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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.

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.

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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