Agreement 260-2021

OBJECT: The purpose of this regulation is to regulate the provisions contained in Legislative Decree No. 100-2020, published in the Official Gazette "La Gaceta" on February 22, 2021, Gazette No. 35524.

SCOPE OF APPLICATION: The provisions contained in this regulation shall apply throughout the national territory to all companies in the electrical subsector that generate electricity with fossil fuels and that are commercialized in the National Electrical Market, as well as to the Association of the National Electrical System Operator (ODS) in the exercise of the operation of the National Electrical System and the administration of the wholesale market, to electrical companies that provide grid services for the transport of electricity, and to companies operating isolated electrical systems, in accordance with the provisions of Legislative Decree No. 404-2013 containing the General Law of the Electrical Industry and its regulations and the Framework Treaty of the Central American Electrical Market.

DEFINITIONS: For the purposes of applying this regulation, the following concepts are defined: ACPV: Contribution for the Care of Social Programs and Conservation of Road Infrastructure, a tax created by Decree No. 131-98, which is part of the formula "Import Parity Price System", and is applied per gallon, a measure used in the United States of America or equivalent unit in the International System of Units (SI), for diesel, kerosene, bunker (fuel oil), LPG and AvJet imported or of national production. CUSTOMS: The administrative services responsible for the application of customs legislation and the collection of import and export taxes and which are also responsible for the application of other laws and regulations relating, among others, to the importation, transit and exportation of goods. CUSTOMS ADMINISTRATION OF HONDURAS: A deconcentrated entity of the Presidency of the Republic, with functional, technical, administrative and national security autonomy, with its own legal personality, responsible for the control, verification, inspection and collection of customs taxes, with authority and competence at the national level and domiciled in the capital of the Republic. SELF-CONSUMPTION: Electrical energy produced and consumed by the same user through generation systems for its internal processes and which is not consumption for the operation of the generation system or the plant necessary for the production of electrical energy for commercialization purposes. This does not include self-consumption of generation plants. CUSTOMS AUTHORITY: The official of the Customs Service who, by reason of their position and by virtue of the competence granted, verifies the correct application of customs regulations, complies with them and ensures compliance. CONSUMPTION CERTIFICATE: Document in which the quantities of petroleum-derived fuels consumed in the plants of generating companies to produce electrical energy supplied to the National Interconnected System (SIN), in isolated electrical systems or micro-grids, are detailed, and obtained through fuel inventory control. CREE: Electrical Energy Regulatory Commission, a Deconcentrated Body attached to the Presidency of the Republic, which shall act within the framework of its attributions with functional and budgetary independence, with sufficient administrative powers for the fulfillment of its objectives as provided in Article 3 of Legislative Decree No. 404-2013 of the General Law of the Electrical Industry. CRIE: Regional Electrical Interconnection Commission, a regulatory and normative body of the Regional Electrical Market, with its own legal personality, capacity of international public law, economic independence, functional independence and technical specialty, which shall perform its functions with impartiality and transparency; Article 19 of the Framework Treaty of the Central American Electrical Market. FUEL CONSUMPTION: Quantity of fuel given in unit of volume, required by a thermal generation plant or central to produce electricity. The unit of volume used for the calculation of the ACPV Tax is the American Gallon (US) or equivalent unit in the International System of Units (SI); one American Gallon is equivalent to 3.785 liters. MERCHANDISE DECLARATION: The act carried out in the form prescribed by the Customs Service, by means of which the interested party freely and voluntarily expresses the regime to which the goods are subject and accepts the obligations that it imposes. DECLARANT: Is the person who makes, or on whose behalf is made, a DUCA. CUSTOMS WAREHOUSE OR CUSTOMS DEPOSIT: Is the Regime by which goods are stored for a