After hours of heated debate, Brazil's lower house of congress passed a constitutional amendment that scraps Petroleos Brasileiro SA's monopoly over petroleum exploration, production, refining, imports, and exports.
The amendment, which passed 364-141, still faces a vote in the chamber of deputies, probably June 21, and then a vote in the senate. It is expected to pass easily in both instances. That would end more than 50 years of government control of Brazil's petroleum industry.
It is part of President Cardoso's overall plan to privatize the economy, open it to foreign investments, and liberalize trade.
STRIKE BACKFIRES
The Petrobras monopoly emerged in 1953 as a result of a vast nationalistic popular movement. So it was ironic that leftists and nationalists contributed to the government victory after a month long strike by Petrobras oil workers crippled oil products supply in the country (OGJ, June 5, Newsletter).
The strike was staged in a bid to hike wages and raise public consciousness in defense of the monopoly but backfired and increased public support of privatization.
During the strike, a black market developed for selling bottled liquefied petroleum gas. Several industries were affected, with some having to partly close down. Airline companies reduced aviation fuel consumption 50%.
Twice the superior labor tribunal declared the strike illegal. The strikers persisted, and the court ordered oil unions to pay about $110,000/day for the strike's duration. Petrobras laid off 104 workers and union leaders.
Petrobras officials reported the company lost $407 million during the 31 day strike resulting from the shutdown of production, refining, and retail sales. The cost of importing refined products jumped by $800 million. It was the longest strike in Petrobras' history.
RESULTS OF VOTE
Mines and Energy Minister Raimundo Brito predicted with the end of Petrobras' monopoly, Brazil will attract about $3.5 billion/year in private sector investments and will reach oil self-sufficiency within 10 years.
Petrobras currently produces about 55% of the petroleum consumed in the country, or about 700,000 b/d, and the company's capital investment capacity is about $2.5 billion/year, sufficient to sustain a major upstream program.
Before the vote, President Fernando Henrique Cardoso promised the congress he would not privatize Petrobras and guaranteed the company's control of proved oil and gas reserves.
The Mines and Energy Ministry proposed creation of a regulatory agency that includes private citizens as well as government. The agency's mission would be to define policies for the petroleum sector, coordinate its activities, put out tenders, and monitor contracts to "guarantee the consumer's well being by prohibiting dumping and the creation of oligopolies by other oil companies."
The government also said it would let companies undertake exploration and production in areas where Petrobras is currently working. Basins being explored by Petrobras that are not yet producing will remain under Petrobras control "if the company demonstrates the technical and financial capacity to explore them." Under the plan, when tenders are put out for exploration and production, Petrobras will be given preference for contracts.
"It is ridiculous to imagine that we will privatize a company such as Petrobras, which has some $100 billion in assets," Cardoso said just before the vote. "There is not enough money in the world to buy it."
Some foreign oil executives in Brazil say it is still not out of the question that eventually Petrobras will be privatized. They contend the ministry's recommendations and Cardoso's statements were made to ensure smooth sailing of the vote against the monopoly clause in the constitution.
Petrobras ranks among the 20 largest petroleum companies in the world and has reserves of about 6 billion bbl of crude and 7.9 tcf of natural gas.
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