Brazil Reconsiders Local-Content Rules

Petrobras employee

Published May 26, 2015 12:58 AM by Reuters

Brazil's national oil-industry association, IBP, released a list of suggestions for regulatory changes on Monday that it hopes will boost exploration activity in the wake of falling oil prices, high costs, delays and a graft scandal at state-run oil company Petrobras.

IBP President Jose Camargo told reporters he hopes the changes can be written into rules in time for an auction of oil concessions planned for October.

The proposals focus on Brazil's national-content regulations, which the government has strengthened in recent years in an attempt to use new oil development to create high-paying industrial jobs.

Many companies, including Petrobras have blamed the Brazil-content rules for soaring costs, project delays and bureaucratic rigidity that makes compliance difficult.

"We need to restart investment," IBP Executive Secretary Antonio Guimarães told reporters at an event in Rio de Janeiro. "We've all seen the paralysis that we have today."

Among the IBPs recommendations is that content levels become part of the bid process, giving companies points toward their total bid prices at auctions, rather than being set at fixed levels.

This would allow companies to figure out the most convenient way to include national content in projects and force them to offer more upfront cash to the government if they want a lower content level, IBP said. Until the late 2000s this was the way national content commitments were made.

IBP also called on Brazil's oil regulator, ANP, to finish writing long-expected rules on waivers from Brazil-content rules. At present companies eligible for them can't get them, even when local suppliers are not available.

ANP board member Florival Carvalho told reporters at the event that the agency is considering some improvements for the October auction, but that there would probably not be any major changes to existing rules at that time.

IBP also asked for regulations that would allow oil companies to rebalance the percentage of locally sourced goods and services during the up to 15 years it takes to find and develop oil to account for changing technology and market prices.

It is also seeking a way to adjust commitments for exchange rate moves.

"If the exchange rate strengthens the value of local content rises if it weakens it falls," Guimarães said.