Monday, 13 December 2010
Brazil: A new royalties scheme
On 2nd December, the Brazilian Congress approved the fourth and last bill of the normative framework for pre-salt. The bill defines the production-sharing scheme and allocates royalties to all the states and municipalities, even those that are not producers of oil and gas from pre-salt.
The latter was the more controversial aspect of the legislation, and, by political agreement with the interested governors, it was acknowledged that President Lula would exercise his presidential prerogative of a partial veto of the legislation and proposes a new system of allocation of royalties, by gradually reducing the portion reserved for hydrocarbon-producing states over a period of ten years.
This reduction in royalties would be compensated, over time, by the increase in the volume of oil and gas produced, and hence by an enhancement of royalties accruing to producing states. The principal of these so far is Rio de Janeiro. The new scheme will be defined by Dilma Rousseff in 2011.
A recent article in the Wall Street Journal drew attention to the fact that eight out of twelve of the world's largest deep-sea petroleum deposits discovered over the last 30 years are in Brazil. All of them are being explored by Petrobras, and they are equivalent to 15 billion barrels of oil, more than Brazil's current conventional reserves and nearly two-thirds of those of the US.
There is no doubt that the new frontier of pre-salt is the key to the economic redemption of Brazil. It could spell an end to the country's staggering social iniquities.
For more news and expert analysis about Brazil, please see Brazil Focus.
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