determined period, in a place enabled for that purpose, under customs authority with suspension of corresponding taxes. Goods in customs deposits shall be under the custody, conservation and responsibility of the depositary. PRIVATE CUSTOMS WAREHOUSE: Are facilities under fiscal surveillance, enabled by the superior authority of the customs service, which shall be used exclusively by the depositary and by those persons authorized by the Customs Service upon request of the depositary, with suspension of taxes, to store vehicles, raw materials, agricultural machinery and/or explosives, in compliance with their productive activity or business operation. PUBLIC CUSTOMS WAREHOUSE: Are facilities under fiscal surveillance, enabled by the hierarchical superior authority of the Customs Service, which shall be used by any person for the storage of goods, with suspension of taxes. ELECTRICITY: The physical good underlying commercial transactions in any of its aspects: energy, power or complementary services, understanding that power is the rate of energy flow per unit of time, the capacity of an installation is the maximum power it can deliver, transport, or use, and complementary services are essential services to maintain supply quality that shall be identified in the Regulations. EXCESS ELECTRICAL ENERGY: Excess power and energy that has been generated by generating companies with self-consumption schemes and that is injected for commercialization purposes into the National Interconnected System, this excess energy is accounted for through a commercial measurement system in accordance with the regulatory provisions of the General Law of the Electrical Industry. EXEMPTION: Is the total or partial waiver of the payment of the tax or customs obligation approved by the National Congress, whose individual processing corresponds to the Executive Branch, through the Secretary of State in the Finance Department. NATIONAL ELECTRICAL MARKET: Is the set of electricity purchase-sale transactions administered by the System Operator. REGIONAL ELECTRICAL MARKET: In consonance with the Framework Treaty of the Central American Electrical Market, it is the permanent activity of commercial electricity transactions, derived from an energy dispatch with regional economic criteria, through medium and long-term contracts between enabled agents. CUSTOMS OBLIGATION: Arises between the State and the passive subjects at the moment the tax-generating event occurs. COMPLEMENTARY SERVICES: Services required for the operation of the electrical system in conditions of quality, safety, reliability and lower economic cost, which shall be managed by the System Operator in accordance with the standards issued by CREE. WHOLESALE MARKET SYSTEM OPERATION SERVICES: Are all services in accordance with the powers granted to the System Operator entity, established in the General Law of the Electrical Industry and the standards issued by CREE. ELECTRICITY TRANSPORT SERVICES: Transmission service or distribution service provided as established in the General Law of the Electrical Industry and the standards issued by CREE. ISOLATED SYSTEMS: Those electrical systems that operate not connected to the National Interconnected System. REGIONAL ELECTRICAL SYSTEM: Electrical System of Central America, composed of the electrical systems of the member countries of the Regional Electrical Market. NATIONAL INTERCONNECTED SYSTEM (SIN): The electrical system formed by the generating plants, distribution networks and the national transmission network that physically unite them without interruption. SYSTEM OPERATOR (ODS): An entity with public, private or mixed capital, non-profit, in charge of the operation of the National Interconnected System (SIN) and its coordination with the Regional Electrical System and the administration of the National Electrical Market and its coordination with the Regional Electrical Market, with legal personality granted by Resolution No. 1250-2016, dated November 9, 2016, issued by the Secretary of State for Human Rights, Justice, Governance and Decentralization (SDHJGD). UNIT OF MEASUREMENT: Is established as the unit of measurement for the certification of consumption of petroleum-derived fuels, the gallon of the United States of America as a universal measure or two hundred thirty-one (231) cubic inches, equivalent to three point seven hundred eighty-five (3.785) liters measured at the temperature of SIXTY DEGREES FAHRENHEIT (60 °F), equivalent to fifteen point six degrees Celsius or centigrade (15.6 °C). TITLE II EXEMPTION FROM THE TAX DENOMINATED CONTRIBUTION FOR THE CARE OF SOCIAL PROGRAMS AND CONSERVATION OF ROAD INFRASTRUCTURE (ACPV)

