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CaribNews: Venezuela approves 'mandatory contribution' on windfall oil profits

Published on Thursday, April 17, 2008 Email To Friend Print Version

By Victor Flores

CARACAS, Venezuela (AFP): Venezuela's legislature approved a "mandatory contribution" on windfall oil profits that entered into effect on Wednesday and directly affects foreign oil companies operating in the South American nation.

The new measure will be levied on profits when oil prices rise above 70 dollars a barrel, officials said.
It will begin at 50 percent and increase to 60 percent when prices top 100 dollars a barrel, using the barrel of Brent crude as a reference price, officials said.

The measure was rushed through Venezuela's unicameral National Assembly and was unanimously approved Tuesday. The legislature is controlled by supporters of President Hugo Chavez, with only seven of its 164 seats held by opponents.

"We did not want to pass an expropriatory law on these companies. The idea is not to cause them losses," Energy Minister and state-run oil company Petroleos de Venezuela (PDVSA) President Rafael Ramirez said Tuesday.

The Venezuelan government "wants to obtain some benefits from the high crude prices," said Elio Ohep, editor of the specialty magazine Petroleumworld.

Since the government is presenting the measure as a "special contribution," companies "can put it down as an expenditure and not a tax," Ohep said.

At the current prices the new contribution would net some 1.2 billion dollars a year, Ohep said.

The money will not go to the Venezuelan national budget, but instead to the National Fund for Development, which is directly managed by the executive branch and gets most of its funds from PDVSA and the Central Bank.

High oil prices has allowed Chavez to collect some 30 billion dollars between 2005 and 2007 for the Fund, but more than half of that has already been assigned and most of the remainder is already committed.

"The government needs fresh income to maintain its high level of public expenditures," which is the key to Chavez's popularity, economist Narciso Guaramato Parra told AFP.

The fresh funds "will not result in foreign oil companies pulling their investments out of the country, because in the end they are still making big profits due to the global oil price boom," said Pietro Pitts, top editor at Latinpetroleum magazine.

"Beyond taxes and new contributions, which are high but do not affect the larger profits," foreign corporations "want to know if they have the legal security to remain in Venezuela," Pitts said.

Chavez on Sunday urged the National Assembly to pass the new tax measure, saying that each day it lingered meant millions of dollars less in social spending.

Chavez also said the fresh funds would help the government nationalize three cement-making firms from Mexico, France and Switzerland, as well as an Argentine steel firm, turning them into "real socialist companies."

Oil prices struck a series of new highs on Wednesday, with New York crude crossing 115 dollars a barrel, while Brent North Sea crude for June struck its own record intraday high, at 112.08 dollars a barrel.

Venezuela, a member of the Organization of Petroleum Exporting Countries (OPEC), is Latin America's leading oil producer -- and the world's ninth most productive -- with an estimated 100 billion barrels of crude oil reserves.

http://www.caribbeannetnews.com/news-7243--12-12--.html