Brazil – Local content will no longer require ‘waivers’

The government will no longer accept “waivers” applications from companies that fail to meet local content requirements in upcoming oil and gas auctions. The lack of regulation regarding “amnesty” for this type of noncompliance was under pressure from the Brazilian Court of Audits (TCU) on the National Agency for Petroleum, Natural Gas and Biofuels (ANP).


With the end of the waiver, and the change in mandatory minimum percentages, the government hopes to give more predictability to the sector. “This reduces transaction costs and increases the possibilities of investments,” said Mansueto Almeida, Secretary of Economic Monitoring at the Ministry of Finance.


In addition to these changes, Mansueto stressed that the proportion of national content will no longer be taken into account as a criterion for scoring in auctions. This system encouraged oil companies to inflate their forecasts of the use of national goods and services in order to get more points and take over the blocks of their choice.

“In almost all cases, companies promised very high local content and simply could not deliver,” the secretary said. According to him, this systematic noncompliance generated a stock of fines estimated at R $ 60 billion to R $ 80 billion.


The end of the waiver requests is not valid for these incurred fines, which will continue under review by Pedefor, the program that brings together various ministries to discuss local content rules. “What was important was to stop the growth of the fines,” added the Minister of Mines and Energy, Fernando Coelho Filho.


After a deadlock that lasted several weeks, the new rules of local content were based on a conciliatory proposal prepared by the Ministry of Mines and Energy, together with the Ministry of Industry, Foreign Trade and Services (Mdic).


For the Secretary of Development and Industrial Competitiveness of Mdic, Igor Calvet, one can not speak of defeat for the local industry. In his assessment, the ministry was strengthened in the face of the threat of complete elimination of local content demands. “They are not indexes that please everyone, but the [oil] operators themselves will not be entirely satisfied,” he said.


Throughout the discussions, Calvet exemplified, there were sectors of the government defending 10 to 15 percent nationalization on offshore platforms. A minimum index of 25% prevailed.

In addition, according to the secretary, a redistribution of research and development resources in the sector – 1% of the gross revenues of the oil companies with the exploration – was agreed to support the supply chain.


The new rules predict that onshore blocks will have two global indices, both with 50% minimum local content. One will be worth for the exploration phase and another for the development stage, but they will be monitored separately.


Offshore, the new index will be 18% for the exploration phase. Then, in the development stage, there will be a division of requirements: 25% for the construction of marine wells, 40% for collection and outflow, 25% for stationary production units (platforms).

Source: Valor

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