One of the main proposals is to keep Petrobras as a state-owned company with mixed capital, but the refining, distribution, logistics and transport market subsidiaries will be sold
After the country elected Jair Bolsonaro, the self-proclaimed "Trump of the tropics", Brazil's oil and natural gas industry is likely to continue with reforms aimed at attracting investment and boosting production, especially in the highly productive pre-salt frontier, , president of the country. The right-wing president-elect, who disputed a platform of law and order, surpassing the leftist Fernando Haddad, of the Workers' Party (PT), by a margin of 55% to 45%. Polls leading up to the second round of voting indicated a victory for Bolsonaro, although the final margin of victory was closer than expected.
The grand reopening of Brazil's oil patch, which began in mid-2016 after the impeachment of former President Dilma Rousseff, is set to continue under the new government, with Bolsonaro maintaining the reforms implemented over the past two years. Brazil established a fixed annual schedule of production-sharing auctions and bidding rounds, lowered requirements to use locally produced goods and services in exploration and development, and allowed foreign oil companies to operate pre-salt fields sold under sharing agreements. of production.
The National Petroleum Agency (ANP) already has plans to hold the country's 16th bidding round and the sixth pre-salt production sharing auction in the second half of 2019, which should be maintained and approved by the National Council for Energy Policy (CNPE). this week. Furthermore, Bolsonaro is likely to pressure the government to complete the price adjustment negotiations in the areas of transfer of rights with Petrobras. This would pave the way for the government to sell additional volumes of oil that Petrobras discovered in an area under government control.
A transfer of rights auction would be highly anticipated by the oil industry, with the sale putting an estimated 5 billion to 15 billion barrels of oil equivalent that have been discovered, launched and drilled on the market. Initial estimates put potential signing bonuses generated by the auction at $100 billion.
Petrobras already owns the rights to produce 5 billion barrels from the region, with Campo de Búzios pumping the first oil in April, with an estimated 3,1 billion barrels recoverable.
PARTIAL PLAN
Under the terms of Bolsonaro's economic policy plan unveiled in early October, the new president also pledged to gradually remove local content requirements, establish incentives for small businesses and incentives for exploration and development of unconventional deposits, and open gas markets. natural to competition. . Petrobras will remain a state-owned company with mixed capital, but the subsidiaries that hold dominant positions in the refining, distribution, logistics and transport markets will be sold, according to the plan.
Bolsonaro's candidate for finance minister, widely respected economist Paulo Guedes, also confirmed on Monday that the government will continue to privatize state-led industrial entities under the new government.
The government support is expected to help Petrobras move forward with its often-delayed plan to sell $21 billion in assets in 2017-18. Several asset sales are on hold due to the Supreme Court's ruling that Congress must approve the sale of strategic assets, such as Petrobras' sale of four refineries representing 25% of installed capacity and the Transportadora Asociada de Gas pipeline network, or TAG . The TAG sale is expected to raise more than $5 billion for Petrobras.
The injunction was issued despite an improved and transparent sales methodology, implemented by the Federal Court of Accounts (TCU), which acts as the government's oversight body.
Diesel subsidies will be one of Bolsonaro's biggest challenges
One of the new government's biggest challenges will be what to do with an ongoing subsidy to domestic diesel prices. The government agreed to cut diesel prices to settle a brutal 10-day strike by independent truck drivers in May, but the subsidy expires on Dec. 31. Petrobras and other distributors, importers and refiners that adhere to the subsidy will be reimbursed for the difference between international exports. and domestic prices, which are expected to cost around 9,5 billion reais.
Bolsonaro will likely need to retreat from his anti-establishment campaign rhetoric to negotiate with a Congress, likely to be led by an opposition-controlled alliance in the first weeks of the new government, to resolve the issue of diesel subsidies or address a potential one. crisis. The recent strengthening of Brazil's real currency against the US dollar and lower international prices for oil products, however, helped to naturally reduce fuel prices, in a trend that should help the negotiations.
Subsidy negotiations could also be included as part of a broader review of Brazil's distribution segment. Bolsonaro's economic plan included changes to how transportation fuels are taxed in Brazil, as well as putting in place "appropriate protections" to ease the impact of fuel market volatility on domestic consumers.
Bolsonaro will need to make alliances to approve his energy projects
Bolsonaro's Social Liberal Party, or PSL, is the second-largest voting bloc in the Chamber of Deputies, although the group could eventually expand its power with a possible alliance with a group of centrist parties. But even alone, the size of the PSL should be enough to fend off any opposition attempts to overturn recent reform advances, such as making Petrobras the sole operator of pre-salt fields sold under production-sharing agreements.
Few concrete details emerged about the goals and targets of Bolsonaro's primary energy policy on Monday. Market talk late last week indicated that Bolsonaro was considering nominating a general to be Petrobras' chief executive, which could be seen as a step backwards given the market-oriented leadership of Pedro Parente and Ivan Monteiro. The Ministry of Mines and Energy will be tasked with continuing studies on how best to open up the Brazilian fuel and natural gas markets to competition, which will require competent leadership with industry knowledge.
The contract of ANP Director General Decio Oddone, a widely respected industry leader, will run out in 2020, with Oddone saying he would like to stay in the role. Oddone has steered the ANP through massive modernization and the sheer number of bidding rounds undertaken over the past two years.
