Pdvsa's payment of royalties down 76% in January

Both a law reform implemented by the Executive Office and government pressures on state-run oil company Petróleos de Venezuela (Pdvsa) to finance social plans (missions) and other state projects have hit Pdvsa's regular tax contribution.

In January 2011, Pdvsa transferred USD 767.44 million (at the official exchange rate of VEB 4.30 per US dollar) in oil royalties to the Treasury. However, in January 2012, royalties amounted to USD 181.39 million, a 76% decline, according to the monthly bulletin issued by the Central Bank of Venezuela (BCV).

Analysts claimed that one of the factors having an impact on the oil industry s fiscal contribution is the reference price of oil used as a benchmark to transfer royalties.

In the first quarter of 2011, Pdvsa s tax payments were made based on a reference price of USD 86 per barrel. However, in 2011, the Executive Office amended the law on oil windfall revenues to increase the tax rate, and provided that "the ceiling price of crude oil for the payment of royalties, oil extraction tax, and oil export registration tax is USD 70."

While the oil price averages USD 111, a part of the revenues intended to meet current expenditure is calculated based on a lower reference price of oil.

Economist José Luis Saboin explained that the cap imposed on the payment of royalties is not the only factor hitting ordinary tax contribution. Another factor is the higher number of commitments that the government has imposed on the state-run oil company

Changes the tax on oil windfall revenues were introduced to allow Pdvsa to transfer more funds to the National Development Fund, which is the instrument used by the government to finance projects. As part of the so-called parallel spending, Pdvsa also has to fund social projects (missions), state-run basic industries and pay labor liabilities.  

In January, President Hugo Chávez delivered a speech in which he requested Pdvsa funds for state-run companies. The Venezuelan Head of State argued that he had made those requests because "Pdvsa gets funds abroad, and in the domestic market from private and state-run banks."

Data released by the BCV show that due to Pdvsa s lower tax contribution in January, the decrease in oil revenues was offset with debt issues.

Translated by Gerardo Cárdenas