Law Project Approved That Establishes Local Content Until 2040, Fines Can Reach 100%

Minas and Energy Commission of the Chamber of Deputies Approves Report by Deputy Altineu Côrtes That Establishes Fixed Local Content Indices for ANP Oil Auctions

The report by Deputy Altineu Côrtes (PP/RJ) in favor of PL 7401/2017, which sets local content indices for auctions of exploratory areas for oil and natural gas in the country, was approved by the Mines and Energy Commission of the Chamber of Deputies on Wednesday (28/08). Negotiations are ongoing, and in the fight for national shipbuilding, Sinaval meets with government representatives.
The document also states that the item indicating that such indices will not be adopted as criteria for evaluating bids in ANP’s tenders will remain.

The bill establishes different criteria for auctions under the concession and production sharing regimes and stipulates that preference should always be given to hiring Brazilian suppliers when the conditions of price, deadline, and quality are more favorable or equivalent to those of non-Brazilian suppliers.

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The report by Côrtes provides the following local content indices for exploratory blocks under the production sharing regime:

I – Exploration Phase: Global content of at least 20%;

II – Production Development Stage or for each development module, in the case of modular development:

a) Well Construction: minimum content of 30%, with at least 25% of goods and 5% of services;
b) Production Collection and Discharge System: minimum content of 40%, with at least 30% of goods and 10% of services;
c) Stationary Production Unit: minimum content of 30%, with at least 25% of goods and 5% of services.

The bill also sets local content indices for auctions of areas under the concession regime:

I – For blocks located on land, the minimum local content percentages will be as follows:

a) Exploration Phase: Global content of at least 50%;
b) Production Development Stage: Global content of at least 50%, with 25% for goods and 25% for services;

II – For blocks located at sea, the minimum local content percentages will be as follows:

a) Exploration Phase: Global content of at least 18%;
b) Production Development Stage:

1. Well Construction: minimum content of 30%, with at least 25% of goods and 5% of services;
2. Production Collection and Discharge System: minimum content of 40%, with at least 30% of goods and 10% of services.
3. Stationary Production Unit: minimum content of 30%, with at least 25% of goods and 5% of services;

The bill does not allow the compensation of the goods local content index with the local services content index and vice versa, nor within the phases and stages.

If oil companies cannot prove the execution of local content of at least 65%, they will pay a fine of 60% on the value of the unachieved local content, and if the non-compliance with local content is above or equal to this percentage, the fine will be increasing, ranging from 60% up to 100% of the local content value.

The bill will still need to be approved by the Finance and Taxation Commission (CFT) and the Constitution, Justice, and Citizenship Commission (CCJC).

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