The Importance of Repetro for Rio de Janeiro and the Oil Sector

Experts Concerned About the Competitiveness of the Oil and Gas Industry of Rio Cite Important Points That Need to Be Clarified About Repetro

The oil sector is one of the most important for Brazil’s economy, responsible for about 13% of the national GDP. Yet, over the past seven years, the segment has undergone a severe crisis, characterized by a drop in barrel prices and internal political problems. Since then, various efforts have been made by the government and entities in the sector to restore the vigor of the oil industry. The most recent initiative was the extension of Repetro, a special customs regime for the oil and natural gas sector. This measure, which will be in effect until 2040, indicates the tax waiver from the Union and the states on taxes in the area, especially the ICMS. Changes in Repetro legislation can bring benefits to the entire country, and especially to states with a strong tradition in the oil market.

What Is Repetro and What Is Its Importance?

Repetro is a regime established in 1999 aimed at facilitating the import and export of goods intended for oil exploration and mining activities, such as equipment. One of the actions promoted through Repetro is the exemption from customs duties for a limited time for companies operating in the sector. In states that operate under Repetro, for example, ICMS drops from 18% to 3%.

Since its creation, the program has been relevant for the development of the national oil and gas segment. Over the years, the government has created decrees and measures to update the program. The most recent and significant change occurred in December 2017, with the approval of Law No. 13,586. The validity period of the regime was extended until 2040, along with various improvements. After the approval of the law and the regulation by the RFB, it is up to the states to make an agreement with the National Council of Tax Policy (Confaz) to waive the ICMS and join the regime.

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What Benefits Can the Measure Bring to the States?

Repetro is a fundamental action to promote the expansion and development of the oil market. Together with other measures already in effect in the country, such as ending the mandatory single operation of Petrobras in the pre-salt (Law 13,365), it has everything to bring advantages to states that directly depend on this segment.
Rio de Janeiro, for example, where one-third of the GDP comes from the oil and gas market, stands to gain from the program’s update. Other states, such as São Paulo and Espírito Santo, have already approved Repetro without changes and are ready to receive investments. Below are some benefits of Repetro:

• Increased Revenue ⇒ With the reduction of tax rates, states can attract more investments from multinational companies. As a result, production in the region increases and so does the revenue from this economic chain.
  For example, if Repetro is fully validated in Rio de Janeiro, the region’s revenue could increase by up to R$ 124.2 billion in government participations derived from oil exploration and production activities. The data comes from the Brazilian Institute of Oil, Natural Gas, and Biofuels (IBP) and indicates a positive estimate to improve the state’s economy.
• Job Creation ⇒ The creation of new jobs is an indirect effect of increased income in the oil and gas sector. If there are more investments in the area, whether for research or drilling wells, more labor will be needed to meet the companies’ demand.
• Legal Certainty ⇒ With the definition regarding Repetro, organizations have legal certainty to operate in the oil and gas area. With improvements in the business environment, entrepreneurs feel secure to make investments.

Is It Worth Joining Repetro Fully?

Yes! As mentioned, Brazilian states have the freedom to accept Repetro as proposed by the government or suggest changes before signing the agreement with Confaz. However, the benefits of the program are visible and necessary to stimulate the industry.
Even so, some states are considering altering the customs regime. This is the case with the Legislative Assembly of Rio de Janeiro, where Bill 3660/2017 is being processed to restrict Repetro’s actions in the State solely to the exploration phase. However, the exploration part is less relevant for the region in terms of job creation and revenue.

In this scenario, if the measure is not implemented fully, Rio de Janeiro will lose competitiveness in relation to neighboring states and will face more difficulties in recovering from the crisis. At first glance, it may seem that the measure does not enhance Rio de Janeiro’s potential, but it should be remembered that Repetro has been in effect for almost 20 years in the country, and positive results come in the medium to long term. In light of the crisis, not only in Rio de Janeiro but in Brazil, the recovery of the oil sector is essential to reactivate the economy. Therefore, fully adopting Repetro is an important measure that will complement actions focused on the sector’s development. Source: Parque Industrial Bellavista