Peter Howard Wertheim
OGJ correspondent
RIO DE JANEIRO, Aug. 17 -- The president of Brazil's Supreme Court Nelson Jobim Tuesday overturned an injunction issued late Monday by fellow Supreme Court Justice Ayres Britto that suspended concession holders' rights to the oil they find in licensed exploration blocks.
Britto's ruling created great apprehension among participants of the 6th sixth oil and gas round taking place Tuesday and Wednesday.
A spokesperson for Jobim told OGJ that the 11 members of the Supreme Court would meet in plenary at an undecided date to discuss and rule on the matter.
The earlier decision by Britto was in response to a lawsuit filed Aug. 9 by Roberto Requião, governor of Brazil's southern state of Santa Catarina, who called for a motion of unconstitutionality against the latest licensing round (OGJ Online, Aug. 11, 2004).
Bid round continues
Brazil's National Petroleum Agency (ANP) had already started a 2 day auction of oil and gas exploration rights Tuesday despite the unexpected legal challenge made by Britto.
In his decision, Britto said that the oil must be delivered to the federal government, which currently holds a monopoly on the product.
Britto allowed ANP to go ahead with the licensing round, noting however that any concessions must be granted "to Brazilian companies or investors or companies headquartered in Brazil."
Despite the overturn of the injunction, Wagner Freire, president of Brazilian independent oil firm Starfish SA, told OGJ that, "the injunction was like a monkey wrench thrown into the 6th round and demonstrated lack of legal understanding concerning laws and regulations that apply to the oil sector by. . .Britto and created the feeling of regulatory instability among investors."
According to legal experts, Britto tried to change basic items of the deregulation law No. 9.478, approved by Congress in 1997. The justice took away ANP's power to administrate concessions in the sector transferring these rights to the federal government.
The government may pay companies that already invested in research, development, or exploration. The value to be paid would no longer be determined by ANP but by the government. Since 1997 any company that found oil or gas owns the reserves as long as it pays taxes and royalties.
Reactions
Mines and Energy Minister Dilma Rousseff pointed out that, "If there are no licensing rounds we will have to import more petroleum. The 1997 petroleum law is not unconstitutional and the legislation in place gives priory to supplying the domestic market allowing the interruption of exports in case of a possible oil shortfall in the country."
Currently Brazil imports about 10% of its required oil, produces about 1.5 million b/d, and is expected to become self-sufficient by 2006, according to Petroleo Brasileiro SA (Petrobras), which despite having lost its upstream monopoly still produces the bulk of the country's oil.
According to ANP director John Forman, "Of Brazil's 29 sedimentary basins only around 3% have been prospected making licensing rounds fundamental."
"If the Supreme Court scraps Article 26 of the 1997 petroleum law, it will break down the whole structure of Brazil's concession model and this country will have to adopt regulatory models similar to those in Venezuela, Mexico, or Iran where oil companies only render services," said Silvio Rodrigues, coordinator of the Brazilian Petroleum and Gas Institute's (IBP) subcommittee on legal matters.
"We were handing out our petroleum to foreign interests at the expense of the needs of he Brazilian people. The court's decision does away with ANP and voids [the law]. . .," said Requião before the Supreme Court overturned the injunction.
In all, ANP will offer 913 blocks—619 offshore and 294 onshore—in 12 sedimentary basins. Twenty-four companies are qualified for the round.
Brazil's oil sector should receive $24.4 billion in investments through 2007, $18 billion of which from Petrobras and $6.4 billion from private-sector investors, the National Oil Industry Organization.
Since the first blocks were tendered to private investors in 1999, some $10 billion has been invested in Brazil's oil and natural gas sector, according to data from ANP.