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January 20, 2007

I Ought To Be in Favour Of This

This could be good news for me:

The bill would funnel the $14bn raised into a special fund to develop alternative energy resources.

One of the recipients would presumably be SECA, the guys who are developing solid oxide fuel cells. One possible component is scandium oxide so there's a slight possibility that some of that dosh will stick to me. However, I still think it's a terrible idea in at least one provision:

The second provision attempts to correct mistakes made in drilling leases when they were first granted in the late 1990s. They entitled companies drilling in deep water to avoid royalties on much of their initial production, but omitted a standard clause that eliminated the incentive if oil prices climbed above $34 a barrel.

Now it is well known that this was in fact a mistake. However, those oil companies then went ahead, on the basis of the contracts on offer, and invested some billions of dollars in finding and then developing those oil fields.

Although the oil companies cannot be forced to renegotiate their leases, those that refuse will be asked instead to pay a "conservation fee" on each barrel produced. If they refuse to do that, their leases will not be renewed.

Way to go, let's change the rules of the game half way through!

The thing is, which is going to cost more? The bills says that it will raise $6.3 billion in extra royalties. Hhhm. Currently, that money that isn't paid in royalties flows to the bottom line of the oil companies and gets taxed as profits. So that's 35%. There's another 15% paid on dividends. So, 50% of that money is already flowing into Government coffers, just called something different. So it will actually raise, net, $3.15 billion. (It will also have the effect of increasing the budget deficit by that $3.15 billion. Note that the cash is going into a special fund for more spending. So general budget spending will stay static while tax revenues will fall by $3.15 billion.)

So, a question. Is $3.15 billion worth the damage to the rule of contract? That you can no longer believe the Government when they give you a nice legal agreement, all typed out on paper and signed like?

January 20, 2007 in Scams and Frauds | Permalink

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Comments

Tim,

Given that Goldsmith sold the rule of law to the House of Saud for £40 billion (a deal which Mark fucking Thatcher, of all people, helped broker - Father forgive them, for they know not what they do) I would say $3.15 billion for the law of contract's a snip.

Posted by: Martin | Jan 20, 2007 8:23:59 AM

Erm... Aren't dividends paid ex-tax? So the government 'loses' 44.75% in other taxes, not 50%.

Tim adds: UK ones, yes, but not, I think, US ones. Happy to be corrected, of course.

Posted by: Mark Adams | Jan 20, 2007 1:35:53 PM

To expect governments to act legally is understandable but to expect them to act morally is nothing short of idiotic.

A friend of mine is a prosperous contractor to the Department of Defense, making a wide variety of machined products. Someone from the agency with with he works frequently and closely "let him in" on the fact that an item on which he was the successful bidder was anticipated to be purchased in even larger volume regularly in the future and that an increased production capability (more advanced, high-speed machines) would be in the interest of both the government and him (the business-owner). He bought the indicated machinery, only to discover later that the same individual had induced four of his usual competitors to do the very same.

I've been a buyer of military surplus for 40 years--the last 37 on my own. A standard provision of all such sales is the government's right to abrogate such sales up to the minute the material leaves their premises (it's understandable that a new need for the item might arise). Some years ago, I bid $69,000 on a chemical commodity containing silver. I had calculated making a minimum of $2000 and the likelihood of $8000 at refining (and there was only one firm capable of doing that refining) and even a possibility of many multiples were I to develop a market for the chemical itself. One of the requirements of such a bid is furnishing RCRA (cradle-to-grave) info down to minute physical details of the site where the refining is to be done.

I was high bidder and now in the position, that, should the market fall, my profit might disappear, even cause me a loss. But the market had risen slightly--I was not only better protected but would make significantly more, even at refining. But I received no award notice. After several weeks, I called and was told that it would be "not long now. Legal has it and it'll be out soon." More weeks and ultimately 2 months of stalling ("these things take time") and then I was informed that they were nulling the deal and would be sending it for refining themselves--to the very same outfit I'd named in my RCRA documents (Handy & Harmon in CT). They were familiar with H & H, "dealt with them all the time." When I asked why they hadn't just done that in the first place, they simply told me that they hadn't realized H & H could handle the stuff--until they got my RCRA documents! Screwed royally! They couldn't seem to see the slightest dishonesty (or even irony) in exercising their prerogative in such manner. (These were lawyers, after all.)

But something actually amazing then occurred. Handy & Harmon, that most venerable of US silver refiners since the dawn of recorded history, suddenly went out of business--simply shut down. I wouldn't even have known about it except that the gov't. people called and asked if I'd like to reinstate the contract. I couldn't answer because I didn't know the current silver price (I don't follow those things.) and said so. Only then did I learn about H&H and also that the price had fallen below that needed for me to come out whole (and which they also hadn't mentioned--"didn't know"--when I asked).

Ultimately, they reoffered it and got far less than they would have originally--lost about $25,000, I believe. Strictly business, I probably should have bid it--just couldn't stomach opening myself to more of their double-dealing.

Posted by: gene berman | Jan 20, 2007 2:28:41 PM

Tim, bear in mind that sovereign states can always legislate to alter the terms of contracts directly. Commercial concerns should realise that any state is liable to do that, and on that level I have little sympathy. I think that this just another example of unprincipled rule by unlimited democracy.

Posted by: Marcin | Jan 20, 2007 3:37:20 PM