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More Tax on Venezuela Oil Projects
From: "Macdonald Stainsby" <mstainsby at resist.ca>
To: rad-green at lists.econ.utah.edu,lefthook at lists.riseup.net
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More Tax on Venezuela Oil Projects
By BRIAN ELLSWORTH
NYTimes

Published: October 12, 2004

CARACAS, Venezuela, Oct. 11 - Venezuela's energy minister said on Monday
that the country's decision to end a tax holiday on the four heavy-crude
upgrading projects in the country's vast Orinoco Belt would not drive
those companies away. On Sunday, President Hugo Chávez announced on his
weekly TV and radio broadcast that he would immediately raise royalties on
the projects to 16.6 percent from 1 percent.

Rafael Ramírez, the energy minister, defended that decision at a press
gathering on Monday, saying that it was justified by record-high oil
prices and that the companies involved would understand.

"It's absurd that with oil prices at $53 per barrel anyone is paying
royalties of just 1 percent," he said. The oil market has changed
fundamentally, he said, adding, "We believe the era of cheap oil is over."

The Orinoco Belt projects produce 500,000 barrels a day of what the
government says is the country's total output of 3.1 million barrels a
day. Independent analysts, however, as well as OPEC, say production is
closer to 2.5 million barrels a day. The new royalty rate is expected to
raise $766 million a year, up from $46 million.

The projects in question were put together in the late 1990's, when
Venezuelan oil was fetching around $10 a barrel, considerably below last
week's average price of $42.67 for the Venezuelan basket. Mr. Ramírez said
the 1943 Hydrocarbons Law allowed the government to raise royalties based
on market conditions.

The projects, which turn the heavy tar-like Orinoco crude into synthetic
oil that sells for $24 to $32 a barrel, include investments from
ChevronTexaco, Exxon Mobil, ConocoPhillips, as well as BP, Total of France
and Statoil of Norway. Venezuela's state oil company, Petróleos de
Venezuela S.A. (Pdvsa), is a minority partner in two of the projects.

The companies declined comment on the royalty increase.

The announcement comes as the left-wing government of President Chávez is
riding a wave of high oil prices and still savoring its victory in a
recall referendum on his rule in August. Mr. Chávez, who first announced
the change on his weekly radio broadcast Sunday, said the decision was
part of a plan for "a true nationalization" of Venezuela's oil industry
that would increase the government take on Pdvsa's revenue of $42.6
billion.

Mr. Chávez has already set aside $3.7 billion of the company's revenues
this year to finance the social programs that bolstered his standing in
the polls in August.

"When oil prices are high, it's natural for countries to try to bring in
more tax revenue from their oil industries," said Michelle Billig,
director of political risk at PIRA Energy, a consulting group in New York.

"We are seeing similar things happen in other countries, like Kazakhstan,
Chad and Bolivia," she said. "This is part of the investment risk for oil
companies that invest in developing countries."

In 2001, Venezuela issued a decree raising royalty rates to as much as 20
percent to 30 percent and requiring a state majority in all new upstream
oil ventures. Foreign investors have criticized the law as excessively
restrictive, but investor interest has not faded. Even so, the government
has not acted on any major proposals to invest under the new law.

Soaring prices have nonetheless drawn investor interest in the Orinoco
Belt projects, which Venezuelan authorities say contains as much as 235
billion barrels of heavy crude oil. Both Shell and ChevronTexaco this year
have proposed new upgrading projects that would comply with the new terms
and conditions.

Many say the country's oil production has never recovered from a
devastating two-month strike at Pdvsa, begun in December 2002, to force
Mr. Chávez from office. He subsequently dismissed 19,000 of the company's
employees, more than half its work force.

Analysts were mixed on whether investors would veer away from Venezuela
after yet another display of Mr. Chávez's unpredictability. But some
believed that they would not, given the need for new exploration.

Jay Saunders, an energy analyst at Deutsche Bank in New York, said the
companies involved "were getting such great terms in the first place that
there's room for Chavez to tighten the terms without getting overly
onerous."

Roger Tissot, director of markets and countries at PFC Energy in
Washington, says that given the combination of high prices and Venezuela's
location and reserves, companies are not likely to leave the country
because of the royalty adjustment.

"But one fundamental truth is that Venezuela needs foreign investment to
increase oil production," Mr. Tissot said. "I don't think they can afford
to ignore the views of private companies."


--
Macdonald Stainsby
http://lists.econ.utah.edu/mailman/listinfo/rad-green
In the contradiction lies the hope.
--Brecht.