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Ramirez: Venezuela to receive $16 billion from PDVSA's on windfall oil tax

CARACAS, Apr 28, 2011

The Venezuelan government expects to receive as much as $16 billion annually from the newly increased windfall tax on oil income if the price of the commodity stays around current levels, Oil Minister Rafael Ramirez said Tuesday.

Speaking at a press conference, Ramirez said Venezuela's basket of medium and heavy crude products is around $105 per barrel.

Last week, the government unveiled a substantial increase in the windfall tax in a bid to take advantage of "exorbitant" prices in the international oil markets. The government plans to use the money in a social development fund.

Ramirez said on the sidelines of the press conference that all of the revenue would be put toward various social projects and none would be put back into the petroleum industry.

Under the legislation, oil companies partnered with state oil monopoly Petroleos de Venezuela have to pay 95 cents on each dollar of income when oil is above $100 per barrel and 90% when oil is above $90.

Earlier in the day, the government also said it was creating a new tax of 20% on income when oil is between $40 and $70. The government used a base price of $40-per-barrel in the 2011 budget.

The tax rates, however, do not apply to Venezuela's oil treaties with China and other partners around the Caribbean like Cuba . It also does not apply to the nearly 640,000 barrels of oil used domestically.

That means that nearly half of the country's roughly 2.7 million barrels of daily production will not be taxed.

Since the announcement of the measures, analysts have argued that the new tax rates could deter more private investment into the country's petroleum sector, at a time when the government is pressuring foreign firms to increase production.

In a note to clients, the Eurasia Group said the tax scheme is likely to weigh negatively on PDVSA's cash flow since direct control over the funds will remain in the hand of President Hugo Chavez , who is slated to ramp up spending ahead of next year's presidential election.


Story by Kejal Vyas from Dow Jones Newswires

Dow Jones Newswires / Wed Apr 26, 2011

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