Venezuela's National Assembly Approves Law Reform Raising Royalties

Venezuela's national assembly approved on Tuesday night a reform of the organic hydrocarbons law that hikes the royalty rate for all crude exploration and production projects, in some cases doubling the existing rate, newspaper El Universal reported on Wednesday.

Joint ventures between state oil firm PDVSA and private oil companies will now have to pay 33.33% equivalent to the value of each barrel at the wellhead in royalties. The royalty rate per se is 30%, while the remaining 3.33% is a special tax to promote development projects in oil regions.

Hardest hit are the four Orinoco extra-heavy crude upgrade projects that have to pay 33.33%, split between a 16.66% royalty and a specially devised 16.66% "extraction tax." Orinoco projects already had their royalty rates hiked last year from 1% - devised in the 1990s to attract investment - to 16%.

The additional extraction tax on the Orinoco projects will generate some US$1.3bn, of which US$880mn will enter the national treasury this year.

Additionally, the government has promised to promote changes in the revenue tax law to increase the tax rate oil projects pay to 50% from the present 34%.

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