BRAZIL: OIL & GAS REGULATIONS AND POLICY: RECENT DEVELOPMENTS-BRAZILL GOVERNMENT TAKES AND THE ROYALTIES DISPUTE
| Jurisdiction | Derecho Internacional |
(Apr 2013)
BRAZIL: OIL & GAS REGULATIONS AND POLICY: RECENT DEVELOPMENTS-BRAZILL GOVERNMENT TAKES AND THE ROYALTIES DISPUTE
Veirano Advogados
Rio de Janeiro, Brazil
ALEXANDRE CALMON is a senior member of the infrastructure and natural resources group with Veirano Advogados. Based in Rio de Janeiro, Alexandre has practiced natural resources law for over a decade with a strong focus on M&A transactions throughout Brazil and general corporate/commercial and regulatory matters in the energy sector. In 2010-2011 among other relevant transactions Alexandre has coordinated as local external legal counsel for Maersk Oil the acquisition of 100% of the Brazilian oil and gas assets of South Korean Corporation, one of the three largest deals ever in the Brazilian oil and gas industry. In his oil and gas practice Alexandre and his team advise oil and gas onshore and offshore Brazil asset acquisitions and divestments, share acquisitions and divestments involving local oil and gas companies, advising on concession contracts, product marketing, gas and crude purchase contracts, pipeline transportation matters, joint ventures and participation agreements, in addition to general administrative/regulatory matters with the Brazilian National Petroleum Agency - ANP and on general corporate/commercial, labor, tax, compliance and competition matters in connection with the local oil and gas industry. Alexandre has strong international experience being for years a member of the global resources group of Macleod Dixon LLP, a major natural resources focused law firm with connections in Europe, Asia and South America, advising clients investing in the natural resources industry in South America. Alexandre has also been recognized by Who's Who Legal, the independent research partner of the International Bar Association, as one of the world's leading energy lawyers in 2011. Alexandre is also listed as a leading practicioner for energy and natural resources law in Chambers Global publication, The World's Leading Lawyers since 2010, and in Chambers Global publication, South American Leading Lawyers since 2008.
I. INTRODUCTION
The formal authorization granted by the Brazilian Government in January 2013 to the Brazilian National Petroleum Agency ("ANP")2 to sponsor the Eleventh Bid Round3 for the concession of exploration and production ("E&P") onshore and offshore areas was a breath of fresh air to the Brazilian oil and gas ("O&G") industry, which is claiming since 2007 for the resumption of bid rounds in order to allow E&P companies to reconstruct their acreage portfolio and increase their investment plans for Brazil.
Those claims from the industry attempted to interrupt the state of suspended animation the Brazilian E&P industry was put through with the "discovery"4 of the pre-salt O&G ultra-deep water reserves located offshore southeast Brazil and the Brazilian Government's perception that such discovery was relevant enough to change the role played by Brazil in the world O&G market, as an O&G producer and exporter.
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Indeed, after years of speculation as to the origin of the oil found in the Campos Basin5 and the adjacent basins (Santos and Espírito Santo)6 in November 2007 the assumptions by the Brazilian Government controlled company, Petróleo Brasileiro S.A. Petrobras ("Petrobras") were confirmed with the discovery of the Tupi field. Generation of oil took place beneath a thick layer of salt in ultra-deep water offshore Brazil christened as the pre-salt. Tupi's impressive estimated reserves, ranging from five to eight (5-8) billion barrels, exposed an entirely new petroleum province, widely expected to contain fifty (50) to one hundred (100) billion barrels of oil, putting Brazil in the prospective role of one of the world's leading petroleum producing nations.
The impact of Tupi's discovery was immediately felt as the Brazilian Government detached a number of blocks under the influence of the pre-salt layer from the Ninth Bid Round, held just one month after Tupi's discovery was announced later in 2007. The process of re-evaluating the Brazilian petroleum licensing regime started at that point leading to the stall7 of bid rounds until the announcement of the Eleventh Bid Round later in 2012.
