France reduces fuel taxes; asks oil industry to take up slack

Suffering from strikes by truckers and farmers hit by high diesel oil prices, not to mention general consumer discontent, the government is asking the oil industry to contribute to the 2001 national budget in order to make up for a 30% tax cut it has decided to grant on domestic fuel oil. The government's offer of a tax cut, plus other measures, has been rejected by truckers and farmers as insufficient, however.


PARIS�Paris has found a way to make France's oil industry, in effect, pay for the high fuel prices that are wreaking havoc in the country.

Suffering from strikes by truckers and farmers hit by high diesel oil prices, not to mention general consumer discontent, the government is asking the oil industry to contribute to the 2001 national budget in order to make up for a 30% tax cut it has decided to grant on domestic fuel oil. The government's offer of a tax cut, plus other measures, has been rejected by truckers and farmers as insufficient, however.

Taxes on oil products in France range from 68% of fuel prices for diesel to around 75% for premium gasoline.

The striking laborers have blockaded some 50 fuel depots and refineries in the country in protest over high diesel prices and high taxes on oil products. If the strikes continue, they could have serious consequences on fuel supplies in many areas of France.

'Exceptional' measure
The 3.5 billion francs that France's oil industry must contribute to the 2001 budget to make up for the 30% fuel oil tax cut was described by Finance, Economy, and Industry Minister Laurent Fabius as "an exceptional contribution." Industry is wary of such terms, however, as the last windfall profits tax levied on it�also described as "exceptional"�lasted from 1982 to 1999.

Industry is bitter about the new contribution, which is being levied in a particularly roundabout and technical way. Both the oil field depletion allowance and the price increase allowance on accounting profits linked to variations in stock prices are affected�the former to be fully scrapped and the latter to be diminished by 20%.

The field depletion allowance only brings in 5 million francs, but in the view of the industry ministry's hydrocarbon department, scrapping it will have "catastrophic" effects on exploration and production in France, "which was just picking up."

France is not, to say the least, a major oil producing country, and the hydrocarbon department had been striving�with some success�to attract new companies with exploration opportunities. "The government's measure will ruin all our efforts," one depressed official told OGJ, "for the depletion allowance acted as an incentive. Our exploration tool has now been wiped out."

Besides ExxonMobil Corp. and TotalFinaElf SA�France's largest oil producers�the move will mainly affect smaller companies that operate small fields in France.

Even so, the 3.5 billion francs the government expects from the industry will come almost entirely from the refining and distribution sector.

"Reducing the high price allowance by 20% should certainly cover that amount," a TotalFinaElf official told OGJ. "And it will certainly affect the competitiveness of the refining industry."

This sector has been losing money for a number of years, with one or two exceptions. The upturn in margins this year was a fluke resulting from a call for products from the US.

Philippe Tr�nt, president of the industry's trade group, Union Fran�se des Industries P�oli�s, protested against what he described as a "discriminatory measure" that would harm France's refining industry and curtail investments needed to adapt plants to new product specifications.

Besides the 30% cut on domestic fuel oil taxes, Fabius announced that the 7 centimes/l. diesel tax hike, levied every year starting last year to gradually bring diesel taxes on a par with unleaded gasoline taxes, would be suspended next year. Taxes on unleaded would, likewise, remain unchanged.

In addition, a new mechanism would be adopted to prevent higher oil prices from leading to a corresponding growth in value-added tax revenues so that the state is not blamed for taking advantage of higher oil prices.

Finally, the government has scrapped as of this fall the license motorists must pay each year for their automobiles, which varies according to engine power and the region where it is levied. This tax was established as a temporary 1-year measure some 45 years ago.

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