the most recent year available.

Source: The World Bank.

Education and Other Sustainable Development Factors

According to the Human Development Index, referred to as the HDI, a measure used by the United Nations Development Program, or UNDP, Venezuela ranks 71^st among the 188 countries in the world in the UNDP’s Human Development Report for 2015.

The HDI provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life expectancy), being educated (measured by adult literacy and enrollment at the primary, secondary and tertiary level) and having a decent standard of living (measured by purchasing power parity, or PPP, and income). The HDI provides a broad prism for viewing human progress and the complex relationship between income and well-being. According to the UNDP’s Human Development Report, Venezuela’s HDI was 0.735 for 2011, 0.748 for 2012, 0.764 for 2013 and 0.762 for 2014.

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The following table summarizes the statistics for social factors related to the HDI in Venezuela and the other six largest economies in Latin America:

	HDI and Its Components		Education and Health		Multidimensional Poverty Index(1)
HDI Rank	Life Expectancy at birth 2014		Adult literacy rate (% of ages 15 and older) 2005–2013		Population below income poverty line (%) PPP U.S.$1.25 a day(2) 2002–2012		National poverty line 2004–2014
40 Argentina		76.3		97.9		1.4		n.a.
42 Chile		81.7		98.6		n.a.		n.a.
71 Venezuela		74.2		95.5		n.a.		n.a.
74 Mexico		76.8		94.2		1.0		52.3
75 Brazil		74.5		91.3		3.8		8.9
84 Peru		74.6		93.8		2.9		23.9
97 Colombia		74.0		93.6		5.6		30.6

(1) Data refers to the most recent year available during the period specified. If no data is available, “n.a.” is indicated.

(2) Personal Purchasing Power used to measure the poverty line.

Source: The World Bank and UNDP, Human Development Report, 2015 (statistics for the largest seven economies of Latin America).

While Venezuela’s poor population face challenges due to a lack of access to basic necessities, some positive signs of sustainable development are present. The adult literacy rate was 95.5% between 2005–2013. Venezuela is ranked in the category of “high human development” in the following HDI statistical categories: overall profile and HDI trends, inequality-adjusted HDI, gender inequality index, gender development index, health for children and youth, adult health and health expenditures, education, command over and allocation of resources, social competencies, personal insecurity, international integration, environment, population trends and perceptions of well-being.

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PRINCIPAL SECTORS OF THE VENEZUELAN ECONOMY

Petroleum and Natural Gas

General

The petroleum sector has been the cornerstone of the Venezuelan economy for the past 50 years. It represents the principal source of revenues, foreign exchange earnings and stimulus for economic, industrial and social change. The Republic is a member of OPEC and is the world’s ninth-largest oil producer according to OPEC data. According to BP Statistical Review of World Energy June 2015, Venezuela has the largest proven oil reserves in the world, the eighth-largest proven natural gas reserves in the world and the largest proven reserves of both oil and natural gas in Latin America. According to the U.S. Energy Information Industry, Venezuela is the third-largest oil exporter to the United States. From 2011 through 2015, petroleum crude and products accounted for an average of approximately 95.3% of Venezuela’s total exports. During the same period, petroleum sector and royalties revenues accounted for an average of approximately 18.1% of Venezuela’s total Central Government revenues and petroleum sector activities accounted for an average of approximately 11.1% of Venezuela’s annual GDP measures in 1997 Constant Bolívares. For the nine-month period ended September 30, 2015, petroleum activities accounted for approximately 11.3% of GDP, compared to approximately 10.8% in 2014.

On February 10, 2016, the National Executive authorized the creation of CAMIMPEG to provide services to the petroleum and mining sectors, such as the maintenance and repair of oil wells and rigs.

Hydrocarbons Law

In Venezuela under the Hydrocarbons Law, all hydrocarbon reserves are owned by the Republic. In addition, the right to conduct all exploration, production and distribution activities related to hydrocarbons and their derivative products are reserved to the Republic under the Hydrocarbons Law. The Hydrocarbons Law was enacted in November 2001 by President Chávez pursuant to his authority under the applicable enabling law and came into effect in January 2002. It replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Under the Hydrocarbons Law, the Government may undertake exploration, production and distribution activity directly or through instrumentalities which are controlled by the Republic through an equity participation of more than 50%.

Under the Hydrocarbons Law of 2001, the Government is responsible for performing industrial and commercial activities reserved for the Republic, such as the separation, purification and transformation of natural hydrocarbons and byproducts. In certain instances, the Government may perform the reserved activities through companies owned exclusively by the Republic or through related joint ventures in which the Republic owns a high percentage of shares.

The Hydrocarbons Law of 2001 decreased the income tax rate for oil exploration and production activities from 67.7% to 50% and to 34% for downstream activities. It increased the extraction royalty rate from 16.7% to 30%, though these royalties are deductible for purposes of calculating income tax.

The Hydrocarbons Law of 2001 also modified other hydrocarbon taxes. Under the surface area tax, every square kilometer or fraction thereof which has been licensed for exploration but which has not been used for that purpose will be taxed at 100 tributary units per year. This tax was increased by 2% every year through 2007 and then 5% annually thereafter. The Hydrocarbons Law of 2001 provides for a tax on developer consumption of 10% of the retail price on each cubic meter of petroleum products produced and used by the developer to fuel its own operations. The law also imposes a tax of 30% to 50% of the retail price on each liter of petroleum product sold in the Venezuelan domestic market. This tax on retail purchases is levied annually by the National Assembly in the Budget Law and is to be paid monthly to the National Treasury.

In May 24, 2006, the Hydrocarbons Law was amended to: (1) create an extraction tax imposed at a fixed rate of one-third the value of all liquid hydrocarbons extracted from any well, calculated on the same basis as the Hydrocarbons Law provides for calculating royalties; (2) create an export registration tax of 1/1,000 of the value of all hydrocarbons exported from any port in Venezuela, calculated on the sales price of such hydrocarbons; and (3) amend Article 2 to include the extraction of gaseous hydrocarbons associated with petroleum within the scope of the law (Official Gazette No 38.443, dated May 24, 2006). Joint ventures are subject to a special advantage tax that consists of (a) a 3.33% royalty payment on the volumes of hydrocarbons extracted in areas designated by PDVSA and (b) the difference, if any, between (i) 50% of the value of hydrocarbons extracted in those areas, and (ii) the taxes already paid to the Republic for those hydrocarbons extracted.

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In February 2007, former President Chávez issued a decree pursuant to which existing Orinoco Oil Belt projects, namely Petrozuata, Sincor, Cerro Negro and Hamaca, were required to be converted into joint ventures in which Corporación Venezolana de Petróleo (“CVP”) or another PDVSA subsidiary holds an equity interest of at least 60% in accordance with the Hydrocarbons Law. Pursuant to this decree, operators of the Orinoco Oil Belt project became joint ventures, with PDVSA the majority owner of the operations.

As a result of the implementation of this decree, certain of the prior partners of the Orinoco Oil Belt projects commenced several litigation and arbitration proceedings against the Republic and PDVSA. For more information regarding developments and awards regarding these disputes, see “Disputes Concerning the Oil Industry” below.

Petróleos de Venezuela, S.A.

To manage the assets acquired by the nationalization of the domestic oil industry, PDVSA was formed in 1975 as a state-owned enterprise. PDVSA’s charter documents provide that the President of the Republic designates the members of PDVSA’s board of directors by executive decree. PDVSA is the holding company for a group of oil and gas companies. PDVSA holds the world’s largest proven crude oil reserves with 300.878 billion barrels and daily crude oil production of 2.8 thousand bpd as of December 31, 2015, as measured by a combination of operational data, including volume of reserves, production, refining and sales. PDVSA carries out the exploration, development and production (“upstream”) operations in Venezuela and the sales, marketing, refining, transportation, infrastructure, storage and shipping (“downstream”) operations in Venezuela, the Caribbean, North America, South America, Europe and Asia. Through PDV Holding, a wholly owned subsidiary, PDVSA indirectly owns 100% of Citgo Petroleum Corporation (“CITGO”), a refiner and marketer of transportation fuels, petrochemicals and other industrial oil-based products in the United States. PDVSA plans to invest intensively in upstream and downstream projects in Venezuela and abroad in order to satisfy the current and expected global increase in energy demands.

In February 2015, CITGO Holding Inc. issued U.S.$1.5 billion in bonds secured by a 100% equity stake in CITGO. The bond proceeds funded a U.S.$2.8 billion dividend to PDVSA. On September 16, 2016, PDVSA launched an exchange offer for its 5.250% senior notes due April 2017 and 8.50% senior notes due November 2017. The new exchange notes mature in 2020 and bear interest at a rate of 8.50% per annum. The new exchange notes will be secured by a 50.1% equity stake in CITGO and will be guaranteed by a subsidiary, PDVSA Petróleo. The consummation of the offer is contingent upon the tender of at least 50% in aggregate principal amount of the existing notes.

All hydrocarbon reserves in Venezuela are owned by the Republic and not by PDVSA. Under the Hydrocarbons Law, every activity relating to the exploration and exploitation of hydrocarbons and their derivatives is reserved to the Republic, which may undertake such activities directly or through entities controlled by the Republic through an equity participation of more than 50%. At the current production rate of crude oil and gas, Venezuela has proven hydrocarbon reserves of crude oil for the next 301 years for oil and 73 years for gas.

PDVSA mainly sells crude oil to the United States, Canada, the Caribbean, South America, Africa, Europe and Asia. In addition, PDVSA refines crude oil, with a refining capacity of approximately 2.8 million bpd and other feedstock in Venezuela and abroad into a number of products, including gasoline, diesel, fuel oil and jet fuel, petrochemicals and industrial products, lubricants and waxes, and asphalt. PDVSA is also engaged in the exploration and production of gas from off-shore sources with a production of 913 thousand barrel-of-oil equivalent, or “mboe,” per day as of December 31, 2015.

Since its inception in 1975, PDVSA has been operating as a state-owned commercial entity vested with commercial and financial autonomy. PDVSA is regulated by the Ministry of Oil and is entitled to retain an amount in foreign currency denomination in order to meet its foreign currency-denominated investments and expenses. From 2005 to April 2011, the remaining balance of such proceeds, net of all applicable corporate income taxes, dividends and royalties, was required to be transferred to FONDEN to be used for social, educational, health care, liability management and special and strategic purposes. In April 2011, the Oil Windfall Profits Tax came into force, superseding the former dispositions of the BCV Law governing PDVSA’s contributions to FONDEN. For more information, see “The Venezuelan Economy—International Reserves—Banco Central Transfers.”

In December 2014, Currency Exchange Agreement No. 32 was enacted to allow PDVSA and its subsidiaries to sell to Banco Central its foreign currencies from its operations at any official exchange rate in accordance with the Currency Exchange Agreements in force, and outside of the exchange control regime. For further information concerning the exchange control regime of Venezuela and applicable exchange rates during the periods of presentation, see “The Venezuelan Economy—Economic Policy and Legislation—Financial Administration of the Public Sector—Exchange Control Regime.”

PDVSA, the most important contributor to Venezuela’s GDP, exports and fiscal revenues, is responsible for coordinating most aspects of the petroleum industry, including administration, planning, operations, domestic and foreign marketing and capital investment. From 1978 through January 2006, PDVSA was responsible for the petrochemical sector, but this is now the responsibility of the Ministry of Oil. Since 1985, PDVSA has also been responsible for the development of coal resources located in western Venezuela, although in 2004 substantial responsibilities in this regard were transferred to Carbozulia, a fund for both regional development and for the development of Venezuela’s bitumen resources. Through its subsidiaries, PDVSA supervises, controls and develops the petroleum, gas and coal industries in Venezuela.

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The Ministry of Oil oversees all activities with respect to hydrocarbons and determines overall policies concerning rates of production, new the investments and resource conservation. In addition, the Minister of Popular Power for Oil is the chair of PDVSA’s General Shareholders’ Assembly, which sets PDVSA’s general policy.

In March 2004, PDVSA modified its organization structure in order to (1) enhance internal control of its operations, (2) improve its corporate governance, (3) align its operating structure with the long-term strategies of its shareholder and (4) adhere to the Hydrocarbons Law with respect to the separation of different national oil industry activities. In May 2011, the National Executive appointed a new board of directors of PDVSA, which replaced the one designated in 2008. The new board is comprised of the President, two Vice-Presidents, five internal directors and three external directors. On September 2, 2014, President Maduro appointed Eulogio Del Pino as the new president of PDVSA and a new board of directors was appointed.

Between 2013 and 2015, PDVSA restructured its joint ventures to organize them according to the type of crude produced.

PDVSA is structured into vertically-integrated geographic divisions to manage its upstream operations, including exploration, production and upgrading, which are located only in Venezuela. These divisions are referred to as the Eastern Division, the Western Division and the Orinoco Oil Belt Division and are managed by the Vice Presidency of Exploration and Production. PDVSA’s downstream operations are located in certain regions in Venezuela, the Caribbean, North America, South America, Europe and Asia.

PDVSA’s Strategic Socialist Plan (Plan Estratégico Socialista) includes PDVSA’s business plan. This plan outlines the development of production and refining projects totaling U.S.$132 billion in Venezuela, the Caribbean, Latin America and Asia during its initial stage between 2016 and 2025. Such expenditures are subject to the availability of cash from its operations, obtaining financing on reasonable terms and the favorable pricing of crude oil and gas. During the three-year period ended December 31, 2015, PDVSA invested U.S.$66.7 million in development projects in such regions through cash on-hand and issuance of debt. During the year ended December 31, 2015, PDVSA invested U.S.$18.1 billion in such projects.

PDVSA is required to foster socio-economic development in Venezuela and promote the welfare of Venezuelan citizens. To that effect, PDVSA makes significant financial contributions to social programs, including transfers to FONDEN and other programs, which are included in its annual budget together with other expenses aimed to fund specific social projects, as determined by the PDVSA board of directors. PDVSA has promoted and participated in Venezuela’s social and economic development by contributing significant funding to agricultural developments, development of infrastructure and roads, programs related to the provision of food, health and education to the poor, as well as several other programs.

In December 2015, charges were filed in the United States District Court for the Southern District of Texas against representatives of certain contractors and suppliers to PDVSA affiliates for the violation of anti-corruption and anti-money laundering laws, among other charges, in connection with international supply contracts and service contracts with a PDVSA affiliate during the period between 2009 and 2014. Additionally, certain former workers of a foreign subsidiary of PDVSA were accused of the same offenses. All the accused parties pleaded guilty to the charges on different procedural occasions between the end of 2015 and June 2016.

Business Strategy

PDVSA’s business plan takes into account the impact of the global economic crisis on the global demand for oil and the expectations for global economic growth, as well as the projected supply of oil worldwide, the capabilities and challenges related to oil and gas production in Venezuela, and the consolidation of PDVSA’s non-oil businesses. The business plan is based on the following key Government initiatives:

• Exploration of Condensate and Light and Medium Crude Oil: PDVSA intends to focus primarily on areas that have been already explored and that are currently producing crude oil. All other exploration areas, both on-shore and off-shore, are open to third party participation in partnership with PDVSA, under the framework of the Organic Hydrocarbons Law and the Venezuelan Constitution.

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• Development of the Orinoco Oil Belt Magna Reserves: The Orinoco Oil Belt area (55,314 km²) has been divided into 36 blocks for reserves quantification and certification of original oil on site purposes. There are approximately 1.5 trillion barrels of Original Oil in Place (“OOIP”) in the Orinoco Oil Belt. Of that amount, approximately 287.1 billion barrels have been certified as recoverable reserves, based on a total recovery factor of 20%.

• Production Growth in Mature Areas and Off-Shore Condensates: PDVSA is investing in mature areas with a view to achieving a crude oil production capacity in these areas of 1.2 million bpd by 2025. The projected production in mature areas for the period leading up to 2025 includes the following: 767 thousand bpd from areas where PDVSA is the sole operator and 454 thousand bpd from joint ventures producing light, medium and heavy oil.

• Expansion of Orinoco Oil Belt Production: PDVSA intends to obtain 1.9 million bpd from the expansion of its existing and future operations in the Orinoco Oil Belt. This expected growth would represent an increase of 629 thousand bpd from 1.3 million bpd in 2015 to 1.9 million bpd in 2025 (including 112 thousand bpd in mature areas of the Orinoco Oil Belt) which PDVSA plans to implement by developing its extra-heavy crude oil reserves, including new upgrading facilities and pipelines. The expected investment between 2016 through 2025 is $71.6 billion. The expected total oil production capacity for 2025, including the existing production and expansion of the Orinoco Oil Belt, off-shore crudes, natural gas liquids and mature areas, is 3.2 million bpd. The growth of oil production capacity is expected to occur through joint ventures in which PDVSA typically has a 60% stake and international oil companies have the remaining 40% stake. In September 2016, PDVSA announced a U.S.$3.2 billion project to drill 480 wells in the Orinoco Belt, as part of a public tender where it awarded contracts to Schlumberger, Horizontal Well Drillers and Venezuelan entity Y&V. PDVSA intends to increase output by 250 thousand bpd in a term of 30 months.

• Development of Major Projects in Refineries: PDVSA intends to expand its refining capacity from approximately 2.5 million bpd in 2015 (1.3/1.2 million bpd Venezuela/Overseas capacity) to 2.7 million bpd by 2025 (1.3/1.4 million bpd Venezuela/Overseas capacity). PDVSA expects that the implementation of this initiative will allow it to increase its production of refined petroleum products and upgrade product slate towards higher-margin products, as well as to improve the efficiency of its existing refining capacity. The focus of PDVSA’s refining capacity expansion will be the incorporation of heavier crude oil from the Orinoco Oil Belt expansion into the national refinery system. PDVSA currently has major upgrade projects in progress, including projects to increase the refining capacities of Puerto La Cruz Refinery. Due to the decline in oil revenues, certain major projects which were part of prior business plans have been postponed, such as Paraguaná and El Palito, and certain other have been cancelled, such as Petrobicentenario and Batalla de Santa Inés. In addition, PDVSA intends to expand its refining capacities and develop a new refinery Asia.

• Development of the Gas Sector: PDVSA has plans to continue developing on-shore and off-shore gas reserves with third party participation under the framework of the Venezuelan Organic Law of Gaseous Hydrocarbons. PDVSA intends to maintain its natural gas production from 7.8, million cfd in 2015 to 7,699 million cfd by 2025 (equivalent to 1.3 mbpd). In particular, PDVSA intends to focus on the development of the Delta Caribe, an initiative consisting of the Northeast Delta Caribbean Project and the Rafael Urdaneta Project in western off-shore Venezuela. These projects involve the development of gas reserves located north of Paria (the Mariscal Sucre Project), Gulf of Venezuela (Cardón IV/Rafael Urdaneta Project). With respect to northeast developments, PDVSA intends to link all blocks by a gas pipeline network to the future Güiria Hub, where an industrial complex, Gran Mariscal de Ayacucho, or CIGMA, is expected to be developed. For Gulf of Venezuela natural gas developments, PDVSA plans to connect the gas production blocks in the Península de Paraguaná with the domestic gas transportation system.

• Development of Infrastructure: PDVSA plans to implement an infrastructure program focused on multiple projects with the aim of securing the development of crude oil and gas reserves, particularly in the Orinoco Oil Belt. This program includes building approximately 8.0 million barrels of oil storage capacity, one liquid terminal in Punta Cuchillo (Orinoco River), the expansion of the existing liquid terminal in Jose, approximately 640 km in oil pipelines, the expansion of existing gas pipelines, and 1,924 km in new gas pipelines.

• Marketing of Crude and Products: PDVSA intends to continue supplying the local market and exporting crude oil, refined products and natural gas, including refineries and wholesalers in order to improve the margins, and maintaining PDVSA’s market in Asia, Europe and North America, related to the transport logistics. PDVSA expects to renew and expand PDVSA’s tanker fleet and increase its maritime transporting capacity from its current control fleet of 2,642 thousand dead weight tons (“dwt”) to 9,122 thousand dwt by 2025 as well as increase the number of vessels PDVSA owns, from 26 vessels to 75. In addition, PDVSA is expanding and diversifying the marketing efforts in Latin America, the Caribbean and Asia, including China, India and Russia, with the goal of reaching total crude oil exports of approximately 2.6 thousand bpd by 2025.

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• Auto Gas Project. Since 2006, PDVSA has been developing a project aimed at reducing the domestic gasoline demand by creating natural gas dispatch facilities for vehicles and converting vehicles to dual fuel engines on a national scale. The project’s goals include the construction of 473 new compressed natural gas (“CNG”) stations, as well as the construction and outsourcing of more than 200 vehicle conversion centers and the reactivation of 141 existing CNG stations. As of December 31, 2015, PDVSA had 342 CNG stations and 39 vehicle conversion centers. PDVSA’s total estimated investment in this project for the period beginning 2016 through 2025 is expected to be U.S.$2.2 billion.

• Production Strategy with Naphtha Strippers in the Orinoco Oil Belt: PDVSA has implemented a production strategy in the Orinoco Oil Belt in order to start production before upgrades are built and operational. This strategy consists in the construction of one Naphtha Stripper that will allow transportation of the extra-heavy crude oil diluted with naphtha from the production fields to the port terminals and/or storage tanks where the stripper is to be located. The stripper will remove naphtha diluted with the extra-heavy crude to send it back to the production field for re-use as a transport diluting agent and to allow the extra-heavy crude oil to be blended with other light crudes in order to obtain a commercially viable crude product. The Naphtha Stripper will have a total capacity of 260 thousand bpd and will require an investment of U.S.$725 million. The basic engineering for the naphtha stripper is being completed and its construction is expected to be finalized by 2022.

• Exploration Projects. PDVSA’s prior exploration strategy, known as Integral Exploration Projects (PIEX), included eight exploration projects covering the entire national territorial area with the aim of adding an estimated 8,045 million barrels of crude oil and 40.0 trillion cubic feet of gas. Currently, PDVSA is focused on an exploration strategy focused on: (i) concentrating the exploration efforts in new and traditional areas that lead to the incorporation of new light and medium crude oil and non-associated gas; (ii) executing an exploration plan for the incorporation of reserves associated to the Cretaceous in the Orinoco Oil Belt and the Lake Maracaibo; (iii) increasing the proved reserves of light and medium crude oil and non-associated gas from the conversion of the probable reserves with the execution of re-exploration and outline projects; (iv) accelerating the integrated characterization of fields with the purpose of establishing the exploitation plans and strategies that enhance the volumetric growth in Venezuela; and (v) executing a Specific Exploration Plan in border areas in Venezuela to strengthen Venezuela. The Exploration Plan includes the acquisition of 7,258 km2 of seismic 2D and 4,065 km2 of seismic 3D in the period 2016 – 2025, 131 exploratory wells, and includes the addition of 1,047 mbpd of oil and 2.3 bcf of new natural gas reserves. The total estimated investment in these projects from 2016 through 2025 is U.S.$2,386 million. As of December 31, 2015, total disbursements in the projects since 2011 have amounted to U.S.$1,454 million.

PDVSA and the Venezuelan Economy

PDVSA is the largest corporation in Venezuela. As of December 31, 2015, PDVSA’s total assets were U.S.$201.9 billion, compared to U.S.$226.8 billion on December 31, 2014. As of December 31, 2015, PDVSA’s total liabilities were U.S.$111.1 billion, compared to U.S.$137.0 billion on December 31, 2014. As of December 31, 2015, PDVSA’s non-current financial debt totaled U.S.$36.9 billion, compared to U.S.$39.9 billion on December 31, 2014, and PDVSA’s current financial debt totaled U.S.$6.8 billion at December 31, 2015, compared to U.S.$5.9 billion at December 31, 2014. Also as of December 31, 2015, PDVSA’s non-current liabilities totaled U.S.$58.4 billion, compared to U.S.$81.3 billion on December 31, 2014, and its current liabilities totaled U.S.$52.7 billion, compared to U.S.$55.7 billion on December 31, 2014.

For the year ended December 31, 2015, PDVSA’s revenues were U.S.$72.2 billion and its expenses were U.S.$61.5 billion.

PDVSA’s net cash provided by operating activities in 2015 were U.S.$15.2 billion, representing U.S.$7.3 billion of net income, U.S.$9.0 billion of depreciation and depletion, U.S.$559 million in provisions for employee termination, pension and other post-retirement benefits, equity in earnings of non-consolidated investees of U.S.$86.0 million, U.S.$2.6 billion of asset impairment, less U.S.$6.9 billion of deferred income taxes and less changes in working capital of U.S.$1.2 billion. PDVSA’s social development expenditures in 2015 totaled U.S.$9.2 billion. For the year ended December 31, 2015, consolidated net cash provided in financing activities totaled approximately U.S.$467.0 million and net cash used in PDVSA’s investment activities totaled U.S.$17.3 billion.

For the year ended December 31, 2015, the average crude oil export price was U.S.$44.65 per barrel. PDVSA’s capital expenditures in Venezuela for exploration and production totaled approximately U.S.$13.1 billion for the year ended December 31, 2015, and its capital expenditures in Venezuela for refining and marketing totaled U.S.$1.8 billion. Capital expenditures in Venezuela for natural gas projects totaled U.S.$959 million in 2015, while capital expenditures in Venezuela for petrochemicals and others totaled U.S.$1.3 billion.

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The principal factors that affect PDVSA’s consolidated results are the volume of crude oil exported and variations in the general price levels of hydrocarbons. PDVSA’s production of crude oil and liquid petroleum gas averaged 2.8 million bpd in 2015 compared to 2.9 million bpd in 2014, just above 2.9 million bpd in 2013 and 2.9 million bpd in 2012. PDVSA’s exports in each of 2013, 2014 and 2015 amounted to 2.4 million bpd. Because PDVSA is the single largest contributor to Venezuela’s GDP, exports and fiscal reserves, it has a significant influence on the Venezuelan economy. PDVSA is responsible for, among other things, making substantial royalty, dividend and tax payments to the Government and supporting Venezuela’s social development. For more information, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Petróleos de Venezuela, S.A.”

Hydrocarbon Reserves and Exploration

PDVSA uses geological and engineering data to estimate its proven crude oil and natural gas reserves, including proven developed and undeveloped reserves. Such data is capable of demonstrating with reasonable certainty whether such reserves are recoverable in future years from known reservoirs under existing economic and operating conditions. PDVSA expects to recover proven developed crude oil and natural gas reserves principally from new wells and acreage that has not been drilled using its currently available equipment and operating methods. PDVSA reviews its crude oil and natural gas reserves annually to take into account, among other things, production levels, field reviews, new reserves from discoveries, year-end prices and economic and other factors. Proven reserve estimates may be materially different from the quantities of crude oil and natural gas that are ultimately recovered.

