(Argus, 12.Aug.2020) — The Brazilian government’s plan to sell state-owned pre-salt marketing company PPSA has stalled amid congressional foot-dragging over a change in pre-salt contract terms.
Addressing reporters late yesterday, influential economy minister Paulo Guedes confirmed that the delay in selling the firm contributed to the departure of secretary Salim Mattar, one of two ministry resignations this week.
PPSA is one of numerous state-owned assets that Brazil is offering for sale. But the privatization drive faces resistance from legislators, prompting delays and threatening to derail oil industry reforms.
Guedes said he would prefer to privatize all state-owned companies to help stabilize Brazil’s finances amid the Covid-19 pandemic, but was focused on two or three key assets, including PPSA.
Established in 2013, PPSA is responsible for marketing the federal government’s crude from production-sharing contracts for pre-salt acreage. PPSA’s share of profit oil from three producing fields was around 5,000 b/d in May, but is expected to grow rapidly to more than 1mn b/d by 2032.
The company currently has supply agreements with Brazil’s state-controlled Petrobras and France’s Total. Under new proposals, PPSA could adopt a comprehensive marketing contract to encompass all fields, or pre-sell future production, Argus has learned.
Among the heated debates that will shape PPSA’s future value is whether Brazil scraps a production-sharing model in favor of concession terms for pre-salt blocks. Oil companies have been lobbying the government for years to adopt the more straightforward concession model, and oil-producing states support the measure as it leaves more revenue in state coffers. But if concession terms are adopted, PPSA’s role would be eliminated altogether in future contracts.
Mines and energy minister Bento Albuquerque dismissed talk of a PPSA sale last month, but Guedes revealed yesterday that the sale is still on the table, a move that reaffirms his pursuit of a smaller federal government and more upfront cash to limit government spending.
“We did a production-sharing regime, a bad one, so much so that the biggest oil companies did not show up for the auction of the world’s biggest oil frontier. The 18 biggest oil companies disappeared from here, nobody came,” Guedes said last night, referring to November 2019 upstream auction flops.
“In the end, the president [Jair Bolsonaro] had to ask the support of the Chinese to participate in the auction,” he said, alluding to the award of acreage to Chinese state-owned CNOOC and CNODC in a partnership with Petrobras.
Brazil’s next upstream auction, covering two Transfer of Rights areas not awarded in 2019, is tentatively planned for July 2021.
Guedes says the concession model would attract more revenue up front through signing bonuses. Rodrigo Maia, president of the lower congressional house and Guedes’ political foil, has raised the same issue before, but the concern has yet to translate into an action in the divided legislature.
Embattled over his handling of the pandemic, Bolsonaro has ceded more political ground to an emboldened congress that is often at odds with Guedes’ pro-market agenda. A Guedes departure would not only be a major blow to investor confidence, but would likely diminish hope of further oil market reforms, on top of those that helped the country surmount a 2014 political and economic crisis.
By Nathan Walters