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Chavez building with oil tax war chest ahead of 2012 election

Venezuela's President Hugo Chavez

CARACAS, Apr 29, 2011

New Venezuelan taxes on windfall oil revenue will let socialist President Hugo Chavez boost spending on popular social programs by billions of dollars ahead of his re-election bid next year.

With the tax raising the state share of revenue from the OPEC member's main export, the former soldier has already ramped up public spending. His government predicted on Tuesday the new tax rates will bring in between $9 billion and $16 billion this year if oil prices keep rallying. Chavez has earmarked the money for a social spending fund.

It was the latest example of resource nationalism by the leftist leader who has nationalized most of the country's oil industry and is increasingly confident of winning another six-year term at a ballot in December, 2012. [ID:nN18194681]

Brightening economic prospects have boosted Chavez's popularity after a hard couple of years, and the conflict in Libya has given him a chance to flex his oratory muscles as Latin America's leading critic of U.S. foreign policy.

But more than anything, oil prices well over $100 are bringing money into Venezuela ahead of the election campaign -- and Chavez has decided to increase his government's take.

"What defines our government's political position is who captures the oil revenue and how is it used," Oil Minister Rafael Ramirez said in a conference room at the headquarters of state oil company PDVSA decorated with paintings of Latin American revolutionary heroes including Che Guevara.

"The oil revenue should be captured by the Venezuelan state as the representative of the collective interest ... and distributed in a revolutionary way for our people's benefit."

Chavez announced a tax of up to 95 percent last week on "exorbitant" income when crude goes above $70 a barrel. [ID:nN22122750]. A further rate announced in the Official Gazette on Tuesday will take 20 percent from oil income between $40 and $70 per barrel.

The taxes are in addition to royalties but can be deducted from income tax.

Analysts cautioned the moves could have a chilling effect on foreign investment and limit PDVSA's ability to fund more production.

Ramirez told Reuters the new rates would not apply to planned new output from existing fields, or to projects to tap the country's vast Orinoco extra heavy crude belt, until the joint ventures had recouped their investments.

All this comes at a time when Venezuela is putting pressure on companies including Chevron , Repsol , BP and Shell to boost production at joint venture projects in South America's biggest crude exporter.

Chevron and Repsol are among a number of companies, including companies from Russia and China , involved in plans to develop the Orinoco belt, one of the biggest mostly untapped hydrocarbon reserves left in the world.

Ramirez said on Tuesday 320,000 bpd of oil exports will be exempt under the new taxes, and the new rates will not affect planned production increases.

The Gazette said oil consumed within Venezuela, as well as shipments to foreign partners under international treaties for aid and financing, will not be subject to the charges. Additionally, about 600,000 bpd of domestic production will not be taxed.

Story by Marianna Parraga and Daniel Wallis from Reuters.

Reuters / Tue Apr 26, 2011 4:56pm EDT


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