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Caracas warns oil companies of more tax increases

By Thomas Catan in London and Andy Webb-Vidal in Caracas | FT.com

Updated: 11:40 p.m. ET April 10, 2006 | Only weeks after imposing tough new operating contracts on international oil companies, Venezuela, the world's fifth-largest oil exporter, has warned they could face further tax increases.

Bernard Mommer, the country's deputy oil minister, said a promise to hold taxes steady for the next five years after recent increases was "not binding", even for the present government.

"The only guarantee you have is political," said Mr Mommer in London on Monday. "The government can promise you whatever they want – it's not binding."

Mr Mommer said international oil companies that had invested billions of dollars developing the country's oil reserves would simply "have to live" with uncertainty about the fiscal regime. "If you can't, don't go there [to Venezuela]. That's my answer," he said.

His remarks are the latest broadside against international oil companies working in Venezuela after some of their original contracts were overhauled in recent weeks.

President Hugo Chávez has revamped legislation to ensure what he says is full "sovereignty" over the country's energy resources.

Venezuela's oil reserves are perceived to be the largest in the Americas, but the government has in recent weeks claimed that if bitumen-based reserves are included, they are the world's largest.

The government argues that the contracts, negotiated in the 1990s when oil prices were at historic lows, were unfair to the government and too generous to the oil companies.

The companies have now been forced to become minority partners in new joint ventures with the state-owned oil company and to pay higher taxes and royalties.

Most of the oil companies have reluctantly agreed to the new contracts. An exception is ExxonMobil, the US group. ExxonMobil chose instead to sell its stake in an oilfield to a partner, Repsol YPF.

Last week, Venezuela also took control of two oilfields operated by Total of France and Eni of Italy after they failed to form the new joint venture with Petróleos de Venezuela, or PDVSA, by the deadline of March 31.

Mr Mommer declined to say whether the companies would receive compensation. "We have to talk to them," he said. "We have to reach some kind of settlement."

But oil companies want to avoid a fight with Venezuela. Total, which owns 47 per cent of the $4.2bn Sincor project in the country, said it was not seeking compensation for the field taken over last week.

"We expect to have new discussions with the authorities in the near future," the company said. It added that "legal action should be the last resort".

Mr Chávez will host a summit of the Organisation of Petroleum Exporting Countries on June 1.



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