Brazil’s House of Representatives approved a bill on Wednesday night that will end Petrobras’ monopoly to operate deep-water oil fields. The new legislation was passed by a 292-to-101 vote, but members of Congress can still amend the text until next week. After that, President Michel Temer can sign it into law.
This significant change in Brazil’s offshore oil industry regulations was approved in a tense House sitting, marked by accusations and name-calling. Left-wing parties led by the Workers’ Party were extremely hostile to the bill, and consider it to be a way of handing over Brazil’s wealth to foreign capital.
The new regulation is the most investor-friendly change in the law since 1997, when the federal government ended Petrobras’ monopoly in Brazil. The biggest winner, of course, is Petrobras itself. The monopoly had become a burden to the state-run company, and it was obligated to explore even less-profitable deposits. Petrobras is the most debt-ridden energy company in the world, with a net debt of roughly $104 billion. Petrobras is also involved in the largest corruption probe in Brazilian history.
Now, it can focus on the more attractive reserves, as Petrobras will retain priority in exploring. Only should the state-run company decide to not explore an area would a bidding process involving foreign corporations begin. “It’s an important sign that the government is in control of this process to open up the industry,” said Milton Costa, the secretary-general for an oil industry lobbying group called the Brazilian Petroleum Institute. “There’s no way Petrobras can handle the pre-salt requirements by itself.”
The new congressional vote eases the nationalistic oil policies that have been in place since 2007, when Brazil discovered major offshore oil deposits under a layer of salt, miles below the seabed. In 2010, Dilma Rousseff’s government supported the monopoly of the Brazilian state-run company. Exploring such deep layers is extremely expensive and, even though the extraction potential is enormous, results are uncertain. Maybe it would not be such a bad idea to open up our oil industry a bit.