Brazilian Oil Auction Stirs Privatisation Discussion

Felipe Maciel,

Correspondent (South America)

 

BRASILLIA — On October 21, Brazil auctioned the production rights to the Libra field, the largest of the pre-salt deep water oilfields discovered in the country.  The winning consortium, led by the Anglo-Dutch Shell, France’s Total and CNPC and CNOOC from China, along with Brazil’s national oil company Petrobras, was the sole bidder to the 35-year concession to develop the oil deposits estimated to contain 12 billion barrels of oil. It has the potential to place Brazil as one of the largest oil producers in the world and generate profits up to $1 trillion in 20 years.

Dilma Rousseff and her government are being criticised due to her previous strong statements against the exploration of the pre-salt oilfields by international companies. In the 2010 election campaign Rousseff stated that pre-salt is one of the most important resources of the country and to defend its privatisation means taking money out of the country, blocking investments and “denying the country a passport to the future.”

She accused her opposing candidate, José Serra, of planning to privatise the exploration rights in case he was elected, as his party had previously done so to other public services companies in the past when it was in power. The pre-salt oil exploration was one of the key points in that election, and the assurance that the oil exploration rights would remain at the hands of the state could have won Rousseff important votes towards her election as president.

Oil workers unions and protesters took the streets against the auction that was held under heavy police reinforcements. The federal justice received 25 judiciary actions challenging the auction, but most of them were rejected, as there were no illegalities found in the process.

The government defends its position by saying that the shared regime established by the auction is a different matter from privatization. In this regime, a certain share of the oil produced belongs to the state, and the consortium that offered the highest percentage would win the auction. This scheme will be adopted in all the pre-salt fields’ auctions, and it differs from the previous schemes adopted in the country, in which the exploring companies would only pay taxes to the state. As a sole bidder, the winning group agreed to the minimum amount required, that of 41.65 per cent. As Petrobras is also a part of the consortium, the government’s share of oil is slightly higher.

Besides a share of production, the winning consortium must also pay a bonus of 15 billion reais straight away. Critics say that this is one of government´s motives for going forward with the auctions in a less than favourable global economic scenario, as this bonus will be used for the payment of public debts, helping end the government´s financial year on a good situation.

Rousseff stated that those that criticized the scheme are unaware of the numbers involved in the transaction. In a live national TV statement, she affirmed that more than 85 percent of the profits will belong to the Brazilian state.

Even though only one bid was placed, government still hails the auction as a success. The explanation for the low number of bidders is that the major oil companies expected to participate in the auction are based in countries facing economic crisis.

As an answer to the wave of major public protests that happened in the country during FIFA’s Federation’s Cup in July, national congress approved a bill, proposed by Rousseff, demanding that the majority of funds from the pre-salt exploration are invested in education and health-care. Rousseff said that these investments can start a “small revolution” in the country. The problem is the pre-salt oil production is expected to peak only after ten years, at least. And the voices in the street demand education and health-care now.

Image Courtesy: By Brazilian Government [Public domain], via Wikimedia Commons