Since it was elected in February, one of the major calls upon the new
government has been to bell the petroleum cat – that is, to affix an adequate
tax upon the oil industry, specifically Belize Natural Energy to make sure Belizeans
get a just share of this precious, non renewable resource. The widely-held perception
is that with world oil prices at a record high, Belize Natural Energy is booking
huge profits while the government only gets a small percentage back in income
tax. So the government decided to impose a windfall tax, a tax on the profits
earned from the record oil prices. With millions of dollars at stake, it was
a bitter fight, band today government declared victory – and it would
have been convincing, except the cheering section was led by Belize Natural
Energy. How did that come about, and what does it mean to you? Here’s
the story.
Hon. Dean Barrow, Prime Minister
“Anything that BNE gets above $90 per barrel is what will be treated
as the windfall and that windfall will be split 50-50 between BNE and the government
of Belize.”
It’s that simple – a straight cut down the middle and the tax comes
into force in September.
Hon. Dean Barrow,
“As a consequence of the agreement with BNE, we expect to collect
by way of the split of the windfall profits, between $16 million and $18 million
starting from September and running through to March.”
And with the CEO of BNE Dr. Gilly Canton rubbing shoulders with government
ministers and technicians, everything seemed to be peaches and cream, maybe
too peachy.
Dr. Gilly Canton, BNE Chief Executive Officer
“The principles outlined today by the Prime Minister offer a road
map to an acceptable win-win arrangement whereby government increases its take
and private investment in exploration and development continues.”
Hon. Dean Barrow,
“Throughout the discussions were cordial, certainly they were conducted
in an atmosphere of mutual respect and I am very very pleased for that and grateful
to them that we were able to make progress without even coming close to coming
to blows.”
Downright chummy and while it makes for a good photo opportunity, does this
smarminess make for good tax policy? According to Canton, it does.
Dr. Gilly Canton,
“Determining an appropriate fiscal regime that keeps the Belize petroleum
industry competitive and by that I mean keeping exploration investments flowing 
while at the same time maximizing the government’s take in an equitable
distribution between the company and the government is indeed a great challenge
to any government.”
But shouldn’t the relationship between government and those who it taxes
always be necessarily adversarial? In other words shouldn’t government
be the water to BNE’s oil?
Hon. Dean Barrow,
“I wouldn’t want you to believe that it was all sweetness and
light and ever dust. BNE, I don’t want to say rattled all sorts of sabres,
but we had people from the Ways and Means Committee in the U.S. Congress summon
our Ambassador in Washington to complain about the fact that we were seeking
to take unfair advantage of BNE. I had a visit from the US Ambassador in this
country. I believe though ultimately good sense prevailed, I believe that ultimately
BNE realized that the government was determined to secure some additional advantage
for the people of this country and that for most purposes we are sovereign.”
Included in the new tax regime is a concession for that percentage of its production
which BNE has hedged. Hedging refers to an arrangement where BNE agreed to sell
a percentage of its oil at the set price of $80 for the next ten years. At $10
under the windfall thresh-hold that’s exempted.
Dr. Gilly Canton,
“We hedged what close to 50% of our production but since then the
production has increased. In fact we’ve increased from an average of 2,700
barrels last year to we’ve just brought Mike Usher 9 online about 5 days
ago which takes us up to 4,300 to 4,400 barrels a day right now. So the percentage
of hedging that is actually applied now is very small in the contest of the
whole thing. Right now for the rest of the year our hedging is about 765 barrels
at about $70 a barrel.”
Hon. Dean Barrow,
“I just want to make the point, you know the Arabs have a saying trust
in God but tie your camel, the hedging information that’s been provided
to us by BNE will have to be verified. I’ll give you what’s been
given to us but we’re naturally, although in your formulation it may appear
as we and BNE are sitting around the campfire singing kumbayah, we are going
to be sure that we operate on the basis of very fine information.”
And while there’s one windfall rate for BNE which is in production –
there’s another rate for the rest of the oil companies that haven’t
found anything yet.
Hon. Dean Barrow,
“With respect to the rest of the industry which is not yet producing, 
there is a sliding scale that we have come up with. That scale kicks in at threshold
price of $100 per barrel and it moves from 15% at a $101 to 50% at the upper
end of the scale which I think kicks in at $190 and thereafter.”
Alistair King represents one of those companies, U.S. Capital Energy. Like
Canton, he says its fine by him.
Alistair King, U.S. Capital Energy
“Our concern was that the first proposal was going to chase away all
our investors and financiers that are helping us to do this exploration work.
So as far as what they have come up with now, I can’t answer for the industry
but I feel, nobody likes taxes, but I feel that it’s something we will
be able to work with.”
And while everyone’s satisfied; the companies get a higher rate of tax,
government gets more revenue, is it the pound of flesh that the public wants.
Hon. Dean Barrow,
“You have to remember that as Gilly said, we do not want to destroy
the industry. The idea cannot be to chase people away and so there had to be
a degree of give and take. Our bottom line was that we knew we would have to
be able to show the Belizean people that there is a tangible gain in revenues
to them as a consequence of the rise in oil prices. So at the end of the day,
we felt that what we achieved was fair to the Belizean people.”
And only time will tell if the people feel the same way.
At today’s press conference, CEO Canton rejected the widely publicized
position that his company has recorded earnings of $800 million since 2005.
He said the figure is US$167 million from the sale of 2.2 million barrels of
oil from late 2005 to end of June 2008. Government expects that based solely
on the strength of increased production at Spanish Lookout, receipts from income
tax derived from oil will increase from $40 to $80 million. But don’t
feel too happy about extra money floating around; government’s debt service
obligation for the coming year is $173 million.
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