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As Oil Crisis Bites, Brazilian States Mull New E&P Taxes

Brazil’s oil-producing states are considering the implementation of new taxes for exploration and production companies operating on their territory in a bid to prop up their ailing finances, struck hard by the continuing oil price depression.

The idea is not new: last year Rio de Janeiro imposed a tariff of 2.71 reals (US$0.84) for environmental surveillance on every barrel of crude oil and oil equivalent, along with an 18-percent VAT rate on locally extracted oil.

Naturally, the tariff and the tax did not sit well with the local operators--including Chevron, Galp, Shell, and Repsol-Sinopec--and they challenged them in court, winning an injunction that stopped the implementation of the taxes until the court decides on whether they are legal.

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Rio de Janeiro has been hit hardest by the oil price crisis, but other states, such as Sergipe for example, are keeping a close eye on the Rio court proceedings and working on their own tax proposals. Sergipe produces some 47,000 barrels of oil equivalent daily and this year has reported a 34-percent drop in oil royalties.

Brazil’s oil regulator has also taken the problem with dropping oil revenues to heart and is developing a proposal that should help it be more flexible in calculating royalties due Brazilian states. The calculations would be based on a basket of price assessments for blends of crude as well as oil products, Argus reports.

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Meanwhile, impeached president Dilma Rousseff told the Senate yesterday that Michel Temer’s government is looking to privatize Brazil’s huge pre-salt oil reserves in a bid to undermine the achievements of her government and protect the interests of the local “privileged classes.”

PM Temer denied the accusations, calling them “false”.

Brazil’s subsalt and pre-salt deposits in Rio’s shelf are estimated to hold as much as 100 billion barrels of oil.

By Irina Slav for Oilprice.com

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