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Brazil’s Politicians Set to Cash in on Oil and Gas Discoveries

Brazilian President, Lula, smears hand with oil at Petrobras

As if Brazil was not blessed with a bounty of natural resources it seems that
God has decided to help his favorite nation once again by unveiling his latest
gifts – massive reserves of oil and gas. The state-owned oil company Petrobras
announced on January 21 that it had discovered huge offshore gas reserves which
could be as large as the oil resources it discovered in November at the nearby
Tupi field, which are estimated at five to eight billion barrels.

This means that Brazil is on its way to becoming one of the world’s leading oil and gas producers. Brazil is already self-reliant in oil and when the natural gas is flowing in 2014 it will no longer depend on Bolivia. Ironically, this good news comes amidst fears of energy rationing this year as the country’s current power resources cope to meet with the rising demand from a growing economy.


This latest announcement is excellent news for Brazil and shows once again how this country could become one of the most prosperous countries in the world if it could free itself from the shackles which are holding it back. These shortcomings include needless poverty, an inefficient educational system, endemic corruption, a tolerance for law-breaking and an ungainly political system.


Brazilians are an optimistic people and they have every reason to be so. Just think of some of the benefits Brazil enjoys: it is one of the largest countries in the world yet has a relatively low population density; it has no areas which are uninhabitable for reasons of geography or climate; it has vast areas which have not been exploited; it has practically every agricultural and mineral resource you can imagine; it has a culture which is open to change and is tolerant of diversity.


Its farmers grow everything from rice to tea and export beef and poultry all over the world. Its mines produce riches from commodities like iron ore to more valuable products like gold and nickel. It has over 7,000 kilometers of coastline and fishing resources which have barely been tapped.


It has an entrepreneurial class, particularly in the south and southeast, as dynamic as anywhere in the US or Asia. Its bigger companies, like Vale, Petrobras, Gerdau and Votorantim have become multinationals with a growing presence abroad. It has no problems with minorities and no separatist movements. Its people have a genuine shared patriotism regardless of their racial or ethnic origin.             


Yet despite this, Brazil is still far from realizing its potential. One of the main reasons for this is the political system. Although the system is based on that of the United States, with a strong president who is held in check by a two-chamber Congress, Brazil has not followed the same path as the US. The fact that Brazil has only been a true democracy for just over 20 years following two decades of military rule highlights this difference.


The disappointment associated with the return to civilian rule was symbolized in the death of the first “democratically-elected” president, Tancredo Neves, in 1985 before he could take office.


Another blow was the promulgation of the 1988 Constitution which was an unwieldy wish list of impossible goals – interest rate may not be higher than 12%, for example – and pork barrel benefits to vested groups. The Constitution requires a three-fifths majority of both houses of Congress which makes reform an extremely slow process. The House of Representatives has 513 members which shows how difficult a task it is to alter the Constitution.


It is only when the political establishment wants to look after its own interests that changes are made quickly e.g. when incumbent presidents and state governors were allowed to stand for re-election in 1998. This was pushed through to allow President Fernando Henrique Cardoso to stand again.


The main handicap in making real change lies in the weakness of the party system. Brazil has around 30 registered parties of which 20 are represented in the House of Representatives at the time of writing. Since only a handful of parties are genuinely national, such as Lula’s PT, Cardoso’s PSDB and the PMDB – it is practically impossible for the government to have a majority in Congress.


This leads to awkward coalitions in which some parties need to be given sweeteners or even bribes, as was the case in the “mensalão affair” uncovered in 2005, to support the government.


We are seeing a good example of the weakness of this system in the recent appointment of a new energy and mines minister, Edison Lobão. Although the country is facing an energy crisis, Lobão has absolutely no qualifications for the job. The only reason he got it was because he is a member of the PMDB which is one of Lula’s “allies”.


It has insisted on his appointment so it can gain the patronage associated with controlling a ministry. This is what leads, in turn, to the diversion of state resources and funds to parties and individuals and contributes to the corruption which is the rule rather than the exception.


The announcement of the new oil and gas finds is excellent news for this type of politician since Petrobras is the jewel in the crown and the parties scramble to get their hands on it. A squabble is going on at the moment between the PT and the PMDB over who should be the international director of Petrobras.


Why politicians should be involved in deciding who runs a major division of the world’s sixth-largest oil company may be a mystery to foreign readers but it is part of daily politics here. State-run enterprises like the Post Office and the electricity utilities are routinely carved up among the political parties.


Petrobras is the biggest company in Latin America and has been at the center of politics since it was founded just over 50 years ago by dictator Getulio Vargas. When Brazil became self-reliant in 2006 Lula flew out to the rig where the oil was being pumped up and smeared his hands in it as Vargas had done with the first oil half a century earlier.


When the privatization process came to Brazil in the mid-90s these parties ensured that Petrobras remained firmly in state hands. Looking ahead, this means that while the oil and gas finds will boost the economy, unless changes are made to the political system, they will also help swell the coffers of discredited parties and corrupt individuals.


John Fitzpatrick is a Scottish writer and consultant with long experience of Brazil. He is based in São Paulo and runs his own company Celtic Comunicações. This article originally appeared on his site www.brazilpoliticalcomment.com.br. He can be contacted at jf@celt.com.br.


© John Fitzpatrick 2008

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