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Editorial Commentary
VenEconomy : What a load of…!
As was to be expected, the National Assembly passed President Hugo Chávez’ Law for a Special Contribution on Extraordinary Prices on the International Hydrocarbons Market, better known as the Sudden Earnings Tax (IGS after its initials in Spanish).
What rankles about this entire charade is not just that the National Assembly falls over itself to pass whatever bill the President orders it to, posthaste, but that it justifies this rushed decision with lies and twisted arguments.
The biggest lie is that the State is going to receive an additional $9 billion in “revenues,” which will be “channeled to funding for health, education, and other policies designed to cater to the well-being of the population.”
Parliament lies -and the Minister of Energy/President of PDVSA lies- because it does not explain that the lion’s share of those revenues is not real. The fact of the matter is that of that $9 billion, $7 billion are accounting entries of income that the State will cease to receive in the form of income tax, royalties, investments in social programs and/or earnings withheld that could be invested in maintaining the industry and providing it with new capacity.
The truth is that the Sudden Earnings Tax (if Brent prices maintain their average price for March of $102.67/bbl) would only generate additional revenues of $1.5 billion a year and not the $9 billion as the National Assembly and the Minister-President claim.
This tax will use the Brent marker price on the spot market as the benchmark price.
So, when the Brent price goes above $70/bbl, the tax will be 50% of the difference between the realized price and $70 multiplied by the number of barrels exported. And when the price goes higher than $100/bbl, the tax will be 60% of the amount in excess of that figure.
So, to take an example, if the tax had been in force in March, when the average Brent price was $102.67/bbl, the tax on March oil exports would have been $16.60/bbl. And if exports that month had been 2,000,000 barrels a day, the total tax payable in March would have come to $1.03 billion.
But in the real world of those $1.03 billion, the share that the foreign investors would have had to contribute (=250,000 b/d) would have been only $129 million, and the remaining $901 million would simply have gone from one of the government’s pockets to another, since these are revenues that would have reached the State anyway via PDVSA.
The National Assembly’s other tall story is its classification of the new tax as a “contribution.” In this way, the government avoids having to request the National Assembly to authorize additional credits, leaving the President totally free to dispose of the additional revenues as he sees fit and ignore the people’s decision of December 2, 2007, when they said NO to the “communal branch of government” being financed out of public funds. At the same time, he is swindling the regions out of their share of those revenues, to which they are entitled under the constitutional appropriation to state and local governments.
It rankles that the government wants to scrape every single barrel it encounters in order to carry out its “social” proselytizing programs and it is intolerable that the Legislature kowtows so blatantly to the Presidency of the Republic; but, most of all, what is unacceptable are the stream of lies and the lack of transparency in the handling of public funds.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 04/17/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 04/18/08
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