Saudi Arabia is reportedly considering a flexible royalty payment system for state-owned oil giant Aramco dependent on oil prices.
Bloomberg cited sources as confirming the government is mulling a proposal to replace the current fixed royalty on revenues with one linked to crude prices.
Aramco has proposed this start at the same 20 per cent fixed rate applied to the company today and increases if oil prices rise significantly, according to the publication.
The proposal comes after a royal decree in March that lowered Aramco’s income tax rate on profit from 85 per cent to 50 per cent.
It is also ahead of plans to list about 5 per cent of the company in what is expected to be the world’s largest IPO next year.
Should the new royalty be implemented this may make the company less attractive for investors who would hope to benefit from higher oil prices.
The Saudi government is still dependent on oil for roughly 70 per cent of its revenues, according to the International Monetary Fund (IMF).
In a report earlier this month, the IMF said the kingdom would see “close to zero” GDP growth this year but would reduce its deficit from 17.2 per cent of GDP in 2016 to 9.3 per cent in 2017.