Argentina decides on 20 % oil export tax

Feb 14, 2002 01:00 AM

Argentina's President Eduardo Duhalde has gone ahead with plans for a 20 % tax on exports of oil and oil derivatives from March 1, proceeds from which would generate some $ 700 mm a year over the next five years to bail out the nation's reeling banking system. "The [oil] industry had expected the government to implement an alternate 8-10 % tax on production rather than the tax on exports, a spokesperson from Spanish oil company Repsol-YPF told.
"This (new tax) will have an impact for companies that are only producers, but for an integrated company like Repsol, the impact will be less." The company's refining operations in Argentina will help compensate for the impact of the crude export tax. However, Repsol's operation in the Gulf of San Jorge is a less profitable production zone and the tax could hurt activities there, the source said.
"The least profitable wells will be shut down. The Gulf of San Jorge will be hurt the most," the Repsol source said. "There is no doubt there will be a strong drop in production. That could affect the government's tax revenues."

The tax applies only to oil and oil derivatives, and because oil is a commodity, if the price of Argentine oil increases 20 %, buyers would simply stop buying. The result is that Argentine producers will have to discount 20 % from the sale price and assume that portion of the price themselves.
Argentina exports natural gas, mainly for power generation, to Chile, Uruguay and Brazil, and although the government initially said that the tax would be on hydrocarbons and not just oil, gas industry representatives managed to negotiate during the course of the day to have gas left out of the measure.

Chile is the main international customer, where there is already a high dependence on natural gas for power plants, and eight combined cycle projects that would be operating by 2010 are due to be decided on in the next five years.
"If you make an indication that prices cannot be guaranteed then you are really messing up future investment," gas transport company Gasatacama chairman Rudolf Araneda told. "It would be a strategic mistake. To have the government putting its hands into private contracts is unacceptable," he continued.

Chile was able to cite two international agreements to argue against the tax including natural gas: A protocol signed between the two countries that prevented taxes being applied discriminatorily, and a Chile-Mercosur agreement that specifically banned the introduction of new taxes.
Before it was clear that natural gas would not be included in the tax, Chile's national energy commission (CNE) head Vivianne Blanlot said: "The tax will mean that some companies that depend on Argentina for natural gas are going to look for another source," mentioning Bolivia as a long-term alternative.

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