Ahead of mega oil auction, Brazil fighting over who gets the money

. Oct 08, 2019
petrobras oil auction Photo: Tânia Rego/ABr

At the beginning of November, Brazil’s government is set to hold what could be the biggest oil and gas auction in the country’s history. The administration will be offering areas in the famous pre-salt oil layer from which somewhere between 6 and 15 billion barrels may be extracted—comparable to the entire reserves of countries such as Mexico and Angola.

The auction has attracted the interest of 14 oil companies, including firms from the United Kingdom (BP), U.S. (Chevron and ExxonMobil) and China (CNODC and CNOOC).

</p> <p>According to the auction rules, the winners will have to onsell part of the extracted oil and <a href="">pay a bonus</a> of BRL 106 billion to the Brazilian government—money which is desperately needed in a country still trying to recover from the biggest economic crisis of its history.</p> <p>The federal government decided to divide a part of this BRL 106 billion with Brazil&#8217;s states and municipalities, many of which are in <a href="">dire financial straits</a> and struggle to maintain the operation of public services. The proposal is to transfer BRL 10.5 billion to states, and BRL 10.5 billion to municipalities.</p> <p>In order for this proportional distribution to take place, Congress needs to approve an amendment to the Brazilian Constitution, as well as authorizing the auction. The criteria for divvying up the money, however, created an impasse between state, municipalities, members of Congress and the Jair Bolsonaro government.</p> <h2>North v. South</h2> <p>With less than a month to go until the auction, an agreement seems far from realization.</p> <p>The distribution of funds was approved by the Senate, including rules which destined a larger slice of money to states from the North and Northeast, which are less developed. The bill was sent to the House of Representatives, where the chaos began.</p> <p>States from the wealthier South and Southeast states, home to most of the oil production in Brazil, have complained of the criteria used to split the bonus money and have pushed to see an increase to their own shares. Meanwhile, some representatives began claiming that the share given to municipalities should be larger than that going to Brazil&#8217;s 27 states.</p> <p>In an attempt to speed up this process and avoid delays to the auction, an agreement allowed the bill processing in Congress to be split into two. One, to authorize the auction, was approved. Another, concerning the distribution of resources between federal, state and municipal governments, is still being discussed.</p> <p>State governors from the Northeast then said they planned to go to court to question Congress&#8217; approval of the auction, which was seen as a threat by House Speaker Rodrigo Maia.</p> <figure class="wp-block-image"><img loading="lazy" width="715" height="485" src="" alt="pre-salt oil reserves" class="wp-image-25576" srcset=" 715w, 300w, 610w" sizes="(max-width: 715px) 100vw, 715px" /><figcaption>Pre-salt oil reserves</figcaption></figure> <h2>Senators showing their displeasure</h2> <p>Meanwhile, senators have begun putting pressure on the federal government and representatives to make sure the proposal to divide up the bonuses—already approved in the Senate—does not undergo any changes.</p> <p>Last week, during the vote on a <a href="">bill altering pension rules</a> in the country—the absolute priority of the Jair Bolsonaro government—the Senate approved an alteration to the proposal, reducing the total savings forecast by the pension reform.</p> <p>This change was seen as a defeat for the government and a message sent by senators, who are dissatisfied with the direction of negotiations involving the division of oil auction bonuses.</p> <h2>Solution in sight?</h2> <p>On Sunday, House Speaker Rodrigo Maia met with President Jair Bolsonaro to discuss how the resources would be divided up. According to Mr. Maia, a new bill will be drawn up, which is expected to maintain the shares of states and municipalities as declared initially: BRL 10.5 billion for each.</p> <p>Mr. Maia stated that the bill would be approved quickly and ensured that funds will arrive in the accounts of states and municipalities before the end of the year.

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