In 2009, one of the largest natural gas reservoirs in the Gulf of Venezuela was discovered. Referred to as Perla-1X, the natural gas reservoir is part of the Rafael Urdaneta project and is expected to take several years to develop fully. According to reports from PDVSA, the field could contain between 7–8 trillion cubic feet of natural gas.

As of December 31, 2015, Venezuela had estimated proven crude oil reserves totaling approximately 300.9 million barrels (including an estimated 260.5 million barrels of heavy and extra-heavy crude oil in the Orinoco Oil Belt). Based on 2012 production levels, Venezuela’s estimated proven reserves of crude oil have a remaining life of 301 years.

As of December 31, 2015, Venezuela had proven reserves of natural gas amounting to 201.3 bcf. Virtually all of Venezuela’s natural gas reserves are composed of natural gas incidental to the development of crude oil reserves. During 2015, approximately 20% of the natural gas produced was re-injected for purposes of maintaining pressure in reservoirs.

As of December 31, 2015, proven developed reserves of crude oil and natural gas represented approximately 56% and 44%, respectively, of Venezuela’s total estimated proven crude oil and natural gas reserves on an oil equivalent basis. PDVSA maintains an active exploration and development program designed to increase its proven crude oil reserves and production capacity. PDVSA currently conducts its exploration and development activities in the Western Zulia Basin, the Central Southern Barinas-Apure Basin, the Eastern Basin in the Monagas and Anzoátegui states, and the Orinoco Oil Belt.

In 2015, ten additional distribution networks for liquefied petroleum gas were commissioned and built. These new distribution networks provided gas service to approximately 29,000 additional families and covered an additional 141 km. In 2016, the Committee for the Control and Monitoring of the Petrochemical Sector was created, which aims to optimize resources and increase efficiency through control of the industrialization chain for petrochemical products.

PDVSA continuously conducts exploratory activity throughout Venezuela and conducts such activities in other countries. In 2011, PDVSA’s exploration expenses totaled U.S.$163.0 million, as compared to U.S.$147.0 million in 2010. The increase in exploration expenses was primarily due to expansion of exploratory activities carried out in Central America and the Caribbean in 2011. In 2012, PDVSA’s exploration expenses totaled U.S.$492.0 million. The increase in exploration expenses was primarily due to the Orinoco Oil Belt projects. In 2013, PDVSA’s exploration expenses totaled U.S.$140.0 million. The decrease of U.S.$352.0 million in exploration expenses was primarily due to the decrease in geophysical-related expenses of PDVSA’s subsidiary PDVSA Petróleo. In 2014, PDVSA’s exploration expenses totaled U.S.$76.0 million and in 2015 they totaled U.S.$50.0 million The decrease of U.S.$26 million in exploration expenses between 2014 and 2015 was primarily attributable to PDVSA America’s discontinuation of operations.

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The following table shows proven crude oil and natural gas reserves and proven developed crude oil and natural gas reserves, all located in Venezuela. Proven reserve quantities exclude natural gas liquids.

December 31, 2015
(million barrels, except where noted)
Proven Reserves(1)
Condensate, light and medium crude oil (API gravity of 21° or more)	22,669
Heavy and extra heavy crude oil (API gravity of less than 21°)(2)	278,209
Total crude oil	300,878
Natural gas (bcf)	201,349
Remaining reserve life of crude oil (years)(3)	301
Proven Developed Reserves
Condensate, light and medium crude oil (API gravity of 21° or more)	4,099
Heavy and extra heavy crude oil (API gravity of less than 21°)(2)	8,832
Total crude oil	12,931
Percentage of proven crude oil reserves(4)	4	%
Natural gas (bcf)	39,350

(1) Proven reserves include both proven developed reserves and proven undeveloped reserves.

(2) Includes reserves in the Orinoco Oil Belt.

(3) Based on crude oil production and total proven crude oil reserves.

(4) Proven developed crude oil reserves divided by total proven crude oil reserves.

Source: PDVSA.

Refining

PDVSA has invested in its National and International Refining Systems (Sistema de Refinación Nacional e Internacional) to increase refining capacity and complexity and improve installations to satisfy global quality standards. Deep conversion capabilities in PDVSA’s Venezuelan refineries have enabled it to improve yields by allowing a greater percentage of higher value products to be produced. The following table sets forth the refineries where PDVSA holds an interest, the rated crude oil refining capacity and PDVSA net interest at December 31, 2015.

				Refining Capacity(1)
Location	Owner	PDVSA’s Interest		Total Rated Crude Oil		PDVSA’s Net Interest
		(%)		(million bpd)		(million bpd)
Venezuela:
CRP, Falcón	PDVSA		100		955		955
Puerto La Cruz, Anzoátegui	PDVSA		100		187		187
El Palito, Carabobo	PDVSA		100		140		140
Bajo Grande, Zulia	PDVSA		100		16		16
San Roque, Anzoátegui	PDVSA		100		5		5
Total Venezuela					1,303		1,303
Caribbean:
Isla(2)	PDVSA		100		335		335
Camilo Cienfuegos	Cuvenpetrol(3)		49		65		32
Jamaica	Petrojam(4)		49		35		17
Haina, Dominican Republic	Refidomsa PDVSA(5)		49		34		17
Total Caribbean					469		401
United States:
Lake Charles, Louisiana	CITGO		100		425		425
Corpus Christi, Texas	CITGO		100		157		157
Lemont, Illinois	CITGO		100		167		167

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						Refining Capacity(1)
Location	Owner			PDVSA’s Interest		Total Rated Crude Oil		PDVSA’s Net Interest
				(%)		(million bpd)		(million bpd)
Chalmette, Louisiana		Chalmette	(6)		50		184		92
Saint Croix, United States Virgin Islands		Hovensa	(7)		50		495		248
Total United States							1,244		977
Europe:
Nynäshamn, Sweden		Nynäs	(8)		50		29		15
Gothenburg, Sweden		Nynäs	(8)		50		11		5
Dundee, Scotland		Nynäs	(8)		50		9		4
Eastham, England		Nynäs	(8)		25		18		5
Total Europe							67		29
Worldwide Total							3,073		2,730

(1) Does not include Chalmette Refining, LLC, which was sold in October 2015.

(2) Leased in 1994. The lease expires in 2019.

(3) A joint venture with Commercial Cupet S.A.

(4) A joint venture with Petroleum Corporation of Jamaica (PCJ).

(5) A joint venture with Refidomsa.

(6) A joint venture with Hess Co.

(7) A joint venture with Conoco Phillips

(8) A joint venture with Neste Oil AB.

To maintain PDVSA’s competitiveness in international markets, PDVSA has adopted a rigorous and comprehensive business plan, which involves large investments in Venezuela and overseas. These investments are targeted at improving PDVSA’s refining systems and adapting them to meet environmental regulations and domestic and international product quality requirements. The business refining plan includes projects aimed at manufacturing gasoline and diesel through deep conversion. All investment efforts will support PDVSA’s commercial strategy of market diversification.

The following table sets forth PDVSA’s aggregate refinery capacity, input supplied by PDVSA (out of PDVSA’s own production or bought in the open market), utilization rate and product yield for years ended December 31, 2012, 2013, 2014 and 2015.

Refining Production	At or for the year ended December 31,
	2012					2013					2014					2015
	(million bpd)					(million bpd)					(million bpd)					(million bpd)
Total Refining Capacity(1)		3,267					3,267					3,267					3,236
PDVSA’s net interest in refining capacity(1)		2,822					2,822					2,822					2,807
Refinery input(2)
Crude Oil-Sourced by PDVSA
Light		320		15	%		312		14	%		332		15	%		284		13	%
Medium		660		30	%		649		29	%		639		29	%		596		27	%
Heavy		467		21	%		454		21	%		417		19	%		473		21	%
Sub-total		1,447		66	%		1,415		64	%		1,388		63	%		1,353		61	%
Crude Oil-Sourced by Others
Light		214		10	%		241		11	%		283		13	%		374		17	%
Medium		96		4	%		96		4	%		58		3	%		15		1	%
Heavy		130		6	%		191		9	%		209		10	%		210		9	%
Sub-total		440		20	%		528		24	%		550		26	%		599		27	%
Other Feedstock
Sourced by PDVSA		173		8	%		185		8	%		155		7	%		155		7	%
Sourced by Others		133		6	%		107		5	%		129		6	%		147		7	%
Total Transfers(6)		(12	)	(1	)		(28	)				(38	)				(40	)	—
Gasoline / Naphtha		(6	)	—			(20	)	—			(34	)	—			(32	)	—
Distillate		(6	)	—			(8	)	—			(4	)	—			(8	)	—
Lubricants		—		—			—		—			—		—			—		—
Others		—		—			—		—			—		—			—		—
Sub-total		294		13	%		264		12	%		246		11	%		262		12	%
Total Refining Input
Sourced by PDVSA(3)		1,620		74	%		1,600		71	%		1,543		70	%		1,508		68	%
Sourced by Others		573		26	%		635		29	%		679		32	%		746		34	%
Transfers		(12	)	—			(28	)	—			(38	)	(2	)%		(40	)	—
Total refinery input		2,181		100	%		2,207		100	%		2,184		100	%		2,214		100	%

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Crude Utilization(4)	77	%			78	%			77	%			70	%
Product Yield(5)
Gasoline / Naphtha	745		—		773		—		794		—		775		—
Gasoline / Transferred Naphtha(6)	(6	)	—		(20	)	—		(34	)	—		(32	)	—
Total Gasoline/Naphtha	739		34	%	753		34	%	760		35	%	743		34	%
Distillate	709		—		704		—		697		—		488		—
Transferred Distillate(6)	(6	)	—		(8	)	—		(4	)	—		(8	)	—
Total Distillate	703		32	%	696		32	%	693		32	%	480		22	%
Low Sulfur Residual	101		5	%	107		5	%	104		5	%	316		14	%
High Sulfur Residual	251		12	%	282		13	%	316		14	%	249		11	%
Asphalt	30		1	%	25		1	%	25		1	%	31		1	%
Naphthenic Specialty Oil	18		—		11		—		13		—		14		—
Transferred Naphthenic Specialty Oil(6)	—		—		—		—		—		—		—		—
Total Naphthenic Specialty Oil	18		1	%	11		—		13		1	%	14		—
Petrochemicals	57		3	%	57		3	%	53		2	%	48		2	%
Others	283		—		297		13	%	236		11	%	340		15	%
Transferred Others(6)	—		—		—		—		—		—		—		—
Total Others	283		13	%	297		13	%	236		11	%	340		15	%
Net output	2,182		100	%	2,228		101	%	2,200		101	%	2,221		100	%
Consumption, net (gain)/loss	(1	)	—		(21	)	—		(16	)	(1	)%	(7	)	—
Total yield	2,181		100	%	2,207		100	%	2,184		100	%	2,214		100	%

(1) Includes Chalmette Refining, LLC, which was sold in October 2015. As of December 31, 2015, PDVSA’s total refining capacity and net interest in refining capacity stood at 3,083 million bpd and 2,730 million bpd, respectively.

(2) PDVSA’s refineries sourced 68%, 70%, 71% and 64% of the refineries’ total crude oil requirements from crude oil produced by PDVSA in 2015, 2014, 2013 and 2012, respectively.

(3) Includes PDVSA’s interest in crude oil and other feedstock.

(4) Crude oil refinery input divided by the net interest in refining capacity.

(5) PDVSA’s participation in the product range.

(6) Received and shipped goods from and to the international and national refining system.

In 2015, PDVSA supplied all of the crude oil requirements to PDVSA’s Venezuelan refineries (863.0 thousand bpd), 178.0 thousand bpd of crude oil to PDVSA leased refinery in Curaçao and an aggregate of 312.0 thousand bpd of crude oil to refineries owned by PDVSA’s international subsidiaries or in which PDVSA otherwise has an interest (refinery input takes into account PDVSA net interest in crude oil). Of the total volumes supplied by PDVSA to its international affiliates, 31.0 thousand bpd were purchased by PDVSA in the global market and supplied to PDVSA’s European affiliates. Additionally, CITGO purchased a total of 205.0 thousand bpd of crude oil from PDVSA for processing in its refineries.

In October 2015, ExxonMobil and PDVSA sold 100% of their respective interests in Chalmette Refining, LLC, a joint venture between PDVSA and ExxonMobil, to PBF Energy.

PDVSA’s Social Contributions

PDVSA is required by law to make significant financial contributions to social programs, including missions such as the Great Housing Missions and funds such as FONDEN or Fondo Independencia, a fund that is financed by the differential gained by PDVSA as a result of the difference between the official exchange rate and the rate applicable to the production tax calculation. These contributions are mainly comprised of funds earmarked for social development projects maintained by Banco Central. Between 2011 and 2015, PDVSA’s average social contributions represented 14% of its revenues. PDVSA contributed a total of U.S.$30.1 billion in 2011, U.S.$17.3 billion in 2012, U.S.$13.0 billion in 2013, U.S.$5.3 billion in 2014, and U.S.$9.2 billion in 2015.

Exchange Transactions

The exchange transactions derived from the export and/or sale of hydrocarbons by PDVSA and its affiliates and joint ventures, as well as those derived from financing operations, financial instruments, capital contributions, asset sales, dividends, collection of debts, and provision of services, can be made using any of the DIPRO or DICOM rates; provided, that if any rate other than these rates is to be used, such rate shall be reduced in one-quarter of a percent (0.25%) and must be authorized by the Vice-presidency of the Economic Sector, the Ministry for Bank and Finance and the Central Bank.

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Disputes Concerning the Oil Industry

In February 2007, former President Chávez issued a decree under the authority conferred by the 2007 Enabling Law, pursuant to which the existing four Orinoco Oil Belt heavy oil projects that had been established in the 1990s as joint ventures controlled by private sector petroleum companies, Petrozuata, Sincor, Cerro Negro and Hamaca, were mandatorily converted into joint ventures, in which CVP, a wholly-owned subsidiary of PDVSA, or another PDVSA subsidiary, holds an equity interest of at least 60%. The MPPPM was required to make a valuation of each new joint venture in order to determine the fair value of the participation of the PDVSA subsidiary in each joint venture and to provide any economic or financial adjustment as necessary. The decree also provided that existing profit-sharing agreements for the exploration of the Golfo de Paria Oeste, Golfo de Paria Este and the blocks known as La Ceiba, as well as Orifuels Sinovensa, S.A., must be converted into joint ventures.

In May 2007, CVP completed the acquisition process with respect to the four Orinoco Oil Belt strategic associations, Petrozuata, Sincor, Cerro Negro and Hamaca. In June 2007, Chevron Texaco, Statoil, Total, BP, Eni SpA, China Petroleum & Chemical Corporation (“Sinopec”) and Ineparia agreed to convert their participations in the four Orinoco Oil Belt projects into Joint Ventures controlled by PDVSA, increasing PDVSA’s average participation in the projects to 78.0%. Between December 2007 and September 2008, Moody’s withdrew its credit ratings of all three Venezuelan heavy oil projects following the repayment and restructuring of the debt as a result of the negotiations with the lenders.

ExxonMobil and ConocoPhillips, the majority partners in the Cerro Negro and Petrozuata projects, respectively, did not reach a financial agreement with PDVSA regarding the required sale of their ownership interests. As a result, certain arbitration requests were filed by ExxonMobil and Conoco Phillips.

On September 6, 2007, Mobil Corporation (“Mobil”), Mobil Cerro Negro Holding, Ltd. (“Mobil CN Holding”), Mobil Venezolana de Petróleos Holdings, Inc. (“Mobil Venezolana Holdings”), Mobil Cerro Negro, Ltd. (“Mobil CN”), Mobil Venezolana de Petróleos, Inc. (“Mobil Venezolana”) and Venezuela Holdings, B.V. (together with Mobil, Mobil CN Holding, Mobil Venezolana Holdings, Mobil CN and Mobil Venezolana, “ExxonMobil”) commenced ICSID arbitration proceedings against the Republic. ExxonMobil’s claims relate to Mobil CN’s interest in the Cerro Negro Project, Mobil Venezolana’s interest in the La Ceiba Project and Mobil’s investment in the capital of the two operators, OCN and Agencia Operadora La Ceiba. ExxonMobil claims that the Republic breached provisions under the Netherlands-Venezuela BIT (Tratados Bilaterales de Inversión entre los Países Bajos y la República Bolivariana de Venezuela or the “Netherlands-Venezuela BIT”) and Venezuela’s Foreign Investment Law (the “Foreign Investment Law”) when the Republic nationalized the Cerro Negro and La Ceiba Projects and expropriated ExxonMobil’s investments in Operadora La Ceiba’s and Operadora Cerro Negro by transferring these entities’ assets and operation to PDVSA. On June 10, 2010, the arbitral tribunal decided that it had jurisdiction over the claims presented by ExxonMobil insofar as: (i) they were based on alleged breaches of the Netherlands-Venezuela BIT and (ii) they relate to disputes originating after February 21, 2006, for the Cerro Negro Project and after November 23, 2006, for the La Ceiba Project and in particular as far as they relate to the dispute concerning the nationalization measures taken by the Republic. The arbitral tribunal decided that it had no jurisdiction under the Foreign Investment Law. In addition, the arbitral tribunal reserved all questions concerning the costs and expenses of the tribunal and the costs of the parties for subsequent determination. On October 9, 2014, the tribunal rendered its award, declaring that the Republic should pay ExxonMobil approximately U.S.$1.0 billion (representing an award of U.S.$1.6 billion plus interest reduced by an International Chamber of Commerce (“ICC”) award of U.S.$251 million in a related matter in favor of Exxon Mobil in 2012 with respect to the various claims. On October 24, 2014, ICSID registered an application for revision of the award filed by the Republic and notified the parties of the provisional stay of enforcement of the award. The ICSID tribunal was constituted on October 30, 2014. On June 12, 2015, the tribunal issued its decision and determined that the application for revision was inadmissible and the stay of enforcement was automatically terminated. On February 9, 2015, ICSID registered an application for annulment of the award filed by the Republic and notified the parties of the provisional stay of enforcement of the award.

In January 2008, ExxonMobil commenced additional arbitration proceedings regarding the nationalization of the Cerro Negro Project under the rules of the ICC. In December 2011, an ICC arbitral award was rendered against PDVSA and PDVSA Cerro Negro S.A. in connection with the nationalization of ExxonMobil’s assets in the Orinoco Oil Belt project. The arbitral tribunal awarded a U.S.$907.6 million indemnity out of the U.S.$7.0 billion originally claimed by ExxonMobil. This indemnity includes the recognition of an obligation for U.S.$640.0 million in the 2011 consolidated financial statements, in addition to previously recognized liabilities, including accruals and other liabilities. After deducting amounts allowed as counterclaims by PDVSA, amounts due from ExxonMobil to PDVSA under the terms of the financing of the Cerro Negro Project and amounts that ExxonMobil had attached through interim court proceedings, in February 2012 PDVSA paid U.S.$251.0 million to ExxonMobil in order to satisfy in full its obligations under the ICC award.

Regarding the Petrozuata, Hamaca, and Corocoro projects, in November 2007, ConocoPhillips Petrozuata B.V. (“CPZ”), ConocoPhillips Hamaca B.V. (“CPH”), ConocoPhillips Gulf of Paria B.V. (“CGP”) and ConocoPhillips Company (together with CPZ, CPH and CGP, “ConocoPhillips”) commenced arbitration proceedings against the Republic with ICSID. The arbitration concerns ConocoPhillips’ interests in two extra-heavy oil projects located in the Orinoco Oil Belt-the Petrozuata Project and the Hamaca Project, and in an offshore project for the extraction of light to medium crude oil-the Corocoro Project. ConocoPhillips claims that the Republic breached provisions under the Netherlands-Venezuela BIT and the Foreign Investment Law when the Central Government increased the income tax rate and the extraction tax and mandated the transfer of operational control of oil projects, including the Petrozuata, Hamaca and Corocoro Projects, and the transfer of the exploration, production and commercialization rights to PDVSA.

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ConocoPhillips sought U.S.$30.0 billion in damages. On September 3, 2013, the arbitral tribunal decided that it had jurisdiction under the Netherlands-Venezuela BIT (but not under the Foreign Investment Law). Several claims were dismissed, but by majority vote the tribunal concluded that the Republic “breached its obligation to negotiate in good faith for compensation for its taking of the ConocoPhillips assets.” The calculation of compensation was to be determined at a later undecided date. The Republic requested the arbitral tribunal hold a hearing for submissions on the issue of good faith negotiations and consider new evidence but on March 10, 2014, the arbitral tribunal dismissed the Republic’s request for reconsideration. On August 10, 2015, the Republic appealed for the second time to the arbitral tribunal to, as stated by the Republic’s Attorney General, “reconsider its position with respect to the ruling by the ICSID.” In February 2016, the tribunal declined to reconsider the ruling in favor of ConocoPhillips for the second time. The damages portion of the arbitration remains ongoing.

Regarding the Petrozuata project, in December 2009, Conoco Phillips Petrozuata B.V. and Phillips Petroleum Company Limited filed an arbitration request against PDVSA before the ICC, based on guarantees made by certain subsidiaries of PDVSA under the Petrozuata and Hamaca Projects. In September 2012, an arbitration award was issued against PDVSA in the amount of U.S.$67.0 million. The award was paid by the PDVSA in November 2012.

In May 2009, the National Assembly passed the Organic Law Reserving to the State the Goods and Services Related to the Primary Activities of the Petroleum Sector (Ley Orgánica que Reserva al Estado Bienes y Servicios Conexos a las Actividades Primarias de Hidrocarburos), which granted the President the power to declare a total or partial nationalization of stock or assets of companies that are essential to the primary activities in the petroleum industry. Since the enactment of the law, PDVSA or its affiliates have taken possession of several companies’ assets and assumed control of operations of nationalized entities, including employment of petroleum sector employees. Under this law, any controversy arising from actions taken under the law will be heard exclusively in Venezuelan tribunals under Venezuelan law. Since the passage of this law, the Republic has acquired over 75 companies from the petroleum sector.

In November 2010, Opic Karimun Corporation (“Opic”) initiated an arbitration against PDVSA and CVP before the ICC in connection with several profit sharing agreements relating to the Gulf of Paria East and Gulf of Paria West (the “Gulf of Paria Agreements”) and PDVSA’s guaranties of CVP’s obligations thereunder. Opic alleges that PDVSA and CVP are liable under a variety of theories, including breach of the Gulf of Paria Agreements and the guaranties, and sought damages in the amount of approximately U.S.$200 million. An award was issued on November 11, 2013, pursuant to which PDVSA was ordered to pay U.S.$81 million. PDVSA has not made any payments on this award.

In September 2002, Crystallex signed a contract with CVG for the development and operation of the Las Cristinas mines. On February 3, 2011, CVG informed Crystallex that the contract had been cancelled due to non-performance of the project. On February 16, 2011, Crystallex filed a request for arbitration before ICSID against the Republic, alleging violations of the BIT between Venezuela and Canada seeking in excess of U.S.$3 billion in damages. The request was registered by the Secretary General of ICSID on March 9, 2011. The ICSID tribunal was constituted on October 5, 2011. Hearings were held in 2013 and 2014 in the matter. On November 25, 2015, while an award in the arbitral proceeding was pending, Crystallex filed a complaint in U.S. federal district court in Delaware seeking to recover U.S.$2.2 billion from PDVSA and CITGO Holding, alleging that PDVSA used a series of debt offerings to transfer assets out of CITGO Holding in anticipation of adverse arbitral awards against the Republic that rendered CITGO Holding effectively insolvent. These proceedings remain pending. On April 4, 2016, an ICSID arbitral tribunal awarded Crystallex. U.S.$1.2 billion plus interest in a proceeding relating to the Republic’s expropriation of Crystallex’s interest in the Las Cristinas mine. On April 7, 2016, Crystallex initiated a proceeding in the U.S. District Court for the District of Columbia for recognition and enforcement of the arbitral award. On July 5, 2016, the Republic filed a motion to set aside the award, contending that it violated provisions of the U.S. Federal Arbitration Act. On July 26, 2016, Crystallex filed a motion seeking an order that the Republic post a bond guaranteeing enforcement of the award. These proceedings before the federal district court are ongoing. In April 2016, a PDVSA affiliate was notified by the Court of The Hague that PDVSA’s ownership interest in the certain European affiliates was subject to attachment for an amount of U.S.$1.5 million, based on the claim that PDVSA is jointly and severally liable for the debts of Venezuela. Crystallex has filed requests for recognition and enforcement of the award in several other jurisdictions, including Canada. On July 20, 2016, the Superior Court of Justice of Ontario, Canada issued an order recognizing and permitting enforcement of the award.

On June, 2010, the Republic took control of eleven oil rigs that were the property of U.S. driller H&P, after the parties could not agree on renegotiated rates and service plans. PDVSA intended to use the drills to increase oil production and to strengthen the country’s sovereignty over the oil sector. In September 2011, H&P brought a claim in the United States in federal court in the District of Columbia against PDVSA and the Republic, claiming unspecified damages resulting from the nationalization of the eleven oil rigs. On May 1, 2015 the United States Court of Appeals for the District of Columbia Circuit affirmed the District Court’s denial of the Republic’s motion to dismiss H&P’s expropriation claim and remanded the case for further proceedings. On June 28, 2016, the United States Supreme Court granted the Republic’s petition for certiorari to review certain questions of law related to the expropriation exemption under the U.S. Foreign Sovereign Immunities Act. Supreme Court proceedings remain pending.

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In December 2015, charges were filed in the United States District Court for the Southern District of Texas against representatives of certain contractors and suppliers to PDVSA affiliates for the violation of anti-corruption and anti-money laundering laws, among other charges, in connection with international supply contracts and service contracts with a PDVSA affiliate during the period between 2009 and 2014. Additionally, certain former workers of a foreign subsidiary of PDVSA were accused of the same offenses. All the accused parties pleaded guilty to the charges on different procedural occasions between the end of 2015 and June 2016.

Domestic Subsidies for Fuel Consumption

Refined products for the local market are sold at a subsidized price. For this reason, pursuant to a resolution issued by the Ministry of Oil, PDVSA discounts from the royalties received the difference between the settlement price of the royalty and U.S.$50.00 per barrel for volumes subsidized for the local market. The continued existence of such price controls will continue to reduce the Republic’s resource revenues.

