Political Risk Latin America Blog @PolRiskLatam

Dilma Could Radicalize Brazil Energy

Posted in News and Articles, Political Risk by politicalrisklatam on October 6, 2010

by Latin America Advisor for Latin Business Chronicle, October 5th, 2010.

A Rousseff presidency will likely further radicalize Brazil’s energy policies, experts warn.

On October 31, Brazilians will vote in a second round election to replace current President Luiz Inácio Lula da Silva. With a commanding lead in the polls (…), Dilma Rousseff is being watched for signs of how her government would manage the region’s largest economy. If Rousseff wins, what changes do you anticipate for Brazil’s energy industry? Would she make big changes in addition to the anticipated pre-salt energy reforms? What sectors within the energy industry would be most affected? What would a Rousseff victory mean for South American energy integration? What would Brazil’s energy policy look like under José Serra if the former São Paulo governor manages an upset on election day?

Riordan Roett, professor and director of the Latin American Studies program at the Johns Hopkins School of Advanced International Studies: Dilma Rousseff served as minister of mines and energy from Jan. 2003 to June 2005. She also served as chairman of the Petrobras board and remained closely involved with energy policy as President Lula’s chief minister until she stepped down to run for president last March. While others contributed to the new energy framework, it is clear she had a strong hand in increasing the role of the Brazilian government in the future of energy policy. Under the new regulations before Congress, all future development of the pre-salt region concessions (which favored the private sector) will be replaced by production sharing agreements. A new state company will be created to oversee development, with a veto over all operational matters. Petrobras will take at least 30 percent of any consortia formed. It will be the lead operating company in all of them and may be granted license on its own for any field at the government’s discretion. We have to assume that Dilma supports these policy initiatives. The key question is whether or not this state-heavy involvement will discourage foreign investors. It also raises questions about the ability of Petrobras—a very well managed company—to assume the new responsibilities. The prospect of innovative South American energy integration is very problematic. Different political regimes have competing approaches to energy. Given that Brazil’s potential oil and natural gas reserves may place it on par with Kuwait and Russia in a few years, there is little concern in Brasília for a regional initiative. (continue reading… )

Republished with permission from the Inter-American Dialogue‘s daily Latin America Advisor newsletter.


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