Brazil: Ruckus over royalties, again

An 'official' protest act was organised on 10th November by the governor of the state of Rio de Janeiro, Sérgio Cabral , against a bill already passed by the Senate and pending in Congress that will redistribute a large share of the royalties formerly due only to the hydrocarbon producing states.

The 27 states of Brazil as a whole stand to gain. The state of Rio de Janeiro will lose. Some 150,000 people rallied in downtown Rio to put pressure on the government. President Dilma Rousseff said as a candidate that, if elected, she would veto the reallocation of royalties if Congress granted them to the non-producing states. In Congress, however, the mood is heavily in favour of redistribution.

Governor Cabral may perhaps be excused for his manipulation of public opinion, since the stakes are very high indeed. Through to 2020 the state of Rio stands to lose R$125 billion. Instead of having the ICMS tax collected at the point of origin of oil and gas production (mostly in the Campos basin, within the waters of Rio), the bill would levy the tax at the destination (elsewhere in Brazil).

The impact of the new legislation would be even more catastrophic for the 12 municipalities of the state in whose offshore waters hydrocarbons are produced: up to 74.5 per cent of their municipal revenues come from royalties.

While most oil and gas production in Brazil comes from Rio, São Paulo, and Espírito Santo states, in whose territorial waters the Campos, Santos, and Espírito Santo basins lie, at least six northern and northeastern states may join their ranks: Amapá, Ceará, Maranhão, Pará, Piauí, and Rio Grande do Norte. Others, like Alagoas, Amazonas, and Sergipe, show similar potential. The issue is therefore one of overriding national interest. Rousseff intervened in mid-November to postpone the Chamber of Deputies vote on the royalties issue to 2012. Thus, oil-producing states like Rio will continue to enjoy their privileged access to royalties for a while. Rousseff prefers to let tempers cool as the issue risks splitting the ruling coalition, which she cannot afford. For the government, other issues take precedence and must be voted on before the end of this year. Bills on the World Soccer Cup (Lei Geral da Copa), the federal budget, and DRU (the reallocation of budgetary appropriations) are up first.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Chevron shuts down one of its production wells

Brazil's National Petroleum Agency (ANP) has ordered Chevron to shut down one of its 11 production wells and four produced water injection wells at its off-shore Frade joint-venture floating production-storage and offloading facility.

The move follows ANP's safety audit of the trade facility in late November. The production well cited by the ANP accounts for less than 10 per cent of trade total production of about 79,000 b/d. The company says all trade production and injection wells are safe and secure, and it continues to fully work with the Brazilian government agencies to address their specific issues.

Chevron conducts regular monitoring of the substance, a natural by-product of the
oil and gas production process. The company has safety systems and processes in place to ensure the utmost security at all times.

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: The 2012 budget

The government's proposal for the 2012 budget, submitted to Congress on 31 August, and amounting to R$2.2 trillion, envisages a 13.6 per cent increase in the minimum wage, from R$545 to R$619.21, causing an increase in federal expenditures of R$21.5 billion, largely derived from social security payments.

The increase in the minimum wage is part of Lula's legacy: it was he who introduced a new progressive system for its calculation, based on a combination of cumulative inflation in 2011 (5.7 per cent) and GDP growth in 2010 (7.5 per cent).The budget proposal – contrary to the government's announced efforts at fiscal tightening with a view to a reduction in the Selic interest rate – makes possible an increase in public expenditures, including a target of R$165.3 billion for investments, roughly two-thirds of which is by state enterprises (an 8.3 per cent increase over the figures for 2011).

Most analysts are revising their projections for Brazil's GDP growth in 2011 as a function of deceleration in economic growth in the United States, the European Union, and China. The Focus survey of 100 financial institutions polled by the Central Bank in late August reduced its average estimates, from 4 to 3.7 per cent this year, and from 4–6 to 3–5 per cent in 2012.m Morgan Stanley , UBS , and leading Brazilian consultancies MB Associados and Tendências are all downgrading their estimates, with slight variations.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Brazil to withdraw troops from Haiti

Brazil's Defence Minister Celso Amorim has said that the country plans to withdraw its troops from the UN peacekeeping mission in Haiti. He said the gradual process of withdrawal would be co-ordinated with the UN and other South American nations.

Speaking to the BBC Amorim added: “We can't have a disorganised exit that creates a situation of chaos."

The situation in Haiti has improved since the mission began in 2004 following the overthrow of President Jean-Bertrand Aristide. Amorim noted that there had been two democratic elections since the force was deployed. He said: “Political science manuals teach that the second election shows that democracy has been established… In the medium and long term, it is not good for Haiti and it is not good for those who are there that the mission be perpetuated."

A timetable for the withdrawal is yet to be drawn-up. As Amorim noted the process would be gradual especially because Brazil's troops have responsibility for the capital city of Port-au-Prince.

