Argentina raises oil export duties

Aug 04, 2004 02:00 AM

Argentine Economy Minister Roberto Lavagna announced a new mechanism for taxing oil export duties, raising the tax that companies must pay for the second time in two months to stem fuel price rises. Under the new mechanism, companies will continue to pay 25 % until the international oil price reaches $ 32 per barrel. From then on, there will be a staggered system whereby the tax gradually rises until the international oil prices reaches $ 45.
At that point, oil companies will be taxed 25 % on the first $ 32 of the cost of the barrel and 20 % on the remaining value of the barrel.

This means that when the West Texas International oil price is $ 32-$ 34.99, there will be an export tax of 28 % of the total value of the barrel. At $ 35-$ 36.99, the tax will be 31 % of the total; at $ 37-$ 38.99, it will be 34 %; at $ 39-$ 40.99, it will be 37 %; at $ 41-$ 42.99, it will be 40 % and at $ 43-$ 44.99, it will be 43 %. At $ 45 and above, it will be 45 % of the barrels' value.
The front month Sept. crude oil contract on the New York Mercantile Exchange was trading at $ 44.10, down 5 cents on the day after setting a new record high of $ 44.34 in overnight electronic trading. The mechanism will not please the companies but it may be preferable to the alternative being considered by the government, which was to slap a 100 % export tax on the oil price once it moves beyond $ 42 per barrel. Lavagna said that the government may soon extend the staggered tax increases to other fuels that are exported from Argentina.

The government's move follows price increases for diesel and gasoline from Argentina's four main fuel suppliers. The gasoline hikes were the first since January 2003 and come three months after the collapse of a fuel price steadying accord. In May, President Nestor Kirchner ordered the export tax on crude lifted to 25 % from its previous 20 %. There were hikes on most other fuels as well and two weeks later, the government imposed a 20 % tax on natural gas exports. Natural gas exports werepreviously untaxed.
As for as derived products, Lavagna said the government is "currently working on" what to do with the export tax. He said that "in principle," there should be tax increases, but he didn't give specifics.

Lavagna said the government had adopted the measure to protect the economy from volatility.
"This has the aim of insulating the domestic price from the full effect of international variations... Two years ago, when we introduced the (oil) export duties, the international price was at $ 22 per barrel. Now, we are speaking of a price of more or less $ 45. If we had allowed all this (increase) to affect domestic prices, the effect would have been very negative," Lavagna commented.
He also said that domestic price rises were "unjustified," pointing out that Argentina is a net oil exporter and that companies' costs are in pesos while their earnings are in dollars.

However, Lavagna said the higher export duties weren't something the government intended to lock in for the long term.
"We aren't speaking of long term trends, because that would be different. We have a specific principle concerning natural resources that aren't renewable like oil. When there are exceptional price rises -- as is the case now with crude -- many countries capture the benefits via (state-owned) companies... but Argentina doesn't have a state-run company that allows us to capture these special gains... As a result, we must use other tools, like the export duty.”

Repsol-YPF became the last of the four major fuel producers to lift fuel prices, when they increased gasoline prices by 1.6 % and diesel prices by an average 2.5 %. Petrobras Energia Participaciones (PZE) and the local units of Shell and ExxonMobil all introduced similar rises in the week prior to Repsol's decision. The government had fought off the threat of gasoline increase in May, but with the international oil price reaching 21-year highs in July, authorities gave up trying to prevent any price hikes.
The government's decision was announced after a lengthy meeting between Kirchner and Lavagna, reports said. There were suggestions that the Economy Minister and the president were divided over whether to impose tax increases or whether to pressure the companies not to raise prices again and to demand that they invest increased profits -- from higher international prices -- into improving Argentina's energy infrastructure.

Spanish brokerage house Urquijo Bolsa y Valores estimated that higher export duties would cost Repsol EUR 40 mm a year, or 1.8 % of its net profit.
They also said that general uncertainty about Argentina's ever-changing energy tax code meant Repsol's share had been underperforming its European peers.

Source: Dow Jones
Market Research

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