State Petroleum Monopoly Revisited

Considering that the Worker’s Party (WP) has come to power with the election of President Luís Inácio Lula da Silva and acquainted with the line of conduct that guides this Party concerning the petroleum sector, I present in what follows some general suggestions that need to be more elaborated in case they should be analyzed and accepted by the new Administration.

As I present these suggestions, it should be emphasized that I have no commitments regarding the WP and the President, elected after a successful campaign that is gone and the Administration that is coming, hopefully successful too. Therefore, this opinion has all degrees of freedom, even though my point of view is perfectly coherent with the best development of the Brazilian petroleum sector. Before writing this article, I examined the WP’s government program regarding petroleum and, it could not be otherwise, I consider it rather shy due to the limitations that will be commented here.

From my point of view, an incisive policy in this area should have the following boundaries:

Premises

Petroleum and natural gas that have been discovered, by the rules of concessions in the recent biddings, are a property of those who might find them, what may cause problems regarding the supply of crude oil to the national market and also to bring about the imports of petroleum products together and exports of oil at the same time.

The so longed-for national self-sufficiency in petroleum production could be accomplished merely by the fact that the volume produced would be above the internal needs but could lead, due to what was previously foreseen, to increasing our dependency in what regards the supply of petroleum products to the Brazilian market, contributing to a negative result of the Balance of Payments in the sector’s trade.

Basis

Maintenance of the Federal Constitution law that guarantees the petroleum monopoly to the Brazilian State, without the exclusivity previously granted to Petrobrás. This implies in not thinking of a Constitutional Amendment that returns to the pre-1995 status quo. Therefore, it could not be otherwise, all concessions granted by the Brazilian Petroleum Agency (ANP) during the Fernando Henrique Cardoso Administration would continue to be valid. So, all contracts signed by the previous Administration (legislative and private) would remain valid, respecting the stand of Lula’s campaign. The change would occur in the operational level, even though it implies in a new strategy regarding performance in the sector.

New policy

To cancel temporally all biddings relative to exploration and production of petroleum and gas. During this period all Petrobrás’ investments potentials in this sector would be analyzed and priority regarding development activities in this area would be giving to it in the four-year period, if it can finance it, now without the risk of increasing the Public Deficit.

In case Petrobrás would have insufficient resources and if it is convenient for all parts (the country and the interested companies), to make new biddings giving priority to the internal market (what does not mean the obligation to supply the internal market due to the possible incompatibility between the national petroleum and the Brazilian market needs).

Study the possibility of biddings for the refining and transport sub-sectors, aiming at increasing the Brazilian infrastructure and guaranteeing the production of products and services with a larger aggregated value.

Developing mechanism for decreasing the nervous fluctuations of crude oil and petroleum products that occur in the international market, reproduced in the consumer’s internal market, with no cost for Petrobrás and the companies involved. The price decreases would be compensated by price increases, in what concerns their fluctuations in the international markets. This mechanism, that in the long term would do no harm to the profitability of the business, should be considered in the new biddings, should they occur, conditioned by granting privilege to the internal market.

On the other hand, petroleum produced by Petrobrás should have a manageable price structure, covering necessarily all effective costs (plus remuneration), without exceeding the international quotations, especially in periods of increases caused by fortuitous events.

Conclusions

Emphasize the exploration and production of petroleum and natural gas in the country, giving priority in this area to Petrobrás’ activities. Should biddings continue to be made, they should be limited to those that would guarantee oil production for supplying the national market and comply with a mechanism that would trim price fluctuations in the internal market, as suggested above.

Emphasize the reasonability of consumer’s prices, lessening the reproduction of international market fluctuations and the large regional differences.

Even though a hasty reader might consider these suggestions as radical and impracticable, a discerning analysis could conclude that it is perfectly economically viable and feasible without breaking contracts, jeopardizing private interests or the basic notions of economy of the sector and additionally preserving the national interests, mainly in what concerns economic growth, manifested in the balance of payment and price contention.

In the present essay an important component was not analyzed, namely the political cost of the new orientation.

Genserico Encarnação Júnior:
genserico@ecen.com
Itapoã, Vila Velha (ES)
Retired Economist, 63.

Graphic Edition/Edição Gráfica:
MAK
Editoração Eletrônica

Revised/Revisado:
Tuesday, 11 November 2008.

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