Taxes

Domestic sales of petroleum products in Venezuela are subject to a value-added tax, which as of March 26, 2009 was set at 12.0%. As exporters, each of PDVSA’s subsidiaries operating in Venezuela is entitled to a refund of a significant portion of value-added taxes paid. The VAT Law establishes an exemption on the trading of certain fuels derived from hydrocarbons and the possibility to recover certain tax credits resulting from export sales from the tax authorities. The amounts pending recovery do not bear interest. The Government reimburses taxes through special tax recovery certificates, or CERTs. PDVSA did not recover any CERTs during 2011, 2012, 2013, 2014 and 2015.

PDVSA and its Venezuelan subsidiaries are entitled to a tax credit for new investments of up to 12.0% of the amount invested. In the case of PDVSA Petróleo, however, such credits may not exceed 2.0% of its annual net taxable income and, in all cases, the carry-forward period cannot exceed three years.

In April 2005, the Government announced that the income tax rate applicable to 32 oil operating contracts would be raised from 34.0% to 50.0% and the operating agreements would be converted into joint ventures with PDVSA. The contracts date from 1992–1997 and the increase does not apply to extra-heavy crude ventures. The Hydrocarbons Law also increased royalties and requires PDVSA to have at least a 51% participation in new upstream oil projects.

On December 30, 2015, President Maduro passed an amendment to the Income Tax Law pursuant to Decree No. 2.163, published in Extraordinary Official Gazette No. 6.210. The amendments, (1) establish anti-circumvention measures to limit losses and deductions; (2) authorize the National Executive to set tax rates within the limits established by law; (3) modify aspects of the inflation adjustment for certain sectors; and (4) simplify the tax regime applicable to cooperative associations and foundations

The current Income Tax Law of Venezuela establishes a general tax rate of 50.0% for companies involved in the exploitation of hydrocarbons and related activities. A rate of 34.0% applies to companies that perform integrated activities or non-integrated activities, exploration and exploitation of non-associated gas, processing, transportation, distribution, storage, marketing and export of gas and its components, or exclusively performing hydrocarbon refining or upgrading of heavy or extra-heavy crude oil. The applicable tax rate for most of the foreign subsidiaries is 35.0%. Additionally, PDVSA subsidiaries domiciled outside of Venezuela are subject to tax regulations of the countries where they operate. On April 15, 2008, the National Assembly enacted the Law Creating a Special Contribution Deriving from Extraordinary Crude Prices in the International Markets (Ley de Contribución Especial Sobre Precios Extraordinarios del Mercado Internacional de Hidrocarburos). Pursuant to this law, in any month in which the average Brent oil price for such month exceeds U.S.$70.00 per barrel, oil and derivatives exporters (including PDVSA) were required to pay a tax on their exports calculated by multiplying the number of barrels they export in such month by 50.0% of the excess of the average Brent price per barrel for such month over U.S.$70.00. In any month in which the average Brent price was greater than U.S.$100.00, the tax is assessed at the foregoing rate for the first U.S.$30.00 of the excess over U.S.$70.00 and at 60.0% of the excess of the average Brent price over U.S.$100.00. The contributions received from this tax are paid monthly to FONDEN to carry out social production, development and infrastructure projects. In April 2011, former President Chávez issued by decree the Oil Windfall Profits Tax Law, which repealed the provisions of the BCV Law governing PDVSA’s contributions to FONDEN. The Oil Windfall Profits Tax Law provides that the revenue from this tax be deposited directly with FONDEN and used to finance the Missions as well as infrastructure, road, health, education, communication, agriculture and food projects, among others.

In 2013, the Oil Windfall Profits Tax Law was amended to state that “extraordinary prices” arise when the monthly average of international quotations of the price of Venezuelan liquid hydrocarbons is higher than the price set in the Budget Law for the respective fiscal year, but is equal to or lower than U.S.$80.00 per barrel and “exorbitant prices” arise when the monthly average of international quotation of Venezuelan liquid hydrocarbons price is higher than U.S.$80.00 per barrel. The Oil Windfall Profits Tax Law provides that when there are “extraordinary prices,” a 20.0% tax will be applied on the difference between both prices.

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The Oil Windfall Profits Tax law also provides that:

• when exorbitant prices are higher than U.S.$80.00 per barrel, but lower than U.S.$100.00 per barrel, a share of 80.0% of the total amount of the difference between the two prices will be applied;

• when exorbitant prices are equal to or higher than U.S.$100.00 per barrel, but lower than U.S.$110.00 per barrel, a share of 90.0% of the total amount of the difference between the two prices will be applied; and

• when exorbitant prices are equal to or higher than U.S.$110.00 per barrel, a share of 95.0% of the total amount of the difference between the two prices will be applied.

In 2015, the Large Financial Transactions Tax Law was issued and became effective on February 1, 2016. Under the law, PDVSA, as a large taxpayer, will be taxed at a rate 0.75% for financial transactions in national currency and 0% for financial transactions in foreign currency.

On December 30, 2015, President Maduro enacted Decree No. 2.163, published in Extraordinary Official Gazette No. 6.210, which supersedes the same law published in the Extraordinary Official Gazette No. 6,152, dated November 18, 2014. Under the new law, (1) anti-circumvention measures aim to limit losses and deductions; (2) the National Executive is authorized to set tax rates within the limits established by law; (3) aspects of the inflation adjustment for certain sectors are modified; and (4) the tax regime applicable to cooperative associations and foundations is simplified.

Article 5 of the Hydrocarbons Law mandated that all revenues generated by the Venezuelan Government from oil activities be used to promote health programs, contribute to the Stabilization Fund and make investments in productive sectors of the economy. In February 2011, the Republic instructed PDVSA to transfer all funds held by PDVSA in the Stabilization Fund to FONDEN. As of December 31, 2015, there were no funds deposited in the Stabilization Fund. In this respect, PDVSA has made significant contributions to social programs by promoting and participating in Venezuela’s social and economic development. For the years 2011 through 2015, PDVSA spent approximately U.S.$30.1 billion, U.S.$17.3 billion, U.S.$13.0 billion, U.S.$5.3 billion and U.S.$9.2 billion, respectively, in support of government-sponsored social projects.

Petroleum Production and Export Revenues of Crude Oil and Refined Products

In 2015, PDVSA’s production of crude oil and liquid petroleum gas averaged 2.8 million bpd. In 2014, PDVSA’s production of crude oil and liquid petroleum gas averaged 2.9 million bpd while in each of 2012 and 2013, PDVSA’s production of crude oil and liquid petroleum gas averaged 3.0 million bpd. In 2011, PDVSA’s production of crude oil and liquid petroleum gas averaged 3.1 million bpd.

PDVSA’s net output of refined petroleum products, including the output of products by refineries in which its affiliates in the United States and Europe own equity interests, averaged 2.4 million bpd in 2011, 2.2 million bpd in 2012, 2.2 million bpd in 2013, 2.2 million bpd in 2014 and 2.1 million bpd in 2015. Of the total production of PDVSA’s refineries during 2012: (i) 58.0%, or 1.3 million bpd, was produced by its Venezuelan refineries and the Isla Refinery in Curaçao; (ii) 39.0%, or 0.8 million bpd, was produced by refineries in the United States in which PDVSA owned equity interests; (iii) 1.0%, or 20.0 thousand bpd, was produced by refineries in Europe in which PDVSA owned equity interests; and (iv) 2.0%, of 0.1 million bpd, was produced by refineries in the Caribbean (excluding the Isla Refinery in Curaçao) in which PDVSA owned equity interests.

Of the total production of PDVSA’s refineries during 2013: (i) 59.0%, or 1.3 million bpd, was produced by its Venezuelan refineries and the Isla Refinery in Curaçao; (ii) 34.0%, or 0.8 million bpd, was produced by refineries in the United States in which PDVSA owned equity interests; (iii) 2.0%, or 44.0 thousand bpd, was produced by refineries in Europe in which PDVSA owned equity interests; and (iv) 5.0%, of 0.1 million bpd, was produced by refineries in the Caribbean (excluding the Isla Refinery in Curaçao) in which PDVSA owned equity interests.

Of the total production of PDVSA’s refineries during 2014: (i) 57.0%, or 1.3 million bpd, was produced by its Venezuelan refineries and the Isla Refinery in Curaçao; (ii) 36.0%, or 0.8 million bpd, was produced by refineries in the United States in which PDVSA owned equity interests; (iii) 2.0%, or 53 thousand bpd, was produced by refineries in Europe in which PDVSA owned equity interests; and (iv) 5.0%, of 96 thousand bpd, was produced by refineries in the Caribbean (excluding the Isla Refinery in Curaçao) in which PDVSA owned equity interests.

Of the total production of PDVSA’s refineries during 2015: (i) 56%, or 1.2 million bpd, was produced by its Venezuelan refineries and the Isla Refinery in Curaçao; (ii) 38% or 0.8 million bpd, was produced by refineries in the United States in which PDVSA owned equity interests; (iii) 2%, or 0.05 thousand bpd, was produced by refineries in Europe in which PDVSA owned equity interests; and (iv) 4%, of 0.1 thousand bpd, was produced by refineries in the Caribbean (excluding the Isla Refinery in Curaçao) in which PDVSA owned equity interests.

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Exports represented a significant portion of PDVSA’s sales volume in 2015. PDVSA’s exports increased from 2.5 million bpd in 2011 to 2.6 million bpd in 2012, primarily due to the increased global supply of hydrocarbons. PDVSA’s exports decreased from approximately 2.6 million bpd in 2012 to 2.4 million bpd in 2013, primarily due to the reduced availability and processing of crude oil in the national refining system. PDVSA’s exports remained at 2.4 million bpd in 2013, 2014 and 2015.

The average realized export price per barrel for Venezuelan crude oil and refined petroleum products increased by 3.3% in 2012, from U.S.$100.11 per barrel in 2011 to U.S.$103.40 per barrel in 2012. The average realized export price per barrel for Venezuelan crude oil and refined petroleum products decreased by 5.4% in 2013, from U.S.$103.40 per barrel in 2012 to U.S.$98.08 per barrel in 2013. The average realized export price per barrel for Venezuelan crude oil and refined petroleum products decreased by 11.0% in 2014, from U.S.$98.08 per barrel in 2013 to U.S.$88.42 per barrel in 2014, due to a decrease in global oil prices. The average realized export price per barrel for Venezuelan crude oil and refined petroleum products decreased by 49.5% in 2015, from U.S.$88.42 per barrel in 2014 to U.S.$44.65 per barrel in 2015, due to an oversupply of petroleum products as a result of increased fracking, among other factors.

PDVSA’s primary markets for exports of its crude oil, refined petroleum products and liquid petroleum gas are (a) Asia, with total sales of 1.1 million bpd in 2015, as compared to 971.0 thousand bpd in 2014, 1.0 million bpd in 2013 and 924.0 thousand bpd in 2012, (b) North America, with total sales volume of approximately 804 thousand bpd in 2015, as compared to approximately 837 thousand bpd in 2014, and 845 thousand bpd in 2013, and (b) Latin America and the Caribbean (primarily of refined petroleum products), with total sales of 333 thousand bpd in 2015, as compared to 418.0 thousand bpd in 2014, 436.0 thousand bpd in 2013, and 452.0 thousand bpd in 2012

Trade Agreements

PDVSA has entered into agreements with other investors and energy cooperation agreements between the Republic and governments of other countries.

Incorporation of Joint Ventures

To this date, PDVSA is party to approximately 30 active Joint Ventures, including the following:

In 2008, the joint venture Petrolera Indo Venezolana,S.A. was incorporated by CVP and ONGC Nile Ganga B.V. to conduct exploration and production activities of light-medium crude in the San Cristóbal area of Anzoátegui and Guárico State. The company is 60% held by CVP and 40% held by ONGC Nile Ganga B.V.

As approved by the National Assembly and authorized by the Executive between 2011 and 2015, the CVP incorporated Petrovictoria, S. A., Petrozamora, S. A., Petrourdaneta, S. A., Petrolera Venangocupet, S. A. as joint ventures in association with other investors for the purpose of performing exploration, extraction, gathering, production, upgrading, transportation, storage and trading of crude oil and natural gas in the Orinoco Oil Belt and in the western area of the country.

In 2010, a joint venture between CVP and ENI Lasmo, PLC (“ENI”) was approved by the National Assembly with an initial share distribution of 60% to CVP and 40% to ENI. The joint venture was granted a license to explore and extract natural gas in the areas of Punta Pescador and Golfo de Paria Oeste for a period of 25 years. On July 30, 2013, the license was partially amended to extend the license period by restarting the 25-year license from the date of amendment and amending the exploration schedule.

In 2011, the joint venture PetroBicentenario, S.A. was incorporated by PDVSA and ENI, in order to operate a refinery at the Petrochemical and Petroleum Complex General José Antonio Anzoátegui. The company is 60% held by PDVSA and 40% held by ENI.

In September 2011, the National Assembly approved the creation of a joint venture between CVP and Odebrecht. The joint venture was created for the purpose of exploring and producing crude oil and natural gas in the Zulia state. The company will have an initial share distribution of 60% for CVP and 40% for Odebrecht. The joint venture, called Petrourdaneta, was incorporated on April 3, 2012.

In 2012, the joint venture PetroZamora, S.A. was incorporated by CVP and GPB NEFTEGAZ Services B.V. subsidiary of Gazprombank Latin América Ventures B.V. The company will issue an initial share distribution of 60% to CVP and 40% to Gazprombank. In December 2013, PetroZamora entered into a prepayment and reimbursement agreement with GPB Energy Services B.V., in an aggregate principal amount of U.S.$1.0 billion. The proceeds of the prepayment will be used by Petrozamora to finance projects for purposes of increasing Petrozamora’s hydrocarbon production. The prepayments are divided into two components: (i) an initial prepayment (on a revolving basis) for U.S.$250 million and (ii) subsequent prepayments up to an amount of U.S.$750 million.

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As of December 31, 2015, the outstanding amount under this agreement is U.S.$73 million. In June 2015, four additional fields located in Lake Maracaibo were approved for exploration by Petrozamora.

In April 2013, PDVSA signed three cooperation agreements with the Russian state oil company, Rosneft, to create a joint venture called Petrovictoria in order to develop the Orinoco Oil Belt. In May 2013, PDVSA and Rosneft signed a U.S.$1.5 billion loan agreement in order to develop several oil projects. As of July 2015, Petrovictoria carried out crude oil and associated natural gas exploration and production activities in the Carabobo area of the Orinoco Oil Belt, with the goal to produce 400.0 thousand bpd by 2019.

Petrochemicals

Prior to June 2005, PDVSA was engaged in the Venezuelan petrochemical industry through its wholly-owned subsidiary, Petroquímica de Venezuela, S.A. (“Pequiven”). In June 2005, the Government decided to transfer the activities, assets and shares held by PDVSA in Pequiven to the Ministry of Oil. The completion of the transfer occurred in January 2006 after the enactment of the Petrochemical Act. Pequiven was established in 1977 to increase the capacity and flexibility of existing plants, both for local and international markets and to identify new products or commercial opportunities, mainly in methanol, plastics and fertilizers.

Extra Heavy Crude Oil

In 2010, CVP entered into agreements with Sinopec, and China National Offshore Petroleum Corp. (“CNOOC”). Sinopec agreed to develop the Junin-1 and Junin-8 blocks of the Orinoco Oil Belt. The projects are expected to produce an estimated 400.0 thousand bpd of extra heavy crude oil. CNOOC agreed to join the Mariscal Sucre natural gas project, which is expected to produce an estimated 1.2 bcf and 37,000 barrels of condensate daily. For more information, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Petróleos de Venezuela, S.A.—Business Strategy.”

On October 8, 2010, CVP and CNPC Exploration and Development Company Limited established a joint venture called PetroUrica, S.A., to develop heavy crude oil in the Orinoco Oil Belt. In October 2010, CNPC Exploration and Development Company Limited paid the Republic a U.S.$900 million bonus for participation in the development of the Junin-4 block deposit. The project is expected to produce an estimated 400.0 thousand bpd of extra heavy crude oil. The investment for this project is estimated to be approximately U.S.$16.3 billion and CNPC Exploration and Development Company Limited will own a 40% stake in the joint venture and CVP will own the remaining 60%. The joint venture is for a period of 25 years.

In 2011, PDVSA Industrial and China Technology Petroleum & Development Corporation (“CPTDC”) created a joint venture called Industria China Venezolano de Taladro (“ICVT”) in order to design and develop oil rigs for the Venezuelan oil industry. PDVSA Industrial owns the majority (85.0%) and CPTDC owns the remaining (15.0%) of the joint venture. In 2013, PDVSA entered into agreements for U.S.$14.0 billion with SINOPEC in order to develop heavy crude oil in the section Junin-1 of the Orinoco Oil Belt. The project is expected to produce an estimated 200.0 thousand bpd of extra heavy crude oil.

Regional Developments

The Republic has sought to promote regional integration of state energy companies in Latin America and the Caribbean under the name Petroamerica. Petroamerica is divided into Petrosur, comprising of Argentina, Brazil, Venezuela and Uruguay; Petroandina, comprising of Bolivia, Ecuador, Colombia, Peru and Venezuela; and PetroCaribe, comprising of Antigua and Barbuda, Bahamas, Belize, Cuba, Dominica, Granada, Guyana, Jamaica, Dominican Republic, Saint Kitts and Nevis, Saint Lucía, Saint Vincent and the Grenadines, Surinam and Venezuela. The stated purpose of the regional arrangement is to gain strength in the international markets by eliminating trade barriers, increasing the refining infrastructure and reducing costs.

Under Petrosur, Argentina, Brazil and Venezuela agreed to develop a field in Venezuela’s Orinoco Oil Belt, a refinery in Brazil’s northeast and an oil and gas venture in Argentina. In 2014, construction of a barge began as part of a project to develop a water channel to commercialize PDVSA products between Argentina, Brasil, Bolivia, Uruguay and Paraguay.

Under the PetroCaribe agreement, member countries pay market price for Venezuelan oil, but they are only required to pay a portion of the cost up front and could finance the rest over 25 years at 1.0% or 2% interest. Governments may also pay for part of the cost with goods or services. In 2005, PDVSA created PDVSA-Cuba in order to promote refining and marketing businesses in the region.

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Other developments in the Caribbean region include the following:

• A bilateral agreement in 2014 between Saint Lucia and the Republic for the supply of crude oil, asphalt, refined products and liquefied petroleum gas (“LPG”), with an average supply of 1.5 Mb per day.

• A rice cultivation project in Haiti funded with resources from the Alba Food Fund, through which 10,000 hectares have been cultivated with a crop yield of 5.2 tons per hectare and ten facilities have been built to process 295 tons per rice per month.

• Inauguration of a Fuel Distribution Plant in Grenada.

• Inauguration of a Fuel Storage and Distribution Plant in St. Vincent & Grenadines.

• Completion of upgrades to fuel joint venture with Suriname, PDV–Suriname, which was created with an initial share allocation of 50.0% to PDV Caribe and 50.0% to Surfuel.

In 2014, the PetroCaribe countries approved an injection of U.S.$200 million into the Alba Caribe Fund. In 2015, the PetroCaribe countries approved an injection of U.S.$200 million into the Alba Caribe Fund. The Dominican Republic, Haiti and Jamaica are the largest recipients of oil under the PetroCaribe global agreement.

The Dominican Republic, Haiti and Jamaica are the largest recipients of oil under the PetroCaribe global agreement. In January 2015, the government of the Dominican Republic entered into a debt acknowledgment and assignment agreement with PDVSA Petróleo, in connection with the Dominican Republic’s PetroCaribe debt, which had a book value of U.S.$4.0 billion. As part of this transaction, the Dominican Republic agreed to make payments of U.S.$1.9 billion to PDVSA Petróleo. In July 2015, the government of Jamaica entered into a debt acknowledgment and assignment agreement with PDVSA Petróleo, in connection with Jamaica’s PetroCaribe debt, which had a book value of U.S.$3.3 billion. As part of this transaction, the Government of Jamaica agreed to make payments of U.S.$1.5 billion to PDVSA Petróleo. In September 2015, the National Administration for Fuel, Alcohol and Portland (Administración Nacional de Combustibles, Alcoholes y Portland or “ANCAP”), a Uruguay state-owned petroleum production company, entered into a debt acknowledgment and assignment agreement with PDVSA in connection with certain oil purchases made by ANCAP to PDVSA Petróleo for approximately U.S.$ 351 million. As part of this transaction, ANCAP agreed to make payments of U.S.$267 million to PDVSA.

Overall, the Republic received approximately U.S.$ 3.7 billion in connection with these settlements with PetroCaribe in 2015. The Republic also received approximately U.S.$2.8 billion in dividends from CITGO in February 2015.

Additionally, between June and December 2015, PDVSA transferred to Banco Central promissory notes in an aggregate amount of $4.3 billion evidencing receivables owed by the Nicaragua Rural Savings Bank and the ALBA San Salvador Oil Company pursuant to a crude and products supply agreement with ALBA de Nicaragua, S.A.

The Republic is also a party to the following agreements together with the governments of other Latin American and Caribbean countries: Caracas Energy Cooperation Agreement (“CECA”), Integral Agreement of Cooperation with Cuba (“CIC”) and PetroCaribe. These agreements establish that PDVSA will supply crude oil and products to the state oil companies of the participating countries, for approximately 377.0 thousand bpd, 377.0 thousand bpd, 377.0 thousand bpd, 394.0 thousand bpd and 463.0 thousand bpd for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Most of these supply agreements establish, among other conditions, a selling price equivalent to the market value, payment terms between 30 and 90 days for a significant portion of each shipment, and long-term borrowings for the remaining portion between 15 and 25 years. The agreements have a one-year term and may be renewed annually by the parties.

OPEC

Venezuela is a founding member of OPEC. According to OPEC statistics, OPEC members collectively produce approximately 40% of total world production of crude oil and 22% of the world marketed production of natural gas. In addition, OPEC members account for between 55% and 60% of the worldwide crude oil exports. OPEC was formed in 1960 to improve oil prices, attain greater state participation by member countries in the petroleum industry and influence production levels.

OPEC has established general production quotas for each member. However, OPEC has never brought formal actions based on such quotas, and the quotas do not distinguish clearly between crude oil, refined products and derivatives, or between exports and domestic utilization. Venezuela’s plan to increase petroleum production and exports assumes that the growth in international demand for petroleum products can only be met by a small number of countries, which include Venezuela, that have adequate reserves.

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In recent years, oil prices have been volatile. The average price of the OPEC reference basket in each of 2011, 2012, 2013, 2014 and 2015 was U.S.$107.46, U.S.$109.45, U.S.$105.87, U.S.$96.29 and U.S.$49.49, respectively. In 2015, crude prices were impacted by market volatility as well as excess demand resulting from easing of sanctions against Iran and the use of fracking techniques by producers in the United States.

Historically, in an effort to maintain stability in the market, OPEC, acting through its members, has adopted and modified an overall production ceiling for its members and quotas for individual members. Generally, in periods in which oil prices and global economic activity have risen, OPEC has authorized an increase in production ceilings and quotas and in periods in which oil prices and global economic activity have fallen, OPEC and its members have sought to lower production in order to support a higher price for their products. As of January 2012, OPEC increased its production ceiling to 30.0 million bpd and as of December 31, 2015, the production ceiling has remained at 30.0 million bpd.

Mining

Mining Sector

In June 2006, the National Assembly approved a reform of Venezuela’s Mining Law (Ley de Minas) in order to promote the sovereignty and national interest of the country in its mining resources by eliminating concessions for inactive mines and by creating a new legal framework to benefit Venezuela’s small-scale mining interests. Under the reform, private companies with idle, unproductive mines are required to form joint ventures with the Republic in which the Republic is granted a majority interest.

In 2011, the mining sector grew by 5.2% in real terms and comprised 0.5% of GDP. The growth in the mining sector in 2011 was primarily due to an increase in the production of non-metallic mineral products and nickel by private companies, while in the public sector, there was a noticeable increase in the production of iron by Ferrominera Orinoco. In 2012, the mining sector contracted by 6.2% in real terms representing 0.4% of GDP. This was primarily due to a decrease of 6.0% in the production of the bauxite company CVG Bauxilum, the marginal recovery of 1.0% of FMO Orinoco and the decrease of the production of gold, nickel and carbon. In 2013, the mining sector contracted by 21.1% in real terms and comprised 0.3% of GDP. The contraction in 2013 was primarily due to the decrease of iron production by FMO Orinoco, and lower production of nickel, gold and non-metallic minerals (such as limestone, sand and building stone). In 2014, the mining sector contracted by 7% in real terms and comprised of 0.3% GDP. The contraction in 2014 was primarily due to lower production of nickel, gold, phosphate rock and coal. As of September 30, 2015, the mining sector contracted by 3.6% in real terms and comprised 0.3% of GDP. This contraction in 2015 was primarily due to decreased access to foreign exchange and decreased availability of domestic and imported raw materials, equipment and spare parts.

On August 11, 2010, pursuant to Resolution No. 10-07-01, individuals or entities that have been authorized to commercialize their gold production are required to offer to sell a minimum of 50.0% of their gold production to Banco Central. The remaining 50.0% may be sold in the international markets, subject to prior authorization from Banco Central. If a gold producer covered by this resolution decides not to sell all or a portion of its exportable production quota, or if the producer fails to obtain the necessary authorizations from Banco Central, then the balance of its production quota must be offered to Banco Central. In addition, individuals or entities that have been authorized to commercialize their gold production and whose activities are considered small mining activities pursuant to the Mining Law are required to offer to sell a minimum of 15.0% of their gold production to Banco Central or to the general domestic market. The remaining 85.0% may be sold in the international markets, subject to prior authorization from Banco Central.

In August 2012, Banco Central changed the method for appraising Venezuelan gold in an effort to curtail the fluctuations of the market. Previously, the appraisal was based on the average recorded by the London gold market in a two month term basis. Under the new appraisal method, the appraisal is based on the average recorded by the London gold market on a six month term basis.