There are more than 2,000 Brazilian troops in Haiti, out of a total UN force of around 12,000. Brazil was keen to take lead of the UN mission in a bid to play a greater role in regional security and gain a permanent seat on the UN Security Council.

Sources: BBC News, Reuters, WSJ

For more news and expert analysis about Brazil, please see Brazil Focus.

Brazil: Military mutterings

Renewed danger of a rift between the military and the government has arisen over the latter's interest in establishing a truth commission to investigate crimes committed by federal agents, and notably by the military, during the 1964–85 dictatorship. A general amnesty law was passed in 1979, and the military argues that it erased all responsibility for torture, murder, and disappearances.

The government is now headed by Dilma Rousseff, who was herself a victim of illegal imprisonment and torture, and she is keen on seeing that the perpetrators are punished.

Minister of Defence Nelson Jobim (PMDB-RS) – a former chief justice and minister of justice – sides with the government, but the military, otherwise quiescent since the resumption of democratic rule, is restless and producing manifestos of various kinds. The government will have to be extra careful on how it handles this potential crisis.

At a military ceremony held on 5th April in Brasília to introduce to the president the newly promoted general officers of the three armed services, Rousseff broke with precedent by refusing the officers' military salute and substituting a firm handshake. In her carefully worded speech, Rousseff ignored the ongoing debate about human rights violations during the military period, but underlined that "the country has corrected its own ways…and attained a high level of institutional maturity".

What emerged clearly from this ceremony is that Rousseff's relationship with the military is a tranquil one. She reassured them about the need to re-equip the armed forces.

On 27th April, the state of Rio de Janeiro held a public ceremony of reparation to political prisoners who were victims of military dictatorship in the state. This is the first such symbolic reparation.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2011 Menas Associates

Petrobras discovers new crude deposit in the Amazon

Petrobras has discovered a new crude deposit in the Amazon region, where it is currently developing large natural gas reserves. The new discovery was confirmed after extensive tests in the town of Tefe, approximately 630km from the city of Manaus in the Brazilian Amazon.

The crude deposit is located 32km from the Urucu oil province, where Petrobras is in the process of developing three natural gas deposits that supply Manaus. According to the company, the new discovery is high-quality light oil with an American Petroleum Institute gravity of 46 degrees.

Despite the fact that the exploratory well's capacity of 2,500 b/d is comparatively small, Petrobras is optimistic and said that the well test was “excellent considering that type of basin”.

In an official statement released shortly after the new discovery, Petrobras said that it will conduct more seismic studies and test drills to determine the size of the Amazon deposit and assess its commercial viability.

Source: Sinchew

For more news and expert analysis about Brazil, please see Brazil Focus.

Petrobras finds light oil in a well south of the Santos Basin

Petrobras has discovered light oil in a well south of the Santos Basin off the Brazilian southeast coast. The well is located 280km off the coast of Sao Paulo state, about 15km away from the Tiro and Sidon area, in water depths of 400 metres. Petrobras announced the find on Tuesday [16th November], but did not give an estimate of how much oil the find might contain.

It made the discovery at the S-M-1352 block in the BM-S-41 concession in which it has an 80 per cent stake, after transferring a 20 per cent stake to its co-operative partner Karoon. The company said it was continuing to drill in the same well, with the possibility it could find more reserves at a greater depth.

Petrobras said the discovery proves the success of the exploratory strategy of searching for new sources of oil and gas in the southeast of Santos Basin, where a series of fields have been discovered already.

Source: Xinhua

For more news and expert analysis about Brazil, please see Brazil Focus.

Central Bank of Brazil projects external deficit of US$60 billion for next year

The Central Bank of Brazil projects an external deficit of US$60 billion for next year, equivalent to 2.78 per cent of GDP – in nominal terms, the highest since 2001. For 2010, the Bank esti­mates an external deficit of US$49 billion, 2.49 per cent of GDP.

This will be one of the many challenges con­fronting the next government, and should give pause to foreign investors anxious to invest in the country. Instead, there continues to be a massive inflow of speculative dollars. But the Central Bank is also revising the prospects for FDI in 2010 downwards for the second time, to US$30 billion, a reduction of 21 per cent. The original forecast of US$45 billion was lowered in June to US$38 billion.

The sectors primarily affected by a postpone­ment of FDI are metallurgy, automotives, and oil and gas. Paradoxically, a Bloomberg survey of 21 September indicates that Brazil, China, and India have become more attractive destinations for foreign investors than the United States.

And while the Central Bank projects a rosy decrease of inflation to less than the 4.5per cent target for the next two years, the inordi­nate rise in the volume of salaries and credits – led by public banks – actually raises the risk of inflationary pressures. The hens will come to roost in the next administration. Public expenditures rose this year to 11.8 per cent of GDP. The next president will inherit a country with a reduced capacity for public investment.

For more news and expert analysis about Brazil, please see Brazil Focus.

© 2010 Menas Associates