Brazil President May Request Urgency Vote of Pre-Salt Oil Rules

Brazilian President Lula
(Click to Enlarge)

NEW YORK (Dow Jones), Nov. 24, 2009

Brazil Energy Minister Edison Lobao said President Luiz Inacio Lula da Silva may reintroduce an urgency clause to the bills of the pre-salt oil legislation if the country's Senate delays voting them by year-end.

Lobao said he expects Brazil's Lower House to complete voting all four pre-salt oil bills President Lula sent to Congress by year-end. He also expects the Senate to begin voting them by December, when Congress begins its annual recess before resuming work in March 2010.

"If the Senate delays voting, President Lula may request urgency again so voting will have to take place in 45 days," he said after a speech at the Brazilian American Chamber of Commerce in New York. He expects the Senate to conclude voting in February.

No new auctions of the pre-salt oil fields will take place before the complete legislation, defining rules such as revenue-sharing and the creation of a new state-run company, is voted by Congress, Lobao said. Lula sent the four bills to Congress in September.

Lobao declined to give any forecast of how much the Brazilian government will value the 5 billion barrels of crude it will transfer to Petroleo Brasileiro SA (PBR, PETR4.BR), the state-controlled oil company known as Petrobras, in exchange for buying the company's shares as part of a plan to boost Petrobras's capital. The government will wait for an independent appraisal of the pre-salt oil production costs and value to make an announcement, he said. Capital infusion in Petrobras will also happen after the pre-salt oil legislation is voted by Congress, he noted.

The discovery of oil deposits beneath a layer of salt in deep waters offshore the Brazilian coast will make the South American country a coveted destiny for foreign investments, he said.

The new pre-salt oil reserves in only four fields discovered so far will more than double Brazil's oil reserves, boosting them to "among the biggest in the world," Lobao said during a speech at the Brazilian American Chamber of Commerce. The recently discovered pre-salt oil fields may hold reserves of about 14 billion barrels of crude, he said.

Lobao also said the government will make a decision about the renewal of concessions for hydroelectric power dams, whose licenses are expiring in 2015, by as late as March 2010.

Investors are concerned that power generators, such as Cia. Energetica de Sao Paulo, known as Cesp, whose licenses for dams responsible for generating 67% of its capacity, may have to sell electricity from those dams at a lower tariff to win the concession renewal from the government.

"As we're talking about dams whose investments have already been amortized throughout 30 years of concession, it is fair that the tariffs from electricity sold from those power plants be lowered when the concessions are renewed," Lobao said.

Copyright (c) 2009 Dow Jones & Company, Inc.


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