Venezuela's proposed implementing rules for a reworked hydrocarbons law would allow the Ministry of Hydrocarbons to set royalty and tax levels for private and foreign oil and gas partners on a case-by-case basis, according to a draft regulation seen by Reuters.
The primary law, adopted in January, established upper limits - a royalty cap of 30% and a maximum integrated hydrocarbons tax of 15% - but did not fix the precise rates that companies would pay. Industry participants had expected the implementing regulations would spell out the concrete rates beneath those statutory ceilings. The draft regulation instead specifies that the ministry will assess each operating company's business plan and determine the applicable tax and royalty schedule for that project.
Officials in Caracas are seeking to draw foreign investment and revive the national economy following the U.S. removal of President Nicolas Maduro at the start of the year. Under acting President Delcy Rodriguez, the framework included in the draft formally ends a state monopoly by permitting private firms to receive licenses for activities that had been reserved for state-owned PDVSA: heavy crude processing, refining and international trading.
The regulation runs 63 pages and must be published in the Official Gazette before it becomes effective. A notable institutional change under the new legal architecture is that the National Assembly will no longer have the role of approving energy joint ventures. Instead, the Ministry of Hydrocarbons is granted near-complete authority to sign contracts and alter their terms - including adjustments to taxes and royalty rates.
That concentrated power has drawn criticism from oil specialists and economists, who warn the ministry's latitude to modify terms could discourage foreign investors concerned about the potential for unilateral changes to contractual arrangements. Observers have also questioned whether the introduction of an integrated hydrocarbons tax signals an intention by Caracas to materially lower the state's historical share of oil revenues, which has been among the highest in Latin America.
Key developments:
- The draft grants the Ministry of Hydrocarbons authority to set project-specific tax and royalty rates.
- January's law caps royalties at 30% and sets a maximum integrated hydrocarbons tax of 15%.
- The 63-page regulation awaits publication in the Official Gazette to take effect and shifts contract approval power away from the National Assembly to the ministry.