(Oil Price)– Brazil has revised its rules for setting the reference price for crude oil produced in the country in a bid to boost government revenues from royalties paid by oil companies operating in Brazil.
The new mechanism could result in a royalty revenue boost of some $181 million, Reuters reported, citing the country’s energy minister, Alexandre Silveira. The new rules will take effect from September, affecting royalty distribution in November.
Oil companies operating in Brazil have not exactly celebrated the changes, which will affect how tax and royalty payments are calculated. A revision of the reference price for Brazilian oil has been under discussion for several years. Last month, Bloomberg reported that Brazil’s government is looking to extract some $6.2 billion from the country’s oil industry in a bid to shore up state finances, with one way to get more money out of oil producers being by “reviewing” the reference prices used to set oil taxes.
The efforts to ramp up the economy come as President Luiz Inacio Lula da Silva’s approval ratings slumped to a record low earlier this year. To tackle this, the government in March said it would tap Brazil’s oil fund. The fund, created in 2010 to collect royalties from oil, has accumulated some $3.5 billion to date. The Lula government set up a committee tasked with deciding how to spend the money. Yet that $3.5 billion will, it seems, not be enough, so the government is looking for more money from the country’s oil and gas producers.
Since then, approval ratings for Lula and his government have recovered, not least in response to President Trump’s tariff slap on Brazil, which will see all Brazilian exports to the U.S. get a 50% import tariff. Yet the effort to extract more money from the energy industry in Brazil is not over, as evidenced by the reference price revision.
By Charles Kennedy for Oilprice.com