EXEMPTION FOR ELECTRICAL SUBSECTOR COMPANIES: The companies in the electrical subsector are exempted from the payment of the tax denominated Contribution for the Care of Social Programs and Conservation of Road Infrastructure (ACPV), on fossil fuels that are used exclusively for the generation of electricity that is commercialized in the National Electrical Market or in the Regional Electrical Market in accordance with the provisions of the General Law of the Electrical Industry and the standards issued by CREE, and with the Framework Treaty of the Central American Electrical Market. Likewise, the companies in the electrical subsector are exempted from the payment of the tax denominated Contribution for the Care of Social Programs and Conservation of Road Infrastructure (ACPV), on the fossil fuel used exclusively for the generation of electricity in isolated electrical systems in compliance with the General Law of the Electrical Industry and the standards issued by CREE. In the case of fuel purchases by electrical subsector companies from public customs warehouses, they must follow the procedure established in this regulation.

THOSE TO WHICH THE EXEMPTION DOES NOT APPLY: The exemption detailed in the preceding article is not applicable to: 1. Those companies that do not meet the registration requirements contained in Article 2 of Legislative Decree No. 100-2020. 2. Fuels used for purposes other than the generation of electricity for commercialization. 3. Those contained in Article 1, second paragraph, of Legislative Decree No. 181-2012.

OF FUEL SURPLUSES: The fuel surpluses resulting from inventory control generated by electrical subsector companies that store fuel in customs warehouses must be nationalized by the depositary in accordance with the Customs Procedure for Fuel Inventory Adjustment in the Customs Information System.

OF NON-SIMULTANEITY: In accordance with Article 17 of the Fiscal Responsibility Law, contained in Decree No. 25-2016 published in the Official Gazette La Gaceta on May 4, 2016 and Article 33 of the Law of Efficiency of Public Income and Expenditure, contained in Decree No. 113-2011 published in the Official Gazette La Gaceta on July 8, 2011, any legal entity cannot enjoy more than one tax benefit under a Special Law that contains provisions of a tax nature; legal entities that are enjoying more than one tax benefit in relation to ACPV exemption, and prior to the effective date of this Law, must choose the tax benefit they wish to enjoy from that date, proceeding immediately to registration in the corresponding Registry of Exempted Persons. Once the registration described above has been completed, the Finance Department (SEFIN) must proceed to notify the institutions that adopt, administer and verify the operations of the beneficiaries and the Tax Administration. Therefore, the exemption contained in Article 4 of this Regulation shall not apply to the company that is already enjoying a tax benefit for the ACPV exemption.

TAX OBLIGATIONS: The tax or customs exemption or exoneration under Legislative Decree 100-2020 does not exempt the tax-obligated parties from the duty to submit declarations and other obligations set forth in the Tax Code. TITLE III OF REGISTRATIONS AND SUPERVISION

OF REGISTRATION IN THE ELECTRICAL SUBSECTOR: Without prejudice to compliance with other special requirements necessary for their creation, electrical subsector companies that use fossil fuels, to qualify for the exemption described in Article 1 of Decree No. 100-2020, must demonstrate that they are properly registered in the Public Registry of Companies maintained by the Electrical Energy Regulatory Commission (CREE) in accordance with the provisions of the General Law of the Electrical Industry contained in Legislative Decree No. 404-2013 and its regulations, or otherwise submit a certificate proving that said registration is pending. Likewise, they must be properly registered in the Registries determined by the Secretary of State in the Energy Department (SEN) created by Decree No. PCM 048-2017, through the General Directorate of Hydrocarbons and Biofuels created by Decree No. PCM-007-2020, or otherwise submit a certificate proving that said registration is pending. Registration must also be made in the Registry of Exempted Persons of the General Directorate of Control of Customs Franchises, dependent on the Finance Department (SEFIN), in accordance with the provisions of Article 24 of Decree No. 278-2013 published in the Official Gazette La Gaceta on December 30, 2013 and Articles 21 and 58 numeral 2) of the Tax Code contained in Decree No. 170-2016 published in the Official Gazette La Gaceta on December 28, 2016.

OF CUSTOMS CONTROL AND SUPERVISION: The Customs Administration of Honduras, in accordance with the Tax Code, is responsible for oversight and implementing customs control in the customs or fiscal warehouse. The control and rationalization of exemptions is the responsibility of the Secretary of State in the Finance Department through the General Directorate of Control of Customs Franchises; in its oversight function of the use of the exemptions subject to this regulation and the corresponding customs control, it may rely on the reports issued by the System Operator in the fulfillment of its functions and in accordance with the powers granted by the General Law of the Electrical Industry and the standards issued by CREE. The Customs Administration of Honduras must request through the Tripartite Commission a technical report for the control and verification of fuel consumption that are used exclusively for the generation of electricity by electrical subsector companies. In the event that the fuel was used for purposes other than those provided in Legislative Decree No. 100-2020, the corresponding taxes must be paid.

OF EXEMPTION: In accordance with Article 3 of Decree No. 100-2020, those services defined and contemplated in the Customs Tax Technical Instruction, which comprises the following, are exempt from the payment of Sales Tax:

• i)

  Electricity Transport Services,

• ii)

  Complementary Services; and,

• iii)

  System Operation and Wholesale Market Administration Services in accordance with the national and regional regulatory framework of the electrical subsector.

