Venezuela to adjust oil law with flexible royalties policy

Nov 07, 2001 01:00 AM

Foreign investors' royalty payments on oil exploration and production in Venezuela will be more flexible than originally proposed under a new investment law, an Oil Ministry spokesman said. Venezuela had been under heavy pressure to modify a proposal that would raise the royalty payments to among the highest rates in the world. Unlike income tax payments, royalty payments are made to the government the moment a barrel of crude is extracted.

Officials are "discussing the last details before the law is approved... but it is very likely that there will be some flexibility when it comes to royalties," said the spokesman. The original version would have raised royalty rates from 16.6 % of investors' gross income to 30 %. The Finance Ministry is considering lowering corporate income tax rates, which are based on net profit, from 67 % to between 30 % and 40 % to partially offset the higher royalties.
The government argues that steeper royalty rates will create a more reliable revenue flow and make budgeting easier. Foreign executives warned that raising royalties to 30 % would deter investment in all but the most potentially profitable exploration projects. "The idea now is manage the 30 % rate in a flexible way, keep it at 30 % at some projects and lower it when it comes to other projects," the spokesman said.

Oil Minister Alvaro Silva has suggested that royalties could vary. For example, more costly extra-heavy crude oil joint ventures in the Orinoco Belt could operate with lower rates. Over the past weeks, a presidential commission has listened to suggestions and handed the new legislation to the Cabinet, which will consider it. It then goes to Chavez, who has the power to issue the law without consulting Congress.

Source: AP
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