• 4 minutes China 2019 - Orwell was 35 years out
  • 7 minutes Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 11 minutes Trump will capitulate on the trade war
  • 14 minutes Glory to Hong Kong
  • 3 hours China's Blueprint For Global Power
  • 3 hours Bloomberg: shale slowing. Third wave of shale coming.
  • 8 hours Boring! See Ya Clowns, And Have Fun In Germany
  • 1 hour ABC of Brexit, economy wise, where to find sites, links to articles ?
  • 3 hours Yesterday Angela Merkel stopped Trump technology war on China – the moral of the story is do not eavesdrop on ladies with high ethical standards
  • 7 hours USA Carried Out Secret Cyber Strike On Iran In Wake Of Saudi Oil Attack
  • 13 hours Crazy Stories From Round The World
  • 12 hours the future
  • 9 hours 5 Tweets That Change The World?
  • 8 hours Spain Is On The Edge...Clashes Between Catalonia And "Madrid"
  • 8 hours Leftists crying to make oil patch illegal friendly: 'Broken system' starves U.S. oil boom of immigrant workers: CONGRESS DO YOUR JOBS INSTEAD OF PANDERING!
  • 13 hours Climate Protesters Blocking Roads etc...
Alt Text

Investors Return To Plowing Money Into Commodities

Commodities are trending once again…

Alt Text

Are We Really Facing A Battery Metal Shortage?

Electric car builder Tesla foresees…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

More Info

Premium Content

Chile Introduces Sliding Royalty Scale on Copper Production

I wrote yesterday about the importance of tailoring royalties to fit the situation for different oil and gas plays.

Today, there's news on an interesting riff on this idea. Tailoring royalties to fit the situation for the collecting government.

The government of Chile needs funds. The Chileans are looking at several billion dollars in costs to repair damage from the recent mega-quake.

On Friday, the government outlined plans to raise these funds. Announcing tax hikes that will bring in an estimated $3.1 billion.
Some $700 million of that will come over the next three years from the copper mining sector.

The government is introducing a sliding scale royalty on copper production. Under the scheme, producers will pay between 3.5% and 9% of revenues, up from the current 4-5% flat rate.

There's a problem, however, with changing the royalty regime. Most of the major copper producing companies in Chile have "invariability agreements" with the government, that prohibit unilateral changes in fiscal terms like royalties.

Faced with this situation, the government could have been heavy-handed. They could have nullified the invariability agreements and imposed royalty changes on a "take it or leave it" basis. After all, Chile is one of the premier copper districts on the planet. It's unlikely producers would pull up stakes and leave.

But the Chileans have come up with an interesting alternative. They're giving producers a choice on paying higher royalties.

Specifically, they're offering companies something in return for electing to pay higher royalties during this time of need. Here's how it works.

Companies can opt to pay according to the sliding scale royalty for 2010 and 2011. After those two years, royalties will return to the 4 to 5% fixed rate.

Any company that does take a voluntary increase in royalties will receive an eight-year extension to their invariability agreement with the government.

This is a sizeable carrot. Most companies' invariability agreements are set to expire around 2017. At that time, they would be completely and legally subject to any royalty or tax increases the government imposes.

By paying up a little more over the coming two years, companies can buy an "immunity idol" for eight additional years of royalty certainty. Not a bad trade. Giving producers an economic incentive to help the government meet its short-term funding needs.

This is creative and progressive thinking at its best. The Chileans have always been very good at balancing the interests of state and business. Even the new sliding scale royalty will be calculated based on profitability. Only companies whose profits are greater than 75% of income (that is, very high profit margins) will have to pay the top 9% tax bracket.

This is another smart approach: tax people who can afford to pay. Too many governments make the mistake of imposing off-the-top taxes that make projects unprofitable. If companies can't make money they're going to stop operating. And the government will collect zero in royalties, no matter how high the rate is.

By. Dave Forest of Notela Resources




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play