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The Brazilian Government Is Studying The Possibility Of Increasing Local Content Requirements In The Exploration And Production Of Oil And Gas In The Country.
The measure aims to boost the national industry and promote the naval sector. Currently, foreign oil companies operating in Brazil do not have the same local content requirements in the country, as nearly half of the nationalization rates were reduced during Michel Temer’s government (MDB) in 2017.
The Minister of Mines and Energy, Alexandre Silveira, told CNN that the intention is to find a “balance point” between the old and current requirements, ensuring stimulation for the national industry, without strangling the competitiveness of foreign oil companies and without generating delays in deliveries. The idea is not to return to the past nationalization rates, but to boost the Brazilian industry.
Critics of the local content policy argue that foreign oil companies operating in Brazil, especially Petrobras, paid more for items like platforms and experienced recurring delays in equipment delivery. The oil workers, in turn, argue that each additional 1% of national equipment in offshore construction generates nearly four thousand jobs.
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Local Content Indices During Dilma Rousseff’s Government
Local content indices during Dilma Rousseff’s government varied from 37% to 55% in the exploration phase for offshore blocks. In the other three stages, they ranged from 55% to 65%, depending on the bidding announcement. However, the combination of Petrobras’ high debt and advances from Operation Lava Jato led much of the orders in the last decade to Asian shipyards.
Petrobras’ strategic plan for the period of 2023-2027 foresees the implementation of 18 FPSOs (floating production, storage, and offloading units) in the five-year period. However, in 2014, the naval sector had R$ 9.5 billion in contracted projects and 82,000 jobs. Last year, the sector had less than R$ 600 million in projects and about 21,000 jobs.
The Importance of Local Content for the Reindustrialization of the Country
According to Minister Alexandre Silveira, the requirement for local content in oil and gas exploration and production can play an important role in the country’s reindustrialization. However, clarity, legal security, and regulatory predictability are needed for the project’s implementation.
Thus, the increase in local content requirements can boost the national industry and the naval sector, ensuring more jobs, since oil companies will need national equipment that meets local content requirements. The measure aims not to strangle the competitiveness of foreign oil companies operating in Brazil and to avoid generating delays in deliveries, which could harm the development and production of oil and gas in the country.
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