The Republic is involved in a number of disputes involving the mining sector, including the following, which have been submitted to ICSID tribunals:

• On November 9, 2009, Gold Reserve initiated an ICSID arbitration against the Republic for the expropriation of the copper and gold mines Las Brisas and Choco 5, respectively. The ICSID tribunal was constituted on March 9, 2010. On September 19, 2014, the tribunal rendered its award declaring that the Republic must pay compensation in the amount of U.S.$713 million plus interest to Gold Reserve. The Republic appealed and on November 20, 2015, the Luxembourg Court of Appeal entered an order confirming the award, and entering judgment for Gold Reserve against the Republic. On the same date, the U.S. Federal District Court in Washington, D.C. issued an order also confirming the award and entering judgment in favor of Gold Reserve. As of November 2015, the total judgment was in excess of $760 million. In February 2016, the Republic and Gold Reserve signed a memorandum of understanding that contemplated setting the arbitration and entering into a new joint venture which would

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exploit the Las Brisas and Las Cristinas mines. In August 2016, the Republic entered into a settlement agreement with Gold Reserve under which the Republic has agreed to pay a total of $770 million in two tranches in October and December 2016. The settlement also contemplates that the Republic will purchase mining data from Gold Reserve for an additional $240 million and that the parties will form a new joint venture to exploit the Las Brisas and Las Cristinas mines.

• On January 5, 2011, ICSID registered a request for arbitration by Highbury International AVV and Ramstein Trading Inc. against the Republic for the expropriation of various gold and diamond concessions. The ICSID tribunal was constituted on June 14, 2011. The tribunal rendered its award on jurisdiction on September 26, 2013, finding in favor of the Republic that the tribunal lacked the jurisdiction to hear and decide the case. On January 10, 2014, Highbury International AVV and Ramstein Trading Inc. filed an application to annul the award. On May 19, 2014, Highbury International AVV, Ramstein Trading Inc. and Compañía Minera de Bajo Caroní AVV initiated a new ICSID arbitration against the Republic for the expropriation of the same gold and diamond concessions that were the subject of the January 5, 2011 request. The ICSID tribunal was constituted on November 21, 2014 and the case is still pending.

• In September 2002, Crystallex signed a contract with CVG for the development and operation of the Las Cristinas mines. On February 3, 2011, CVG informed Crystallex that the contract had been cancelled due to non-performance of the project. On February 16, 2011, Crystallex initiated an arbitration before ICSID against the Republic, alleging violations of the BIT between Venezuela and Canada seeking in excess of U.S.$3 billion in damages. The ICSID tribunal was constituted on October 5, 2011. Hearings were held in 2013 and 2014 in the matter. On November 25, 2015, while an award in the arbitral proceeding was pending, Crystallex filed a complaint in U.S. federal court seeking to recover U.S.$2.8 billion from PDVSA and CITGO Holding, alleging that PDVSA used a series of debt offerings to transfer assets out of CITGO Holding in anticipation of adverse arbitral awards against the Republic that rendered CITGO Holding effectively insolvent. On April 4, 2016, the Tribunal issued an award in favor of Crystallex for U.S.$1.386 billion. On April 7, 2016, Crystallex initiated a proceeding in the U.S. District Court for the District of Columbia for recognition and enforcement of the arbitral award. On July 5, 2016, the Republic filed a motion to set aside the award, contending that it violated provisions of the U.S. Federal Arbitration Act. On July 26, 2016, Crystallex filed a motion seeking an order that the Republic post a bond guaranteeing enforcement of the award. These proceedings before the D.C. District Court are ongoing.

• On August 1, 2012, Rusoro initiated an ICSID arbitration against the Republic, alleging that the Republic unlawfully expropriated its investments without compensation and imposed restrictions on gold exports in violation of the BIT between Canada and Venezuela. Rusoro operated two gold mines as well as other development projects in Venezuela. The ICSID tribunal was constituted on January 4, 2013 and on August 23, 2016, the tribunal issued an award in favor of Rusoro for U.S.$968 million plus interest.

• On April 10, 2014, Anglo American PLC initiated an ICSID arbitration against the Republic for the expropriation of a nickel mining concession in Venezuela. The ICSID tribunal was constituted on October 2, 2014. On June 19, 2015, the ICSID tribunal issued a procedural order joining the Republic’s objections to jurisdiction, as a preliminary question, to the merits of the dispute.

On October 31, 2010, the Government ordered the partial expropriation of Siderúrgica del Turbio S.A. (“SIDETUR”), a wholly-owned subsidiary of private steelmaker Siderúrgica Venezolana Sivensa S.A., in an effort to improve the fabrication of iron construction parts. On November 2, 2010, Decree No. 7,786 (Official Gazette No. 39,544, dated November 3, 2010) ordered the compulsory expropriation of all movable and immovable property of SIDETUR and its subsidiaries and affiliates that are necessary for the execution of the work of the now-nationalized company, known as Complejo Siderúrgico Bolivariano (“CSB”). On July 20, 2013, a payment of approximately U.S.$74.0 million in outstanding 10.0% coupon 2016 bonds issued by SIDETUR was not made by the Republic to the lenders. However, the Republic maintains that SIDETUR, not the Republic, is liable for the due payment of the principal and interest to the lenders on bonds issued prior to the 2010 expropriation of SIDETUR’s assets.

On June 25, 2011, CVG acquired 73.3% of the outstanding shares of Complejo Siderúrgico de Guayana, C.A. (“Comsigua”), a hot briquetted iron producer located in Puerto Ordaz, southern Venezuela, from several Japanese shareholders including Kobe Steel K.K. The purchase price for these shares was U.S.$232.9 million, composed of a U.S.$78.0 million down payment and ten semi-annual installments of U.S.$15.4 million each.

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In August 2011, former President Chávez signed a decree nationalizing the gold industry in order to preserve one of Venezuela’s most significant sources of wealth and secure a more environmentally friendly exploitation of this natural resource. One of the main objectives of this decree is to convert the gold into international reserves. On September 16, 2011, the nationalization of the exploration and production of gold came into effect.

In December 2011, former President Chávez signed a decree reforming the Organic Law that Reserves to the State the Exploration and Exploitation of Gold (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro). Under the law gold mines are national security zones that are to be protected by the Venezuelan armed forces. The reform also voids any contracts related to gold exploration and exploitation that have not been terminated by the parties within 90 days from the date of publication.

In September 2013, the governments of Venezuela and China signed an agreement in order to create a mining map and plan for the development of Las Cristinas mines.

On October 1, 2013, the President issued Decree No. 455, which reserved for the Government the exploration and exploitation of nickel, as well as other nickel-related minerals, which are located in the area comprising the former concessions in the Municipalities of Santos de Michelena and Guaicaipuro of Aragua and Miranda states, respectively. The President delegated the execution of such decree to the Minister of Popular Power for Oil and Mining (Official Gazette No. 40,265, dated October 4, 2013).

In December 2013, Banco Central and PDVSA created the National Auriferous Company (Empresa Nacional Aurífera, S.A.), which is 40% owned by Banco Central and 60% owned by PDVSA, for the purpose of developing the gold reserves in the southeast geographical area of Venezuela and to use the profits of such gold reserves to support social projects developed by the Government.

On December 31, 2015, President Maduro issued Decree No. 2,165, the Mining Law, which superseded the prior law (Decree No. 1,395 establishing Organic Law that Reserves to the State on the Exploration and Exploitation of Gold Activities (Ley Orgánica que Reserva al Estado las Actividades de Exploración y Explotación del Oro) published in Extraordinary Official Gazette No. 6,150, dated November 18, 2014). Among other things, the Mining law:

• aims to promote economic development and curb Venezuela’s dependence on oil through economic diversification

• vests authority for all mining operations with the Ministry of Mining

• expands the authority of the National Executive to create joint ventures and designate strategic minerals

• gives Banco Central the authority to coordinate the sale and distribution of strategic minerals by requiring that all strategic minerals extracted in Venezuela be sold to Banco Central and by confiscating strategic minerals extracted illegally and holding them as international reserves

• imposes a twenty-year time limit on mining concessions subject to a maximum of two ten-year extension periods.

• reserves exploration and extraction rights for the Republic, including rights to joint ventures in which the Government holds at least 55% of the equity and entities listed in the mining register

• promotes the use of technology to minimize the environmental impact of mining practices

In February 2016, to combat the recent decline in oil prices and generate revenue, President Maduro announced a program to promote the development of the mining sector, the Mining Engine. The Mining Engine several key strategic components: (1) the promotion of goods and services necessary to the process of exploration and exploitation of minerals such as gold, diamonds and coltan, (2) the development the potentialities of mineral reserves in the Orinoco belt, (3) the certification of mineral reserves (4) the Law for Productive Mining Development 2016–2018, which reserves to the state strategic mineral exploration and extraction rights, (5) international agreements to conduct development and exploration activities through joint ventures and (6) the expansion of international reserves. As part of the program, the President created the Orinoco Mining Arc, a National Strategic Development Zone comprising approximately 114 thousand square kilometers in the Bolívar State, to exploit the region’s mineral reserves in accordance with sustainable practices and respect for the environment. In addition, the Republic signed agreements with operators from China, Canada and the Republic of Congo to exploit concessions in the region. On June 21, 2016, pursuant to ruling No. 177, the Supreme Tribunal agreed to hear a challenge to the designation of the Orinoco Mining Arc as a National Strategic Development Zone filed by certain citizens, including some former cabinet ministers. The claimants allege that the plan to develop the Orinoco Mining Arc violates applicable land use regulations as well as environmental and indigenous rights established by the Venezuelan Constitution.

Corporación Venezolana de Guayana

After PDVSA, the second-largest industrial complex in the country is made up of branches and subsidiary companies of CVG. CVG, an entity organized by the Government as an “autonomous institution” (instituto autónomo), in 1960, is a non-operating holding entity

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that, through its vertically-integrated operating subsidiaries, constitutes Venezuela’s largest diversified mining and mineral processing business based on estimated market share and production volume. With operations throughout the Guayana region, which occupies more than 550,000 square kilometers in southern Venezuela, CVG is Venezuela’s, and one of Latin America’s, largest producers of aluminum (including its principal constituent elements, bauxite and alumina) and steel and iron products. CVG’s business also includes an increasing emphasis on significant mining and production of gold. CVG is also engaged in the growing and harvesting of timber and production of lumber. CVG comprises 15 operating subsidiaries and approximately 18,000 employees. On November 26, 2011, the Ministry of Popular Power for Mining and Essential Industries (Ministerio del Poder Popular para las Industrias Básicas y Minería) was divided. The mining division was allocated to the Mining Ministry and the basic industries became known as the Ministry of Popular Power for Industry and Commerce, which controlled CVG. Thereafter the Venezuelan Mining Corporation was created to manage the extraction of gold and nickel, as well as coal mines in the State of Zulia.

CVG’s mission is to sustainably exploit the abundant reserves of bauxite, iron, gold and other precious metals, and forestry resources in, and to promote the overall development of, the Guayana region. All land in the Guayana region is owned by the Republic. However, under the Decree for the Partial Reform of the Organic Law of the Development of Guayana of 2001, political coordination of all activities relating to the exploration and exploitation of minerals and other natural resources in the Guayana region is vested in CVG. As such, CVG is authorized to undertake those activities directly or through agreements with public or private foreign or domestic entities.

In December 2005, CVG started the Social Production Company Seamless Pipes C.A. (Empresa de Produción Social Tubos Sin Costuras, C.A.), pursuant to Decree No. 4,194 (published in the Official Gazette No. 38,345, dated December 28, 2005), and began construction on projects with the aim of producing various types of seamless steel pipes for the development of the national oil industry.

In July 2006, the Council of Ministers established the Development Zone of the Guayanas, with the purpose of strengthening the balanced development of the country. This area is 554,101 square kilometers, or 61% of the country. The Guayana region holds significant reserves of iron ore, bauxite, gold, diamonds and limestone, among other minerals, in addition to forestry resources. Moreover, the region possesses approximately 80% of the natural water resources of the country, which provides energy production of approximately 63,500 million kilowatt-hours per year.

In January 2007, CVG began the construction of a steel mill for the Social Production Company National Iron and Steel, known as EBS Siderúrgica Nacional CA “Jose Ignácio De Abreu De Lima” (formerly EPS Siderúrgica Nacional, C.A.), with an initial investment of approximately U.S.$2.1 billion. As of July 2016, construction is ongoing and an additional U.S.$122.0 million of funds has been requested from the Central Government. A potential pipeline project with PDVSA is underway with on-going engineering and installation assessments, although no financial resources have yet to be allocated for the project.

In July 2007, CVG began the construction of the Social Production Company Services of Lamination and Smelting of Aluminium, C.A. (Servicios de Laminación y Fundición de Aluminio), referred to as EPS Serlaca, which has the capacity to laminate 114,000 tons of aluminum per year. The Republic initially invested U.S.$210.0 million into EPS Serlaca in order to process and increase the value of the primary aluminum produced by CVG Alcasa and CVG Industria Venezolana de Aluminio C.A., (“CVG Venalum”). However, on September 2, 2013, the U.S.$149.0 million that had initially been earmarked for Serlaca was reassigned to the modernization of Venalum, another aluminum plant. As of July 2016, remains under construction.

In 2008, SIDOR and its subsidiaries and associated companies were designated as state-owned enterprises and their activities were declared to be of public and social interest. In connection with that designation and declaration, SIDOR has been under operational control of CVG since July 12, 2008. On July 26, 2010, Banco Central assisted in the structuring of a Bs.2.0 billion loan with various public sector banks to CVG in order to help SIDOR pay obligations owed to workers and contractors. In 2014, collective bargaining agreements were signed with workers at SIDOR, with the aim of improving the job benefits received by approximately 14,500 workers.

In June 2010, construction began on a pulp and paper plant for the Social Production Company Pulp and Paper C.A., or (Empresa de Pulpa y Papel, C.A. or PULPACA), that is expected to produce approximately 250,000 tons of paper per year. As of July 2016, the plant remains under construction.

In addition, construction of the Tocoma Hydroelectric Power Plant, (Complejo Hidroeléctrico Represa de Tocoma Manuel Piar), the fifth hydroelectric power plant in the development zone of the Guayana region, continues to advance. This plant is expected to have an installed capacity of 2,250 MW. The entire project is expected to be completed by 2020.

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CVG has various investment projects currently under way or set to begin. These projects encompass CVG’s activities in hydroelectric power generation and transmission, ferroalloy, aluminum and forest products manufacturing. For more information, see “The Venezuelan Economy—Foreign Trade and Balance of Payments—Trading Partners.”

CVG experienced a significant reduction in aluminum production in 2010 due to the closure of certain production lines at CVG Alcasa and electricity conservation efforts at CVG Venalum due to the measures implemented by the Government to save energy, which included rolling blackouts and mandatory energy cuts, pursuant to Presidential Decree No.7,228 (Official Gazette 39,363, dated February 8, 2010).

In 2012 the Government, through the Ministry of Popular Power for Industries and Commerce and CVG, collectively invested substantial resources intended primarily for the recovery of the productive capacity of enterprises following the electricity crisis of 2010. The crisis affected significantly the productive capacity of CVG Venalum and CVG Alcasa and the iron-steel sector. The investment was also directed towards technological adaptation, and completion of social production company projects. During 2011, 2012 and 2013, U.S.$800.5 million, U.S.$1.2 billion and U.S.$975.3 million, respectively, were invested in the iron-steel industry, and U.S.$39.0 million, U.S.$991.9 million and U.S.$227.1 million, respectively, were invested in the aluminum industry. No money was invested in the iron-steel and aluminum industries in 2014. In 2015, U.S.$72.6 million was allocated to the iron-steel industry and no money was allocated aluminum industry.

CVG Ferrominera del Orinoco (“CVG FMO”) has various projects in progress, which are currently delayed due to outstanding disagreements with counterparties relating to valuation, payments and other administrative matters. These projects include: (i) the construction of a second line in the pellent plant (Planta de Pellas de Ferrominera); (ii) the construction of a plant for processing friable quartzite; and (iii) the extension of the dispatch capacity of Palua Wharf, which was nearly completed as of July 2016.

The following tables set out the production and exports of CVG’s aluminum, iron and gold companies for the periods indicated:

	Year Ended December 31,
Production	2011		2012		2013		2014		2015
	(in thousands of metric tons, except as noted)
Iron		17,037		17,212		10,883		11,008		11,463
Bauxite		2,455		2,286		2,351		2,228		855
Alumina		1,222		807		579		660		602
Aluminum		330		217		170		163		189
Gold (in kilograms)		4,608		n.a.		n.a.		n.a.		n.a.

n.a. = Not available.

Sources: MPPIBAM (Ministerio del Poder Popular para las Industrias Básicas y Minería) now known as the Ministry of Popular Power for Industries (Ministerio del Poder Popular de Industrias) and the Ministry of Mining.

	Year Ended December 31,
Exports	2011		2012		2013		2014		2015
	(in millions of U.S dollars)
Iron Ore	$	555.2	$	431.6	$	231.9	$	212.9		103.1
Bauxite		0.0		0.0		0.0		0.0		0.0
Alumina		123.0		93.1		138.7		103.0		45.4
Aluminum		252.4		92.5		36.4		72.7		28.1
Total		930.5		617.7		406.9		388.7		176.6

Sources: MPPIBAM and the Ministry of Mining.

Manufacturing

After the petroleum and natural gas sector, the second most important sector of the Venezuelan economy is manufacturing. The manufacturing sector consists of two sub-sectors, production for the domestic market in connection with the National Executive’s plan to encourage domestic industry and import substitution and production for export.

In 2011, the manufacturing sector grew by 3.8% in real terms and comprised 14.5% of GDP. The growth in the manufacturing sector in 2011 was due to an increase in nationwide electricity generation and a stronger demand for overall use in installed production capacity, leading to an increase in average workforce productivity. The private manufacturing sector grew at an annual rate of 4.1% between 2010 and 2011, whereas the growth of public sector manufacturing was 2.1%. In 2012, the manufacturing sector grew by 1.8% in real terms and comprised 13.9% of GDP. The growth in the manufacturing sector in 2012 was due to the continued increase

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of domestic demand. However, in 2013 the industry decreased 0.3% in real terms and comprised 13.7% of GDP. The contraction in the manufacturing sector was primarily due to the public manufacturing sector, which decreased 9.8% between 2012 and 2013. In 2014, the manufacturing sector decreased 9.2% in real terms and comprised 13.4% of GDP. The contraction in the manufacturing sector was primarily due to lower aggregate demand, restricted access to foreign exchange for imports of intermediate goods and lower levels of investment. As of September 30, 2015, the manufacturing sector decreased by 6.8% in real terms and comprised 13.1% of GDP.

The National Executive’s general policy with respect to the manufacturing sector emphasizes:

• increasing efficiency and productivity by regular inspection of medium-sized manufacturing factories;

• simplifying production, importation and market procedures of the food and automotive industry;

• reforming the income tax laws applicable to the manufacturing sector to provide tax deductions and/or credits for expenditures made by manufacturers;

• prioritization of agricultural goods to be financed;

• establishing a credit quota of 10.0% for the overall lending portfolio of each bank for the manufacturing sector with a preferential interest rate of 18.0% and a preferential rate of 16.2% in the manufacturing sector of small and medium industries;

• providing technological and financial assistance to small and medium-sized manufacturers;

• proving support to medium-sized manufacturing factories by fostering demand for their products through the creation of workshops with large conglomerates, such as CVG and PDVSA, with the goal of fostering contracts between the sectors;

• promoting production linkages between the private and public sector in order to replace certain imports of raw materials;

• assisting medium-sized manufacturers with access to foreign currency required for the purchase of raw materials and supplies; and

• supporting small and medium-sized business through the reformation of the income tax laws applicable to the manufacturing sector and the promotion of such businesses’ exports.

These policies bolster the manufacturing sector’s contribution to GDP.

Since November 2014, one new commission and two corporations have been created to promote the development of the Manufacturing Industry:

The Sovereign Commission for the Commercialization of the Products of the Essential State Industries (Comisión Soberana para la Comercialización de los Productos de las Empresas Básicas del Estado) was formed in 2014 (Decree No. 1,494, dated November 28, 2014, published in the Official Gazette No. 40,551). The role of this Commission is to market products within the iron-steel and aluminium sectors, and setting benchmark prices for those products.

The Steel Corporation of Venezuela (Corporación Siderúrgica de Venezuela) was created in March 2015. The Corporation’s purpose is to develop and implement the Management Plan for the Steel Sector (Plan para la Ordenación del Sector Siderúrgico), within the parameters of the Plan of the Nation, to strengthen the iron and steel industry’s upstream (extraction of raw materials) and downstream (processing the finished product for consumers) capabilities.

In April 2015, the National Aluminum Corporation (Corporación Nacional del Aluminio, S.A.) was created. The Corporation’s purpose is to increase the efficiency and production of all aluminum companies’ upstream (extraction of raw materials) and downstream (processing the finished product for consumers) capabilities by managing and coordinating such companies’ production of aluminum products. The Corporation is empowered to take over all or partial functions of aluminum companies to increase the efficiency and production of such companies.

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Agriculture and Livestock

Venezuela’s principal agricultural and livestock products are coffee, cocoa, sugar cane, rice, corn, plantains, pork, eggs and milk.

In 2011, the agricultural sector contracted by 0.8% as compared to 2010 and comprised 4.5% of GDP. This contraction in the agricultural sector in 2011 was primarily due to the adverse effect of climate on crops, issues with the distribution of inputs, such as seeds and fertilizers, and the displacement of local produce by imported goods. In 2012, the agricultural sector grew by 2.0% as compared to 2011 and comprised 4.3% of GDP. This expansion in the agricultural sector in 2012 was primarily due to better climate conditions, among other factors. In 2013, the agricultural sector grew by 10.6% as compared to 2012. In 2014, the agricultural sector grew by 0.1% as compared to 2013. Growth in the agricultural sector in 2014 was negatively impacted by the shortage of intermediate goods and raw materials, machinery, obsolescence of current equipment, and adverse climate conditions, among other factors.

The following tables set out the exports and imports of the agricultural sector for the periods indicated:

	Year Ended December 31,
Exports	2011(1)		2012(1)		2013(1)		2014(1)		2015(3)
	(metric tons)
Coffee		0		0		0		0		76
Cocoa(2)		15,282		17,078		3,268		2,363		2,851
Sugar Cane		0		0		0		0		0
Rice		0		0		0		0		0
Corn		46		81		67		26		0

0: Data under 1 metric ton.

(1) Preliminary figures.

(2) Includes cocoa and other food preparations containing cocoa.

(3) 2015 Figures are for the nine month period ended September 30, 2015.

Source: Banco Central and the Ministry of Popular Power for Productive Agriculture and Land (Ministerio del Poder Popular para la Agricultura Productiva y Tierras or “MPPAPT”).

	Year Ended December 31,
Imports	2011(1)		2012(1)		2013(1)		2014(1)		2015 (3)
	(metric tons)
Coffee		18,701		48,183		26,377		14,758		30,994
Cocoa(2)		57,545		51,444		30,962		25,261		8,296
Sugar cane		19,333		13		991		5		0
Rice		294,986		348,859		676,450		488,189		305,491
Corn		1,393,280		2,273,722		2,437,149		2,571,407		1,379,050

(1) Preliminary figures.

(2) Includes cocoa and other food preparations containing cocoa.

(3) 2015 Figures are for the nine month period ended September 30, 2015.

Source: Banco Central and MPPAPT.

Lands and Agricultural Development Law-Decree

In November 2001, a new decree was issued targeting land reform. This new Lands and Agricultural Development Law-Decree replaced the Law of Agrarian Reform promulgated in 1960. This decree was intended to reallocate arable lands in Venezuela according to a Government plan. Under this law, a government agency, the National Lands Institute classifies rural land according to its best use, such as agriculture, cattle-raising or forestry. In addition, certain unused, uncultivated or idle rural lands are also subject to tax or expropriation and redistribution. In most cases, this redistribution of land would not be an outright grant to the recipient, but rather grants a right to work the land in a productive manner. Two additional agencies, the National Institute of Rural Development and the Venezuelan Agrarian Corporation, oversee the implementation and operation of the land reform system.

In July 2002, former President Chávez passed a decree that relates to land reform in Venezuela in connection with the National Executive’s plan to reallocate arable lands according to their most productive use. Under the decree, the Republic may expropriate idle or uncultivated lands that do not comply with a minimum requirement of productivity upon the payment of due compensation to owners.

As of May 2014, the National Lands Institute, following the legal process, had recovered nationally 3,739,509 hectares of land that was owned either by the state, declared unproductive or illegally occupied, and distributed land to poor farmers through agricultural cooperatives and other socio-productive entities in order to improve participation in agricultural production and alternatives to expand the production of major agricultural commodities.

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In January 2011, former President Chávez used his legislative authority to issue the Law of Attention to the Agricultural Sector (Ley de Atención al Sector Agrícola). The objective of the law is to support producers, farmers and fishermen who were affected by the natural disasters that occurred during the last calendar quarter of 2010. The law stipulates, the restructuring or forgiveness of debts accrued by the rural producers that were affected by record-setting rainstorms.

In connection with the Law of Attention to the Agricultural Sector, former President Chávez announced in December 2011 a new social initiative known as the Great Mission Agro-Venezuela. The main goals of this initiative were: (1) to increase production of traditional crops; (2) to increase the amount of agricultural land that is cultivated; and (3) to promote and stimulate urban agriculture. The program included a national agricultural census to better understand the situation of the producers in the country and to implement a more effective agricultural policy.

The Agricultural Bank was created in July 2012 to provide credit facilities that contain special funding conditions to small and medium-sized farms. In 2015, for example, the Agricultural Bank distributed 700 sheep to small farmers under one such credit facility.

The Ezequiel Zamora Fund (Ley del Fondo Ezequiel Zamora para el Fortalecimiento y Financiamento de la Gran Misión Agro-Venezuela) was created in February 2012 to promote agricultural development and support programs set forth in the Agri-Venezuela Mission.

On August 7, 2013, President Maduro ordered the exemption of income tax for operating activities for primary agricultural activities. As an incentive to production, subsidies were granted to producers of various agricultural products.

In 2014, the Law of the Great Mission Agro-Venezuela (Ley de la Gran Misión AgroVenezuela) was enacted, which is intended to promote production, preservation, commercialization, provision, supervision and monitoring of the entire social and economic productive chain. According to this law, the Mission will focus on six areas: (1) family and school agriculture; (2) permanent registration; (3) formation and organization; (4) productive innovation projects; (5) technological development; and (6) marketing and supply.

