Brother Chavez in Fine Form

[Phaedrus]

eek, you'll be so pleased ...

After granting foreign companies a tax subsidy to encourage them to spend billions of dollars turning Venezuela into the fifth-largest producer of oil in the world, Chavez has just increased the tax on oil exports from less than 1% to over 16%

Story here.

Now, I realise that you're strongly in favour of government subsidising private enterprise (so-called "investments" in infrastructure and such) but I am not so clear on your position on government stealing from private enterprise. Could you clarify? Thanks.


Phaedrus

 

[Shotgun]

Those oil companies should be happy Chavez hasn't nationalized the industry yet...all in good time.

 

[Phaedrus]

(BTW, ironically, we probably feel exactly the same way about the issue: that the greedy corporations got what they deserved. We just arrive at that conclusion via vastly different paths.)


P.

 

[Phaedrus]

Shotgun

The Venezuelan oil industry was nationalised for years, but it got nowhere, like all state enterprise. Chavez offered huge tax subsidies to foreign companies to develop the Venezuelan oil infrastructure and now that they are one of the top producers in the world, he's turned the deal around to finance his redistributionist schemes in order to stay in power.

Like I said, they got what they deserved. I would liken any criticism of Chavez on the part of the oil companies to a man who cheats on his wife with a whore, contracts herpes, then blames the whore.


Phaedrus

 

[eek.]

It sounds like hes learned the art of price gouging.
There must be some private sector advisors in his admin.

Stealing?
How can you steal from a thief?
Its recovering stolen goods.

Politically, it sounds as if he's giving the private oil sector a good solid
bytch-slapping for trying so hard to oust him.

 

[WildBill]

Oil companies paying 16% on taxes. Oh the injustice! Come on, oil coming out of Venezuela costs maybe $10/bbl to take out of the ground. These are mostly old legacy projects. The crude from there is generally poor and is discounted by the market, but even with an $8 discount, that still means they are making about $30/bbl in profit. If these guys were truly getting raped, believe me they would be finding ways out of there. But seems to me the world of oil producers still would love to get in there. The political instability factor is far higher concern than the extra taxes. As ironic and disheartening as it seems to me, Chavez's troubling consolidation of power probably makes oil companies more than willing to pay the extra tax now then have to worry about more national strikes and disruptive referndums.

While I would never suggest that indiscriminate taxing is a good thing, I think many of the oil export taxes seen around the world are if anything generous. Granted not good to mess with the rate, but as pointed out by another poster this was a condition that was known. Venezuela long ago told the world that the short-term rate was artificially low; I remember this from my short stint following this industry. Projects were planned with this in mind and I doubt anyone there frets about today. There is just a huge value to being able to get oil so close to the US market, one which would allow a company to overlook endless **** to get control of. Just consider it a cost of business like the oil companies do and you will see even now it is far from unreasonable.

 

[Phaedrus]

Thank you eek; I've missed you.

Bill -- the point is not "oy vey, 16% even!" but that they were offered one thing as an incentive to develop, and now that Venezuela is near the top of the world's producers because of that massive private investment and the oil companies have billions (or who knows, maybe tens of billions) in infrastructure investment on the hook (meaning they can't just walk away from the deal in disgust) Chavez hits them with a 1,500%+ increase in the tax rate.

Like I said though, they got what they deserved for dealing with the socialist bastard in the first place. And another bright point, if only stuff like this would get more commonplace you'd see, say, Haliburton or somebody else "fringey" start funding guerilla movements, assassinations etc. which of course I must admit is my wettest dreamworld. Global anarchocapitalist anti-state warfare, yummy :aktion033


Phaedrus

 

[WildBill]

If I remember right one of the oil majors asked what the rate would be in the future and they were told 10% I believe. So from that perspective you could say he hit them with a bigger increase than they predicted, but still one that is well within their funding capabilities. The deals were cut with expectations that the oil might be worth $18/bbl when WTI was trading in the mid 20's.

This is just the way the oil game is played. In the few countries that allow outsiders to come in and then export oil, you have to pay the price it is that simple. Imagine if they didn't do these deals. The oil would sit in the ground and never be brought out because all these oil exporting countries only take out the easiest supply they can. The other lower-grade stuff sits there as future reserves, unless they cut a deal like this. In times like these with sky high prices, these deals are massive money makers. If the price of oil were to drop significantly, the majors would just scale back their draws and not pay the tax. In the end it is supply and demand working brilliantly. At a time where more supply is needed, there is a way to get some of the more expensive oil out of the ground and into the market. When oil is cheap, these sorts of projects sit unused.