From: michael a. lebowitz (mlebowit@SFU.CA)
Date: Sun Oct 10 2004 - 17:56:07 EDT
Venezuela Boosts Taxes on Orinoco Deals Sun Oct 10, 2004 03:31 PM ET By Pascal Fletcher CARACAS, Venezuela (Reuters) - Venezuela on Sunday ordered foreign oil firms operating in its huge Orinoco heavy crude belt to pay much higher taxes in what President Hugo Chavez called a drive to tighten sovereign control over petroleum resources. "This is an act of justice and sovereignty," Chavez, a firebrand left-wing nationalist, said in a television and radio broadcast. He said he was raising the exploitation tax on several multibillion dollar oil ventures in the southeast Orinoco belt to 16.6 percent from the current level of 0-1 percent, which he criticized as "negligible." Venezuela, the world's No. 5 oil exporter, had been negotiating with its U.S. and European partners in the Orinoco to ensure that future projects fell in line with a 2001 Hydrocarbons Law raising existing royalty and tax levels. But Sunday's apparently unilateral decision came as a surprise as it had been understood that the tax hikes would not affect existing operating contracts. The move raised questions about the negotiation and legal security of future oil and gas investments in Venezuela, which has the world's biggest oil reserves outside the Middle East. "I have decided to use my executive powers to increase the exploitation tax (in the Orinoco ventures) .... From today, the tax will be 16.6 percent," Chavez said, speaking on his weekly "Hello President" television and radio show. The latest measure affects upgrading projects in the Orinoco region which produce about 500,000 barrels per day (bpd) and involve a number of international oil companies. The existing ventures are Hamaca and Cerro Negro with Exxon Mobil Corp., Sincor with France's TotalFinaElf and Norway's Statoil and Petrozuata with ConocoPhillips. These Orinoco heavy oil projects were signed under preferential terms when Venezuela opened its growing oil industry to wider foreign investment in the early 1990s. Chavez, a former paratrooper first elected in 1998, said his government had moved to restore genuine national control over state oil firm PDVSA, which he said had been "kidnapped" by foreign oil interests over three decades until 2002. In that year, the Venezuelan leader survived a brief coup followed by an opposition general strike which badly disrupted oil exports and shipments. The government used troops and loyal workers to restore PDVSA'S oil operations and fired around 18,000 strikers, including skilled managers and engineers. Chavez won a referendum on his rule Aug. 15 that confirmed his mandate until early 2007. "SECOND NATIONALIZATION PHASE" PDVSA and government officials insist Venezuela's total oil output has returned to pre-strike levels of over 3 million bpd. But most industry analysts put current production at between 2.6 million and 2.7 million bpd. Announcing the oil tax increase from the eastern oil port of Puerto La Cruz, Chavez said: "Today, we are starting the second phase of the true nationalization of PDVSA and of Venezuela's oil, aiming for full petroleum sovereignty." He added the raised tax levels for the Orinoco, which holds heavy oil reserves estimated at around 235 billion barrels, corrected what he called foreign "domination mechanisms." The heavy crude deposits in the Orinoco belt require a costly upgrading process to convert the crude into a lighter synthetic oil. The low-tax terms were originally awarded to the foreign firms to offset the higher investment involved. "We consider that the supposed reasons that led to this no longer exist, if they ever really existed," Chavez said. His government is enjoying an oil income windfall, thanks to world oil prices soaring above $50 a barrel. But Chavez, who has strongly supported efforts by the Organization of Petroleum Exporting Countries (OPEC) to coordinate oil output strategy, said he did not think this price was excessively high. "Some say it's a very high price putting at risk the economic stability of the world .... That's a lie," he said. ---------- © Copyright Reuters 2004. All rights reserved. Any copying, re-publication or re-distribution of Reuters content or of any content used on this site, including by framing or similar means, is expressly prohibited without prior written consent of Reuters. Michael A. Lebowitz Professor Emeritus Economics Department Simon Fraser University Burnaby, B.C., Canada V5A 1S6 Currently based in Venezuela. Can be reached at Residencias Anauco Suites Departamento 601 Parque Central, Zona Postal 1010, Oficina 1 Caracas, Venezuela (58-212) 573-4111 fax: (58-212) 573-7724
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