Two years after long discussions within the Brazilian government, President Lula da Silva announced in August 2009 the proposals for major changes to the country's petroleum laws. After several months under the scrutiny of the House of Representatives and the Senate, the new regulatory framework law for the exploration and production of O&G located in pre-salt areas was sanctioned. It was a time consuming process not only because of the large number of amendments proposed in general by congressmen but also because many of those amendments included proposals to modify the distribution scheme of the revenues obtained or to be obtained with government takes, particularly royalties8 in connection with O&G production ("Royalties") in connection with areas currently under concession or to be contracted under production sharing agreements.
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The proposed new regulatory framework for O&G exploration and production in pre-salt areas consisted of four (4)9 new laws dealing with the: (i) election of the regime of production sharing agreements ("PSA") for the pre-salt areas, maintained, however, the concession agreement for all areas already granted; (ii) creation of a public company to administrate the production sharing agreements; (iii) creation of a social fund intended to collect funds for the social and regional developments; and (iv) onerous assignment by the Brazilian Government to Petrobras the exploration and production of some limited specific pre-salt areas.
On June 30, 2010, Law #12,276 was enacted to authorize the onerous assignment by the Federal Government to Petrobras of the exploration and production of pre-salt areas, without the need of following a bid process.10 Shortly after that, on August 02, 2010, Law #12,304 was enacted as to authorize the creation of the public company to be named Empresa Brasileira de Administração de Petróleo e Gás Natural S.A. - Pré-Sal Petróleo S.A. ("PPSA"), which main purpose is to manage the production sharing agreements and O&G marketing agreements.
A few months afterwards, on December 22, 2010, Law #12,351 was enacted introducing to the Brazilian O&G legal framework the PSAs for the pre-salt areas as well as creating a social fund to be formed with funds originated of the revenues obtained by the Brazilian Government with the PSAs with focus at fostering social and regional development.
Upon introduction of the PSA regime, Brazil has two (2) different types of granting regimes:11 (i) concession agreements for all areas already granted and for those not in the pre-salt area neither in strategic areas and (ii) production sharing agreements for pre-salt areas and all other areas considered by the Brazilian Government strategic for national development.
However, the main issue arising during the discussions initiated with the pre-salt discovery was not yet addressed; the lack of agreement among the producing and nonproducing States and Municipalities on the distribution of government takes revenues. Later in 2012 it was obvious the Brazilian Government's inability to push for an acceptable solution to all parties, leaving them no alternative other than allowing for the Brazilian States12 to settle it among them.
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After fierce debates and the impossibility of finding a mid-ground the nonproducing States and Municipalities prevailed to amend Law #9,478/97 (the "Petroleum Law") to redistribute the revenues obtained with government takes in connection with the areas currently under the concession regime and provide for a new distribution scheme for the areas to be granted under the production sharing regime. Said amendment was effected through Law #12,734 passed by the Brazilian Congress on November 30, 2012 and submitted to Presidential sanction. President Roussef sanctioned the law vetting various provisions including those related to the redistribution of government takes, justifying that the vetted provisions harm the Brazilian Constitution.
The presidential vetoes were overruled by voting at the Brazilian Congress on March 7, 2013, and Law #12,734 was republished reinstated as originally passed by the Brazilian Congress.
Reviewing the structure of government takes in Brazil, the status and potential impacts of the enactment of Law #12,734/13 on the Brazilian O&G industry is the purpose of this paper.
II. GOVERNMENT TAKES IN BRAZIL
Government takes were introduced in Brazil by Law #2,004/53,13 the same statute that authorized the Brazilian Government to incorporate Petrobras and set the initial guidelines for the Brazilian national O&G policy. Law #2,004/53 provided for Royalties only.
Upon the consolidation of offshore O&G production in Brazil, the Brazilian Government enacted Law #7,453/85, dealing with the obligation of paying Royalties to the States and Municipalities neighboring the production areas when O&G were produced in the continental shelf.
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Further, in its original form the Brazilian Constitution14 provided in its Article 177 that the Brazilian Government could not assign nor grant any type of participation in the exploration and production of O&G. On November 10, 1995, Constitutional Amendment #9 was enacted revising Article 177 to allow the Brazilian Government to contract private or public companies to perform the activities previously comprised within the government monopoly based on laws to be enacted. Nearly two (2) years later, the Brazilian Congress passed Law #9,748/97 (the "Petroleum Law").
The Petroleum Law sets the Brazilian energy policy, regulates activities related to the O&G monopoly and creates...
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