Brazil to ease, not overhaul local content rules

OREANDA-NEWS. May 28, 2015. Brazil is unlikely to overhaul rigid rules that give preference to local suppliers before an October upstream round despite industry concerns that many Brazilian construction and engineering firms are too weak financially to deliver.

Brazil's influential oil chamber IBP is now pushing for a more modest easing of the rules that require a certain percentage of goods and services used in upstream projects be locally sourced.

"We are not discussing whether we should have local content rules, but how best to take advantage of this instrument in favor of adding value for society," IBP president Jorge Camargo said this week.

A more ambitious overhaul of the local content regime would require congressional approval, a proposition that the politically weakened executive branch would have a hard time obtaining.

The IBP is pushing for a transparent framework that would allow companies to obtain waivers when no local supplier can be located, a move toward flexibility sought by oil companies.

Around 23 local contractors alleged to have participated in a massive kickback scheme have been temporarily blacklisted by state-controlled Petrobras. As a result, several have declared bankruptcy and others could follow.

The uncertainty over the financial health and reliability of local contractors could dampen interest in Brazil?s 13th licensing round planned for 7 October. Local content commitments form part of Brazil?s complex bidding criteria.

The IBP says it also wants to change the rules to allow for adjustments to local content commitments when companies submit development plans to Brazilian oil regulator ANP. Under the current rules, commitments made at the time of tender are binding for the life of the contract with only a few exceptions.

The ANP is expected to unveil simplified guidelines for the local content rules early next month.

Energy and mines minister Eduardo Braga recently said the rules should be drastically changed to improve Brazil's oil industry. But Brazilian President Dilma Rousseff and the powerful labor unions that form the base of her Workers party (PT) have dismissed the possibility of abolishing the rules altogether.