Special contribution on extraordinary prices and exorbitant prices in the international hydrocarbons market

April 2011 Authors: Elisabeth Eljuri, Leopoldo Olavarría, Carlos Fernández-Smith, Sergio Casinelli

Contacts

The Decree with the Rank, Value and Force of a Law Creating a Special Contribution on Extraordinary Prices and Exorbitant Prices in the International Hydrocarbons Market (the “Decree-Law”) was published in the Extraordinary Official Gazette No. 6.022 dated April 18, 2011. The Law Decree repeals the Law on Special Contributions over Extraordinary Prices of the International Hydrocarbons Market (the “Law”) published in Official Gazette No. 38.910 dated April 15, 2008, and creates a new contribution which is determined by the international quotations of the Venezuelan crude.

Following are the most relevant aspects of the Decree-Law:

1. Purpose

The Decree-Law creates a special contribution payable by those who export abroad, for the purpose of alienation, liquid hydrocarbons, whether natural or upgraded, as well as hydrocarbon derivatives. The special contribution must be calculated with respect to the extraordinary prices and exorbitant prices of the Venezuelan liquid hydrocarbons basket (the “Venezuelan Basket”). 

It is expressly established that the mixed companies created in accordance with the Organic Law on Hydrocarbons, who sell liquid hydrocarbons, whether natural or upgraded, as well as hydrocarbon derivatives to Petróleos de Venezuela, S.A. (“PDVSA”) and any of its affiliates are subject to this special contribution.The Decree-Law is not completely clear in which events PDVSA and the mixed companies are taxpayers of the special contribution.

2. Special contribution for extraordinary prices

The Decree-Law defines “extraordinary prices” as those that exist when the monthly average international quotations of the Venezuelan Basket are greater than the price fixed in the Annual Budget Law for the relevant fiscal year, but equal or lower to Seventy Dollars per barrel (US$70/b). According to the Annual Budget Law for 2011 the average international quotations of the Venezuelan Basket is Forty Dollars per barrel (US$40/b). 

If the monthly average international quotations of the Venezuelan Basket is greater than the price fixed by the Budget Law for the relevant fiscal year, but equal or lower than Seventy Dollars per barrel (US$70/b), a twenty percent (20%) rate shall be applied on the price differential. For example, if the average price of the international quotations of the Venezuelan Basket for a given month is US$65, we understand the special contribution would be calculated as follows: [(65- 40=25) x (0.2)] = US$ 5 per barrel.

3. Contribution for exorbitant prices

The Decree-Law defines “exorbitant prices” as those that will exist when the monthly average international quotations of the Venezuelan Basket is greater than Seventy Dollars per barrel (US$70/b). The applicable rate to the exorbitant prices will vary depending on the monthly average price of the international quotations of the Venezuelan Basket, as described as follows:

a) When the monthly average price of the international quotations of the Venezuelan Basket is greater than Seventy Dollars per barrel (US$70/b) but lower than Ninety Dollars per barrel (US$90/b), a rate equal to eighty percent (80%) of the total amount of the price differential shall be applied. For example, if the average price of the international quotations of the Venezuelan Basket for a given month is US$85, we understand the special contribution would be calculated as follows: [(85–70=15) x (0.8)] = US$ 12 per barrel. Decree with the Rank, Value and Force of a Law Creating a Special Contribution on Extraordinary Prices and Exorbitant Prices in the International Hydrocarbons Market.

b) When the monthly average price of the international quotations of the Venezuelan Basket is greater than or equal to Ninety Dollars per barrel (US$90/b), but lower than One Hundred Dollars per barrel (US$100/b), a rate equal to ninety percent (90%) of the total amount of the price differential shall be applied. For example, if the average price of the international quotations of the Venezuelan Basket for a given month is US$98, we understand the special contribution would be the addition of the following calculations, one with respect to the portion of the prices up to Ninety Dollars per barrel (US$90/b) and the other with respect to the portion of prices exceeding Ninety Dollars per barrel (US$90/b): [(90-70=20) x (0.8)=16] + [(98-90=8) x (0.9)=7.2] = US$ 23.2 per barrel.

c) When the monthly average price of the international quotations of the Venezuelan Basket is equal or greater than One Hundred Dollars per barrel (US$100/b), an additional rate equal to ninety five percent (95%) of the total amount of the price differential shall be applied. This rate must be added to the portions of up Ninety Dollars per barrel (US$90/b) and of up to One Hundred Dollars per barrel (US$100/b). For example, if the average price of the international quotations of the Venezuelan Basket for a given month is US$130, we understand the special contribution would be calculated as follows: [90-70=20) x (0.8)=16] + [(100-90=10) x (0.9)=9] + [(130-100=30) x (0.95)=28.5] = US$ 53.5 per barrel. 

It is not clear from the drafting of the Decree-Law if the special contribution for extraordinary prices on the one part and the special contribution for exorbitant prices on the other, are exclusive of each other. In light of the above, there is the query whether both contributions are applicable when the average price of the international quotations of the Venezuelan Basket for a given month is greater than Seventy Dollars per barrel (US$70/b).

4. Payments

The contribution will be liquidated by Ministry of the People’s Power for Energy and Petroleum (“MENPET”) on a monthly basis in foreign currency and must be paid to the National Development Fund (Fondo de Desarrollo Nacional, FONDEN). The interaction between Menpet and Fonden for liquidating and paying is not clear.

5. Exemptions

According to the Law Decree the mixed companies that execute projects for new development of reservoirs, and those who increase the production of the exploitation plans are not subject to the special contribution as long as they have not fully recovered their total investment in such projects. 

It is important to mention that Menpet is the body which determines which projects qualify for the exemption and it must issue a resolution which establishes the guidelines for determining when an investment has been recovered. The export of volumes for the execution of International Agreements for cooperation or financing are also exempt from payment of the special contribution.

6. Exoneration

Special contributions set forth in this Decree-Law may be subject to a partial or total exoneration by the National Executive Government for the benefit of certain exports in the framework of economic policies and international cooperation policies.

7. Maximum cap

A relevant matter of the Decree-Law is that it establishes a maximum price for the calculation and payment of Royalties, Extraction Tax and the Exportation Registration Tax of up to Seventy Dollars per barrel (US$ 70/b).It seems that this maximum cap indirectly limits the shadow tax provided for in the accords for the incorporation of the mixed companies.

8. Allocation of the contribution

The Decree-Law establishes that the funds collected through this special contribution are to be used, preferably, to guarantee the financing of the Great Missions created by the Executive, as well as infrastructure, road-building, health, education, communications, agricultural and food projects, among others.

9. Entry into force

The Decree-Law entered into force on the date after its publication in the Official Gazette. The Official Gazette is dated April 18, 2011, but it was not available to the public until yesterday (April 26, 2011).

10. Repeals

The Decree repealed the Law of Special Contribution Over Extraordinary Prices in the International Hydrocarbons Market that was published in Official Gazette No. 38.910 of April 15, 2008, as well as the provisions of the Law of the Central Bank of Venezuela that regulate the contribution of PDVSA to Fonden and any other provision of equal or lower rank that contradicts the Decree-Law.