Venezuela Drafts New Oil Law to Revive Production
Edward LawsonVenezuela revamps its oil tax system to lure foreign investment, navigating sanctions and domestic resistance.
Venezuela is advancing a revised oil reform bill designed to slash fiscal burdens on energy companies, a strategic move aimed at attracting private capital back to its crippled oil industry. A new draft, set for discussion and a potential final vote this week, grants officials significant flexibility to adjust taxes and royalties.
The government's proposal comes as it navigates intense pressure from Washington and seeks to reopen its energy sector to foreign oil firms.
Overhauling the Tax and Royalty System
The draft legislation introduces major changes to how Venezuela taxes oil production, moving away from a rigid system to a more adaptive framework.
Key fiscal adjustments in the bill include:
• A New Hydrocarbons Tax: The existing extraction tax would be replaced by an "integral" hydrocarbons tax of up to 15% on gross production, with no deductions permitted.
• Flexible Royalty Rates: Royalties would be capped at 30% but are no longer fixed by law. This change empowers the Oil Ministry to modify the rates based on a project's specific economic conditions, capital intensity, and development phase.
• Potential Income Tax Cuts: The bill proposes allowing the ministry to lower the hydrocarbons income tax rate to ensure projects remain profitable. However, some legal experts note this could conflict with constitutional limits on tax authority.
Venezuela's Oil Ministry did not immediately respond to requests for comment on the bill's details.
Addressing Key Investor Risks
Beyond fiscal incentives, the revised bill aims to ease legal and commercial restrictions that have previously deterred investors.
The new draft removes language that had confined dispute resolution to "independent" arbitration, potentially opening the door for more widely accepted arbitration mechanisms outside Venezuela.
Furthermore, the legislation would permit private companies to sell their share of crude oil output at market prices, provided their sales plans receive ministry approval.
The Political and Sanctions Backdrop
The reform effort is being championed by acting President Delcy Rodríguez but faces criticism from multiple sides. Some of her political allies in Venezuela view the plan as a betrayal of nationalist principles. Meanwhile, international legal experts argue that earlier drafts failed to provide sufficient safeguards for investors.
The entire initiative is unfolding under the shadow of US sanctions. The Trump administration continues to impose oil sanctions on Venezuela, creating a high-risk environment for international firms.
Currently, Chevron Corp. is the only company with a US connection that holds a license from the Treasury Department to produce oil in the country. Many other companies are waiting for authorization to either resume their previous work or launch new upstream operations.
A first draft of the bill was approved on January 22, with a second and final vote potentially occurring as soon as Thursday.
