Twenty years ago, in the late 1990s, Brazil opened itself to free competition in oil and gas exploration and production activities, with the promulgation of the Petroleum Law . We became the eldorado of multinational oil companies that came to invest and participate in bid rounds, and we even granted 52% of the exploration area to private companies . In addition to the diversification of the industrial park, construction and engineering companies, service providers and suppliers throughout the supply chain, all benefited from the strong growth in local demand. Thousands of partnerships have been established between Brazilian and foreign companies, which have come in the wake of the oil companies, bringing infinite technologies, investing in training and generating thousands of jobs.

Petrobras started to operate more efficiently, free from bureaucratic procedures inherent in a state oil company, and, boosted by high oil prices at the time, recorded successive records of profits and became the eighth largest publicly traded oil company in the world.

From the entrance of the government of the Labors Party, there was strong retrogression after drastic change of direction. The sector began to undergo state intervention, exacerbated, and the policies for the sector were conducted in order to concentrate again the activities in Petrobras. The company became a pivot of a political power project, with rigging and reckless conduct of business, not to mention the criminal cartelization and the infamous corruption scheme that is still revealed every day with the Lava Jato operation. And for reasons more ideological than rational, we missed the opportunity to bid for five years at a time when the barrel of oil was over $ 100!

Some measures, such as the local content policy and the encouragement of technical and specialized training, were adequate and important, considering the significant role of the oil sector in local economic development. But protectionism does not solve in isolation, without equating internal obstacles. It was not enough for the government to demand local content without facing the cost of Brazil, carrying out labor and tax reforms, as well as other fundamental structural reforms. The national industry has capacity and can be competitive, but it is no use booking market without an efficient, unbureaucratized and corruption-free business environment.

But the worst was the exaggerated reconcentration of the activities in the hands of Petrobras. This has a perverse character, as the whole industry becomes extremely dependent on a single contractor. This contractor may establish an abusive relationship with suppliers because it has no competitor. It imposes leonine contractual rules, rejects any claims from suppliers, and in the end, if there is injustice, it is not prosecuted because no vendor can afford to go blacklisted. Is there worse punishment than not being invited to bid?

And the worst: when this monopolist sneeze, the whole sector dies of pneumonia. Thus, with the crisis of Petrobras, the shipyards, the contractors and the entire supply chain are going through a lot of difficulties. The fragility of the system was notorious.

Light at the end of the tunnel?

In a liberal turnaround, the current government is trying to rescue the concepts and principles of 20 years ago. Promoting less state intervention in the economy and giving a new direction for the sector, aiming to make possible a safe planning by the investors. The ANP was strengthened and is acting with more transparency and agility, while the new board of Petrobras has adopted compliance actions. The sector was prioritized and considered strategic for the generation of jobs, technological and industrial development.

The mandatory participation of Petrobras as operator in the pre-salt was revoked. If Petrobras does not exercise its preemptive rights, the blocks are tendered by the ANP under the normal conditions of the sharing regime.

More recently, the National Energy Policy Council (CNPE) approved (on April 11) the multi-annual calendar of rounds of exploratory blocks, concession and sharing, and mature land fields, with a forecast of 10 rounds, between 2017 and 2019 .

As for the local content policy, under the applause of the IBP and its representatives and strong criticism of the organizations representing the local industry, CNPE reduced the indexes and simplified the system, substantially reducing the requirement of local contracting.

Considering that there is no expectation of recovering the price of the barrel in the coming years beyond US$60, the signaling given by the current government is crucial to put Brazil back in the running for investments.

Despite the difficulties and disinvestment processes, Petrobras 2017-2021 business plan foresees considerable investments of US $ 74.1 billion, mainly in exploration and production. Under this new, more independent management, the company has invited foreign companies to participate in bids in various areas, from pipeline construction to installation of submarine systems. Despite the criticisms of the entities representing the domestic industry, these bids will promote partnerships and technology transfer again, since the bidding requires a consortium or SPE with Brazilian companies. Thus, the manpower used tends to be local, as well as the acquisition of the necessary material.

Brazil has one of the largest offshore reserves in the world and despite the momentary downturn, there are prospects of soon returning to lead the global offshore oil and gas industry. Favorable regulation, greater security and legal stability will attract investment. The great development of arbitration and more recently mediation, as a consensual form of conflict resolution, is another important positive factor in risk management by investors and suppliers.

The potential for increased exploration and production, the need for investment in downstream, logistics, natural gas infrastructure and thermoelectric power generation are enormous and make the country very attractive to investors with a strategic vision.

We must, however, continue to transform our country by eliminating internal barriers to development: corruption, excessive bureaucracy, high labor costs, complex and inefficient tax legislation, and precarious infrastructure (ports, airports, roads and railways). And the government must fulfill its main role, prioritizing investments in health, education and security, which are the pillars of a developed society.

[1]Law No. 9,478, of August 6, 1997, with the establishment of the CNPE (National Energy Policy Council) and the National Petroleum Agency (ANP), the current National Agency for Petroleum, Natural Gas and Biofuels; [2]ANP data; [3]Brazilian Institute of Petroleum, Gas and Biofuels; [4]Specific Purpose Company.

About the author: Julia Mota is a lawyer and mediator specialized in the oil and gas sector, partner of SFME Advogados.