Few nations have had as massive an infusion of U.S. private capital as Venezuela, where a $2.5 billion petroleum industry pumps 2,800,000 bbl. of oil daily and returns $2,100,000 a day in royalties and taxes to the government treasury. Fewer still have benefited more widely. Oil earnings have transformed Caracas into a skyscraper city and raised per capita income to an estimated $800, highest in Latin America. The U.S. companies poured their big profits (sometimes over 30%) back into the country because they were confident of fair treatment. Last week that confidence was shaken by an abrupt government decree changing the traditional 50-50 profit-split to a 60-40 ratio.
Without Warning. Retroactive to January 1, 1958, the new law will cost U.S. oilmen $170 million in the first tax bite alone, $90 million of it from Creole Petroleum Corp., the big Jersey Standard affiliate that produces 41% of Venezuelan crude. In future years the complex series of royalties, taxes and licenses might take as much as 65% of all profits. As galling as the money loss was the way the decree was passed—without warning or negotiation, by a lame-duck junta that goes out of office in less than two months.
Oilmen were well aware that the 50-50 formula did not have long to live in Venezuela. But they had hoped to work out a mutually satisfactory deal with incoming President Romulo Betancourt, who won last month’s election. Architect of the world’s first 50-50 split (as Provisional President in 1945), Betancourt wants to treat the problem as a “commercial” and not a “political” matter. The temporary junta, heavily weighted with Betancourt’s political enemies, never gave the President-elect a chance. Betancourt gracefully congratulated the junta for its “vigilant patriotism.” Privately he was shocked. Snapped an aide: “It would have been better to leave these matters to those who will govern constitutionally.”
Without Regard. Oilmen agreed. Arriving at Caracas Maiquetia Airport last week, Creole President Harold (“Duke”) Haight exploded that Venezuela had completely disregarded acquired rights and ignored “the moral, if not legal, obligation to negotiate.” Other nations had won bigger cuts in new-oil developments, but Venezuela was the first to tear up a 50-50 deal in an established field. Moreover, said Haight, only a month ago, the government had promised to keep present oil policies.
The new taxes are probably in to stay, but they may cost Venezuela more than they are worth. Said Oilman Haight: “It is highly uncertain whether the government will obtain a larger income. Among other things, it will depend on the climate which exists for investment in this country.” For the past several months, Venezuela’s ultranationalistic climate has led foreign investors to take their capital out of the country at the rate of $30 million a month.
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