BRASILIA, (Reuters) – Brazil’s president proposed yesterday giving the state more control over one of the world’s biggest recent oil finds in a high-stakes move that could drive the country’s development for decades to come.
The long-awaited proposal for offshore “subsalt” fields thought to contain at least 50 billion barrels of light crude could usher in a new round of investment in Brazil’s oil industry if energy companies find the terms acceptable.
But the overhaul, a major step toward greater state control of Brazil’s successful oil sector, could also leave much of the treasure trapped under the sea if the regulatory framework turns out to be too onerous.
President Luiz Inacio Lula da Silva, a charismatic and hugely popular former union leader who has steered Brazil through an economic boom with a mix of market-friendly policies and social spending, hailed the oil reform as a “new independence day” for South America’s largest nation.
“The subsalt is a gift from God. Well explored and well managed, it can create big transformations in Brazil,” Lula said at an event to unveil the plan in Brasilia, the capital.
“If we don’t make the right decisions, what appears to be a winning ticket could be a source of enormous problems.”
Under Lula’s plan, the government will create a new state holding company called Petrosal to manage new projects and a new contract system that gives the state a share of the oil. The government will also have the right to declare any oil region strategic and implement a production-sharing system.
The plan would make state-run energy firm Petrobras the sole operator of new fields with a minimum 30 percent stake in all future projects in the so-called subsalt oil fields.
Presenting the plan, Lula and his chief of staff, Dilma Rousseff, stressed that Brazil would not fall victim to the so-called “resource curse” that has soured oil bonanzas in countries from Iraq to Nigeria to Venezuela.
The government’s oil revenues will go into a “social fund” aimed at channeling money into poverty reduction, science and technology, the environment and improving an education system that lags much of the world.
Brazil’s proposal is part of a worldwide trend of governments seeking greater control over natural resources. But Brazilian officials stressed that their plan does not seek to shunt aside foreign capital, as has happened in Venezuela.
“This is clearly a move to a more state-centric model, more than Brazil has had, and more than the government was talking about a few months ago,” said Erasto Almeida, Latin America analyst at Eurasia Group in New York.
“But it’s not Brazil moving in the direction of Venezuela. They are respecting existing contracts and it’s pretty clear there will be opportunities for international oil companies.”
Foreign energy companies were loathe to judge the proposal. Devon Energy Corp declined to comment, while Chevron Corp was noncommittal on the proposal but called Brazil “the future for the oil industry.”
Exxon Mobil said Brazil would benefit most from a “framework that encourages additional investment and timely resource development, and rewards innovation and the deployment of advanced technologies.”
