Chavez Calls for Windfall Tax to be Imposed on Oil Cos

Venezuela's President Hugo Chavez has asked Energy and Mines Minister Rafael Ramirez to investigate the possibility of initiating a "tax on sudden gains" to be imposed on oil companies operating in Venezuela, according to the news agency ABN.

During his Sunday radio and television address, Chavez stated that if the price of oil continues to climb, then it would be "convenient to adopt this tax."

Chavez said that the price increase started in 2007, and since then there has been no "direct link to a subsequent increase in operating costs." As such, he believes that Venezuela should benefit from the increase in revenue so that the country can benefit from even greater increases in revenue when price increases do occur because of increases in production costs.

Venezuela, a founding member of OPEC, charges foreign oil companies operating under JVs with state-run PDVSA must pay a 33.3% royalty on hydrocarbon production along with a 50% income tax.

Reports indicate that PDVSA may be facing cash flow problems because of its extravagant spending on social programs.

Fitch's Latin America Oil and Gas 2008 review shows PDVSA spending $32.1 billion on taxes and social programs in 2006, which constitutes a $12 billion increase from moneys spent on similar taxes and programs in FY 2005.

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