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Posted March 12, 2003 by publisher in Business In Cuba

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Sherritt International will spend $110 million to develop its oil and gas holdings in Cuba this year while it negotiates with the government over the way the business is taxed, the resource company said today.

Last year, Cuban officials challenged Sherritt’s interpretation of how its oil and gas business should be taxed, resulting in a bigger than usual tax bill for the Toronto-based company.

While oil and gas is the biggest part of Sherritt’s business in Cuba, the company is also involved in nickel mining, hotels and tourism, power generation, soybean processing and wireless phone service in the Caribbean country.

Sherritt has proposed a financial restructuring of Sherritt Power, which supplies electricity in Cuba.

Sherritt International, which owns 49.7 per cent of the power company’s shares and one-third of its outstanding notes, is proposing to buy out other Sherritt Power shareholders and repay other noteholders with cash and new notes issued by the parent company.

In Canada, Sherritt’s holdings include investments in the Luscar coal businesses and, more recently, in the Fording coal business in partnership with the Ontario Teachers Pension Plan.

Sherritt released financial results Thursday that showed its overall effective tax rate had soared to 29 per cent in 2002 from eight per cent in 2001, primarily because of increased taxes on it Cuban oil and gas business.

In the fourth quarter, ended Dec. 31, the effective tax rate was even higher 49 per cent although that included a one-time catch-up provision for taxes from 1998 through 2001.

Previously, Sherritt considered all its Cuban oil and gas operations as a singled taxable entity but the government said last year that each of several oil and gas production areas should be taxed separately.

Cuba generally applies a 30 per cent tax on oil and gas income.

Jowdat Waheed, Sherritt’s chief financial officer, told a conference call that the company is negotiating with Havana to clarify how its oil and gas business is taxed.

In the meantime, Waheed said, Sherritt will continue to make investments in Cuba.

“At these oil price levels, the income is sufficiently strong to justify making the investments nevertheless,” Waheed said.

Sherritt stock (TSX: S) closed at $4.60 on the Toronto Stock Exchange on Friday, down 13 cents from Thursday’s close.

Last year, Sherritt’s oil and gas business which is predominantly in Cuba had record operating profits of $98.9 million and record revenue of $218.8 million, thanks to both higher oil prices and sales volumes compared with 2001.

Sherritt estimates its 2003 net oil production in Cuba will be relatively constant compared with last year.

However, to maintain that output, Sherritt will spend about $110 million this year to develop known reserves along Cuba’s northern coast and to evaluate newly acquired offshore properties.

“The reserves that we are in have a relatively high decline rate,” said Dennis Maschmeyer, Sherritt’s president and chief executive.

Last year, Cuba and Canada each accounted for about 31 per cent of Sherritt’s overall revenues, with the bulk of the rest coming from Europe and Asia.

  1. Follow up post #1 added on October 28, 2004 by Robert Aubin

    Please keep me posted on Cuba business development.

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