Venezuela opens its doors to shipping expansion

VENEZUELA has recently put in place legislation that could result in it becoming the leading shipping centre in South America.

The opening of Venezuela's ship registry has in fact taken place in stages. It has been brought about as a result of political and shipping sector pressure to enact legislation which will help the country's depressed and almost disappearing shipping sector.

Until 1998, Venezuela did not allow bareboat charter registrations. It also required that Venezuelan flag ships be owned at least eighty per cent by Venezuelan interests. The lack of financial strength of local shipping interests other than PDV Maria, PDVSA's shipping affiliate, had led to the virtual extinction of the Venezuelan merchant fleet. In addition, stringent tax and labour legislation scared investors away.

In 1998, legislation was put in place firstly to allow bareboat charter registration, and secondly to open up ownership in Venezuela to ships of all nationalities. Because tax and labour restrictions were not lifted, the effect of the new changes was significant.

Recent legislative steps have set the stage for a new opportunity for Venezuelan shipping. The Venezuelan provisional legislative has approved legislation which allows the registration of vessels, barges and offshore platforms completely tax-free. Most importantly, the new legislation provides for a tax rebate of 75 per cent of investment in vessels, barges and offshore platforms into Venezuela, which may be used by the shipowner for up to four years.

The new legislation should mean that Venezuela can now compete with the likes of Panama in terms of ship registration rules. This opens up the possibility of any foreign interest registering a ship, barge or offshore platform in Venezuela under direct or bareboat charter registration. The intention is to attract the owner's operation as a whole, instead of just the vessel. Further adjustments need to be made, however.

The Panamanian authorities have a highly developed service culture linked to running registries. This culture does not yet exist in Venezuela, which has traditionally been very bureaucratic and highly inefficient. The maritime authorities and the government are very conscious of the need to develop a new culture in which public offices in charge of vessel registration and the maritime sector in general provide a service which attracts investors.

A further problem relates to crewing restrictions. Under Venezuelan law, the master and half the crew must be Venezuelan. Venezuelan seamen are considered to be well-prepared and trained. Placing Venezuelans on board should not in itself be a problem. However, strong pro-employee legislation provides for large payments in respect of severance and related labour benefits, particularly in the case of unjustified dismissal. This may still scare investors away. The fact that labour legislation would apply to non-Venezuelan seamen employed on a Venezuelan flag vessel is also a problem.

The overall advantages of the new ship registration rules, and particularly the tax advantages, may however outweigh the labour restrictions. When put in the balance, they could represent a minor risk compared to the substantial tax benefits. All in all, if the authorities are able to create the proper service culture and sell the virtues of this legislation properly, Venezuela should be on the way to becoming the next shipping centre of Latin America.