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London Evening Standard: US turns tax screw on big oil

Bill Condie,
19 January 2007

Oil and gas majors BP and Royal Dutch Shell are facing a huge new tax bill in the US after the first anti-big business salvo of the new Democratic-led House of Representatives

The House has voted to slash tax breaks and increase royalties in a move that would cost oil and gas companies $14bn (£7bn). The Democrats, who swept back into control of the US Congress last year, have vowed to create a tough new political climate for big business.

They say the oil companies do not contribute enough to the economy, and have profited from high prices at the expense of consumers.

They have also taken aim at drugs giants such as Glaxo-SmithKline, vowing to reduce what they are paid by Medicare, the US prescription benefits programme.

‘The oil and gas industry is extraordinarily well-established and well-off,’ said House Democratic leader Steny Hoyer. ‘It does not need the American taxpayer’s help to be successful or to make a dollar.’

But Republicans say the new legislation will raise US energy costs, with one calling it ‘a win for Opec’.

House Speaker Nancy Pelosi steered through legislation that would roll back industry tax breaks and force energy companies to pay more drilling royalties. The money raised would be used to fund research into renewable energy sources.

The measure must be approved by the Senate and could be vetoed by President Bush, but higher taxes on the big oil companies appear inevitable.

In last year’s elections, the Democrats targeted major US oil firms such as Exxon Mobil, Chevron and ConocoPhillips and foreign operators in the country such as BP and Shell, saying they did not need government help.

About half the Bill’s savings come from eliminating a lower tax rate on oil companies, which will bring in an estimated $6.5bn from 2007 to 2016. The lower tax rate had been given to all US manufacturers in 2004.

The rest of the money would come from a ‘conservation fee’, which the Bill would impose on energy companies that refused to renegotiate faulty leases signed in 1998 and 1999. That would raise about $7.6bn.

The US oil and gas industry says American consumers will pay the price through higher petrol prices.

‘In reality, the only people it punishes is the American people,’ said Dennis Hastert, Illinois Republican and former House speaker.

• BP chairman Peter Sutherland has said he will stay on at the company despite the announcement that chief executive Lord Browne is retiring and fierce criticism of BP’s safety record following the blast at its Texas City Refinery that killed 15 people.

He said: ‘The board of BP concluded in my absence some time ago that I should stay through the succession of John Browne and remain for a time after that.’

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