Decree No. 1,405 established the Integrated National Agrifood System (Sistema Nacional Integral Agroalimentario) (published in the Extraordinary Official Gazette No. 6,150, dated November 18, 2014), which among other things, established and regulated an integrated national agrifood system that monitors the dispatch, traffic, transportation and receipt of food products and raw materials within Venezuela.

Additionally, pursuant to the Plan of the Nation, the execution of the Great Mission Agro-Venezuela and the Ezequiel Zamora Productive Plan 2014 (Plan Productivo Ezequiel Zamora 2014), the National Executive aims to: (i) provide producers in the agricultural sector access to favorable financing terms; (ii) develop and maintain the agricultural sector’s infrastructure, including machinery, and the distribution of fertilizers, seeds and agrochemicals; (iii) consolidate parcels of land into large agricultural estates; and (v) invest in science and technology research focused on the agricultural sector.

In January 2016, President Maduro launched a 100-day urban agriculture scheme designed to promote farming in urban and semi-urban environments.

Allocation of Food to General Population

In 2003, the Central Government created the Nutrition Mission to promote the equal distribution of quality and low cost food by overseeing the wholesale and retail sale of food products.

In 2014, the Integrated National Agrifood System was created by Decree No. 1,405. National Agrifood Management Superintendency (Superintendencia Nacional de Gestión Agroalimentaria or “SunAgro”),which oversees aspects of food production and distribution, also implements the Integrated National Agrifood System and is responsible for tracking, monitoring and evaluating the distribution, traffic, transportation, receipt of food products and their raw materials within Venezuela.

The Nutrition Mission has continued its efforts to improve food access for the Venezuelan population by overseeing the wholesale and retail sale of food products.

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In addition, numerous Food Houses have completed their initial social mission and have become centers for production, distribution, training and food consumption with self-management capacity. The Republic has also remained committed to the distribution of food at affordable prices. Historically, consumers who were members of the Mercal network saved an average of 30% on subsidized products. Mercal worker programs were also established to ensure the availability of basic food staples for the Republic’s organized workers.

During 2016, the National Executive continued its efforts to improve food access for the Venezuelan population and has distributed food to low-income populations in response to recent food shortages as part of its Nutrition Mission. In 2016, the National Executive deployed CLAPs as part of a direct distribution model designed to improve access to food and other necessities and prevent smuggling. Also in 2016, the Central Government launched the Great Mission of Sovereign Supply which created a national command, consisting of representatives of the National Executive, including the President, and headed by the Venezuelan Defense Minister, with the authority to oversee and coordinate food production and distribution. The Mission aims to use the operational capacity of the Venezuelan military to improve the production and distribution of food, medicine and other essential goods.

Disputes

On July 25, 2016, Agroinsumos Ibero-Americanos, S.L. initiated an ICSID arbitration against the Republic claiming that the Republic violated a BIT with Spain when it appropriated the company’s investments in two agriculture joint-ventures. A tribunal has not yet been constituted in the case.

Electricity

The electricity sector in Venezuela is made up of a single state-owned corporation, Corporación Eléctrica Nacional S.A. (CORPOELEC) which is in charge of generation, transmission, distribution and commercialization of electric power serving approximately 6,425,305 subscribers as of December 31, 2015. On January 12, 2012, the following companies were merged into CORPOELEC: Electrificación del Caroní, C.A. (EDELCA), Compañía de Administración y Fomento Eléctrico (CADAFE), Energía Eléctrica de Venezuela (ENELVEN), C.A. Energía Eléctrica de Barquisimeto (ENELBAR), C.A. La Electricidad de Caracas (EDC), Empresa Nacional de Generación C.A. (ENAGER), Energía Eléctrica de la Costa Oriental del Lago C.A. (ENELCO), and Sistema Eléctrico del Estado Nueva Esparta (SENECA).

Due to a drought that began in October 2009 and its effect on Venezuela’s hydroelectric-based energy grid, in February 2010 the National Executive announced that the country was facing an energy emergency. The drought severely depleted water reserves at the Guri hydroelectric dam, Venezuela’s most important hydroelectric energy plant, which, at the time, produced approximately two-thirds of the country’s electricity. Through MPPEE, the National Executive took preemptive measures in the fall of 2009 to decrease reliance upon hydroelectric energy and to increase thermoelectric capacity within the power grid. On February 8, 2010, pursuant to Decree No. 2,228, former President Chávez announced rolling blackouts and a mandatory energy cut in order to ease pressure on the Guri dam. Some businesses were permitted to operate only during certain hours, while others operated on a four-day workweek schedule in order to meet the conservation requirement.

In December 2011, the Rational and Efficient Use of Energy Law (Ley de Uso Racional y Eficiente de la Energía) was enacted. The law requires citizens and entities to make rational and efficient use of their electricity in order to preserve the national electric system. The law gave the MPPEE the authority to manage the rational and efficient use of energy and to review and evaluate the Rational and Efficient Use of Energy Plan as established under this law.

Between April 2013 and April 2014, the National Executive assumed the management of the company until a seven-member board of directors of CORPOELEC was established, which is chaired by the Minister of Ministerio del Poder Popular para la Energía Eléctrica. On August 26, 2015, a new Board of Directors was established. On July 31, 2015, by Decree No. 1914, Luis Alfredo Motta Dominguez was appointed as president of CORPOELEC. On August 19, 2015, Luis Alfredo Motta Dominguez was appointed as Minister of Electric Energy.

In 2013, in order to strengthen the national electricity system, the National Executive adopted a 100-Day Plan (Plan de los 100 días) in order to achieve improvements between the electricity generation and the electricity demand of 2,000 MW. This goal was successfully reached in 100 days. Subsequently, on September 18, 2013, the Electric Mission Venezuela (Misión Eléctrica Venezuela) was created, to promote the security and defense of the national electricity system and productive development of the country. This Mission seeks to strengthen the Electricity Sector, encourage the use of renewable energy, implement actions for demand management and the rational and efficient use of electricity, among other guidelines. The main objective of the Mission is to defend and transform the electrical service in order to improve quality of life.

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Modernization of the electricity sector has been difficult because of insufficiency of transmission, inefficiencies in plant and equipment and lack of investment funds. Blackouts affecting significant areas of the country continue to occur, including a blackout in September 2013 during several hours in a large part of the country.

Between the last quarter of 2015 and the first quarter of 2016, Venezuela experienced a severe drought due to the effects of “El Niño,” the climate cycle that impacts global weather patterns, which resulted in rapid decline in reservoir levels, including those intended for hydroelectric generation. As a result, the drought limited electric power generation, triggering an electricity crisis. President Maduro took steps aimed at maximizing the existing thermoelectric generation and improving energy savings, which included the adoption of a load-management plan restricting electricity usage, a realignment of the country’s time zone to take advantage of longer daylight hours, and a shortened work schedule for public sector employees. Improving weather conditions and increased rainfall allowed the progressive lifting of these measures, including the load-management plan, which was effective until July 4, 2016.

The Central Government has invested U.S.$4.1 billion in the electric power sector since January 1, 2014. CORPOLEC investments in the electricity sector in 2015 totaled U.S.$2.59 billion.

As of December 31, 2011, the total capacity of the existing grid was approximately 25,705 MW, a 3.4% increase as compared to 2010. The gross electricity generated for the year 2011 totaled 123,090 GWh. This electricity was produced using the following sources: 68.0% hydro power, 14.0% gas, 11.0% diesel and 7.0% fuel oil. As of December 31, 2012, the total capacity of the existing grid was approximately 27,960 MW, an 8.8% increase as compared to 2011. The gross electricity generated for the year 2012 totaled 127,609 GWh, a 4% increase as compared to 2010. The electricity was produced using the following sources: 64.0% hydro power, 16.0% gas, 13.0% gasoil and 7.0% fuel oil. As of December 31, 2013, the total capacity of the existing grid was approximately 30,167 MW, a 7.9% increase as compared to 2012. The electricity generation for the year 2013 totaled 132,205 GWh, a 3.3% increase as compared to 2012. This electricity was produced using the following sources: 61.7% hydro power, 15.6% gas, 17.8% gasoil, and 4.9% fuel oil. As of December 31, 2014, the total capacity of the existing grid was approximately 30,405 MW, a 0.8% increase as compared to 2013. The gross electricity generated for the year 2014 totaled 130,755 GWh, a 1.2% decrease as compared to 2013. This electricity was produced using the following sources: 61.5% hydro power, 16.8% gas, 17.6% gasoil, and 4.0% fuel oil, 0.1% biomass and 0.1% wind power. As of December 31, 2015, the total capacity of the existing grid was approximately 31,192.9 MW. The gross electricity generated for the year 2015 totaled 125,887.2 GWh. This electricity was produced using the following sources: 59.37% hydro power, 21.99% gas, 16.49% gasoil, 2.04% fuel oil, 0.05% biomass and 0.06% wind power.

In 2013, CORPOELEC invested U.S.$1.7 billion, primarily in power generation activities which represented 74.9 % (U.S.$1.2 billion) of the investment for 2013. The remaining amount was spent as follows: 8.8% on power transmission lines (U.S.$0.2 billion), 4.9% on distribution (U.S.$0.1 billion), and 11.4% on other related activities (U.S.$0.2 billion). Approximately 3,869 MW were added to the national grid during 2013. In 2014, CORPOELEC invested U.S.$4.1 billion, primarily in power generation activities which represented 68.0% (U.S.$2.8 billion) of the investment for 2014. The remaining amount was spent as follows: 15.0% on power transmission lines (U.S.$0.6 billion), 12.0% on distribution (U.S.$0.5 billion), and 5.0% on other related activities (U.S.$0.2 billion). Approximately 278 MW were added to the national grid during 2014. In 2015, CORPOELEC invested U.S.$2.6 billion, primarily in power generation activities which represented 61.4% (U.S.$1.6 billion) of the investment for 2015. The remaining amount was spent as follows: 27.8% on power transmission lines (U.S.$0.8 billion), 6.90% on distribution (U.S.$0.2 billion), and 3.9% on other related activities (U.S.$0.1 billion). Approximately 707 MW were added to the national grid during 2015 through the addition of two hydroelectric plants and one thermoelectric plant.

The electric power demand in Venezuela in 2010 was 16,755 MW. In 2010, approximately 200 kilometers of electric lines were incorporated into the main transmission network and approximately 1,533 MVA was incorporated into the transformation system. The electric power demand in Venezuela increased by 1.8% in 2013 as compared to 2012, from 18,357 MW to 18,696 MW. The consumption control in critical areas, as part of the National Executive’s plan to manage the electricity deficit, saved approximately 1,924 MW of energy. In 2013, approximately 243 kilometers of electric lines were incorporated into the main transmission network and approximately 933 MVA was incorporated into the transformation system. The electric power demand in Venezuela decreased by 0.8% in 2014 as compared to 2013, from 18,696 MW to 18,546 MW due to energy savings and efficiency policies implemented by the National Executive through the MPPEE. The electric power demand in Venezuela decreased by 2.25% in 2015 as compared to 2014, from 18,546 MW to 18,129 MW due to the energetic savings and efficient energy use policies implemented by National Executive through the MPPEE. In addition, 607 MW of generation capacity was added to the grid in 2015 through the commissioning of two thermoelectric plants and one hydroelectric plant.

Telecommunications

CONATEL is the governmental agency responsible for the regulation of the telecommunications market. CONATEL’s main goals are to broaden the general public’s access to telecommunications services regardless of the geographic location of the governmental agency, and develop education and health services through telecommunications services. To achieve this goal, CONATEL created a Universal Service Fund dedicated to providing service in areas without access to telecommunications services. Since 2005, CONATEL has launched several projects financed through the Universal Service Fund with the participation of Venezuelan telecom operators. In 2015, U.S.$66.9 billion was allocated to infrastructure projects. As of September 30, 2016, the Universal Service Fund has not allocated any amounts to infrastructure projects in support of social policies. 937 telecom service providers operate in Venezuela as of September 1, 2016.

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On December 22, 2010, a partial reform of the Social Responsibility in Radio and Television Law was enacted. The Law aims to strengthen national content production and incorporates within its scope the regulation of messages distributed through electronic media. The legislation prohibits the dissemination on television, radio or electronic media of messages that incite or promote hatred and intolerance based on race, religion, politics, gender as well as racist or xenophobic messages. The legislation also prohibits the dissemination via the media of any messages that incite or promote and/or justify crime, constitute war propaganda, provoke unrest in the population or disturb the public order, disregard a public officer’s authority, or promote the violation of the law. Providers of electronic media were required to quickly establish mechanisms to restrict the dissemination of messages in violation of the law, otherwise they are subject to penalty as delineated by the law.

The Organic Telecommunications Law (LOTEL) was amended in February 2011, published in Official Gazette No. 39,610, dated February 7, 2011. Pursuant to the amended LOTEL, telecommunication networks are treated as a “public interest service.” Under the law, the maximum duration of licenses for the use and operation of radio spectrums is 15 years.

The reform kept existing restrictions related to the transfer of telecommunication licenses and incorporated some existing rules related to the sale or transfer of ownership of companies holding broadcast licenses.

In 2012, CONATEL worked on the establishment of the Presidential Commission for Digital Terrestrial Television (“PCDTT”) as an advisory body for the implementation of digital terrestrial television. The PCDTT was created by Decree No. 8,919 of April 17, 2012, which also provided that CONATEL would develop the regulatory framework in this area.

On February 19, 2013, the State adopted the Japanese Standard on Digital TV Identified as ISDTB (Integrated Services Digital Broadcasting-Terrestrial), with those technological innovations developed by Brazil and identified as ISDB-T International, ISDB-Tb or SBTVD, short for Sistema Brasileiro de Televisão Digital.

The objectives of Digital Television Broadcasting include promoting knowledge and training; fostering peaceful cooperation between nations, promoting and consolidating Latin American integration; encouraging scientific and technological research and content generation to contribute to the democratization of information; optimizing the use of radio spectrum; and improving the quality of audio and video services.

The Technical Standards on Domestic Audiovisual Production Services and other Audiovisual Production Services were published in Administrative Order No. 027 on May 20, 2014. The objective of these standards is to regulate and promote a socially responsible environment within the audiovisual industry by balancing the rights and interests of radio and television providers and users in their practice of message transmission and reception. In addition, Administrative Order No. 028 of March 2014 established the Conditions for Providing Domestic Audiovisual Production Services. The objective of this order is to develop the regulations to apply the principles of the Organic Telecommunications Law.

In January 2016, the National Telecommunications Commission created the National Allocation Table Frequency Bands (CUNABAF), pursuant to Administrative Order No. 012, dated January 20, 2016. CUNABAF was established in order to (1) allocate radio spectrum frequencies in accordance with the Telecommunications Act and the standards set forth by the International Telecommunications Union; and (2) determine the portions of radio spectrum that may be assigned as private concessions or reserved for government use.

In March 2016, the exchange rate applicable to telecommunications services was changed to the DICOM exchange rate from the SICAD rate, equal to Bs. 652.67 = U.S.$1.00 as of September 15, 2016. In July 2016, CONATEL announced a rate freeze on telecommunications services following price increases by telecommunications operators in Venezuela.

Telecommunications Market

According to Banco Central, in 2011, the telecommunications sector grew by 7.3% as compared to 2010. In 2011 mobile service grew by 3.2% due to an increase in the number of subscribers. In 2011 the local fixed telephone service increased by 3.5%. In 2011, internet services and subscription television increased 17.1% and 9.7%, respectively. In 2012, the telecommunications sector grew 7.0% compared to 2011. In 2012, mobile service grew by 6.2% due to an increase in the number of subscribers. In 2012, the local fixed telephone service increased by 4.3%. In 2012, internet services and subscription television increased 12.3% and 21.6%, respectively. In 2013, mobile service grew by 1.1% due to an increase in the number of subscribers. In 2013, the local fixed telephone service increased by 1.6%, and internet services and subscription television decreased 1.9% and 24.1%, respectively. In 2014, mobile service decreased by 0.5% due to a decrease in the number of subscribers. In 2014, the local fixed telephone service increased by 0.5%, and internet services and subscription television increased 2.1% and 11.8%, respectively. In 2015, mobile service decreased by 4.3% due to a decrease in the number of subscribers. In 2015, the local fixed telephone service decreased by 0.4%, and internet services and subscription television increased by 7.7% and 10.5%, respectively.

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In 2015, the telecommunications sector grew or remained the same in many key metrics:

• Total operating income generated by major carriers reached Bs.151.6 billion (U.S.$11.2 billion), an increase of 54.2% year-on-year and investments in the sector totaled Bs.33.0 billion (U.S.$2.4 billion), an increase of 92% increase year-on-year.

• Greater availability of programming plans with different price levels and the presence of new operators contributed to a year-on-year increase of 478,768 cable TV customers for a total of 5.0 million total subscribers and generated Bs.22.0 billion (U.S.$1.6 million) in total operating income from subscription broadcast services across the sector. The cable TV penetration rate for 2015 is estimated at 67.9 subscribers per 100 households.

• Mobile services reached 29.1 million active lines and generated Bs.87.8 billion (U.S.$6.5 billion) in total operating income across the sector. The mobile penetration rate for 2015 is estimated at 95.3 lines per 100 individuals.

• In fixed telephone services, subscribers decreased by 28,428 year-on-year with respect to 2014, 7.7 million lines contracted, generating Bs.3.6 billion (U.S.$267.0 million) in total operating income across the sector. The penetration rate for fixed telephone services is estimated at 91.6 out of every 100 households.

• In internet services, subscribers increased by 1,242,718 year-on-year for a total of 16.7 million subscribers, generating Bs.11.5 billion (U.S.$852 million) in operating income relative to 2014. The estimated penetration rate for internet services is 62.5 out of every 100 individuals.

In March 2016, the exchange rate applicable to telecommunications services was changed to the DICOM exchange rate from the SICAD rate, equal to Bs.13.50 = U.S.$1.00. In July 2016, CONATEL announced a rate freeze on telecommunications services following price increases by telecommunications operators in Venezuela.

Telesur

In 2005, TELESUR, the Latin American television network sponsored and originally owned by the governments of Venezuela, Argentina, Cuba and Uruguay, began broadcasting and can now be seen in at least 30 countries. TELESUR was designed to spur Latin American integration by creating a new communication paradigm that serves as an alternative to large media conglomerates. The network was funded with U.S.$10.0 million provided by the countries that jointly owned the network at the time of funding. Afterwards, in April 2006, Bolivia agreed to buy a 5% stake in TELESUR and in 2007, Nicaragua and Ecuador also became shareholders of the television station. In August 2008, Paraguay signed an agreement to incorporate Paraguay in TELESUR’s broadcasting. Other Latin American countries may join in the future. In 2010, TELESUR signed an agreement to expand its broadcast in Europe, the Middle East and North Africa in order to reach approximately 130 million potential viewers. As of 2016, TELESUR is available in Canada, United States, Europe, North Africa, Middle East, Latin America and the Caribbean, and it is featured by more than 1,000 cable TV operators, DTH, IPTV, and OTT, through its internet website (www.telesurtv.net), and through free-to-air broadcasting television. Estimated TELESUR viewers exceed 492 million. In June 2016, Argentina withdrew from the consortium of countries sponsoring the TeleSur network. Currently, TELESUR is jointly owned by six countries: Venezuela, Cuba, Uruguay, Bolivia, Ecuador, and Nicaragua.

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THE FINANCIAL SYSTEM

Banco Central

Banco Central, which is wholly owned by the Republic, is Venezuela’s central bank and its currency-issuing bank. The Constitution adopted in 1999 granted Banco Central, for the first time in its history, constitutional authority as an independent legal entity with autonomy to exercise its delineated powers. Banco Central’s principal role is to control inflation and maintain the stability of the Bolívar. Under the Constitution, Banco Central is prohibited from underwriting, cosigning or guaranteeing any debt of the Republic. In addition, Banco Central is required to provide the National Assembly an account of its actions, goals and results achieved as well as certain periodic reports to the National Assembly which describe the current status of the macroeconomic variables of the economy. The National Assembly must approve Banco Central’s budget.

On October 3, 2001, the BCV Law became effective. The BCV Law is intended to coordinate the regulations and activities of Banco Central with the provisions of the Constitution and thus to promote economic development in a more cohesive manner.

The BCV Law was subsequently amended in May 2010 to require Banco Central to create a strategic financial and exchange system to monitor the flow of monetary and financial information in order to guarantee the proper functioning of the economy. Under the amended law, Banco Central’s regulatory authority over the Republic’s payment systems (domestic, bilateral and regional) was enhanced. The amendment also modified Banco Central’s operations with other financial institutions which, among other things, expanded the categories of assets Banco Central could receive from financial institutions as collateral or a guarantee in connection with lending operations in exceptional circumstances.

Under the BCV Law, Banco Central’s statutory functions include:

• formulating and executing monetary policy;

• participating in the design of exchange rate policy;

• executing exchange rate policy;

• regulating credit and interest rates in the financial system;

• regulating Venezuelan currency and promoting adequate liquidity of the financial system;

• centralizing, administering, and estimating the adequate level of the Republic’s international monetary reserves;

• participating in and regulating operations in the foreign exchange market;

• overseeing the performance of the Republic’s payments system and establishing its operating regulations;

• advising other public authorities within their jurisdiction;

• participating in, regulating and executing operations in the gold market;

• collecting, producing and publishing the Republic’s main economic statistics;

• overseeing the Republic’s rights and obligations in the IMF in accordance with relevant agreements and laws;

• promoting solidarity, civic participation and social responsibility for the purpose of contributing to the socio-economic development of the population;

• issuing, on an exclusive basis, Venezuelan currency;

• performing other operations and services of the type commonly provided by central banks, in accordance with the law;

• providing assistance to the political branches; and

• promoting actions that foster solidarity, citizen participation and social responsibility, with the goal of contributing to the development of the population and to its socio-economical education.

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In the first quarter of 2014, Banco Central took measures to decrease the supply of Bolívares in the financial system by: (1) increasing the monetary reserve requirement by one percentage point; (2) increasing the interest rate for liquidity-absorbing operations with commercial banks by 2.5% for maturities of at least 360 days; (3) increasing the maximum level allowed for liquidity-absorbing operations to Bs.140 billion from Bs.100 billion; and (4) issuing a new investment instrument, “Direct BCV,” aimed at individuals and savings banks, with a fixed interest rate and issued at par value, to encourage domestic saving and as an additional liquidity-absorbing mechanism.

On November 2014, President Maduro passed the Partial Reform of the BCV Law (Ley de Reforma Parcial de la Ley del Banco Central de Venezuela). This law restructured and consolidated the country’s international reserves by expanding the allowable international assets to include other foreign currencies, precious metals and stones. The law also altered the calculation of Banco Central’s transfers to FONDEN. Instead of calculating the surplus using the optimal level of gross international reserves, Banco Central will now use the optimal level of operational or liquid international reserves as the basis to calculate any surplus.

On December 31, 2015, President Maduro passed the Organic Law of Reform of the Law of the Central Bank of Venezuela (Ley Orgánica de Reforma de la Ley del Banco Central de Venezuela). This law: (1) gives the President the power to appoint the president of Banco Central; (2) eliminates the requirement that the National Assembly approve appointments and removals of directors of Banco Central; and (3) gives Banco Central the authority to regulate the import, export or other trade in Venezuelan and foreign currency.

FONDEN

FONDEN is a national development fund financed by Banco Central and PDVSA through contributions of excess reserves and cash flow, respectively. FONDEN was created to finance and manage special investments in social welfare, education, public health and liability management projects and operations and other strategic purposes in order to promote the economic and social development of the country. The Oil Windfall Profits Tax Law imposes a tax on PDVSA’s exports when oil prices exceed the price set in the applicable annual budget law according to the formula described under “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Taxes.” Banco Central is also required to determine the optimum level of operational or liquid international reserves, contribute the excess to FONDEN and inform the National Assembly on an annual basis. Banco Central carries its contributions to FONDEN as an asset on its balance sheet. Under the 2005 amendment to the BCV law, Banco Central was also required to make a one-time special contribution of U.S.$6.0 billion to FONDEN from the Republic’s foreign currency reserves.

In 2011, Banco Central contributed U.S.$3.5 billion and PDVSA added U.S.$14.3 billion to FONDEN. In 2012, Banco Central contributed U.S.$4.0 billion and PDVSA added U.S.$16.0 billion to FONDEN. In 2013, Banco Central contributed U.S.$1.8 billion and PDVSA added U.S.$10.4 billion to FONDEN. In 2014, Banco Central contributed U.S.$1.8 billion and PDVSA added U.S.$10.6 billion to FONDEN. In 2015, Banco Central made no contribution to FONDEN, while PDVSA contributed U.S.$974 million.

Amounts deposited in FONDEN have been or are being used for major infrastructure projects such as bridges, highways, intra-city trolleys, subway lines, railroads, electricity generation, rural irrigation systems, hospitals, educational facilities, as well as for the purchase of Brady bonds as part of a liability management program put in place in 2006 and since completed.

As of December 31, 2015, FONDEN had allocated approximately U.S.$175.8 billion to the various projects it finances, including approximately (i) U.S.$34.8 billion allocated to mining and petroleum projects; (ii) U.S.$2.5 billion allocated to environmental projects; (iii) U.S.$6.6 billion allocated to agriculture projects; (iv) U.S.$5.6 billion allocated to housing projects; and (v) U.S $3.1 billion allocated to science and technology projects. FONDEN keeps its resources in financial trusts (local and foreign currency investments) at the Treasury Bank, where funds are disbursed in accordance with projected execution levels.

Monetary Policy

Historically, Banco Central has conducted an active monetary policy that has supported the National Executive’s economic adjustment plans. Banco Central utilized open-market operations with respect to its own instruments issued initially through the Caracas Stock Exchange and later by means of an auction mechanism. Between 2004 and 2010, Banco Central continued to conduct open-market operations. However, since 2007, the level of those operations has decreased in favor of a more active use of official reserve requirements by Banco Central.

In 2009, the banking sector experienced a crisis leading to the closure of 14 banks and the buyout of five financial institutions by the Central Government. Consequently, the economy experienced a decrease in credit lending. In order to offset the decrease in credit lending and avoid a reduction in bank liquidity, Banco Central increased the maximum daily trading volume of CDs (certificates of

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deposit). In addition there was a reduction in the reserve requirements for financial institutions. As a result, the crisis was successfully averted. Banco Central decided to keep the regulations in order to boost credit intermediation; however, these measures have led to a decrease in open-market transactions since 2010.

