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NOT AN OFFICIAL UNCTAD RECORD Brazil-Africa Energy Sector Cooperation, Examples & Potential BRUNO WERNECK Thompson & Knight Maputo, June 3, 2005 Summary Old Regulatory Framework adopted in Brazil New Regulatory Framework adopted in Brazil Lessons from Brazilian experience Cooperation between Brazil and Africa Old Regulatory Framework Adopted in Brazil In 1953 the Government granted Petrobras (state owned company) the monopoly over the following activities: - exploration and production. - transportation. - importation (including oil products). - refinery. Exception was the distribution and marketing of oil products (the price was regulated). Old Regulatory Framework Adopted in Brazil In the 70s: - significant increase in the price of oil. - increase of the consumption of oil products in Brazil. However: - Petrobras did not have enough resources to make the appropriate investments in exploration. Therefore: - Petrobras executed exploration agreements - “risk agreements” (contratos de risco) with private companies, in which the company would be entitled to acquire a certain proportion of the production. New Regulatory Framework Adopted in Brazil 1995: Constitutional Amendment ending the monopoly. 1997: new Petroleum Law opening the industry and creating the regulatory agency (ANP). Adoption of Concession Agreement model: - bidding process. - the Company is granted a license to explore a certain area. - the Company has the property of the production. - Payment of Government takes by the Company. Government Takes Signature bonus: the price paid by the bidder in the auction for the license to explore a certain area. Royalties: a monthly payment of 10% (it can be reduced to 5%) of the total production of oil and gas. Special Participation: special payment in the case of exceptional production volumes or profitability. “Use of the area fee”: annual payment for the exploration or production of a field. New Regulatory Framework Adopted in Brazil Bidding Process: - Round Zero: Petrobras was granted the license to explore the fields in which: (i) it had developed production. (ii) it had made commercial discoveries. (iii) it had made investments in exploration. New Regulatory Framework Adopted in Brazil Bidding Process: Regulatory Agency establishes the timing and the areas to be auctioned. 6th round took place in August, 2004. 7th round will take place in October, 2005. Process attracted more than 40 companies so far. In the 6th round 154 blocks were acquired, 3 new companies entered the Brazilian market with 16 companies significantly expanding their participation and around US$ 220 million paid for the blocks acquired. Lessons from Brazilian Experience Seismic data and all other geological information held by Petrobras was transferred to the Regulatory Agency and then the respective information of a certain filed is transferred to the winner Company in the bidding process. All new geological information has to be provided to the Regulatory Agency in case the Company returns the area. Lessons from Brazilian Experience Company has a limited (but realistic) term for exploration. Amount of investment committed to exploration is one of the criteria in the bidding process. Regulatory Agency has to approve the development plans. Companies can maintain dollars in a bank account in Brazil. Lessons from Brazilian Experience Transparency in the process. No surprises in the Regulatory Framework. Liberalization of prices. Independent, efficient and transparent Regulatory Agency. Lessons from Brazilian Experience Companies facing challenges to obtain Environmental Licenses. Proposal: Environmental Licenses should be granted together with the Exploration License. Taxes imposed on the importation of goods used for the exploration phase. Tax Incentive System (REPETRO) created in 1999 was extended until 2020. Lessons from Brazilian Experience Fiscal uncertainty. Proposal: Federal law blocking the imposition of new taxes. Transfer of license has to be previously approved by the Regulatory Agency. Proposal: Regulatory Agency should create a list of pre-approved operators (enhance credit). Lessons from Brazilian Experience (Electricity) Public-Private Partnerships (PPPs) for the development of projects in which the Government assures the revenues necessary for the implementation of the project. Incentives by the Government for clean sources of energy (granting of a long term Power Purchase Agreement). Cooperation Brazil-Africa Federal Government’s foreign policy oriented towards strengthening relations with Africa. Brazil’s Eximbank (BNDES) is oriented to and capable of supporting projects in Africa. Partnerships with Petrobras (Petrobras’ deep water technology). Institutional Cooperation between Brazilian and African Governments. Thompson & Knight The law firm is 117 years old. Originally from Texas, we have offices in 5 countries. Leading law firm in energy projects all over the world. We have significant experience in African countries. Thompson & Knight Our Brazil office has been a very efficient harbor to assist African clients: cost effective, cultural knowledge and language skills. We have assisted not only private companies but also Governments and Regulatory Agencies (improvement of regulatory framework), State Owned Companies, including in its internationalization efforts (secondment in which we always have one of our attorneys present in the Company). Thank you! Obrigado! Bruno Werneck 55 21 2271-4245 [email protected]