P.M. Barrow meets with oil producers to discuss windfall tax
It’s no secret that the Government of Prime Minister Dean Barrow is planning to use the revenues gleaned from the petroleum industry to buffer the dramatic rise in the cost of living and plug the financial holes in the 2008/2009 budget caused by the country’s significant public debt. In April the P.M. announced that one way to get more money out of oil would be a windfall tax. The reaction from speculators was anything but welcoming but this morning the two sides met in Belmopan for the first time to talk details. Around the table were twenty license block holders in the petroleum industry, P.M. Barrow, Deputy Prime Minister and Minister of Natural Resources Gaspar Vega, Government Advisor Gian Ghandi and the Director of Petroleum Andre Cho. The discussions lasted about an hour and a half and while Barrow could not divulge particulars, he did reveal that for now, everyone is seeing eye to eye.
Prime Minister Dean Barrow
“I thought it went well. Clearly it wasn’t easy, but we ended up with an agreement in principle, the details of which will have to be fleshed out. In two weeks time they will send us concrete written proposals for the fleshing out of the, in principle, understanding and after that there will be another meeting within a week and after that we should come away from that other meeting with a final position which would then be translated into law.”
“What we are looking for by way of the windfall tax is an additional take for government on the basis that after the calculation of the windfall tax, what the companies would pay byway of the windfall tax would then be factored into the windfall tax calculation. So it wouldn’t be that you pay your income tax and then you pay your windfall tax completely separately with no relationship to the income tax and so you are taxed twice, no. We are aiming for the achievement of the overall increase for a net increase for government over what is currently government’s take. As I said, the amount of that will depend on the agreement that we are able to come to when we work out the details.”
Dr. Gilbert Canton, C.E.O., Belize Natural Energy
“We are hoping for a win-win situation for everybody.”
Kendra Griffith
“How would a win-win situation work in this scenario?”
Gilbert Canton
“Well a win-win situation depends, as we said, we would like to see the exploration continue. We would like to see more oil being found, we would like to see the revenues being shared fairly and equally. I think both sides have the same objectives, I don’t think the objectives are different. It’s just a matter of finding how we can get to a final tax that is a win-win situation for everybody that we get to continue the exploration, we get to find more oil, the government gets they need out of it, you know. It’s a progressive constructive way forward right now.”
And while the talks are positive, the country’s only oil producer is making a case to convince Belmopan that a windfall tax would be bad for business. According to Chief Executive Officer of Belize Natural Energy Dr. Gilbert Canton, the move could drive investors away.
Dr. Gilbert Canton, C.E.O., Belize Natural Energy
“The whole thing is we are always saying that we need to find more oil and the way to find more oil is to keep more rigs drilling and so of course we need to take into consideration the impacts of the tax on exploration efforts and I think he recognises all that. We also have talked about just that, we need to find more oil and to make sure that a tax that is imposed is not going to negate that happening.”
Prime Minister Dean Barrow
“There is some validity to their concern. We think we are able to meet that concern by providing certainly where the regular concessionaires, the regular P.S.A. holders, where their interests are involved. There is a way to provide for the recovery of the exploration costs prior to the actual discovery of oil to provide for those costs to be recovered before the windfall tax kicks in and that’s how we tried to address that particular concern.”
Another argument put forward today by Belize Natural Energy is that they have no windfall to tax. According to the company, they are not benefiting from the increase in oil prices because they pre-sold most of their share of the oil for approximately eighty dollars a barrel. But this morning the P.M. made it clear, that’s their problem.
Prime Minister Dean Barrow
“They say that and I can’t tell you that’s not true. But the expert advice that we’ve had says that’s not really the government’s concern. That was an internal decision taken by the company. That cannot interfere with the principle of the windfall tax given that oil prices are where they are and given that we as importers of oil, even though we produce now enough that would be able to satisfy our needs, we still have to—because we don’t refine—we have to import oil and given what oil prices are doing to us, the multiplier effect, the trigger effect the spill over effect in terms of electricity, in terms of food prices, in terms of transportation costs, we don’t see how we would not be able to achieve some kind of a set off against the crippling effects the increase in oil prices is having, how we would not be able to achieve some sort of set off effect for the Belizean people by ensuring that at ;east we get a little bit more out of the fact that we are, however minimally, a producer nation.”
According to P.M. Barrow, the additional revenue from the tax will finance his administration’s development agenda and allow G.O.B. to offer subsidies to cushion the effects of the dramatic increases in food and fuel prices.
