Venezuela imposes windfall tax on oil producers
Last update: 12:11 a.m. EDT April 16, 2008
SAN FRANCISCO (MarketWatch) -- Oil producers that have been battling Venezuelan President Hugo Chavez have a new problem: a windfall tax that the government estimates will extract more than $9 billion a year from them
Venezuela's National Assembly on Tuesday enacted the new tax, The Wall Street Journal reported in its online edition. Lawmakers passed the bill just two days after Chavez told them his government urgently needed the money, the Journal reported. See Wall Street Journal story (subscription required)
The tax is expected to go into effect this week and is planned to raise about $760 million a month or more than $9 billion a year, from oil producers. According to the Journal:
The levy kicks in when the price of benchmark Brent crude sits above $70 a barrel. If oil prices are above that threshold for one month, the state will take 50% of the difference between that average and the final sale price of every barrel.
When Brent crude exceeds the $100-a-barrel average, the rate will rise to 60%.
Global oil prices hit a record above $113 a barrel Tuesday.
The tax will affect companies ranging from state-oil firm Petroleos de Venezuela, or PDVSA, to its foreign partners like France's Total SA (TOT
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The tax is the latest headache for foreign firms under Chavez, the report noted. Since Chavez took power in 1999, he has changed the rules for the oil sector several times, including forcing foreign companies to accept only a minority stake in all of their local ventures.
Chavez's moves against big oil have prompted some firms, like Texas-based Exxon Mobil Corp. to pull out of Venezuela, according to the report.
But other companies that have stuck it out are likely to continue, viewing Chavez's action as the price of having access to Venezuela's rich deposits, the Journal said.
The windfall tax is a sign of how eager Chavez is to get more money ahead of municipal and gubernatorial elections later this year, according to the report, the Journal said.
Despite rampant spending by his government, Chavez's popularity has slipped in the past year because many ordinary Venezuelans see little improvement in their lives from all the money, the report noted. Price controls designed to offset inflation from Chavez's spending have also led to food shortages that have angered his supporters, according to the Journal.