UPDATE 5-Argentina hikes biodiesel tax; soy export tax unchanged

Fri Aug 10, 2012 2:08pm EDT

* Argentina is top global supplier of biodiesel
    * Tax hike could "kill industry" - biofuels source
    * Move will lower domestic price - Official
    * Tax hike goes into effect on Saturday
    * Official denies country will hike soybean export tax


    By Nicolás Misculin
    BUENOS AIRES, Aug 10 (Reuters) - Argentina tightened its
grip on the country's energy sector on Friday by ordering a tax
hike on biodiesel exports, a move it said was needed to make
domestic fuel prices more affordable, but denied market rumors
that it will increase a soybean export tax.
    The grains-rich South American country is the world's
biggest exporter of biodiesel, a fuel made from soybean oil. The
tax, which will go to 32 percent from 20 percent, will go into
effect on Saturday, according to a government decree.
    The European Union is by far the biggest market for
Argentina, which shipped a total of almost 900,000 tonnes of
biodiesel in the first half of 2012 for some $1.03 billion,
according to industry data. 
    Government economist Axel Kicillof, who burst onto the
national stage when he became the public face of Argentina's
nationalization of energy company YPF in April,
justified the tax hike by saying that Argentines are paying more
for biodiesel than are foreign buyers.
    "This will reduce the domestic price of biodiesel," he told
reporters. 
    Also on Friday the government issued a decree lowering the
official price of domestic biodiesel by 15 percent to 4,405
pesos ($0.96) per tonne from 5,195.8 pesos. 
    "There's not enough demand in the local market to absorb all
the biodiesel that's exported," an industry source told Reuters
on condition of anonymity. "I think this will end up killing the
industry."
    Argentine biodiesel production in 2011 was 2.4 million
tonnes, of which 1.7 million was exported for about $2.1
billion. The country plans to reach 4.5 million tonnes of annual
production by 2013.
    
    Argentine biofuels producers had hoped President Cristina
Fernandez would soon raise the compulsory blend requirement for
diesel sold domestically to 10 percent from the current 7
percent as a way to boost local demand. 
    But Kicillof dashed that idea during his comments to
reporters. He also dismissed rumors that the government was
mulling an increase of export taxes on soybeans, which is
currently set at 35 percent. 
    "This is a better measure than ones that would increase soy
export taxes. This is a better way to go," said Kicillof 
    Chatter about a possible tax hike on international shipments
of soy and other raw grains has been in the markets from Chicago
to Rosario over the last two weeks, putting downward pressure on
prices. 
    
    TIGHTER STATE CONTROL
    The Fernandez government controls corn and wheat exports
through a system of curbs meant to ensure affordable domestic
food supplies. The 59-year-old Peronist leader was re-elected
last year on promises of increasing the government role in Latin
America's No. 3 economy.
    The seizure of YPF followed and then a decree was issued
last month saying oil companies operating in Argentina must
present an annual investment plan. They could face fines or
other sanctions, such as the withdrawal of concessions, if they
fail to comply. 
    With its ample water supplies and vast Pampas farm belt,
grain powerhouse Argentina is the world's No. 2 corn exporter
and No. 3 supplier of soybeans.
    But the idle capacity of the country's crushing plants has
risen recently due to lower-than-expected soybean output, caused
by a drought that hit the Pampas during the 2011/12 growing
season. 
    So, also on Friday, the government lifted a ban on soybean
imports, which will now be available to help keep Argentine
crushing plants busy.
    "We want 100 percent of our biodiesel processing plants to
be used by either domestic or imported beans," Kicillof said.
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