The tax on windfall profits "is intended to appropriate for the state, as the owner of a scarce natural resource, the extra income generated precisely because of the scarcity of the resource," said Energy Minister Rafael Ramirez.
The high prices of crude have brought oil companies petrodollars in amounts over and above provision for investment, costs and a reasonable profit margin. It costs just $5 or less to produce a barrel of crude in Venezuela, but the benchmarks Brent North Sea crude and West Texas Intermediate have been more than $70 a barrel since mid-2007, and more than $100 a barrel for the past six weeks.
President Hugo Chvez instructed his ministers in March to prepare a recommendation for a tax on instant profits, and he said his decision was inspired by reading writings by U.S. economist Joseph Stiglitz, winner of the 2001 Nobel Prize for economics, who is critical of speculative markets. The Energy Ministry submitted the draft law to parliament -- where 160 out of 167 lawmakers are government allies, because the opposition boycotted the last legislative elections -- which immediately approved it on the first reading, on April 3. It is expected to pass the final reading in the near future.
The new tax will work as follows: Whenever the average monthly price of Brent North Sea crude is above $70 a barrel, 50 percent of the additional revenue will go to the state, and the other 50 percent to the company extracting and selling the oil. But when the reference price climbs above $100 a barrel, the state's share of the windfall profits will go up to 60 percent.
The tax will not be applied if the price is lower than $70, and Brent crude remains the reference in spite of the fact that Venezuelan crude is somewhat heavier and cheaper than the North Sea oil.
Ramirez said that according to his estimates, the new tax will contribute more than an additional $1 billion a year to the Venezuelan state coffers, "because we think that current prices will be maintained."
The additional revenue would add two percent to the nearly $50 billion that the state coffers now receive from taxes, contributions to special funds and dividends.
Oil in this country is extracted and sold by the state-run Petrcleos de Venezuela (PDVSA) and about thirty private firms with which it has joint ventures.
PDVSA's partners pump nearly 1 million barrels per day -- one-third of Venezuela's total output -- from old oilfields or projects that upgrade the extra heavy crude from the southeastern Orinoco Belt.
Like its partners, PDVSA must pay royalties of 16.7 percent, income tax of between 34 and 50 percent of net income and other smaller taxes.
In spite of the heavy taxation and the obligation to contribute to social programs and development funds, which absorbed $14 billion in 2007, PDVSA still made a net profit of $5.37 billion last year.
The minority partners in the joint ventures, in turn, made a total net profit of $902 million.
The new tax will allow the government legally to appropriate a larger share of profits from both PDVSA and its partners.
But Victor Poleo, a professor of graduate studies in oil economics at the Central University of Venezuela, said the new tax "is politically misconceived."
"Taxes and royalties mean that the country renounces its political and economic rights," he said. "The only politically sovereign relationship between the state and the operating companies is a service relationship: the operator should operate, properly and at minimum cost, and be paid costs and a profit, and the difference should belong and accrue to the resource owner, which is the state."
Poleo and other academics critical of Venezuela's oil policies agree that the business plans and taxes in the industry under the Chvez administration "make concubines out of former servants" by accepting companies which used to be service providers as partners in co-ownership, albeit with minority shares.
A precedent for the new tax is the Crude Oil Windfall Profit Tax Act in the United States, which was signed into law in 1980 by then president Jimmy Carter. The law levied a tax of up to 70 percent on the difference between the market price of oil and a lower price set by law.
Although the tax contributed some $80 billion to the state coffers until it was revoked in 1987 by president Ronald Reagan, some economists claim it drained resources that could have been reinvested in the industry to boost production.
In Venezuela the amounts collected by the new tax will be deductible from the operating companies' income tax bills. "According to our calculations, if it is not deducted from income tax, the new tax may cause the companies to make a loss on their operations," Ramirez said.
The minister mentioned a Venezuelan precedent, the Fiscal Export Value, which was essentially a surtax imposed on oil companies before the nationalization of the industry in 1976.
Under that system, the government fixed an export price for oil, for tax purposes, about 20 percent higher than the value declared by the private oil companies, to compensate for the higher prices the companies were likely to obtain by exporting the crude.
This taxation device continued to be applied after nationalization, but PDVSA, in order to increase its resources for spending and investment, managed to get it revoked in the 1990s.
Under the new law, PDVSA will be able to deduct its contributions to government development funds from its payments of the new tax, and the executive branch reserves the right to exonerate, partially or totally, certain oil shipments that are covered by special international cooperation agreements.
Proportionally, then, the tax burden will fall most heavily on the foreign oil companies that operate in partnership with PDVSA, including the U.S. Chevron corporation, Norway's Statoil, the U.K.'s BP, France's Total and Royal Dutch Shell.
On Wednesday, Chvez nationalized the country's largest steel plant, SiderGBPrgica del Orinoco, after talks to renew the collective bargaining agreement between the workers' union and the Argentine consortium Ternium, the majority shareholder, collapsed.
The government also recently nationalized the cement industry. So far this year, the Venezuelan state has renationalized a number of key aspects of the economy, by means of land expropriations in rural areas or acquisitions of companies in the industrial sector.
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