VENEZUELA said that it is raising the royalty tax on foreign producers of heavy crude oil in Venezuela from 1% to 16.6% per barrel of oil.

President Hugo Chavez made the announcement on October 10. The tax increase is effective immediately. It applies mainly to multinational oil companies operating in the Orinoco region and is expected to cost the companies $1.27 billion a year. Chavez said a 1943 hydrocarbons act sets the tax at 16.6%, but that foreign companies have managed through “loopholes” to pay only 1%.

Sponsors of four existing oilfield projects with the state oil company as a partner are attempting to negotiate a lower tax before they commit to any future expansions of the projects.