Aramco CEO says post-IPO tax burden will shift with oil prices

Amin Nasser, chief executive officer of Saudi Arabian Oil Co. (Aramco), gestures as he speaks during a Bloomberg Television interview on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 24, 2018. Photographer: Simon Dawson/Bloomberg
Amin Nasser, chief executive officer of Saudi Arabian Oil Co. (Aramco), gestures as he speaks during a Bloomberg Television interview on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 24, 2018. Photographer: Simon Dawson/Bloomberg

Saudi Arabia plans to link the most important tax paid by state-owned energy giant Aramco to the price of oil, a significant move ahead of the company’s initial public offering this year.

Adjusting the 20 percent royalty on oil revenue Aramco currently pays would help the kingdom to raise extra money if prices climb. While not unusual in commodities industries, the move may not prove popular with potential investors. It would protect them from downturns, but also reduce their gains at times of rising prices.

The royalty will remain “for the time being” at 20 percent,  Amin Nasser, the chief executive officer of Saudi Arabian Oil Co., said in a Bloomberg television interview at the World Economic Forum in Davos, Switzerland. Later on “there will be some alterations that would happen when the price changes in the market.”

The comments are the first confirmation of a possible price-linked royalty, which was reported by Bloomberg last year. Nasser cautioned that all the tax details would not be revealed until the company publishes its IPO prospectus “in due course.” On top of the royalty, Aramco pays a 50 percent income tax.

The CEO reiterated his company’s readiness to conduct the IPO in the second half of this year, pending a government decision on the venue for the listing. Aramco will attract a lot of investor interest and offer competitive dividends, he said.

Saudi Arabia relies heavily on oil for its finances. While Crown Prince Mohammed Bin Salman has an economic program, dubbed Vision 2030, intended to break free from hydrocarbons, the government still gets most of its revenue from the industry today. The sale of 5 percent of Aramco, which could raise as much as $100 billion, is part of the diversification plan.

It’s not unusual for commodity producers to take a larger share of the pie during boom times. The U.K., for example, uses a similar model for oil producers in the North Sea. Russia also varies tax rates with oil prices and the Australian government has proposed in the past price-linked rates for iron ore producers.

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