Brazil’s Black Gold (But also its Black Stain)

Brazil’s Black Gold (But also its Black Stain)

The Brazilian authorities have portrayed a complex issue of huge significance as a simplistic contest between nationalists and sell-outs. On Wednesday, June 9th, the Brazilian Senate passed a bill that alters regulations governing the exploitation of the offshore "pre-salt" oil fields. Discovered in 2007, these are potentially extensive deposits of oil and gas, trapped several miles under the sea bed beneath a hard layer of salt. The regulations’ model will soon change from concessions to partilha, increasing the government’s control over production. One should hasten to underscore the dangers resulting from such a change.

In a partilha system, the role of Petrobras, Brazil’s state-owned oil company, will be overstretched. According to the new pre-salt legislation, the government can sign two types of agreements: either solely with Petrobras, or based on bidding procedures in which companies may participate freely, with an operator status assigned to Petrobras. This move will force Petrobras to invest more than it can comfortably afford to. Government-proposed funding plans are tortuous and likely to be inappropriate. Inevitably, Petrobras will be financed by the Brazilian treasury, and part of the funding will come from a transfer of 5 billion barrels of oil that presently belong to the federal government, and which are worth an estimated 40 billion Reais (about 22 billion USD). Applying public funds in this manner is an offense to the Brazilian population, which already suffers from dramatically inefficient social services. One enlightened aspect of the bill is the creation of a Social Fund to direct 50% of pre-salt oil revenues to the improvement of these services. However, experts believe the pre-salt reserves will not yield profits until 2015. In the meantime, while the government digs into public coffers to pay for Petrobras’ investment, Health Minister José Gomes Temporão calls for more funds for his Ministry, arguing that the contrast between public and private healthcare in Brazil may create a spirit of “social apartheid” in the Brazilian healthcare system.

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