The Ants and Grasshoppers of Sovereign Funds: Rio de Janeiro, the Largest Oil and Gas Producer in Brazil, Has Not a Penny in Savings to Safeguard the State's Future

Rio de Janeiro, By Far The Largest Producer Of Oil And Gas In The Country, Still Does Not Have A Sovereign Fund With Any Accumulated Value, Despite Having Been Benefited With Enormous Amounts In Royalties And Special Participation

The sovereign funds of Espírito Santo and even Maricá leave Rio de Janeiro behind: the Maricá Sovereign Fund (FSM) was created in 2017 as a savings account to ensure local development in the post-oil economy. In August 2020, it had already reached over R$400 million in accumulated resources.[1]. In the same context, we can mention the Sovereign Fund of the state of Espírito Santo, which reached over R$400 million this year, as the state is the third-largest producer of oil and gas in Brazil.[2]

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Niterói created the Revenue Equalization Fund in 2019 and deposited over R$100 million this year, but following the mentality of politicians that this type of savings is to be used to promote current administrations, the fund provides various ways to utilize the resources annually.[3]

Brazil’s Sovereign Fund Has Poor Transparency And Very Few Available Information

The sovereign fund of Brazil, called the Social Fund, created in 2010, has poor transparency and very few officially available information, and has suffered, since its inception, from numerous attempts to deplete the fund even before it accumulates resources. From 2015 to 2019 alone, the Social Fund received about R$ 48.7 billion, originating from part of the bonuses, royalties, and other sources related to the extracted oil.[4] However, the balance of the Social Fund in 2019 was only R$16.9 billion, which highlights Brazil’s great difficulty in creating and maintaining a savings fund for the future, without consuming and spending the resources in the present.[5]

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In contrast, the Norwegian Sovereign Fund, the largest in the world, with a balance exceeding US$1 trillion in 2020, operates as expected of a fund of this type, accumulating resources from wealth-generating oil activities during the years in which this activity still generates wealth, for an eventual time when these naturally depleting resources will diminish or cease.[6]

Rio de Janeiro, The Largest Producer Of Oil And Gas In Brazil, Still Does Not Have A Sovereign Fund With Any Accumulated Value

As for the state of Rio de Janeiro, by far the largest producer of oil and gas in the country, it still does not have a sovereign fund with any accumulated value, despite having benefited from enormous amounts in royalties and special participation, as the largest oil and gas producer for many years. More than R$13.5 billion in royalties and special participation were received by the state of Rio de Janeiro alone in 2019 [7], and incalculable billions over the last ten years, but not even a dime went to a savings account to safeguard the state’s future, even knowing that oil wealth is temporary. The State of Rio de Janeiro was a true grasshopper, instead of an ant, as in Aesop’s fable.

Currently, in times of pandemic and enormous difficulties in the federal budget, states and municipalities cannot expect that the sovereign funds will accumulate many resources, but certainly, if they had been established and adequately funded since the creation of the Social Fund of Pre-Salt (2010), today we would have accumulated resources that could help Brazil and its federative entities face the current crisis with more tranquility.

by – Cleveland M. Jones

About Cleveland M. Jones

Prof. Cleveland M. Jones, DSc
Technical Director and Partner – Fronteira Energia Ltda. (Fronteira Brasil)
Associate Consultant – CEGeo
Researcher at INOG – National Institute of Oil and Gas/CNPq
Member, Geosciences Advisory Board – NXT Energy Solutions
President, Brazilian Environmentalist Academy of Letters – ABAL
Member, Brazilian Society for the Progress of Science
Chico Mendes Award, Petrópolis City Council, 2019

LinkedIn: www.linkedin.com/in/clevelandmjones
Lattes: http://lattes.cnpq.br/2858652663353677

References

[1] O Dia. Maricá Sovereign Fund Surpasses R$ 400 Million. Online August 26, 2020. Available at https://odia.ig.com.br/rio-de-janeiro/o-dia-niteroi/2020/08/5977443-fundo-soberano-de-marica-ultrapassa-os-r–400-milhoes.html

[2] TN Petróleo. ES Sovereign Fund Reaches R$ 420 Million, With R$ 10 Million In Profit. Online April 9, 2021. Available at https://tnpetroleo.com.br/noticia/fundo-soberano-do-es-atinge-r-420-milhoes-sendo-r-10-milhoes-em-lucro/