The table below sets forth the changes in monetary aggregates for the periods indicated:

At the end of year	M2—in billions of nominal Bolívares		In millions of Dec. 2007 Constant Bolívares		M1—in billions of nominal Bolívares		In millions of Dec. 2007 Constant Bolívares		Monetary base—In billions of nominal Bolívares		In millions of Dec. 2007 Constant Bolívares
2011		446,616.8		162,406.1		426,590.3		155,123.7		172,750.7		62,818.4
2012		719,047.5		218,754.9		701,918.5		213,543.8		268,355.7		81,641.5
2013		1,220,136.6		243,152.0		1,199,721.7		239,083.6		444,894.3		88,659.7
2014		2,001,240.6		242,163.7		1,952,747.6		236,295.7		757,994.1		91,722.4
2015(1)		4,015,682.0		187,115.3		3,932,145.0		183,222.8		1,600,945.4		74,597.9

Source: Banco Central.

(1) 2015 figures are as of September 30, 2015.

As of December 31, 2015, the M2 monetary aggregate increased by Bs.2.0 billion (U.S.$637.4 million), representing an increase of 100.7% from December 31, 2014.

For information concerning the exchange control regime of the Republic, see “The Venezuelan Economy—Economic Policy and Legislation—Exchange Control Regime.”

The following table sets out the Republic’s interest rates, by quarter, for the periods indicated:

Interest Rates

Year and Quarter		Short-Term (Commercial Banks)(1)		90-Day CDs Deposit Rate(2)		Banco Central Discount Rate		Basic Inflation Rate(3)
		(in % per annum)
	2011
First Quarter			17.68		14.93		29.50		33.80
Second Quarter			17.49		14.97		29.50		29.06
Third Quarter			17.61		14.51		29.50		25.15
Fourth Quarter			16.86		14.50		29.50		28.08
	2012
First Quarter			16.28		14.50		29.50		19.12
Second Quarter			16.48		14.50		29.50		14.65
Third Quarter			16.74		14.50		29.50		16.36
Fourth Quarter			16.14		14.50		29.50		25.08
	2013
First Quarter			15.73		14.50		29.50		33.92
Second Quarter			15.60		14.50		29.50		75.00
Third Quarter			15.88		14.50		29.50		49.75
Fourth Quarter			15.55		14.50		29.50		54.76
	2014
First Quarter			15.54		14.60		29.50		41.51
Second Quarter			16.51		14.52		29.50		77.48
Third Quarter			17.51		14.54		29.50		61.66
Fourth Quarter			18.79		14.69		29.50		81.18
	2015
First Quarter			18.68		14.63		29.50		87.86
Second Quarter			19.67		14.65		29.50		150.85
Third Quarter			20.58		14.78		29.50		237.06
Fourth Quarter			20.94		14.99		29.50		186.34

(1) Corresponds to the average of promissory notes, loans and discounts. Loans include interest rates for mortgage credits.

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(2) Interest rates are calculated using averages during the relevant period. The interest rate average is calculated based on the data of the six largest commercial banks of the Venezuelan financial system.

(3) Based on the CPI (base 2007) calculated by annualizing forward cumulative quarterly inflation rates.

Source: Banco Central.

The following table sets out total outstanding loans and long-term investments by quarter by public and private financial institutions for the periods indicated:

Year and Quarter		Commercial Bank Credit		Mortgage Bank Credit		Other(1)		Total Credit of the Financial System(2)		Percentage Change(3)
								(in thousands of Bolívares)
	2011
First Quarter			66,161,209		29,022,507		100,370,726		195,554,442		25.08
Second Quarter			73,895,400		31,850,835		113,805,333		219,551,568		34.01
Third Quarter			85,995,861		34,111,951		122,332,255		242,440,067		41.74
Fourth Quarter			100,762,312		36,945,917		138,087,786		275,796,015		44.06
	2012
First Quarter			110,260,896		38,522,822		150,503,010		299,286,718		53.06
Second Quarter			127,927,616		41,003,345		167,245,603		336,176,564		53.11
Third Quarter			142,478,168		43,344,681		180,975,947		366,798,796		51.29
Fourth Quarter			164,201,449		47,671,647		198,470,011		410,343,107		48.78
	2013
First Quarter			171,606,797		50,229,677		211,992,309		433,828,783		44.95
Second Quarter			196,834,410		53,245,626		244,013,481		494,093,517		46.97
Third Quarter			236,305,722		55,856,963		277,449,175		569,611,860		55.29
Fourth Quarter			284,843,326		59,832,457		320,367,291		665,043,074		62.07
	2014
First Quarter			304,738,229		62,097,190		361,524,715		728,360,134		67.89
Second Quarter			360,630,709		66,364,749		420,533,489		847,528,947		71.53
Third Quarter			414,196,953		70,994,539		505,629,883		990,821,375		73.95
Fourth Quarter			466,690,701		83,399,875		643,103,836		1,193,194,412		79.42
	2015
First Quarter			528,224,795		89,001,634		730,315,976		1,347,542,405		85.01
Second Quarter			703,688,739		93,483,711		878,845,866		1,676,018,316		97.75
Third Quarter			929,376,605		103,261,476		1,044,007,779		2,076,645,860		109.59
Fourth Quarter			1,173,351,064		113,825,540		1,245,248,396		2,532,425,000		112.24

(1) Includes finance companies and savings and loan institutions.

(2) Excludes Banco Central.

(3) From the corresponding quarter of the previous year.

Source: SUDEBAN.

Banco del Tesoro

The Treasury Bank’s mission is to serve the financial needs of its clients and to help execute the Republic’s strategic economic plan. In accordance with the law, the Treasury Bank acts as the Republic’s chief financing arm, handling the Central Government’s banking needs and managing debt payments and debt issues of the Republic. The Treasury Bank also acts as depository for Government funds previously held by private banks, which currently account for approximately 26% of deposits held by private banks. For initial capital, the National Assembly approved a transfer of Bs.30.6 million (U.S.$14.2 million) to the Treasury Bank, and later approved an additional transfer of Bs.30.0 million.

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The Treasury Bank increased its offices and locations to 99 branch offices as of December 31, 2015, as compared to 82 branch offices as of December 31, 2014. Approximately Bs.174.5 billion (U.S.$27.7 billion) in public deposits were made in the Treasury Bank in 2015, as compared to Bs.102.2 billion (U.S.$16.2 billion) in 2014. At December 31, 2015, the Treasury Bank had extended approximately Bs.120.6 billion (U.S.$19.1 billion) in lines of credit, as compared to Bs.51.3 billion (U.S.$8.1 billion) in 2014.

In February 2016, the Ministry of Finance authorized the restructuring of the Industrial Bank. In connection with the restructuring, the Industrial Bank will be liquidated and its assets and liabilities will be absorbed by the Treasury Bank. On August 31, 2016, the Industrial Bank entered into an assignment agreement under which its credit portfolio will be assigned to the Treasury Bank.

Banco del Sur

Banco del Sur is a financial institution that is being promoted by the Republic for regional integration which would provide a source of funding for Latin American and Caribbean countries. Banco del Sur’s principal objective is to finance development projects and serve as an alternative to traditional multilateral lenders, including the World Bank, IADB and the IMF. The bank was established in 2007 through a treaty signed by seven countries: Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela. In March 2009, the member countries agreed to contribute U.S.$7.0 billion in initial capital, with Argentina, Brazil and Venezuela each agreeing to contribute U.S.$2.0 billion, Ecuador and Uruguay agreeing to contribute U.S.$400 million and Paraguay and Bolivia agreeing to contribute U.S.$100 million each.

On September 26, 2009, Banco del Sur was officially created when the presidents of the seven participating countries signed the constitutive act of Banco del Sur. Because the purpose of Banco del Sur is to finance development projects for all Latin American and Caribbean nations, non-member states such as Colombia, Chile, Peru, Guyana and Suriname agreed to contribute a total of U.S.$3.0 billion, providing Banco del Sur with U.S.$10.0 billion in total initial capital. Banco del Sur is based in Caracas and has two branches, one in Buenos Aires, Argentina and another in La Paz, Bolivia. In April 2012, the Banco del Sur treaty was ratified by the National Assembly. In June 2013, Banco del Sur held the first meeting of the Council of Ministers in order to address operational issues. On June 16, 2014, a summit of representatives of Brazil, Russia, India, China and South Africa (“BRICS”), President Maduro proposed an alliance between Banco del Sur and the New Development Bank (formerly the BRICS Development Bank) to address issues in the financial, economic, energy and culture sectors.

Financial Institutions

The Superintendency of Banks (Superintendencia de Bancos y Otras Instituciones Financieras or “SUDEBAN”) is responsible for banks and credit unions. Its functions include inspection, supervision and regulation of the banking sector.

SUDEBAN also regulates individuals, companies and institutions that conduct or purport to conduct operations that are subject to authorization under the General Law of Banks and Other Financial Institutions. The Deposit Protection Fund (Fondo de Protección Social de los Depósitos Bancarios), formerly known as Fondo de Garantía de los Depósitos Bancarios, which was established in 1985, insures deposits up to Bs.30,000 per depositor. The Deposit Protection Fund also serves to stabilize financial institutions through lending assistance. Owners, directors and administrators of media and telecommunication companies are prohibited from holding an interest in financial institutions and others, including public servants and individuals who have declared bankruptcy, are prohibited from holding an interest in excess of 10% in financial institutions.

The following table sets forth the financial institutions in the Venezuelan financial system:

Financial Institutions	Private Institutions						Public Institutions						Total Institutions
	2013		2014		2015		2013		2014		2015		2013		2014		2015
Universal Banks		19		19		19		4		4		4		23		23		23
Commercial Banks		1		1		1		—		—		—		1		1		1
Special Law Regulated Banks		—		—		—		5		5		4		5		5		4
Development Banks		4		4		4		2		2		2		6		6		6
Money Market Funds		—		—		—		—		—		—		—		—		—
Municipal Credit Institutes		—		—		—		—		—		—		—		—		1
Total		24		24		24		11		11		10		35		35		35

Source: SUDEBAN.

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In December 2010, the Banking Sector Institutions Law was enacted. As amended this law adopts a series of measures to correct various problems occurring in the banking sector of the Republic. Under the institutions of the law, Venezuela’s private and public banks are regulated and required to serve not only the interests of private stockholders, but also the interests of depositors, customers and the public at large. In addition, banks are obligated to collaborate with sectors of the popular communal economy to develop productive results through sound financial intermediation.

The law defines certain activities performed by the banks as public service. According to the law, banks are considered public utilities. As a public utility, the National Executive can take administrative measures established in the law to secure bank assets in order to keep services functioning. The law also protects bank customers’ assets in the event of banking irregularities, makes it illegal for banks to arbitrarily change banking hours and requires that the Superintendency of Banking Institutions take into account the best interests of bank customers in addition to the stockholders.

In addition, the law established new capital reserve requirements that banks must maintain. The law requires that banks surrender 5% of their pre-tax profit for communal council projects. As a precautionary measure, the law also requires that banks keep the equivalent of 10% of their capital in a restricted fund to pay labor liabilities in the event the bank is liquidated. Additionally, banks are restricted in the percentage of their funds that they may loan, in order to prevent credit risk. The law limits the amount of credit that can be made available by banks to individuals or private entities to a maximum of 10% of the bank’s patrimony. This limit may be increased to a maximum of 20% if the additional liquidity is guaranteed by a well-rated domestic or foreign bank. The law also limits the formation of financial groups and prohibits banks from having more than a 5% stake in brokerage firms and insurance companies.

In November 13, 2014, the Banking Sector Institutions Law was revised pursuant to the adoption of Decree No. 1,402 (published in the Extraordinary Official Gazette No 6,154, dated November 19, 2014). The amendment permits the Minister of Finance to modify, the amount of deposits are insured by the Deposit Protection Fund with the consent of Banco Central. Previously, the Deposit Protection Fund which managed by its president who was appointed by the President of the Republic; however, Decree No 1,402, instead a board of directors, comprised of a chairman and four directors to manage the Deposit Protection Fund. The chairman is appointed by the President and the board of directors is appointed by the Minister of Banking and Finance. However, the Deposit Protection Fund still remains subject to the supervision of SUDEBAN.

Pursuant to article 53 of the Banking Sector Institutions Law and notices VOI-013-2011, VOI-025-2011 and VOI-034-2011 issued by Banco Central, banks operating in Venezuela that hold securities issued by the Republic, or other entities owned by the Republic, such as PDVSA, were required to transfer the custody of their bonds to Banco Central by January 10, 2012.

In 2005, the National Assembly passed a resolution that requires private commercial banks to allocate certain percentages to specified projects. The following public banks are also required to allocate the same percentages to specified projects: Banco Industrial de Venezuela, Banco Agricola de Venezuela, Instituto Municipal de Credito Popular, Banco de las Fuerzas Armadas Bolivarianas and Banco de Comercio Exterior. In December 2014, private sector banks as well as certain public sector banks were required to allocate approximately 38.6% of their total loan portfolio to certain segments of the economy defined as “essential.” In 2014, these mandatory credit allocations to essential segments of the economy consisted of 22–25% for the farming sector, 20% for mortgage loans, 3% for microloans, 2–4.25% for tourism and 8–10% for the manufacturing sector. In December 2015, this proportion decreased by approximately 5.5% to approximately 33.1%. As of December 31, 2015, banks were required to allocate an average of 21–25% for the farming sector, 20% for loans, 3% for microloans and 2–4.25% for tourism. The target allocation for the manufacturing sector has not yet been released.

Market Regulation

The Capital Markets Law and the rules issued by the SNV provide a regulatory structure for the Venezuelan securities industry.

The law requires that the Venezuelan securities market conform to international standards. In addition to setting standards for brokers, the law empowers the SNV to regulate public offerings and trading of securities. In January 1999, the SNV promulgated regulations governing the activities of broker-dealers and brokerage houses. The SNV has also promulgated regulations requiring issuers of securities to file information regarding the issuer, its management and its significant shareholders to ensure transparency in capital markets transactions and public tender offers.

In August 2010, the National Assembly approved the new Capital Markets Law. This law provided for a change of name of the Comisión Nacional de Valores, or CNV, to the SNV. The law prohibits private brokers from participating in the purchase and sale or ownership of the Republic’s public debt bonds and restricts state agencies from participating in the stock market. Under this law, the Republic will be able to create public securities exchanges to trade the Republic’s public debt bonds that will be regulated by the SNV. All references to the SNV below refer to the CNV for periods prior to August 12, 2010.

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The SNV must authorize all Venezuelan companies before they legally offer equity or debt securities to the Venezuelan public. In order to offer securities to the public in Venezuela, an issuer must meet certain SNV requirements regarding assets, operating history, management and other matters.

All outstanding securities of such companies must also be registered with the SNV and approved by the relevant stock exchange. The SNV must approve the application for listing of a security before it is listed on a stock exchange. The SNV also requires issuers to file unaudited quarterly financial statements and audited annual financial statements with the applicable stock exchanges and the SNV.

Since 1994, the SNV has required any company issuing debt in Venezuela to obtain a rating from two independent rating agencies registered with the SNV. However, as of 2002, for any company that issues commercial paper (debt issues ranging from 15 days to 360 days), the SNV may reduce the requirement from two independent rating agencies to one, depending upon the market conditions at that time. In December 2015, President Maduro issued the new Capital Markets Law which (1) established a legal framework to promote the financing of productive companies through national public debt instruments by brokerage firms; (2) renewed and expanded the authority of the SNV to regulate the capital markets to include new issuers such as small and medium companies; (3) aimed to promote capital markets in accordance with international financial standards and protect the financial resources of investors while minimizing risks through regulation and (4) allowed licensed broker-dealers to participate in the market for public bonds.

Securities Markets

The Caracas Stock Exchange is a private sector securities market in Venezuela, with approximately 39 issuers and a total of U.S.$566.2 million in securities registered (at nominal value) as of December 2015. Historically, trading on the Caracas Stock Exchange has been composed of trades in stocks and bonds. Since 2001, the exchange has permitted trades in short-term debt instruments, such as commercial paper.

For the year ended December 31, 2012, the total market capitalization of the companies listed on the Caracas Stock Exchange increased in absolute terms from U.S.$5.4 billion to U.S.$25.3 billion. For the year ended December 31, 2013, the total market capitalization of the companies listed on the Caracas Stock Exchange increased in absolute terms to U.S.$71.2 billion. For the year ended December 31, 2014, the total market capitalization of the companies listed on the Caracas Stock Exchange decreased in absolute terms to U.S.$43.2 billion. For the year ended December 31, 2015, the total market capitalization of the companies listed on the Caracas Stock Exchange increased in absolute terms to U.S.$101.9 billion.

The SNV authorized the opening of a commodities exchange in May 1999. Trading on this exchange commenced in October 1999 and, as of December 31, 2015, the cumulative trading volume of commodities totaled U.S.$13,135.2 million. In 2012, the Caracas Stock Exchange had a total trading volume of U.S.$167.8 million, including U.S.$140.3 million in stocks. In 2013, the Caracas Stock Exchange had a total trading volume of U.S.$206.9 million, including U.S.$191.5 million in stocks. In 2014, the Caracas Stock Exchange had a total trading volume of U.S.$810.9 million (Bs.8.9 billion), including U.S.$798.4 million (Bs.8.8 billion at the applicable SICAD rate of Bs.11.00 = U.S.$1.00). In 2015, the Caracas Stock Exchange had a total trading volume in the secondary market of U.S.$1.4 billion (Bs.16.7 billion at the applicable SIMADI rate of Bs.12.00 = U.S.$1.00). In the past, Venezuelan stock exchanges have experienced substantial market price fluctuations. Factors contributing to such fluctuations include changes in the overall state of the Venezuelan economy and adverse political developments, together with merger activity among domestic companies and takeovers of domestic companies by foreign corporations and the Republic. Compared to other stock markets in Latin America, the Venezuelan stock market is among the smallest in terms of market capitalization and trading volume.

The Caracas Stock Exchange can suspend dealing in any listed security if the price of the security varies by 20% or more during a trading session.

Trading on the Caracas Stock Exchange has decreased since the Central Government intervened in trading companies and it has been stagnant since securities regulators shut down and took over management of 82 brokerage companies between 2009 and 2011. The Central Government has defended its takeover on the basis that those firms had arbitrarily undervalued the Republic’s currency in a bond market that was widely used for currency trading, that the practices of the brokerage firms that were shut down contributed to capital flight and led to significant inflation of the costs of goods and services throughout Venezuela.

Bolsa Publica de Valores Bicentenaria

In November 2010, the National Assembly passed the Law of the Bicentennial Public Securities Exchange (Ley de la Bolsa Pública de Valores Bicentenaria), which created the Bicentennial Public Securities Exchange (the “Bicentennial Stock Exchange”) for both public and private sector entities seeking to be involved in securities trading market operations. Financial operations began on January 31, 2011 and include financial transactions with bonds issued by state-run and private entities. The Bicentennial Stock Exchange competes with the privately run Caracas Stock Exchange. It aims to increase competition and investments by allowing

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customers secure access to transactions. The Bicentennial Stock Exchange does not function like a typical stock exchange. Under the regulations, entities that can participate by issuing bonds include collective and social production companies and state entities, joint ventures, and small and medium-sized enterprises, in addition to other private businesses. Private brokers are not permitted to participate in the Bicentennial Stock Exchange.

During 2011, the Bicentennial Public Stock Exchange had a total of 337 listings, of which 121 were related to public debt securities and 216 were related to quasi-public debt securities. The number of listings made through primary and secondary markets were 207 and 130, respectively. The total number of private company listings during 2011 was 216. In 2012 the Bicentennial Public Stock Exchange had a total of 2,798 listings, of which 2,591 were related to public debt securities. The number of listings made through primary and secondary markets were 1,572 and 1,226, respectively. The total number of private company listings during 2012 was 207. In 2013 the Bicentennial Public Stock Exchange had a total of 2,033 listings, of which 1,752 were related to public debt securities. The number of listings made through primary and secondary markets was 689 and 1,344, respectively. The total number of private company listings during 2013 was 281. In 2014, the Bicentennial Public Stock Exchange had a total of 2,005 listings, of which 1,874 were related to public debt securities. The number of listings made through primary and secondary markets was 704 and 1,170, respectively. The number of listings made through primary and secondary markets was 89 and 42, respectively. The total number of private company listings during 2014 was 131. In 2015, the Bicentennial Public Stock Exchange had a total of 3,525 listings, related to public debt securities. The number of listings made through primary and secondary markets was 1,570 and 1,864, respectively. The total number of private company listings during 2015 was 91. In 2011, trading volume amounted to Bs.38.2 million for transactions related to public debt securities. The trading volume from private company operations during 2011 amounted to Bs.276.1 million, for a total trading volume in 2011 of Bs.314.3 million. In 2012, trading volume amounted to Bs.2,683.8 million for transactions related to public debt securities. The trading volume from private company operations during 2012 amounted to Bs.583.2 million, for a total trading volume in 2012 of Bs.3,267 million. In 2013, trading volume amounted to Bs.6,111.0 million for transactions related to public debt securities. The trading volume from private company operations during 2013 amounted to Bs.411.5 million, for a total trading volume in 2013 of Bs.6,522.5 million. In 2014, trading volume amounted to Bs.14,592.5 million for transactions related to public debt securities. The trading volume from private company operations during 2014 amounted to Bs.337.6 million, for a total trading volume in 2014 of Bs.14,930.1 million. In 2015, trading volume amounted to Bs.27,545 million for transactions related to public debt securities. The trading volume from private company operations during 2015 amounted to Bs.747.3 million, for a total trading volume in 2015 of Bs.28,293.3 million.

Financial System Supervisory Body

In March 2010, the National Assembly enacted the Organic Law on the National Financial System (Ley Orgánica del Sistema Financiero Nacional) which creates the Financial System Supervisory Body, referred to as OSFIN, with oversight and regulatory powers over the banking, capital markets and insurance sectors. OSFIN, which has yet to be constituted, will have a Board of directors made up of the Minister of Finance, the President of Banco Central and three directors and will operate within the Ministry of Finance. The Organic Law on the National Financial System was reprinted and published in the Official Gazette No. 39,578 on December 21, 2010, due to a material error in a provision that establishes the parameters in the formation of financial groups.

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PUBLIC FINANCE

General Description of Accounts and Entities

The Ministry of Finance is responsible for preparing the budget and administering the Republic’s finances. The National Executive, through the Ministry of Finance, is required to submit a proposed budget to the National Assembly each year. The National Assembly may change items in the proposed budget so long as authorized expenditures do not exceed projected revenues. Nevertheless, actual expenditures in any given year may exceed revenues for that year as a result of differences in the timing of receipts and expenditures. The budget must include appropriations to be distributed to the states and the federal district in accordance with a prescribed formula. No taxes may be levied, money borrowed or expenditures made unless authorized by law. In addition to budgeted expenditures contained in the legislatively-approved budget, the National Executive may increase expenditures, including allocations for debt service obligations, during the course of the year with the approval of the National Assembly. However, total expenditures may not exceed actual revenues.

All revenues and expenditures are budgeted and recorded on a cash basis. The Ministry of Finance is responsible for collecting public revenues. Various ministries and agencies of the Central Government are responsible for implementing the budget. If the National Assembly does not approve the Annual Budget for the forthcoming year by December 15, the current Annual Budget will continue to apply.

The consolidated public sector is divided, in general terms, into two parts: the Central Government and the decentralized state institutions. The decentralized state institutions are corporations that are majority or wholly owned by the Central Government.

In December 2014, the Commission for the Reduction and Rationalization of Public Spending was created by Decree No. 1,493, dated November 28, 2014 (published in the Official Gazette No. 40,553 dated December 2, 2014). This Commission develops strategies to efficiently allocate resources with the goals of: (1) reducing excessive or extravagant expenses by 20%; (2) evaluating the requirements for admission of new staff to public administration; (3) setting a maximum limit for the remuneration of public administration personnel; (4) evaluating the creation of new institutions; (5) prohibiting the acquisition, lease or renovations of new public offices; (6) reviewing the use of rented spaces; (7) advancing the digitization of administrative procedures; and (8) implementing a centralized and standardized purchase system to rationalize expenditures on materials, equipment, office supplies, uniforms and other items.

Taxation

The Organic Tax Code

The Organic Tax Code (Código Orgánico Tributario) of 1991, as amended, increased penalties on overdue tax payments and made tax avoidance a criminal offense. The Ministry of Finance, with assistance of the World Bank and the IADB, has developed a tax collection program aimed at decreasing income tax evasion.

The 2001 amendments to the Organic Tax Code became effective on October 17, 2001. Some of the reforms in the legislation included: (1) the adoption of the “substance over form” approach in tax administration; (2) the consent to the passing on of tax responsibilities from a target company to the acquiring company in a merger; and (3) the disallowance of offsets of income tax credits against monthly payables under the VAT. The amendments also changed the interest rate for unpaid tax obligations. Interest on unpaid tax obligations now equals the average of the lending rates of the six largest commercial banks, multiplied by a factor of 1.2.

In addition, the reforms increased the penalties imposed on various tax offenses and set forth new categories of tax violations to deter tax evasion. Breaches of substantive obligations under the Organic Tax Code as amended in 2001 resulted in increased penalties, while violations that could lead to imprisonment were broadened in scope. For example, new fines were introduced both for the failure to pay taxes as well as for the late payment of taxes and criminal penalties were established for tax fraud. In addition, withholding agents who intentionally failed to remit withheld taxes within three business days following payment were made subject to imprisonment for two to four years.

Furthermore, the amended Organic Tax Code allows taxpayers to enter into advance pricing agreements with the tax authorities to establish the value of transactions between affiliated enterprises.

Procedural rules were also amended in 2001. Pursuant to the 2001 amendments, judicial tax appeals do not suspend the effects of a tax assessment, except in cases where the taxpayer demonstrates that non-suspension will cause irreparable damage or when the appeal is based on “sound arguments of law.” In contrast, the filing of an administrative tax appeal will suspend payments required by an assessment but not interest on the assessment. Furthermore, the law expressly provides that the opinions of the tax authority with respect to a particular issue are not subject to appeal to the tax courts.

