Proposal provides for a R$ 5.5 billion bonus for local content

The proposal to regulate the local content bonus mechanism established by the Pedefor decree (8,637 / 2016), which will go for  public consultation to receive contributions from industry, provides for the granting of bonuses in the form of local content units (UCL) , expressed in reais, in the amount of up to R$ 5.5 billion for the operators that buy or buy certain goods and services in the country. By the proposal of the public notice of concession the UCLs have deadline of December 31, 2023.

And who can get these UCLs?

Operators or consortiums that buy goods and systems in the country to service their projects abroad; pioneer lots of locally developed goods and systems; engineering equipment and services that are surplus to local content, and FPSO helmets.

And what are the criteria?

Purchasing for foreign operations.

The bonus will be UCL for each Real spent on local purchases after the date of publication of the public notice of concession of the UCLs. Goods purchased between January 15, 2016 and the date of the announcement will be entitled to a bonus of one UCL for every two Reais spent on national equipment.

Pioneer Lots

Those lots whose first commercial production of equipment is fruit of development and contains innovation in relation to the other goods and systems available in the market. The bonus will be three UCLs for each Brazilian Real spent on purchases after the publication of the call notice and one UCL for every 2 Reals spent in purchase between January 15, 2016 and the date of publication of the announcement.

Local content surplus

Purchases that lead to a surplus of local content of projects in the production development stage, whose contracts have been added by the rules of ANP resolution 726/2018, are eligible, independent of the date of acquisition. The bonus will a UCL for each Real of the local content surplus.

Basic and detail engineering

Supplementary services purchases may be subsidized to the local content commitments for the macro group Engineering in the stage of development of the production of contracts added by the rules of resolution 726/2018. The bonus will be 5 (five) UCLs for each actual local excess.

FPSO Hulls

All new construction or conversion contracts of hulls signed after the publication of the UCL concession announcement are eligible. The bonus will be R$ 2 in UCLs for each Real spent on the first project submitted and approved, R $ 1.5 in UCL for each Real of the second, R$ 1 in UCL for each Real in the third project and R$ 1 in UCL for every $ 2 certificates.

Until when can UCLs be used?

Until December 31, 2023. The deadline for completion of projects may be after that date. If UCL is granted after December 31, 2022, the term for its use will be one year.

And what are the next steps?

After the public consultation, the idea, according to a source familiar with the progress of the process, is to put the regulation in force later this year, preferably before the elections, in order to ensure the operation of the new bonus system from next year. For this, however, it would be necessary to run against time.

Who made the proposal?

The proposal was conceived by the ANP, which sought out members of the Pedefor Steering Committee for its implementation. It was even considered to leave the proposal to be appreciated by the next government. This, however, would bring very great uncertainty of its effective implementation. In the end, a consensus was reached to try to approve the proposal still in this government.

What did the industry think of the proposal?

In the opinion of a consultant heard by Brasil Energia Petróleo, the proposal is favorable to suppliers and operators, in addition to avoiding the application of fines of tens of billions of Reais that would not solve the problem of the national industry, nor would they bring benefit to the country.

Who benefits?

The main beneficiaries would be the companies with an export profile, generating an additional stimulus for the operators to buy in Brazil for their projects abroad. Encouraging the purchase of pioneer lots would also benefit the Research & Development activity in Brazil, eventually strengthening local research centers.

There is an additional incentive factor to two segments, provided with a multiplier effect in obtaining the bonus: national engineering and hulls. Although these incentives “rob” the market from the various sectors covered by the local content policy, they would have a deadline and aim to save the critical mass that has just been built. The naval sector, it is worth remembering, employs many workers.

“Additive” engineering would bring benefits to the machinery and equipment area, as local engineering projects tend to induce the purchase of local equipment.


Source: Brazil Energy

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