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Government postpones decision on local content in the face of deadlock

 

07/02/2017

The federal government postponed a vote that would be taken on Monday to decide on a change of rules in local content of the oil and natural gas sector, while there is still no consensus on the degree of flexibility that will be applied.

The impasse, according to the representative of the Brazilian Association of Machinery and Equipment Industry (Abimaq), occurs due to different demands between suppliers of goods and services of industry and oil companies.

The decision on the issue, an important factor to be considered in oil field auctions this year, would be taken by a committee composed of ministries and institutions.

While suppliers advocate that the government demands different percentages of local content for each segment of the industry, as a way of stimulating the entire chain. The oil companies want a global percentage for each project carried out by oil companies in Brazil, seeking to simplify the rules.

In both proposals, however, investors are given more freedom to choose where the local content will be applied, since there is no longer a table, considered quite complex by the market, in which the regulator (ANP) determines several items and sub-items of the commitments.

The discussion of the rules occurs within the framework of the Program Pedefor, created a year ago, under the administration of former President Dilma Rousseff.

The government has already chosen to adopt a transition period for rules, but has not yet defined what exactly will be the best course to follow.

 

Differences

The press office of the Ministries of Industry, Foreign Trade and Services, responsible for coordinating the Pedefor committee, told Reuters that the meeting was delayed so that there would be more time for discussions and that there was no new date for the meeting .

In an interview with Reuters, the chairman of the Abimaq Oil and Gas Council, César Prata, pointed out that the meeting was also postponed after strong pressure from industry entities and federations that feel discredited in the discussions.

Prata said that only the Ministry of Industry is supporting the supplier sector, whilethe Ministry of Mines and Energy would be supporting the demands of the Brazilian Petroleum, Gas and Biofuels Institute (IBP), which represents the oil companies in the country.

In the proposal of the oil companies, a percentage of global local content requirement would be applied to each project in the oil and gas sector, where the oil companies would adapt the best way to comply.

“Global local content does not matter to the industry because it drives (oil) producers to focus the local party on services, or sectors that it is already obliged to manufacture here,” said Prata.

The defense of suppliers, according to Prata, is that the industry is divided into three categories: floating, wells and subsea equipment.  The floating is causing more concern to local suppliers, as they carry more chances of generating employment and income, according to Silver.

The industry also advocates dividing floating into five subcategories: systems, modules, machines, infrastructure and engineering, with local content requirement rates ranging from 40 to 70 percent.

IBP’s executive secretary, Antonio Guimarães, in turn, disagrees that the percentage of global local content does not contribute to the development of the national industry.

Guimarães stressed that the rules as they are currently do not favor the oil industry as a whole in Brazil and that the reformulations will be decisive for the degree of attractiveness of the auctions scheduled for this year.

According to him, this year there will be about 25 auctions of oil areas around the world and Brazil will be competing with all of them.

“If you have simpler local content and let the auctions be a success, that’s good for everyone, good for Abimaq too,” Guimarães said.

In a statement, the Ministry of Mines and Energy said that this year’s rounds should bring billions of reais in investments and quality jobs in Brazil.

“To do this, it is important that the local content policy has the necessary balance to attract and enable these investments and at the same time allow for the maximum possible local content in a competitive way,” he said in the note.

The Ministry of Industry, also in a note, said to defend an appropriate balance between the attractiveness of the auctions and the defense of the domestic industry and the investments already made in the supply chain.

“As for the local content rule for the transition period, we seek a less bureaucratic rule and more flexible than the current one, but that is capable of preserving the skills of Brazilian industry built in the last decade,” he said.

Categories: Uncategorized

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