(The National, Robin Mills, 11.Nov.2018) — New president may make unpleasant listening but he says he wants to open up the country’s energy industry, which would be a good thing.
New Brazilian president, the far-right Jair Bolsonaro, who takes office in January, has been labelled bad for the environment, human rights and democracy, but good for oil.
His surprise election is the culmination of failed policies and corruption that ensnared previous leftist governments. And whether he really does open up Brazil’s oil industry, his presidency will get a major boost from past petroleum investments.
Despite Mr Bolsanaro’s erratic and unpleasant pronouncements, state-run oil producer Petrobras does need cleaning up. Once the darling among national oil companies, a world-leader in deepwater production, it has been badly damaged under the rule of the Workers’ Party (PT) of former presidents Luiz Inacio “Lula” da Silva and Dilma Rousseff.
The discovery of giant “pre-salt” oilfields in deepwater (oil deposits trapped under a thick layer of salt deep in the Atlantic seabed) from 2006 onward promised a windfall for Brazil, alongside rising oil prices.
But resource nationalism saddled Petrobras with an impossible burden; the world’s largest upstream investment programme alongside other commitments such as a mega-refinery. Its discretion over bidding was removed, forcing Petrobras to take a stake in exploration blocks with foreign companies even if it considered them unattractive and to be sole operator of the pre-salt blocks. No company in the world could have executed such a plan.
The state firm’s missteps were compounded by the failure of private companies founded to exploit the boom, such as OGX, led by Brazil’s richest man, Eike Batista, which collapsed when most of its much-touted fields were found to be unviable. Disputes with states over the division of tax revenues and a new production sharing contract deterred foreign investment. Tough domestic content regulations drove up costs and led to delays of up to three years as local oil service providers had to build up capacity.
Oil production growth stalled, as advances in the pre-salt were undone by declines in Petrobras’ neglected legacy deepwater fields. In 2014, the country suffered its worst ever recession, including a commodity slump compounded by the effect of the oil price crash.
Petrobras also became the centre of a huge corruption scandal, “Lava Jato” or “Car-Wash”. This discredited the PT, landed Mr Lula in jail for 12 years, and led to the impeachment of Ms Rousseff.
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