Government to extend for 20 years special tax regime for oil/New rules will reduce local content requirement


By Danilo Fariello and Martha Beck/O Globo

11/28/2016 4:30


BRASÍLIA – The government will announce in the next few days new rules for the exploration of oil and gas in the Brazilian market. One of the most anticipated actions by the sector is the extension for a further 20 years of the rules of Repetro – a special tax regime that facilitates the import and export of goods destined for the oil industry and was to expire in 2019. In addition, President Michel Temer will sanction tomorrow the law that withdraws from Petrobras the obligation to act as sole operator of all the pre-salt fields. The new local content policy for the sector, already defined by the government and ratified by the National Energy Policy Council (CNPE) on 14 January, is also in the pipeline.

Under the new rules, the percentage of local content required in the projects is expected to fall, but the government expects the new index to be duly complied with, which does not happen today. The idea is that the reduction will be offset by an increase in industry activity. The supplier industry, however, complains because it does not want to lose what it has in hand, in exchange for future promises, like the reduction of rates.

In the current model, there are requirements of up to 65% acquisition of goods and services produced in the country, but they are rarely met. For the government and the oil companies, the reduction of local content is part of a group of measures to reactivate the sector  in the country. As a result, it is expected that greater activity in the sector will result in an increase in demand for the Brazilian suppliers industry, even if the local content index drops below 50%.

For the Federation of Industries of Rio de Janeiro (Firjan), however, the proposal goes in the opposite direction of what has been applied and punishes suppliers of the oil chain to the detriment of the oil companies themselves. Firjan’s Oil and Gas manager, Karine Fragoso, estimates that the proposal comes at an inopportune time, as activity in the sector fell to almost a third of the R $ 45 billion a year historical numbers.

“With the whole world closing, we open up now?” We are against it. The attractiveness of the auction is given by the area you have and the quality of the oil we have in the pre-salt, “she said.

The renewal of the policy is defended on all sides, among other reasons, for having led to the overcharges pointed out by the Court of Auditors (TCU), problems such as that of Sete Brasil (a company created to provide platforms and is in judicial recovery) And a huge volume of fines applied by the National Petroleum Agency (ANP) for local content targets not met. But the controversial review has placed on different sides the supplier and oil industry.

The government has suggested, in a public consultation, to simplify the rules and create a global index of local content for the auction, rather than making segmented requirements that ensure markets for the entire chain. For Antonio Guimarães, of the Brazilian Petroleum Institute (IBP), which brings together the oil companies, the local content rule must be global and attractive for investors to be interested in Brazil.


The executive manager of industrial policy of the National Confederation of Industry (CNI), João Emilio Gonçalves, acknowledges that the current model displeases everyone. However,  defends a “middle way” between the global indicator and the more restricted local content.

According to Alberto Machado, the oil and gas director of Abimaq, the global indicator allows oil companies to compensate for the lack of local content in technological and value-added products, with more trivial services such as earthmoving , which harms the local industry.

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