MercoPress. South Atlantic News Agency

Chavez, with eyes on his 2012 re-election bid, hikes oil windfall tax

The Bolivarian revolution is fuelled with oil revenue

Venezuelan President Hugo Chavez hiked an oil windfall tax in a move that raises government income ahead of the 2012 presidential election, but puts a heavy load on oil companies.

Populist Chavez, who will be seeking re-election next year, predicted oil prices will keep rising and said extra income from new tax rates will be transferred to a development fund for social spending.

“The decree is to increase the fiscal contribution and the contribution of petroleum resources to development,” he said in a late night phone call to a television chat show, adding that the war in Libya was driving prices higher.

The new law was created under fast-track powers that allow the president to bypass Congress for several months and rule by decree.

Chavez first introduced a windfall tax in 2008 of up to 60% on revenues from oil prices higher than 100 USD per barrel, based on the ideas of Nobel Prize-winner Joseph Stiglitz. Under the new rules, the government will take as much as 95%.

Venezuela, member of OPEC and South America’s main producer pumps almost 3 million barrels of crude per day and has enjoyed sharply higher income from its main export in recent months.

Despite the rising prices large transfers to the government mean state oil company PDVSA is undergoing cash-flow issues and its profits fell sharply last year. The original windfall tax kicked in when prices rose above 70 USD per barrel in November.

Under the new decree, PDVSA and its foreign partners will have to pay the Treasury 80% of income from sales of oil at more than 70 USD per barrel, rising to 90% when prices reach 90 USD per barrel. All income from prices over 100 USD per barrel will be taxed at 95%.

In 2008, companies complained the windfall measure was too harsh because it taxed gross income rather than net profits.

Between November and January, Venezuela collected 800 million USD from the windfall tax, Oil Minister Rafael Ramirez said in February. Oil revenue has been the driving force of Chavez's ‘Bolivarian’ revolution, contributing funds from everything to education, health and sports programs.