Rising Oil Prices And Dollar Boost Brazil To Break Record, Distributing R$ 37.6 Billion In Royalties And R$ 36.8 Billion In Special Participation To States, Municipalities, And The Federal Government

States, Municipalities, and the Union Profit from the Rise in Oil Barrel Prices and the Dollar, Filling Their Coffers with Royalties and Special Participation

The collection of oil royalties and special participation (PE) was record-breaking in 2021. R$ 37.6 billion in royalties and R$ 36.8 billion in special participation were distributed to states, municipalities, and the Union. This amount is 65% higher than what was distributed in 2020.

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The increase in revenue is mainly due to the rise in oil barrel prices in the international market and the exchange rate. However, the growth of production in fields under the production sharing regime, subject to a royalty rate of 15%, is also notable.

What Are Royalties?

Royalties are a financial compensation owed to the Union, States, the Federal District, and municipalities benefitting from companies that produce oil and natural gas in Brazilian territory: a remuneration to society for the exploration of these non-renewable resources.  

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Royalties are based on the value of the field’s production and are collected monthly by oil and natural gas producing companies. The amount to be paid is obtained by multiplying three factors: the rate provided in the contract for oil and gas exploration and production, which can vary from 5% to 15%; the monthly production of oil and natural gas produced by the field; and the reference price of these hydrocarbons for the month. Royalties are distributed monthly to beneficiaries.

What Is Special Participation (PE)?

Special participation is the extraordinary financial compensation owed by companies that operate fields with large production volumes and/or high profitability. To calculate special participation, progressive rates, which vary according to the location of the mine, the number of years of production, and the respective volume of quarterly production verified, are applied to the net revenue of quarterly production of each field, considering the deductions provided by law (royalties, investments in exploration, operational costs, depreciation, and taxes). PE is distributed quarterly. 

Learn more about royalties and special participation and consult the table with values distributed to beneficiaries HERE.

Gasoline and Diesel Prices Could Plummet and Become Up to R$ 3.00 Cheaper if the Senate and Congress Create a Fund with Profits Obtained by the Government from the Rise of the Dollar and Oil to Subsidize Fuel Adjustments

Gasoline and diesel prices could drop to R$ 4.00 per liter! The Senate is expected to discuss, starting in February, a solution to curb the surge in fuel prices, which are currently experiencing constant spikes. The Senate President, Rodrigo Pacheco, announced on January 17 that he will submit the PL 1.472/2021, which creates a program to stabilize the price of oil and its derivatives in Brazil, to the leaders’ college. If the leaders agree, the project will enter the Plenary’s agenda.

“I will submit it for evaluation by the College of Leaders at the beginning of February. The intention is to schedule it. Senator Jean Paul Prates will be the rapporteur and is dedicating a lot of effort to the topic,” Pacheco informed.

The impact of this subsidy package could lead to a decrease of up to R$ 3 in diesel and gasoline, and up to R$ 20 in the 13kg gas cylinder within a period of up to 40 days, starting from the approval of the Executive Branch or the President of the Republic.

Last Week, Petrobras Raised Gasoline (4.85%) and Diesel (8.08%) Prices for Distributors

Fuel prices have undergone successive adjustments in 2021, resulting in an increase at the pumps of about 44%. Last week, Petrobras raised gasoline (4.85%) and diesel (8.08%) prices for distributors, which generated concern among senators. The rise in fuel prices has impacted the inflation rate, which was over 10% in 2021. READ THE COMPLETE ARTICLE HERE.