PROCEDURE FOR VERIFICATION: Based on Articles 20, numeral 3, 21, numeral 13 and 72 of Decree No. 170-2016 containing the Tax Code, the Tax-obligated Beneficiaries, protected by Decree No. 100-2020, are obliged to provide the following information: 1. Submit to the General Directorate of Control of Customs Franchises (DGCFA) a report within the first five (5) days of the month following each of the purchase orders generated, paid and cancelled within the Honduras Exemptions Module Administrator Platform (PAMEH). 2. No later than the fifth (5) business day of each month, the company benefited with the exemption granted by Decree No. 100-2020 shall submit to the General Directorate of Control of Customs Franchises a sworn statement certifying the energy commercialized in the National Electrical Market in the immediately preceding month, the consumption of each type of fuel used in that same month to produce it, as well as the opening inventory, fuel purchases and closing inventory. 3. The General Directorate of Control of Customs Franchises shall verify that the fuel consumption and closing inventory reported in the sworn statement submitted by the beneficiary of the exemption agrees with the corresponding estimated data contained in the reports prepared by competent technical entities. 4. The General Directorate of Control of Customs Franchises, with the accompaniment of the Tripartite Commission, may conduct verification inspections on the information provided in the sworn statement.

CREATION: In accordance with Article 5 of Decree No. 100-2020, a tripartite commission is created made up of representatives from:

• i)

  the Secretary of State in the Energy Department (SEN) (who presides over it),

• ii)

  the Secretary of State in the Finance Department (SEFIN); and,

• iii)

  the Customs Administration of Honduras (ADUANAS).

OBJECTIVE: The Tripartite Commission shall have the purpose of preparing technical opinions and reports that have proposals for updating strategic plans, monitoring, verification, inspection and others that may be required for the components subject to Decree No. 100-2020.

COMPOSITION OF THE COMMISSION: The Commission shall be composed of six (6) appointed members, two (2) representatives from each institution (principal and alternate) from the Secretary of State in the Energy Department (SEN), the Secretary of State in the Finance Department (SEFIN) and the Customs Administration of Honduras (ADUANAS), in the event that the principal member cannot be present at the sessions, he/she must notify the Commission and shall be replaced by the alternate. The representatives shall in turn be supported by the technical and legal teams of each of the Institutions that have designated them, when required.

CONVOCATIONS: The Convocation to sessions shall be effected by the representative of the State Secretariat in the Office of Energy (SEN), with (1) one week in advance.

OF THE SESSIONS: The Commission shall meet at least once a month, on the day and time that is established, preferably in the annual calendar that is approved in the last session of the previous year. The sessions shall be held in the offices of the State Secretariat in the Office of Energy (SEN) or in the place that the Commission itself designates for that purpose. Minutes shall be drawn up for each session by a representative; the members of the Commission may request in advance the inclusion of items on the agenda. Furthermore, the order of the day shall include a point for miscellaneous matters. The agenda and corresponding documentation must be sent by the secretary to the members of the Commission at least three (3) business days in advance of the date of the meeting. The principals of each of the institutions must attend the sessions and have the right to voice and vote. Furthermore, technical and legal personnel from other institutions may attend as guests to contribute their technical knowledge to the preparation of the opinion or other document that the Commission is preparing. The Commission must keep a record of each session it conducts, as well as of each one of the cases analyzed by it.

QUORUM: The Commission legally convoked may hold sessions with the attendance of all its titular members in office, provided that the members representing the three institutions are present. The principals have the right to one vote per institution represented; alternates have only the right to voice and not to vote; the vote of the alternate shall only be valid if properly authorized by the principal. Any of the members of the Commission may request the president of the commission to suspend or adjourn the session due to lack of required quorum. In the event that the session cannot be held due to lack of quorum, the president of the commission or a titular member must call a new session that must be held within the following forty-eight hours (48), which shall be held with those who attend, provided that eight (8) principal or alternate members in office designated by two (2) of the representations that make up the Commission are present. When a principal member cannot attend a session, his or her alternate must communicate this three days in advance so that the alternate may attend as the principal representative, except in circumstances of force majeure and fortuitous events.

VOTING: Each of the principal members or alternates in the capacity of principal representative has the right to one vote and agreements must be reached by majority vote of the members present. The president of the commission must direct and moderate the debates during the sessions, endeavoring to ensure their fluidity.

