Oil field auctions may yield more than expected $7.7 billion

The Brazilian government estimates revenues from the auctions for the production and exploration of oil and natural gas in the pre-salt area to add up to $7.7 billion—$2.73 billion this year alone. Revenues, however, may reach much beyond forecasts depending on market conditions at the moment auctions are held and the advantages to be offered as part of the bidding rules, said Paulo Pedrosa, executive secretary at the Ministry of Mines and Energy.

“[Current] projections take more conservative assumptions into consideration, of course,” he remarked. “As we approach the auctions with a more consolidated environment for confidence, and depending on how consolidated this confidence is, results will be better,” he stated.

Pedrosa noted that the government has worked alongside other agencies to further bolster confidence. “The country wants and needs this inflow of investment a lot. Particularly in the oil industry. We can clearly see that need to become more competitive, especially in the oil industry, in order to attract investment,” he said.

CEMIG

The secretary went on to announce that the federal government intends to reopen bidding processes for some of the hydroelectric power plants, as is the case with those under the Electric Centers of Minas Gerais (known as CEMIG system in the original Portuguese), despite the current legal issues. “This legal problem is being addressed,” he added.

Despite admitting the decision includes risks and uncertainties to be faced by investors, Pedrosa said the market is ripe for tackling such risks.

In his view, the sale of plant concessions may bring some $3.85 billion to Brazilian coffers. The goal, he said, is for the government to have these funds by November this year.

Even though a CEMIG motion is has been submitted to the Brazilian Supreme Court (STF) to try to stop the reopening of bidding processes in plant contracts, Pedrosa said the government has declared there is no intention to go back on the decision. “The sale may be question by court authorities, especially because the issue [at the Supreme Court] may take five to ten years,” he concluded.

Translated by Fabrício Ferreira