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The Organic Tax Code was further amended on November 18, 2014, pursuant to Decree No. 1,434, which became effective on February 17, 2015. Some of the key amendments included, among others: (1) empowering the Executive branch to modify tax rates; (2) providing the SENIAT (and not a competent court) the ability to declare preventive measures and collect tax obligations without court intervention; (3) introducing two new preventive measures including the power to suspend (i) tax refunds or other payments by public entities and (ii) previously granted tax incentives; (4) introducing new tax offenses, including two new criminal tax offenses: (i) fraudulent insolvency for the purpose of tax evasion and (ii) public incitement to breach tax regulations; (5) increasing the statute of limitations for certain violations of the Organic Tax Code; (6) eliminating the statute of limitations on all cases involving tax fraud, failure to report withheld amounts by withholding agents and fraudulent insolvency for the purpose of tax evasion; (7) increasing financial penalties related to tax offenses and tax crimes; (8) establishing laws accepting and regulating payment of tax obligations in foreign currencies; and (9) granting powers to SENIAT to cooperate in activities that directly or indirectly affect the collection of taxes, including speculation, forgery and narcotics dealing.

Income Tax

The Central Government is the only entity in Venezuela with the authority to tax income at the national level. Income tax revenues, as a percentage of Central Government revenues, were 55.6% in 2011, 56.3% in 2012, 50.4% in 2013 and 53.4% in 2014 and 58.5% in 2015.

The petroleum industry provided, 31.0% of total income tax revenues in 2011, 25.9% of total income tax revenues in 2012, 23.2% of total income tax revenues in 2013, 33.2% of total income tax revenues in 2014 and 19.34% of total income tax revenues in 2015.

Venezuelan income tax is payable by both natural persons and legal entities. The base of income upon which a person or entity may be taxed includes worldwide income. Certain Governmental entities, educational institutions, charitable institutions and funds, as well as certain other individuals and entities, are exempt from Venezuelan income tax. Additionally, the President, in conjunction with the Council of Ministers, has the power to exempt from the payment of taxes certain sectors or industries that are believed to be of particular importance to national or regional development. Natural persons are taxed at rates from 6% to 34%, depending on income level, with certain tax rebates for lower-income households. Corporations are taxed at a rate ranging from 15% to 34%, except for those engaged in the petroleum industry, which are taxed at a special rate determined by the Hydrocarbons Law. For more information on the fiscal regime applicable under the Hydrocarbons Law, see “Principal Sectors of the Venezuelan Economy—Petroleum and Natural Gas—Hydrocarbons Law.”

In 2014, pursuant to the framework of the 2013 Enabling Law, the National Executive approved a tax reform which modified the income tax laws in the country, including by limiting the extent to when losses from previous years can be carried over and expanding the income tax base. On December 30, 2015, the Income Tax Law was further amended pursuant to Decree No. 2,163 (Extraordinary Official Gazette No. 6,210, dated December 30, 2016). Some of the main changes introduced by the 2015 amendment included: (1) imposing new measures to limit tax deductions; (2) modifying inflation adjustments to promote the banking, financial and insurance sectors; (3) streamlining the tax regime applicable to cooperative associations and foundations and rebates for investment; (4) regulating the availability of revenues; and (5) imposing a proportional tax of 40% to net income derived from banking, financial, insurance or reinsurance contracts obtained by individual or entities established in Venezuela.

Value-Added Tax

In May 1999, the Government passed legislation establishing the value added tax (“VAT”) to replace the then existing sales tax. The VAT applies to sales of all goods and services throughout the chain of distribution, except certain exempted items such as food, medicine, telephone, gas and other utilities. The island of Margarita is exempted from the VAT altogether.

The general VAT rate has remained at 12% since March 2009. In 2011, the Central Government generated revenues from the VAT of approximately Bs.84.4 billion, an increase of 50.1% as compared to 2010. In 2012, the Central Government generated revenues from the VAT of approximately Bs.111.1 billion, an increase of 31.7% as compared to 2011. In 2013, the Central Government generated revenues from the VAT of approximately Bs.164.7 billion, an increase of 48.3% as compared to 2012. In 2014, the Central Government generated revenues from the VAT of approximately Bs.272.2 billion, an increase of 65.2% as compared to 2013. In 2015, the Central Government generated revenues from the VAT of approximately Bs.702.7 billion, an increase of 158.2% as compared to 2014.

In 2014, the VAT Law was amended to, among other things, increase the additional tax rate for items of luxury consumption, from 10% to 15%. The tax rate for wine increased from 15% to 35%, and the tax rate for other alcoholic beverages increased from 15% to 50%.

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Major Financial Transactions Tax

Pursuant to the framework of the 2015 Enabling Anti-Imperialist Act, the National Executive passed the Law of Taxation on Major Financial Transactions on December 30, 2015, which came into effect on February 1, 2016. This law imposes a progressive tax on certain financial transactions, such as (1) withdrawals from call deposit accounts and money market funds; (2) certain transfers of checks; (3) transfers of certain securities and negotiable financial instruments and (4) some inter-bank loan operations. The tax rate imposed under this law is equivalent to 0.75% of the total amount of the taxable transaction.

Customs

A law was passed by the National Assembly in January 2002 to modernize the Republic’s customs operations. Automated customs operations, referred to as the SIDUNEA (Sistema Aduanero Automatizado) system, were put into effect in several principal and secondary ports of entry. The modernized ports using the SIDUNEA system accounted for approximately 99% of customs revenues and 98% of imports. The total customs revenue collected in 2010, including the VAT, was Bs.53.1 billion. The total customs revenue collected in 2011, including the VAT, was Bs.61.8 billion. The total customs revenue collected in 2012, including the VAT, was Bs.41.2 billion. The total customs revenue collected in 2013, including the VAT, was Bs.50.3 billion. The total customs revenue collected in 2014, including the VAT, was Bs.92.1 billion. The total customs revenue collected in 2015, including the VAT, was Bs.204.4 billion.

In addition, Venezuelan customs authorities have obtained special equipment for non-intrusive inspections of cargo containers in an effort to curtail drug trafficking and customs fraud. In March 2002, the Presidential Commission against Customs Fraud (Comisión Presidencial de Lucha Contra el Fraude Aduanero) was formed. This commission is made up of several representatives of both the public and private sector who are interested in preventing contraband and customs fraud. Together they drafted the Anti-Contraband Law, which was enacted in December 2005 and employs the use of more severe penalties and expands the scope of actions that may be taken by authorities to curtail contraband.

The Anti-Contraband Law (Ley Sobre el Delito de Contrabando) was amended in 2010 to provide: (1) that contraband is a crime and offense against the Republic’s defense and security; (2) that the Customs Office is responsible for the custody and storage of preemptively retained goods; (3) that the penalty for smuggling entails imprisonment and no fines; and (4) time frames for early testing for perishable retained goods.

SENIAT

In August 1994, the Government established SENIAT, an independent agency within the Ministry of Finance, to administer tax and customs collections. Under the 2015 Enabling Anti-Imperialist Act, the National Executive passed a reform to the existing Law of the National Integrated Service for the Administration of Customs Duties and Taxes, pursuant to Decree No. 2,177, which was published in the Official Gazette No. 6, 211 on December 30, 2015. This reform is intended to modernize SENIAT and prohibit speculation, counterfeiting and drug trafficking activities that impact taxation. Some of the long term goals of SENIAT include:

• promoting customs and tax education;

• establishing a training system and community management to ensure a role of organized citizenship;

• promoting organizational, functional, procedural and systemic coherence of the customs and tax administration with other public bodies and the communal power;

• reordering the customs system to align with the socialist conception of the state to promote and protect the socialist development model;

• rearranging the tax system to conform to the socialist conception of the state, to ensure tax structures to distribute load based on the productive human effort required to generate wealth; and

• strengthening the Customs Administration as an element of defense and sovereignty in foreign trade.

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The following table sets forth the revenues administered by SENIAT for the periods indicated:

	Year Ended December 31,
	(in millions of December 2007 Constant Bolívares)
	2011		2012(P)		2013(P)		2014(P)		2015
Income Tax		14,881.8		16,596.9		16,846.2		18,260.7		16,254.6
VAT(1)		34,137.4		38,528.5		40,559.0		41,321.8		48,116.6
Customs Income		6,077.7		6,607.1		5,954.4		6,983.2		6,761.9
Other Internal
Income		3,713.9		4,056.4		4,193.1		4,817.6		8,200.2
Liquor		1,117.9		1,228.3		1,471.0		1,653.0		3,046.8
Cigarettes		2,433.0		2,672.2		2,559.8		2,981.1		4,935.1
Stamp Revenue		—		—		—		—		—
Estate Tax		110.7		120.0		130.4		158.8		201.7
Matches		—		—		—		—		—
Gambling (Bingos and Casinos)		52.4		35.9		32.0		24.6		16.6
Other(2)		862.2		911.7		707.6		823.4		707.7
Financial Transactions Tax (ITF)(3)		0.0		0.0		0.0		0.0		0.0
Total Gross Revenues(4)		Bs. 59,673.0		Bs. 66,700.7		Bs. 68,260.3		Bs. 72,206.7		Bs. 80,040.9

(P) Preliminary figures.

(1) The VAT rate remained at 12% between 2010 and 2013. Although the VAT rate remains at 12% for most products, an additional VAT rate of 15% was adopted for luxury goods and services in November 2014.

(2) Includes fines, interest and repayments.

(3) The collection of the ITF took effect on November 1, 2007 and remained in force until June 12, 2008.

(4) Discrepancy between figures and Total Gross Revenue due to rounding.

Source: SENIAT.

Revenues and Expenditures

Central Government

Central Government revenues consist of both tax revenues and non-tax revenues, such as petroleum royalties and dividends from state-owned companies. Central Government expenditures consist primarily of operating expenditures, such as salaries, interest payments and purchases of goods and services, transfers to state and local governments and the private sector, and capital expenditures.

As a percentage of Central Government revenues, non-tax revenues in 1997 Constant Bolívares accounted for 44.4% in 2011, 43.7% in 2012, 49.6% in 2013, 46.6% in 2014 and 41.5% in 2015.

Petroleum royalties provided 44.9% of non-tax revenues in 2011, 46.9% of non-tax revenues in 2012, 28.3% of non-tax revenues in 2013, 18.3% of non-tax revenues in 2014 and 7.9% of non-tax revenues in 2015.

In 2011, Central Government revenues totaled Bs.16.4 billion in 1997 Constant Bolívares, representing an increase of Bs.3.0 billion as compared to 2010. This increase was primarily due to an increase in oil tax revenues, petroleum products and other tax revenues as well as non-tax revenues. The Central Government’s expenditures for 2011 increased to Bs.19.3 billion in 1997 Constant Bolívares from Bs.15.9 billion in 2010. This increase was due primarily to an increase in capital formation, purchases of goods and interest payments. As a result of the foregoing factors, the Central Government accounts recorded a deficit for 2011 of Bs.2.9 billion in 1997 Constant Bolívares, or 5.0% of GDP.

In 2012, Central Government revenues totaled Bs.17.1 billion in 1997 Constant Bolívares, representing an increase of Bs.0.7 billion as compared to 2011. This increase was primarily due to higher revenues from national taxes. Central Government expenditures for 2012 increased to Bs.20.6 billion in 1997 Constant Bolívares from Bs.19.3 billion in 2011. This increase was due primarily to the increase in wages for the Central Government and decentralized entities. As a result of the foregoing factors, the Central Government accounts recorded a deficit for 2012 of Bs.3.5 billion in 1997 Constant Bolívares, or 5.7% of GDP.

In 2013, Central Government revenues totaled Bs.19.3 billion in 1997 Constant Bolívares, representing an increase of Bs.2.2 billion as compared to 2012. This increase was primarily due to an increase of 1.2% in tax revenue over the previous year and to an increase of 28.2% in non-tax revenues over the previous year. Central Government expenditures for 2013 increased to Bs.20.7 billion in 1997 Constant Bolívares from Bs.20.6 billion in 2012. This increase was primarily due to an increase in salaries, purchase of goods and services, and debt service, among others factors. As a result, the Central Government accounts recorded a deficit for 2013 of Bs.1.5 billion in 1997 Constant Bolívares, or 2.3% of GDP.

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In 2014, Central Government revenues totaled Bs.20.9 billion in 1997 Constant Bolívares, representing an increase of Bs.1.7 billion as compared to 2013. This increase was primarily due to an increase of 14.9% in tax revenue and a 17.8% increase in other non-tax revenue over the previous year and was partially offset by a decrease in petroleum royalties of 33.8% over the previous year. Central Government expenditures for 2014 increased to Bs.21.5 billion in 1997 Constant Bolívares from Bs.20.7 billion in 2013. This increase was primarily due to an increase in transfer payments from the Central Government to the public and private sectors and was partially offset by a decrease in operating expenditure of 7.7%. As a result of the foregoing factors, the Central Government accounts recorded a deficit for 2014 of Bs.570.2 million in 1997 Constant Bolívares, or 1.0% of GDP.

In 2015, Central Government revenues totaled Bs.20.0 billion in 1997 Constant Bolívares, representing a decrease of Bs.930 million compared to 2014. This decrease was primarily due to a sharp drop in oil tax revenues, which decreased by 70.8% in real terms compared to 2014. Non-tax non-petroleum revenue also declined in real terms by 3.5% compared with 2014. Central Government expenditures for 2015 decreased to Bs.19.1 billion in 1997 Constant Bolívares, from the Bs.21.5 billion in 2014. This decrease was primarily due to reductions in compensation expense of approximately 8.9% in real terms, and a decrease in expenditures related to current transfers of 5.4%, compared to the prior period. As a result of the foregoing factors, the Central Government accounts recorded a surplus for 2015 of Bs.875 million in 1997 Constant Bolívares, or 1.6% of estimated GDP.

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The following table sets forth the revenues, by source and expenditures, by sector, of the Central Government for the periods indicated.

Venezuela Central Government Revenues and Expenditures

	Year Ended December 31,
	2011(1)			2012(1)			2013(1)			2014 (1)			2015(1)
	(in millions in 1997 Constant Bolívares)
Central Government
Total Revenues		16,384.5			17,067.8			19,286.8			20,939.9			20,010.1
Current Revenues		16,384.5			17,067.8			19,286.8			20,939.9			20,010.1
Tax Revenues		9,117.0			9,610.2			9,722.6			11,174.1			11,708.4
Petroleum Sector		887.5			1,015.5			859.7			1,376.9			401.7
Other		8,229.5			8,594.7			8,862.9			9,797.2			11,306.7
Non-tax Revenues		7,267.5			7,457.6			9,564.2			9,765.9			8,301.7
Petroleum Royalties		3,260.1			3,495.2			2,705.9			1,791.6			656.8
Other		3,776.2			3,696.1			6,666.1			7,852.1			7,587.2
Dividends		231.1			266.3			192.0			122.2			57.7
Capital Revenues		0.0			0.0			0.0			0.0			0.0
Total Expenditures		19,291.3			20,596.9			20,737.1			21,510.1			19,135.5
Current Expenditures		17,023.3			17,136.9			17,241.4			18,105.0			16,023.3
Operating Expenditures		7,252.5			7,013.0			7,181.2			6,627.1			5,165.4
Salaries, etc.		4,599.0			4,387.1			4,231.6			4,253.6			3,874.1
Interest Payments		1,951.8			1,949.4			2,233.4			1,835.4			890.2
Purchase of Goods and Services		701.7			676.5			716.2			538.1			401.1
Current Transfers		9,753.2			10,123.4			10,060.2			11,419.5			10,805.5
To Rest of Public Sector		8,758.3			9,268.2			9,557.2			10,559.8			9,923.8
To Private Sector		994.9			853.6			503.0			859.7			881.7
Other Transfers		0.0			1.6			0.0			0.0			0.0
Quasi-fiscal Operations of BCV		0.0			0.0			0.0			0.0			0.0
Extra-budgetary		17.6			0.5			0.0			0.0			0.0
Capital Expenditures		2,268.0			3,460.0			3,495.7			3,346.4			3,050.3
Capital Formation		145.3			99.7			229.0			284.5			180.2
Capital Transfers		2,122.7			3,360.3			3,266.2			3,061.9			2,870.2
To Public Sector		2,116.9			3,359.9			3,168.7			3,061.2			2,868.4
To Private Sector		5.8			0.4			98.0			0.7			1.8
Financial Investment		1,172.3			13.6			28.1			58.7			61.9
Current Account Surplus (Deficit)		533.4			(53.4	)		2,073.6			2,834.9			3,986.8
Overall Surplus (Deficit)		(2,906.8	)		(3,529.1	)		(1,450.5	)		(570.2	)		874.5
As percentage of GDP(2)		(5.0	)%		(5.7	)%		(2.3	)%		(1.0	)%		1.6	%

(1) Preliminary figures. 2015 GDP is an estimate.

(2) As percentage of real GDP. Percentage for the year ended December 31, 2015 is calculated based on an estimate of GDP for 2015.

Note: 2014 figures for the Consolidated Public Sector (“CPS”) showed a significant changes due to changes in the official figures published by Banco Central and National Treasury Office (Oficina Nacional del Tesoro or “ONT”). 2015 GDP is an estimate.

Source: Ministry of Finance, using IMF methodology.

Consolidated Public Sector

The consolidated public sector accounts include the results of decentralized state entities, such as PDVSA, CVG, and other state-owned enterprises.

In 2011, consolidated public sector revenues increased to Bs.21.7 billion in 1997 Constant Bolívares from Bs.14.7 billion in 1997 Constant Bolívares in 2010. This increase was primarily due to an increase in non-tax revenues. Consolidated public sector expenditures for 2011 increased to Bs.27.0 billion in 1997 Constant Bolívares from Bs.21.3 billion in 1997 Constant Bolívares in

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2010. The increase in expenditures was primarily due to an increase in current expenditures, which include exchange losses, quasi-fiscal losses and capital expenditures by Banco Central. As a result of the foregoing factors, the consolidated public sector accounts recorded a deficit for 2011 of Bs.5.3 billion in 1997 Constant Bolívares, or 9.2% of real GDP, compared to a deficit of Bs.6.6 billion in 1997 Constant Bolívares, or 11.8% of real GDP, for 2010.

In 2012, consolidated public sector revenues decreased to Bs.18.2 billion in 1997 Constant Bolívares from Bs.21.7 billion in 1997 Constant Bolívares in 2011. This decrease was primarily due to a decrease in non-tax revenues. Consolidated public sector expenditures for 2012 increased to Bs.28.9 billion in 1997 Constant Bolívares from Bs.27.0 billion in 1997 Constant Bolívares in 2011. The increase in expenditures was due primarily to an increase in capital expenditure. As a result of the foregoing factors, the consolidated public sector accounts recorded a deficit for 2012 of Bs.10.7 billion in 1997 Constant Bolívares, or 17.5% of real GDP, compared to a deficit of Bs.5.3 billion in 1997 Constant Bolívares, or 9.2% of real GDP, for 2011.

In 2013, consolidated public sector revenues increased to Bs.18.8 billion in 1997 Constant Bolívares from Bs.18.2 billion in 1997 Constant Bolívares in 2012. This increase was primarily due to an increase in non-tax revenue. Consolidated public sector expenditures for 2013 increased to Bs.29.3 billion in 1997 Constant Bolívares from 28.9 billion in 1997 Constant Bolívares in 2012. As a result of an increase in salary expenditures and Central Government transfers to unconsolidated entities, the consolidated public sector accounts recorded a deficit for 2013 of Bs.10.5 billion in 1997 Constant Bolívares, or 16.9% of GDP, compared to a deficit of Bs.10.7 billion in 1997 Constant Bolívares, or 17.5% of GDP, for 2012.

In 2014, consolidated public sector revenues increased to Bs.21.0 billion in 1997 Constant Bolívares from Bs.18.8 billion in 1997 Constant Bolívares in 2013. Consolidated public sector expenditures for 2014 decreased to Bs.29.1 billion in 1997 Constant Bolívares, from Bs.29.3 billion in 1997 Constant Bolívares in 2013. The consolidated public sector accounts recorded a deficit for 2014 of Bs.8.2 billion in 1997 Constant Bolívares, or 13.6% of GDP, compared to a deficit of Bs.10.5 billion in 1997 Constant Bolívares, or 16.9% of GDP, for 2013.

In 2015, consolidated public sector revenues increased to Bs.22.2 billion in 1997 Constant Bolívares, an increase of 5.8% from Bs.21.0 million in 1997 Constant Bolívares in 2014. This increase was primarily due to a 16.6% increase in income tax compared to 2014. Consolidated public sector expenditures for the same period totaled Bs.28.1 billion in 1997 Constant Bolívares, decreasing by 3.6% from Bs.29.1 million in 1997 Constant Bolívares in 2014. As a result of the foregoing factors, the consolidated public sector accounts recorded a deficit in 2015 of Bs.5.9 billion in 1997 Constant Bolívares, or 10.4% of estimated GDP, compared to a deficit of Bs.8.2 billion in 1997 Constant Bolívares, or 13.6% of GDP, in 2014.

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The following table sets forth the revenues, by source and expenditures, by sector, of the consolidated public sector for the periods indicated.

Venezuela Consolidated Public Sector Revenues and Expenditures

	For the Year Ended December 31,
	2011			2012			2013			2014			2015(1)
	(in millions of 1997 Constant Bolívares)
Consolidated Public Sector
Total Revenues		21,693.6			18,207.7			18,818.6			20,958.8			22,183.6
Tax Revenues		8,207.7			8,594.7			9,036.2			9,695.3			11,306.7
Non-tax Revenues		13,485.9			9,613.0			9,782.5			11,263.6			10,876.9
Central Government		—			—			—			—			—
PDVSA Operating Surplus		6,071.8			4,703.5			3,164.4			3,908.4			(725.4	)
Interest, Profits, Dividends and Commissions		5,349.9			4,909.6			6,618.1			5,300.1			11,063.0
Non-financial Public Enterprises Operating Surplus		—			—			—			—			—
Capital Revenues		715.4			—			—			—			—
Other		1,348.8			—			—			2,055.1			539.2
Total Expenditures		27,020.8			28,951.0			29,328.4			29,111.9			28,051.5
Current Expenditures		21,763.3			21,496.2			22,141.9			21,782.3			23,010.4
Salaries, etc.		4,599.0			4,387.1			4,231.6			4,253.6			3,874.1
Purchases of Goods and Services(2)		719.9			691.5			662.9			538.1			401.1
Interest Payments		1,593.6			2,368.6			2,506.4			2,381.7			1,264.6
Transfers to Private Sector		994.9			941.2			773.3			802.4			881.7
Central Government Transfers to Unconsolidated Entities		8,758.3			8,285.4			9,296.2			13,309.1			16,426.0
Other(3)		5,097.6			4,822.4			4,671.5			497.3			163.0
Central Government (Extra-Budgetary)		17.6			0.5			—			—			—
Capital Expenditures		6,021.4			7,629.7			6,937.5			7,329.6			5,041.2
Capital Formation		3,898.7			4,269.4			3,587.5			4,267.7			2,169.2
Other (Including Transfers to Unconsolidated Entities)(4)		2,122.7			3,360.3			3,349.9			3,061.9			2,871.9
Overall Surplus (Deficit)		(5,327.2	)		(10,743.3	)		(10,509.8	)		(8,153.0	)		(5,867.9	)
As percentage of GDP(5)
Total Revenues		37.3	%		29.7	%		30.2	%		35.0	%		39.3	%
Total Expenditures		46.5	%		47.1	%		47.1	%		48.7	%		49.7	%
Overall Surplus (Deficit)		(9.2	%)		(17.5	%)		(16.9	%)		(13.6	)%		(10.4	)%

(1) Preliminary figures. Includes preliminary Budgetary Central Government and PDVSA.

(2) Includes goods and services acquisitions.

(3) Includes other expenditures, exchange losses and quasi-fiscal losses of Banco Central.

(4) Includes capital transfers and other financial expenditures.

(5) As percentage of real GDP. Percentages for the year ended December 31, 2015, are calculated based on an estimate of GDP for 2015.

Note: 2014 figures for the Consolidated Public Sector (CPS) showed a significant changes due to changes in the official figures published by Banco Central and ONT. 2015 GDP is an estimate.

Source: Ministry of Finance, using IMF methodology.

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2015 Budget

In December 2014, the National Assembly approved the budget for 2015. The 2015 budget projected total revenues of U.S.$102.0 billion (19.0% of estimated GDP for 2015), excluding borrowing, and total expenditures of U.S.$118.0 billion (22.0% of estimated GDP for 2015). The 2015 budget also contemplates a legal limit on borrowing by the Republic of U.S.$16.0 billion (3.0% of estimated GDP for 2015). The 2015 budget is based on certain assumptions, including real GDP growth of 3.0%, an average price for the Venezuelan oil basket of U.S.$60.00 per barrel, an average exchange rate of Bs.6.30 = U.S.$1.00 and average inflation at a rate of 30.0%. On May 31, 2015, the National Assembly approved U.S.$43.0 billion for supplemental budget allocations for payments of salary, retirement, pensions, regional expenses, food supply, purchases of raw materials and infrastructure. In 2015, supplemental budgets constituted 189.9% of the Government’s total public spending.

2016 Budget

In December 2015, the National Assembly approved the budget for 2016. The 2016 budget projects total revenues of U.S.$226 billion, excluding borrowing, and total expenditures of U.S.$246 billion. The 2016 budget also contemplates a legal limit on borrowing by the Republic of U.S.$20 billion. The 2016 budget is based on certain assumptions, including a decline in real GDP of 1.7%, an average price for the Venezuelan oil basket of U.S.$40.00 per barrel, an exchange rate of Bs.6.30 = U.S.$1.00 and an annual inflation rate of 60%. Actual figures have materially differed from some of these assumptions. For example, on March 9, 2016, the official exchange rate was increased to Bs10.00 = U.S.$1.00 and the average price of the Venezuelan oil basket as of September 15, 2016, was U.S.$38.71.

As of May 2016, the National Executive authorized U.S.$60.9 billion in supplemental budget allocations to several sectors, including education, social security, energy, mines and petroleum. For more information on the 2015 budget, see “Exhibit C—Copy of the 2016 Annual Budget of the Republic.”

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PUBLIC DEBT

Overview

In 2000, the Public Sector Financial Administration Law was enacted to create and issue public debt through prior authorization and registration, superseding prior legislation governing the issuance of public debt. The Public Sector Financial Administration Law has been amended on a number of occasions, most recently in December 2015, see “The Venezuelan Economy–Economic Policy and Legislation—Financial Administration of the Public Sector.” Public debt is defined to include public issues of bonds and treasury notes in Venezuela and abroad, domestic and foreign direct indebtedness, contracts providing for payments extending beyond the then current fiscal year and guaranties and modifications of existing indebtedness. The types of entities subject to regulation under the Public Sector Financial Administration Law include national, state and municipal governments, decentralized state institutions, autonomous government institutions and other public entities, corporate entities controlled directly or indirectly by the public sector and non-profit organizations under the control of the Government.

