BRAZIL-OIL: Joint Ventures to End State Monopoly

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jul 24 1997 (IPS) - Joint ventures between the government-owned Petrobras and national and foreign firms will put an end to the government’s monopoly over the oil sector.

Petrobras, which escaped previous privatisation plans, is Brazil’s leading company.

Sixty-five firms – both private and public – are already interested in participating in the 138 projects offered by Petrobras in prospecting and producing oil and natural gas. The investments could total three billion dollars.

Petrobras is thus getting a jump on the implementation of a new law approved by Congress to regulate the opening of the sector. A National Petroleum Agency will also be created to articulate the country’s oil policy.

The oil sector was the only area excluded from the privatisation plan launched by the government following the passage of a constitutional amendment in 1996.

Petrobras, which was founded in the 1950s during a wave of nationalist sentiments, remains in government hands, while other symbols of national prowess like the Compania Vale do Rio Doce – the world’s biggest exporter of iron – and the National Steelworks have gone over to the private sector. And the country’s telecoms, electricity and transport giants are in the process of being privatised.

Although the government of Fernando Henrique Cardoso did not find political conditions ripe to privatise Petrobras, he was able to eliminate the state monopoly over the oil sector.

The 1996 constitutional amendment actually opened the oil sector to competition from private capital of any origin, in the exploration and production phases as well as in imports and refining, activities previously controlled by Petrobras. But the initial reactions indicated that the creation of joint ventures would prevail over open competition in this first phase of “flexibilised monopoly.”

The sector requires sizeable long-term investments, which discourage bold projects.

Petroleo Ipiranga – the biggest national private oil company, which dominates 28 percent of sales of petroleum derivatives in Brazil, only outdone by Petrobras Distributor, which controls 36 percent of the market – has decided to invest two billion dollars over the next few years in association with Petrobras, especially in oil refineries and pipelines.

“There is no other way,” said Carlos Alberto Bastos, a Petroleo Ipiranga executive. Companies interested in taking advantage of the opening of Brazil’s oil market should associate themselves with Petrobras, he added.

The market does not leave room for new refineries, Bastros explained, and private firms can only hope to share in the expansion or improvement of Petrobras units.

Oil prospecting and production depend on the know-how accumulated by the state company, which will maintain control over the most promising oilfields.

Nevertheless, Petrobras is preparing for a new era of competition. It aims to end the year with a daily production of one million barrels of crude oil, and to reach 1.6 million in the year 2000. Production averaged 809,000 barrels a day in 1996, and 715,000 in 1995.

Consumption in Brazil is currently close to 1.5 million barrels a day, and growing due to the expansion of the automobile market. Vehicle sales rose 100 percent in four years.

A Petrobras spokesman clarified, however, that the goal of 1.6 million daily barrels of crude oil for the year 2000 was not set in search of self-sufficiency.

The company is forging joint ventures with both private and public firms. A Petrobras technical team visited Caracas last week to continue negotiating with Petroleos de Venezuela. The two state- owned corporations plan to associate themselves in a new company, PetroAmerica, to explore Venezuela’s rich oilfields and sell petroleum derivatives in northern and northeastern Brazil, said Jose Coutinho Barbosa, director of international operations for Petrobras.