x Abu Dhabi, UAEMonday 24 July 2017

Brazil plans sweeping changes over offshore oil

World Brazil has proposed sweeping changes to its laws governing the development of one of the world's most promising new sources of oil supply.

Brazil has proposed sweeping changes to its laws governing the development of one of the world's most promising new sources of oil supply. The country's president, Luiz Ignacio "Lula" da Silva, while unveiling plans to give the state much more control over oilfields off Brazil's coast at the expense of foreign energy companies, hailed the long-awaited reforms as a "new independence day" for South America's most populous nation. The oil deposits, located in the deep waters of the South Atlantic and trapped thousands of metres below layers of shifting sand and rock salt, may be among the world's most costly and technically challenging to develop. But the fields struck so far contain billions of barrels of crude and have set off a feeding frenzy among international oil companies seeking to exploit them. Mr da Silva wants to ensure that Brazil gets most of the revenue from exploiting the resources, even at the risk of scaring off foreign investment and losing access to the technical expertise of major oil firms. "Petroleum and gas belong to Brazilians and to the government. The model to be adopted must ensure that the biggest portion of income stays in the hands of our people," Mr da Silva said in Brasilia, the capital, at an event to unveil the plan. The country's economic prosperity for decades to come is riding on the success of his proposal, which requires the approval of both houses of the Brazilian congress. Under the proposal, Brazil would switch from the current concession system, in which the government receives only royalties and taxes on oil produced from its fields, to production-sharing agreements. The government would create a new state holding company, Petrosal, to manage new projects and the new system of oil contracts. It would also make Petrobras, the state-controlled oil firm, the sole operator of new subsalt oilfields, with a minimum 30 per cent interest in all future projects. The plan calls for a US$50 billion (Dh183.5bn) infusion of state capital into Petrobras to increase the government's existing 51 per cent holding. Critics, however, said the reforms would give politicians too much influence over Brazil's oil industry. The proposal gives an "absurd amount of power" to a Cabinet-level energy commission, providing openings for political interference in operations decisions, Marilda Rosado, a Rio de Janeiro lawyer specialising in energy, told Reuters. Most foreign energy companies were non-committal on Mr da Silva's proposal, but Chevron, the US oil firm, called Brazil "the future for the oil industry". Royal Dutch Shell, the biggest European oil group, said it had put its Brazilian oil exploration programme on hold while it assessed the proposed new rules. The oil reforms could have a bumpy ride through Brazil's congress, as not all the country's politicians support them. "The risk is a slower development of the oil sector," said Luiz Paulo Vollozo Lucas, a congressional deputy from Brazil's opposition PSDB party. "We will attack the proposal." Anthony Sabino, a professor of business law at St John's University in New York, said: "President Lula's actions might be popular in his country, but will greatly hamper Brazil reaping the riches from what are estimated to be billions of barrels of oil off its shores." tcarlisle@thenational.ae