On December 14, 2010, the 2011 Special Debt Law was enacted, which allowed the Republic to issue Bs.45.0 billion (U.S.$10.5 billion) in new bonds in 2011. In addition, on June 13, 2011, a supplement to the 2011 Special Debt Law was passed, which allowed the Republic to issue an additional Bs.45.0 billion in bonds during 2011. The total amount under the supplement to the 2011 Special Debt Law was issued and the proceeds were used to invest in the agricultural sector, build new housing, respond to natural disasters and other emergencies, develop a new job creation program, and service and refinance the public debt.

On December 19, 2011, the 2012 Special Debt Law was enacted, allowing the Republic to issue Bs.64.3 billion in new bonds during 2012. On July 23, 2012, the 2012 Special Supplemental Debt Law was enacted, allowing the Republic to issue an additional Bs.30.0 billion in new bonds during 2012, all of which have been issued. Approximately Bs.25.0 billion (U.S.$5.8 billion) of the proceeds were used to pay pension and the remaining Bs.5.0 billion (U.S.$1.2 billion) was used for payments of labor liabilities owed to government employees.

On December 11, 2012, the 2013 Special Debt Law was enacted, allowing the Republic to issue Bs.75.9 billion in new bonds during 2013. On July 22, 2013, the 2013 Special Supplemental Debt Law was enacted, allowing the Republic to issue an additional Bs.76.0 billion in new bonds during 2013, of which Bs.57.2 billion (U.S.$9.1 billion) of new bonds were issued. The proceeds from these offerings were used to pay pension (Bs.41.3 billion (U.S.$6.5 billion)); fund labor liabilities (Bs.2.7 billion (U.S.$0.4 billion)); fund the Great Housing Mission (Bs.10.0 billion (U.S.$1.6 billion)) and refinance public debt (Bs.3.2 billion (U.S.$0.5 million)).

On December 10, 2013, the 2014 Special Debt Law was enacted, allowing the Republic to issue Bs.105.2 billion in new bonds during 2014. The law also authorized the executive to sign contracts for Bs.70.4 billion and disbursements for Bs.39.7 billion. The Republic did not enact a supplementary special debt law in 2014.

On December 10, 2014, the 2015 Special Debt Law was enacted, allowing the Republic to issue Bs.96.4 billion in new bonds during 2015.

On December 1, 2015, the 2016 Special Debt Law was enacted, allowing the Republic to issue Bs.159.3 billion in new bonds during 2016. The law also authorized the Republic to incur up to Bs.70.8 billion on public debt refinancing operations.

During 2015, the Republic executed seven term loan agreements with a multilateral financial institution for a total amount of U.S.$842.2 million, and one term loan agreement with a commercial bank for an amount of U.S.$533.8 million. The Republic intends to use the proceeds of both loans for economic and social development of certain strategic sectors of the Republic, pursuant to the guidelines established by the Plan of the Nation 2013—2019.

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Summary of External Debt

The Republic’s external public debt as of December 31, 2015, totaled Bs.267.8 billion (U.S.$42.5 billion) compared to Bs.272.8 billion (U.S.$43.3 billion) on December 31, 2014. The decrease in the Republic’s external public debt was due in part to the repayment of the Eurobond 2015 in the amount of EUR1.0 billion. The following table sets out the composition of Republic’s external public debt outstanding at the dates indicated.

	December 31,
	2011			2012			2013			2014			2015
	(in millions of U.S. dollars)
Commercial Bank External Public Sector Debt	$	544.1		$	528.4		$	531.7		$	482.0		$	735.9
Other External Public Sector Debt		42,898.6			44,889.0			44,259.4			42,856.3			41,796.2
Obligations and Bonds		36,927.2			36,927.2			35,387.7			33,889.7			32,579.7
Suppliers & Contractors		(5.0	)		(7.6	)		(7.6	)		(7.6	)		(7.6	)
Multilateral Agencies		4,778.5			4,838.1			4,904.6			5,029.7			5,294.6
Bilateral Agencies		1,197.6			3,131.4			3,974.8			3,944.5			3,929.6
Total External Public Sector Debt	$	43,442.7		$	45,417.4		$	44,791.2		$	43,338.3		$	42,532.1

Source: Ministry of Finance.

The following table sets out the scheduled amortizations for the Republic’s external public debt outstanding on December 31, 2015, for each of the years indicated.

	Scheduled Amortization(1)
	(in millions of U.S. dollars)
	2016		2017		2018		2019		2020		2021 and thereafter
Commercial Bank External Public Sector Debt	$	97.8	$	102.2	$	96.0	$	90.7	$	88.0	$	261.0
Other External Public Sector Debt		2,768.4		1,408.4		3,525.3		3,307.9		3,261.8		27,530.3
Obligations and Bonds		1,500.1		—		2,052.8		2,496.0		2,500.1		24,030.8
Suppliers & Contractors		—		—		—		—		—		—
Multilateral Agencies		470.8		428.3		494.8		481.5		448.3		2,970.3
Bilateral Agencies		797.6		980.1		977.7		330.4		313.4		529.2
Total External Direct Public Sector Debt	$	2,866.2	$	1,510.5	$	3,621.3	$	3,398.6	$	3,349.8	$	27,791.3

(1) Does not include disbursements scheduled to be made after December 31, 2015.

Source: Ministry of Finance, using IMF methodology.

Internal Public Debt

The Republic’s internal public debt as of December 31, 2015, totaled Bs.815.6 billion (U.S.$129.5 billion) compared to Bs.590.5 billion (U.S.$93.7 billion) on December 31, 2014. The increase in the Republic’s in the public debt was due to the issuance of unrecorded debt by the Republic and the issuance of debt by the Simón Bolívar Fund for Reconstruction that is guaranteed by the Republic. The table below sets forth a summary of Venezuela’s internal public debt as of December 31, 2015.

Type of Debt	Outstanding as of December 31, 2015
	(in millions of U.S. dollars)(1)
Treasury Bonds (Letras del Tesoro)	$	2,995.70
National Public Debt Bonds	$	76,423.33
Loans	$	0.87
Promissory Notes(2)	$	0.00
Total Internal Debt of the Republic of Venezuela	$	79,419.90
Internal Debt Issued by Public Entities and Guaranteed by the Republic	$	50,047.34
Total	$	129,467.24

(1) At the Bolívar/U.S. dollar exchange rate as of December 31, 2015.

(2) Issued in domestic market; denominated in foreign currency.

Source: Ministry of Finance

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Between March and June 2011, the Republic sold to Banco del Tesoro and the Industrial Bank of Venezuela (Banco Industrial de Venezuela or “BIV”) Bs.3.5 billion (U.S.$814 million) in local debt. This debt was issued to finance public expenditures. In addition, in June and July 2011, the Republic sold to Banco del Tesoro, BIV, Bank of Venezuela and FOGADE Bs.9.5 billion (U.S.$2.2 billion) in local debt for the purpose of financing public expenditures and servicing debt. In September 2012, former President Hugo Chávez called the public banks and other financial institutions, as well as social security workers funds, to participate in a special offer of bonds (“Special Offer”), for up to Bs.10,000 million, of which Bs.9.8 billion were issued. The funds were used to pay pensions and the partial payment of the liabilities arising from social benefits payable to public workers. In 2013, specifically in May, October and November, five calls for Special Offers were made to national public banks and other financial institutions, including worker’s provident funds, who purchased bonds for Bs.51.2 billion. The funds were used to pay debt service costs, pensions, social benefits, refinance debt obligations, cover public expenditures and finance the Great Housing Mission. In 2014, three calls for Special Offers were made: on June 19, 2014, Bs.9.6 billion to national public banks; on November 20, 2014, Bs.15.7 billion to national public banks and other public funds; and on December 11, 2014, Bs.15.7 billion to national public banks and other public funds. The funds were used to cover public expenditures, refinance debt obligations and debt service. In 2015, two calls for Special Offers were made: on August 28, 2015, Bs.20 billion to national public banks; on December 18, 2015, Bs.31.5 billion to national public banks. The funds were used to cover refinancing and debt service.

Multilateral Borrowings and Subscriptions

The Republic is one of the founding members of the IMF. As of May 31, 2016, its subscription to the IMF, which corresponds to its quota, was SDR 3.7 billion or U.S.$5.2 billion. As of July 1, 2016, the Republic’s subscription to the capital of the World Bank was U.S.$2.0 billion. In addition, the Republic is a member of the following other World Bank Group affiliates: International Finance Corporation , with subscriptions of U.S.$27.6 million; and Multilateral Investment Guarantee Agency, with subscriptions of U.S.$14.3 million, both as of March 31, 2016.

The Republic’s capital subscription to the IADB was U.S.$5.8 billion as of December 31, 2015, one of the largest subscriptions of the bank’s Latin American members. Of this amount, U.S.$249.3 million had been paid in cash as of December 31, 2015, and the balance is callable if required to meet the bank’s obligations. The Republic’s contribution to the IADB’s Fund for Special Operations is U.S.$315.3 million.

The Republic is a member of CAF with subscriptions of capital totaling U.S.$883.9 million. Of this amount, U.S.$811 million had been paid in cash as of December 31, 2015. The Republic is also a member of Banco de Desarrollo del Caribe, with subscriptions of capital totaling U.S.$47 million, of which U.S.$10.3 million had been paid in cash as of December 31, 2015.

Capital Market Issues of External Public Debt

The Republic has paid on a current basis in accordance with the terms of the relevant agreements the full amount of principal and interest due on all publicly-issued bonds and notes in the international capital markets. Prior to the consummation of the 1990 Financing Plan, the percentage of the Republic’s external debt represented by obligations issued in the international capital markets was very small, 5.6% at December 31, 1989. Venezuela’s debt structure has shifted as a result of the 1990 Financing Plan and subsequent issues of capital markets instruments, such that international capital markets obligations constituted approximately 76.6% of Venezuela’s total external debt as of December 31, 2015.

The following table sets out a summary of the principal features of the long-term outstanding bonds and notes publicly issued in external capital markets, as of December 31, 2015.

Security	Currency of Issue	Original Issue Size		Principal Outstanding		Interest Rate			Initial Issue Date			Maturity Date			Target Market
		(Millions)
ROV 9.25%*	U.S.$		4,000.0		3,998.0		9.25	%		Sept. 1997			Sept. 2027		United States
ROV 13.625%*	U.S.$		752.8		752.8		13.625	%		Aug. 1998	(1)		Aug. 2018		United States
ROV 13.625%	U.S.$		300.0		300.0		13.625	%		Sept. 2001			Aug. 2018		United States
ROV 7.00%	U.S.$		1,000.0		1,000		7.00	%		Dec. 2003			Dec. 2018		Euromarket
ROV 9.375%*	U.S.$		1,500.0		1,489.0		9.375	%		Jan. 2004	(2)		Jan. 2034		United States
ROV 7.65%	U.S.$		1,599.8		1,597.8		7.65	%		Apr. 2005			Apr. 2025		Euromarket
ROV 5.75%	U.S.$		1,500.1		1,500.1		5.75	%		Dec. 2005			Feb. 2016	(3)	Euromarket

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Security	Currency of Issue	Original Issue Size		Principal Outstanding		Interest Rate			Initial Issue Date	Maturity Date	Target Market
		(Millions)
ROV 6.00%	U.S.$		1,500.1		1,500.1		6.00	%	Dec. 2005	Dec. 2020	Euromarket
ROV 7.00%	U.S.$		1,250.0		1,250.0		7.00	%	Nov. 2007(4)	Mar. 2038	Euromarket
ROV 9.00%	U.S.$		2,000.0		2,000.0		9.00	%	May 2008	May 2023	Euromarket
ROV 9.25%	U.S.$		2,000.0		2,000.0		9.25	%	May 2008	May 2028	Euromarket
ROV 7.75%	U.S.$		2,496.0		2,496.0		7.75	%	Oct 2009	Oct. 2019	Euromarket
ROV 8.25%	U.S.$		2,496.0		2,496.0		8.25	%	Oct 2009	Oct. 2024	Euromarket
ROV 12.75%	U.S.$		3,000.0		3,000.0		12.75	%	Aug. 2010	Aug. 2022	Euromarket
ROV 11.95%	U.S.$		4,200.0		4,200.0		11.95	%	Aug. 2011	Aug. 2031	Euromarket
ROV 11.75%	U.S.$		3,000.0		3,000.0		11.75	%	Oct. 2011	Oct. 2026	Euromarket

* The Bank of New York Mellon (“BNYM”) (originally The Chase Manhattan Bank (National Association) was appointed fiscal agent for the bonds and notes marked with an asterisk (*) in the table above and the Oil-Indexed Payment Obligations referred to below. In August 2012, BNYM resigned as fiscal agent, subject to the appointment of a successor fiscal agent. The appointment of a successor is expected to occur in the near future. BNYM has continued to serve as fiscal agent for the indicated bonds and notes. BNYM has advised that its decision to resign was not related to payment issues.

(1) U.S.$500.0 million in aggregate principal amount of these notes were issued initially for cash in August 1998. In connection with an exchange undertaken with BANDES in 2003, the Republic issued an additional U.S.$252.8 million in aggregate principal amount of these notes, which form a single series with the U.S.$500.0 million of these notes issued in 1998.

(2) U.S.$1.0 billion in aggregate principal amount of these notes were issued in January 2004. In December 2004, the Republic issued an additional U.S.$500 million in aggregate principal amount of these notes, which form a single series.

(3) On February 26, 2016, the Republic repaid these notes in full.

(4) U.S.$825,179,000 in aggregate principal amount of these notes were issued on November 15, 2007. On November 27, 2007, the Republic issued an additional U.S.$424,824,000 in aggregate principal amount of these notes, which form a single series.

Source: MPPBF. National Public Credit Bureau.

Over the past 50 years, despite the debt crisis that prompted the restructuring of its commercial bank debt during the 1980s and the oil strike of 2002, the Republic has paid on a current basis in accordance with the terms of the relevant agreements the full amount of principal and interest due on all publicly-issued bonds and notes in the international capital markets.

1990 Financing Plan

In June 1990, the National Executive, along with its bank advisory committee, announced the principal terms of a financing plan, referred to as the 1990 Financing Plan. The 1990 Financing Plan provided for the exchange of medium-term commercial bank debt for a variety of options featuring debt and debt service reduction or new money, including collateralized short-term notes, collateralized bonds and new money bonds. The 1990 Financing Plan, structured along the lines of the Brady initiative, contemplated that all eligible debt would be exchanged for one or more of the options. The 1990 Financing Plan was consummated on December 18, 1990.

In connection with the 1990 Financing Plan, the Republic issued Oil-Indexed Payment Obligations to holders of its par and discount bonds due 2020. Holders were given five Oil Obligations for each U.S.$1,000 of old debt exchanged for par bonds and discount bonds. The Republic is required to make certain payments under the Oil Obligations in the event that the average price per barrel of crude oil exported from Venezuela over the applicable determination period exceeds a strike price set forth in the Oil Obligations, up to a maximum of U.S.$3.00 per Oil Obligation per determination period. For the year ended December 31, 2015, the amount of payments made with respect to the Venezuelan Oil Obligations was U.S.$148.6 million. As of December 2008, all bonds issued pursuant to the 1990 Financing Plan had been redeemed or paid in full at maturity.

Credit Agreement with China through BANDES

In recent years, the Republic has entered into a number of credit agreements with China. For more information, see “The Venezuelan Economy—Foreign Trade and Balance of Payments—Trading Partners.”

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TABLES AND SUPPLEMENTARY INFORMATION

I. Venezuela’s Funded Internal Debt (as of December 31, 2015)

As of December 31, 2015, Venezuela’s Funded Internal Debt was Bs.796.8 billion (U.S.$126.5 billion). The table below summarizes Venezuela’s Funded Internal Debt as of December 31, 2015.

	Interest Rate		Issue Date		Final Maturity(2)		Issued Amount (Millions of U.S.$)		Outstanding Amount (Millions of U.S.$)
Supplier Loans		Various		2002		2003–2005(3)		2.3		0.1
		Various		1996		1999–2003(3)		0.3		0.8
Total Supplier Loans								2.7		0.9
National Public Debt Bonds (Deuda Pública Nacional-DPN)
Deuda Pública Nacional		(1)		2006		1–5 years		859.3		767.2
Deuda Pública Nacional		(1)		2009		1 year		54.6		54.6
Deuda Pública Nacional		(1)		2010		1–5 years		2,275.5		1,242.6
Deuda Pública Nacional		(1)		2011		1–4 years		9,212.7		9,212.7
Deuda Pública Nacional		(1)		2012		3–6 years		14,963.8		14,963.8
Deuda Pública Nacional		(1)		2013		6–11 years		21,115.7		21,115.7
Deuda Pública Nacional		(1)		2014		9–14 years		13,147.9		13,147.9
Deuda Pública Nacional		(1)		2015		13–16 years		13,238.1		13,238.1
Resident Bonds (U.S.$)		LIBOR+1%		1994		16 years		394.5		74.0
Deuda Pública Nacional (U.S.$)		(1)		2006		2 years		1,075.3		1,075.3
Deuda Pública Nacional (U.S.$)		(1)		2007		4 years		755.6		755.6
Deuda Pública Nacional (U.S.$)		(1)		2009		2 years		775.9		775.9
Total National Public Debt Bonds								77,868.8		76,423.3
Total Internal Direct Debt of the Republic								77,871.5		76,424.2
Internal Debt of Public Sector Entities Guaranteed by the Republic								77,871.5		76,424.2
Deuda Pública Nacional				1988				1.3		0.1
Deuda Pública Nacional				2012		5 years		2,305.3		2,305.3
Deuda Pública Nacional				2013		1–7 years		11,370.4		11,370.4
Deuda Pública Nacional				2014		2–7 years		10,280.9		10,280.9
Deuda Pública Nacional				2015		8–12 years		26,090.7		26,090.7
								50,048.6		50,047.3
Total Venezuela Funded External Debt								127,920.1		126,471.6

(1) Rate set by Banco Central in accordance with the formula established by the decrees pursuant to which the bonds were issued.

(2) Time to maturity date.

(3) The Republic is currently in the process of documenting this debt.

Source: Ministry of Finance.

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II. Venezuela’s Floating Internal Debt (as of December 31, 2015)

As of December 31, 2015, Venezuela’s Floating Internal Debt was Bs.18.9 billion (U.S.$2.9 billion). The table below shows Venezuela’s Floating Internal Debt as of December 31, 2015.

	Issue Date		Final Maturity(1)		Issued Amount (Millions of U.S.$)		Outstanding Amount (Millions of U.S.$)
Treasury Bonds (Letras del Tesoro)
Decreto 1633, Emisión 77º		Various (Jan 2015 – Dec 2015)		Less than 365 days		3,119.05		2,995.7
Total Venezuela Floating Internal Debt						3,119.05		2,995.7

(1) Time to maturity date.

Source: Ministry of Finance.

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III. Venezuela’s Funded External Debt (as of December 31, 2015)⁽¹⁾

The tables below show Venezuela’s Funded External Debt as of December 31, 2015.

									Principal Amount
	Interest Rate		Issue date		Final Maturity		Currency		Issued Amount (Millions of Original Currency)(2)		Outstanding Amount (Millions of U.S.$)(3)
Multilateral Organizations:
Inter–American Development Bank		Fixed		1993		2018		U.S.$		44.8		12.5
		Fixed		1996		2021		U.S.$		52.0		17.3
		Fixed		1997		2017		U.S.$		41.8		5.7
		Fixed		1998		2022-2023		U.S.$		18.5		7.4
		Fixed		2000		2020-2025		U.S.$		117.2		40.2
		Fixed		2001		2021		U.S.$		49.7		21.6
		Variable		2001		2021		U.S.$		2.8		1.5
		Fixed		2002		2022-2027		U.S.$		33.9		17.5
		Variable		2002		2022-2027		U.S.$		15.1		10.0
		Fixed		2005		2025-2030		U.S.$		11.3		7.5
		Variable		2005		2030		U.S.$		2.9		2.3
		Fixed		2006		2026		U.S.$		497.3		497.3
		Variable		2006		2026		U.S.$		252.7		252.7
		Variable		2008		2028-2033		U.S.$		189.0		136.4
		Variable		2009		2029		U.S.$		870.0		854.3
		Variable		2010		2030-2035		U.S.$		890.0		136.7
		Variable		2011		2036		U.S.$		100.0		61.0
		Variable		2012		2037		U.S.$		419.8		112.0
Total Inter-American Development Bank												2,193.8
Corporación Andina de Fomento		Variable		2004-2005		2017-2019		U.S.$		350.0		132.0
		Variable		2006		2016		U.S.$		300.0		50.0
		Variable		2007		2027		U.S.$		600.0		600.0
		Variable		2008		2018-2020		U.S.$		151.7		83.5
		Variable		2009		2027		U.S.$		339.0		290.6
		Variable		2010		2022-2028		U.S.$		1,824.0		1,421.8
		Variable		2011		2026-2029		U.S.$		425.1		8.6
		Variable		2012		2027		U.S.$		150.0		10.1
		Variable		2013		2025-2031		U.S.$		625.0		297.3
		Variable		2014		2029		U.S.$		48.0		0.5
		Variable		2015		2030		U.S.$		300.0		200.0
Total Corporación Andinade Fomento												3,094.4
FIDA		Variable		2005-2013		2018-2031		SDR		14.6		4.4
		Variable		2013-2031		2031		EUR		10.7		1.2
Total FIDA												5.6
NIB		Variable		2003		2018		U.S.$		2.8		0.8
Total NIB												0.8
Total Multilateral Organizations												5,294.6
Bilateral Agencies:
Various Creditors		Fixed		2001		2032		EUR		10.0		9.1
Various Creditors		Fixed		2012		2023		JPY		17,003.7		124.7
Various Creditors		Fixed		1993		2016-2018		U.S.$		81.5		8.8
Various Creditors		Variable		1993		2016		U.S.$		174.0		10.2
Various Creditors		Fixed		1999		2030		U.S.$		66.4		48.1
Various Creditors		Fixed		2003		2016		U.S.$		90.3		10.6
Various Creditors		Fixed		2004		2045		U.S.$		14.2		14.2
Various Creditors		Fixed		2009		2018-2019		U.S.$		747.2		416.8
Various Creditors		Fixed		2010		2023		U.S.$		865.4		367.0
Various Creditors		Fixed		2012		2021		U.S.$		2,000.0		1,197.7
Various Creditors		Fixed		2013		2021-2024		U.S.$		2,386.3		1,722.3
Total Bilateral Agencies												3,929.6
Commercial Bank:
Various Creditors		Variable		2004		2016		CHF		14.7		0.9
Various Creditors		Fixed		1993		2017		EUR		25.8		3.5
Various Creditors		Variable		2002		2016		EUR		200.6		18.1

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									Principal Amount
	Interest Rate		Issue date		Final Maturity		Currency		Issued Amount (Millions of Original Currency)(2)		Outstanding Amount (Millions of U.S.$)(3)
Various Creditors		Variable		2003		2016-2019		EUR		73.0		24.6
Various Creditors		Variable		2004		2018		EUR		6.6		2.2
Various Creditors		Variable		2011		2024		EUR		283.8		246.3
Various Creditors		Variable		2012		2024		EUR		162.3		—
Various Creditors		Fixed		2012		2023		EUR		556.2		375.4
Various Creditors		Fixed		2013		2023		EUR		93.0		49.2
Various Creditors		Fixed		1993		2016-2018		U.S.$		59.7		5.3
Various Creditors		Variable		2002		2016		U.S.$		26.3		2.6
Various Creditors		Variable		2004		2018		U.S.$		29.9		7.8
Total Commercial Bank												735.9
Suppliers and Contractors:
Various Creditors		Variable		1996		1997-2002		U.S.$		21.0		(7.5	)
Various Creditors		Variable		1998		1999-2003		U.S.$		25.5		(5.1	)
Various Creditors		Variable		2002		2003-2012		U.S.$		3.5		0.9
Various Creditors		Fixed		2002		2003-2012		U.S.$		46.0		4.1
Total Suppliers and Contractors												(7.6	)
Global Bonds – 9.25%		9.25%		1997		2027		U.S.$		4,000.0		3,998.0
Global Bonds – 13.625%		13.625%		1998		2018		U.S.$		752.8		752.8
Global Bonds – 13.625%		13.625%		2001		2018		U.S.$		300.0		300.0
Global Bonds – 7.00%		7.000%		2003		2018		U.S.$		1,000.0		1,000.0
Global Bonds – 9.375%		9.375%		2004		2034		U.S.$		1,500.0		1,489.0
Global Bonds – 5.75%		5.750%		2005		2016		U.S.$		1,500.1		1,500.1
Global Bonds – 6.00%		6.000%		2005		2020		U.S.$		1,500.1		1,500.1
Global Bonds – 7.65%		7.650%		2005		2025		U.S.$		1,599.8		1,597.8
Global Bonds – 7.00%		7.00%		2007		2038		U.S.$		1,250.0		1,250.0
Global Bonds – 9%		9.00%		2008		2023		U.S.$		2,000.0		2,000.0
Global Bonds – 9.25%		9.25%		2008		2028		U.S.$		2,000.0		2,000.0
Global Bonds – 7.75%		7.750%		2009		2019		U.S.$		2,496.0		2,496.0
Global Bonds – 8.25%		8.250%		2009		2024		U.S.$		2,496.0		2,496.0
Global Bonds – 12.75%		12.750%		2010		2022		U.S.$		3,000.0		3,000.0
Global Bonds – 11.95%		11.950%		2011		2031		U.S.$		4,200.0		4,200.0
Global Bonds – 11.75%		11.750%		2011		2026		U.S.$		3,000.0		3,000.0
Total Bonds												32,579.7
Total Venezuela Funded External Debt												42,532.1

(1) Debt classification by source of finance adjusted according to the Debt Management and Financial System Criteria Sistema de Gestión de Deuda or “SIGADE.”

(2) Expressed in units of original currencies.

(3) Debt incurred in currencies other than U.S. dollars at the respective exchange rates as of December 31, 2015.

Source: Ministry of Finance.

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