OF THE SECRETARY: The representative of the State Secretariat in the Office of Finance shall act as secretary. During sessions the president of the commission must be assisted in his work by the secretary of the Commission. The responsibilities of the secretary are: I. Verify the quorum and report it to the President of the Commission; II. Draw up the minutes of each of the sessions, which shall be signed by the secretary, the president and the members present in the respective session; III. Read the minutes of the previous session; IV. Call the roll of the members of the Commission; V. Take note of the votes; VI. Circulate among the members of the Commission initiatives and reports that should be known by the members; VII. Send a copy of the minutes to all members no later than five (5) business days after their approval; VIII. Inform succinctly and in writing to the members of the Commission of the concerns, suggestions and observations made by the members of the Commission and report on it at an agenda point; IX. The others that the Commission may entrust to it.

OF THE POWERS AND DUTIES OF THE COMMISSION: The tripartite Commission shall be responsible for: a. Elaborating technical and facultative opinions on the different requests of the generating companies of the electrical subsector, which should serve to substantiate the resolution that the competent entity issues for that purpose. The Commission to issue the opinion has a maximum period of fifteen (15) business days counted from the date on which the request is received. b. Preparing reports containing proposals for updating strategic plans. c. Reviewing, monitoring and controlling the standards corresponding to the correct application of this regulation. d. Ensuring strict compliance with the rules applicable to this regulation. e. Recommending that inspections be conducted, either on a specific or general basis, to be carried out by the entities according to the framework of their competencies. f. Determining non-compliance and recommending the sanctions that should be imposed by the competent entity for infractions committed by the obligated taxpayers. g. Requesting information from other public or private institutions, formally, for the development of its functions. h. Establishing the criteria that should be followed for the evaluation of the different requests. i. The others that could correspond.

INFRACTION: Any action or omission that contravenes the legal system, provided that it is classified as such in some applicable rule.

VERIFICATION: The State Secretariat of Finance (SEFIN) must verify and confirm that the obligated taxpayers benefited with exemptions comply with the commitments and objectives of Legislative Decree No. 100-2020.

SANCTION: Non-compliance with one or several commitments by the beneficiary of the exemption established in Decree No. 100-2020 shall result in the cancellation of the benefits granted, except in cases of force majeure or fortuitous events duly proven, and must be sanctioned in accordance with what is provided in the Tax Code. The foregoing, without prejudice to the administrative, civil or criminal responsibility that may apply.

UPDATING OF THE REGULATION: The State Secretariat in the Office of Finance in coordination with the State Secretariat in the Office of Energy and the Honduran Customs Administration, in compliance with the corresponding legal framework, must make the changes, modifications and/or updates of this Regulation that are necessary for its efficient application.

PRESENTATION OF REQUESTS AND RELATED PROCEDURES: During the process of application of this regulation, for procedures related to the exemptions of Legislative Decree No. 100-2020, the presentation of requests must be carried out in the form and conditions established by the General Directorate for the Control of Customs Franchises of the State Secretariat of Finance, in accordance with the applicable legal framework in force.

TRANSITION: In compliance with what is provided in Article 7 of Decree No. 100-2020 and in order to ensure the correct dispatch of petroleum derivatives from the date of entry into force of Decree No. 100-2020 from its publication in the Official Gazette La Gaceta on February 22, 2021 until the date of publication of this Regulation in the Official Gazette La Gaceta, the Tripartite Commission is instructed to, within the scope of its powers, request technical support from the National Electric Energy Enterprise (ENEE) for the certification of fuel consumption intended for the generation of electrical energy that are registered in the Honduran Customs System, with said certification having to comply with the necessary requirements to prove its validity and legality. The volumes of fuel that are being consumed and that have been documented with the customs computer system prior to the entry into force of this regulation, its consumption certification shall be completed under this mechanism until they are completely consumed.

ADAPTATION OF THE SYSTEMS: In compliance with the provisions of Legislative Decree No. 100-2020, the Honduran Customs Administration shall make the necessary adaptations to the customs computer system to the new procedure established in this regulation.

EFFECTIVE DATE: This Regulation shall enter into force on the day of its publication in the Official Gazette "La Gaceta". LET IT BE COMMUNICATED AND PUBLISHED.