[3] G1. Niterói Creates Royalty Savings And Deposits R$ 102 Million. Online March 28, 2019. Available at https://g1.globo.com/rj/rio-de-janeiro/noticia/2019/03/28/niteroi-cria-poupanca-de-royalties-e-deposita-r-102-milhoes.ghtml

[4] Brasil de Fato. Amid The Pandemic, Senate Approves Bill That Withdraws Billions From Education And Health. Online August 21, 2020. Available at https://www.brasildefatorj.com.br/2020/08/21/em-meio-a-pandemia-senado-aprova-projeto-que-retira-bilhoes-da-educacao-e-saude

[5] O Globo. Distribution Of The Pre-salt Social Fund With States And Municipalities Will Be Deferred Until Next Year. Online May 9, 2019. Available at https://oglobo.globo.com/economia/partilha-do-fundo-social-do-pre-sal-com-estados-municipios-ficara-para-proximo-ano-23653497

[6] Infomoney. World’s Largest Sovereign Fund Prepares For US$ 37 Billion Withdrawal. Online September 12, 2020. Available at https://www.infomoney.com.br/mercados/maior-fundo-soberano-do-mundo-se-prepara-para-saque-de-us-37-bilhoes/

[7] ANP. Consolidated Government Participations. Online March 12, 2020. Available at http://www.anp.gov.br/royalties-e-outras-participacoes/participacoes-governamentais-consolidadas

The Ants and Grasshoppers of Sovereign Funds: Rio de Janeiro, the Largest Oil and Gas Producer in Brazil, Has Not a Penny in Savings to Safeguard the State’s Future

Rio de Janeiro, By Far The Largest Producer Of Oil And Gas In The Country, Still Does Not Have A Sovereign Fund With Any Accumulated Value, Despite Having Been Benefited With Enormous Amounts In Royalties And Special Participation

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Brazil’s Sovereign Fund Has Poor Transparency And Very Few Available Information

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Rio de Janeiro, The Largest Producer Of Oil And Gas In Brazil, Still Does Not Have A Sovereign Fund With Any Accumulated Value

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The Ants and Grasshoppers of Sovereign Funds: Rio de Janeiro, the Largest Oil and Gas Producer in Brazil, Has Not a Penny in Savings to Safeguard the State’s Future

Rio de Janeiro, By Far The Largest Producer Of Oil And Gas In The Country, Still Does Not Have A Sovereign Fund With Any Accumulated Value, Despite Having Been Benefited With Enormous Amounts In Royalties And Special Participation

Read Also

Brazil’s Sovereign Fund Has Poor Transparency And Very Few Available Information

Major Oil, Gas, and Energy Event Will Take Place in Brazil: Macaé Energy Will Gather Petrobras, Equinor, Prio, Among Other Suppliers and Energy Executives for Business, Networking, and Employment Opportunities

Rio de Janeiro, The Largest Producer Of Oil And Gas In Brazil, Still Does Not Have A Sovereign Fund With Any Accumulated Value

About Cleveland M. Jones

Diagnostic test

Billions of barrels on the equatorial margin could lead Amapá to double its oil production in Brazil — the state wants to enter the route of companies in the Campos Basin, attract investments, and boost jobs and businesses in the oil and gas sector.

Without bricks, without cement, and without endless construction: the cardboard house that is assembled in modules and can be moved.

Billions of barrels on the equatorial margin could lead Amapá to double its oil production in Brazil — the state aims to enter the route of companies in the Campos Basin, attract investments, and boost jobs and businesses in the oil and gas sector.

Without bricks, without cement, and without endless construction: the cardboard house that is assembled in modules and can be moved.

Government unlocks R$ 554 million for a highway that has been requested for decades and accelerates the duplication of BR.

Tire road? Thousands of shredded tires were secretly placed under a ramp in California, preventing a one-year delay in a project on weak soil and supporting a 26-foot-high structure in a corridor connected to I-880.

Brazilian giant expands borders in the Southeast: Petrobras confirms new oil discovery in ultra-deep waters in the pre-salt of the Campos Basin.

Alert in the global energy market: Severe tropical cyclone hits the coast and disrupts gas production at major plants in Australia, threatening global supply.

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