Brazil
- introduction"Everything which can be done in Brazil should be done in Brazil"
So goes the slogan under president Lula de Silva. While the country has
possibly the best established track record for local
content development outside of
the first world, Lula's election in 2003
only served to strengthen and
consolidate its role, even to the extent that
long term goals for energy
self-sufficiency
have been stepped back in order to
ensure that production platforms
could be
built on home turf. With the giant discoveries at Tuppi and Jupiter,
pressure to
see revenues distributed throughout the population has become even
stronger.
And arguably, both in terms of increasing indigenous technical skills and job
creation, the Brazilian local content program can be said to have worked. The
primary objective of the Brazilian local content policy is, according to PROMINP, to “maximize goods and services national industry content, within competitive
and sustainable basis, in the implantation of oil and gas projects in Brazil
and
abroad.”
With the president arguing that Petrobras should be used as a development tool, it should be assumed that profits for
their own sake take a back seat to a broader definition of "national
interest."
One hundred thousand jobs
Job creation is very much at the heart of this agenda. State oil company
Petrobras aims to create some new 100,000 jobs by 2010 through ratcheting up
local
content requirements and implementation, and its 2006-2010 Petrobras strategic
investment plan calls for 65% of equipment and services to be sourced from
domestic
suppliers.
This would entail an average spend of some US$ 6.4 billion per year with local
suppliers, as compared to the current figures of some US$ 3.5 billion per year.
Therefore, it is good policy for foreign companies to seek partnerships with
local suppliers and establish after-sales technical support in Brazil, as they
are
encouraged to do.
Hidden complexities.
Uncovering the extent of local
content requirements on any given project or
aspect thereof seems to present obstacles almost without exception. Investors
regularly complain that they simply don't know how much work is expected to be
delegated to indigenous suppliers. The regulations are
complicated and detailed
to a
Byzantine extent. Furthermore they vary between each part of the
Exploration
and Production process and from project to project.
Offshore increase
Brazil is not only eager to increase LC in onshore projects, but also in
offshore projects and in subcontracting projects for Petrobras - a trend
especially
evident since 2003 when IOCs were asked to build a large part of their
platforms
locally, which actually led to delays in the bidding process for
platforms including the P-51 (Marline Sul field) and the P-52 (Roncador field),
which is currently being built for Petrobras.
As a general rule, the minimum local content requirements are 70% for onshore,
51% for off shore in shallow water of up to 100 meters and 37% for deep water
between 100 and 400 meters. The minimum local content requirements during
development are 77% for onshore, 63% for off shore in shallow water of up to
100
metres
and 55% for deep water between 100 and 400 metres.
Brief History of Local Content in Bid Rounds
Until 2002 there was no minimum local content requirement in Brazil. Through
rounds 1 – 4 companies offered a target percentage for labour and materials for
both
exploration phase and a separate target for development. These were
typically
around the 15% mark.
From 2003, local content rules began to take on more tangible form. Rounds 5 and
6, in 2003 and 2004 respectively, set minimum percentage of local content
targets
of 40% for blocks located in lands, flat waters, and deep waters.
Changes continued through rounds 7 and 8, in 2005 and 2006. Essentially the
rules now place a greater distinction between different fields according to
on/offshore
and
the depth of water involved. Another development from the rounds was the
introduction of
the "Cartilha de Conteúdo Local" as a tool of measurement of
contractual local content. For these rounds the weight of the Local Content was
lowered to
20%.
Useful Links
Measuring local content in Brazil
Menas Brazil Focus
Local Content Laws (in Brazilian Portuguese)
Rules for local content regulation
Rules for entity accreditation for local content certification
Rules for local investment reports
Rules for auditing certifying entities