Brazil, Trying to Avoid the Iran-Iraq Curse After Newfound Oil Riches

Brazil's Petrobras robot Luiz Inácio Lula da Silva, the president of Brazil, proposed the review of the current oil exploitation model and the creation of another company to manage the so called pre-salt oil fields which are believed to hold anywhere from 50 to 70 billion barrels of light crude.

Edison Lobão, Mines and Energy minister revealed this weekend that the government was considering how to address management of the pre-salt oil fields, but that Brazil "has no interest in breaking contracts" and anticipated a long battle in Congress over the issue, according to reports in the Rio de Janeiro press.

"The president had decided Brazil should not be tempted by the "Dutch curse," which has punished so many countries where huge oil deposits have been found such as Saudi Arabia, Iraq, Iran where instead of industrializing and diversifying their economies, they simply pumped the crude overseas," said Senator Aloisio Mercadante from the ruling Workers' Party.

"A current typical example of the Dutch curse is Equatorial Guinea a small African countries which exports 400.000 barrels per day and ranks 127 in human development," added Marcadante.

The Senator said Brazil was looking to the Norwegian experience, which was extensively debated in Parliament and finally a sovereign fund of US$ 400 billion was created "which has Norway second in human development because they have learnt how to exploit a non renewable resource."

The idea is that "this vast wealth has an intergeneration impact and brings benefits in the future," as happens in Norway said the Senator.

A special inter-ministerial group is expected to make an official presentation next September 19 of the new oil exploitation model referred specifically to the recently found reserves off the coast of Rio and São Paulo but at a depth of over 5.000 meters in the so-called pre-salt area, which means drilling a thick layer of rock and salt, a formidable technological and most expensive challenge.

In recent statements on his weekly broadcasted program, president Lula has said he favored the creation of a "second oil company, parallel to Petrobras."

However, the announcements have brought reactions from private investors who feel that new legislation on hydrocarbons would mean "changing the rules of the game" and the international standing of Brazil.

But Senator Marcadante said that current legislation was based on a concession auctioning model, which "was appropriate when Brazil was a country of high exploratory risk and low productivity fields."

Minister Lobão is quoted by daily O Estado de S. Paulo saying that the Brazilian government will honor all contracts of all private companies including those that have stakes in the so called "mega-fields." New legislation will apply for wells not yet auctioned.

Petrobras, the state-controlled oil and gas multinational, has become a world leader in deep water exploration. The Brazilian government has the voting control of Petrobras while 62% of the company's total stock is in private hands.

Once the pre-salt mega fields are developed, not before 2012, Brazil should be among the world's eight leading oil and gas producers.



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