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Regulation of the Oil Industry According to the Brazilian Oil Law

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Energy Law in Brazil

Abstract

This chapter aims to address the organization and functioning of the exploitation system of oil in Brazil, concerning the domain of the upstream petroleum industry. On this context, it will be demonstrated the evolution of the exploitation system of oil in Brazil with the flexibility of the monopoly afforded by the Constitutional Amendment 09/1995 and by the Oil Law (Federal Law No. 9.478/1997); the role of the Regulatory Agency that operates in the industry, the ANP and its relationship with the National Council for Energy Policy (CNPE) and with the Ministry of Mines and Energy (MME); the modal regulatory of the oil industry, showing how occurs the bidding of the exploration blocks, the operation of the concession contract, its characteristics and operating mode, as well as the other contractual forms in the petroleum industry; in this chapter, there are also highlights of the rents earned by Brazil due to the exploitation of oil, showing the signature bonus, the royalties, the special participation and the payment for the occupation or retention area, demonstrating the economic gains of the Brazilian state with those taxes.

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Notes

  1. 1.

    Barbosa (2002), p. 31.

  2. 2.

    Barreto (2005), p. 10. Prescott (1998), p. 78.

  3. 3.

    Siqueira (2010), p. 24. David (2003), p. 34. de Xavier (2010), p. 39.

  4. 4.

    Art. 6°, inc. XIX, of Federal Law No. 9.478, of August 6, 1997.

  5. 5.

    Araújo Neto (2008). Observe the following interesting statement: “The recent discussions about exploring the giant pre-salt reserves demonstrate that oil is undoubtedly an extremely important economic, social and therefore, legal issue. Energy is a strategic resource for the development of any country, and oil has been its source of excellence, in addition to other industrial utilities as raw material in the manufacture of a wide range of products”. “Operations related to research, exploration, production and refining involve high costs, high technology and the constant search for improvements, given the nonrenewable nature of this precious natural resource” (Passegi 2010, p. 15).

  6. 6.

    Lourenço Vilhena is mistaken when he states that Petrobras’ oil exploration monopoly came to an end as a result of Constitutional Amendment No. 9/1995. What actually happened was its relaxation, by allowing the Union to contract private companies (Freitas 2013, p. 174).

  7. 7.

    Pulido et al. (2004), p. 93 and SS.

  8. 8.

    Art. 177. The monopoly of the Union constitutes:

    • I – research and exploration of oil and natural gas deposits and other fluid hydrocarbons;

    • II – refining of national and foreign oil;

    • III – import and export of products and basic derivatives resulting from activities foreseen in previous items;

    • IV – maritime transport of national crude oil tor basic derivatives produced in the country, as well as pipeline transport of crude oil, its derivatives and natural gas of any origin;

    • V – research, exploration, enrichment, reprocessing, industrialization and commercialization of ore and nuclear minerals and their derivatives, except for radioisotopes, whose production, commercialization and use can be authorized, in accordance with paragraphs b and c of item XXIII of art. 21 of the Federal Constitution. (Text from Constitutional Amendment No. 49, of 2006)

    • § 1st The Union can contract state or private companies to engage in activities foreseen in items I to IV of this article observing the conditions prescribed by law. (Text from Constitutional Amendment No. 9, of 1995)

    • § 2nd The law referred to in § 1 provides for: (Included in Constitutional Amendment No. 9, of 1995)

    • I – the guaranteed supply of oil derivatives throughout Brazil; (Included in Constitutional Amendment No. 9, of 1995)

    • II – contract conditions; (Included in Constitutional Amendment No. 9, of 1995)

    • III – the structure and responsibilities of the regulatory entity of the monopoly of the Union; (Included in Constitutional Amendment No. 9, of 1995).

  9. 9.

    See de Xavier (2010).

  10. 10.

    Borges (2004), p. 5.

  11. 11.

    Gomes and Lima (2013), p. 180.

  12. 12.

    Costa (2009), p. 191 and Joint Ordinance No, 1, of June 19, 2000, established between the National Oil, Natural Gas and Biofuels Agency (ANP) and the National Institute of Metrology, Normalization and Industrial Quality (INMETRO), published in the Official Daily of the Union on June 20, 2000, which establishes the technical regulation of oil and natural gas measurement, establishing the minimum conditions and requirements for oil and natural gas measuring systems, in order to guarantee accurate and complete results.

  13. 13.

    Originally only the National Oil and Natural Gas Agency, but with subsequent modifications, this entity began to accumulate regulatory functions in the area of biofuels (it already has regulatory oversight in the area of gas, albeit not evidenced in the designation of the agency).

  14. 14.

    The gas regulation is discussed in Chap. 5 of this book.

  15. 15.

    Article 22, § 3 of Oil Law.

  16. 16.

    Second Article, Oil Law.

  17. 17.

    Decree No. 2.455/1998. Oil Law: Art. 2 Creates the National Council of Energy Policy (CNPE), linked to the President of the Republic and presided over by the Ministry of Mines and Energy, with the function of proposing national policies and specific measures to the President of the Republic concerning the following:

    • I – promote the rational use of energy resources in the country, in accordance with the principles described in the previous chapter and prescribed in the applicable legislation;

    • II – ensure, as a function of regional characteristics, the supply of energy resources to the most remote or difficult-to-access areas of the country, submitting the specific measures to the National Congress, when they involve the creation of subsidies;

    • III – periodically review the energy matrices applied to the different regions of the country, considering conventional and alternative sources and technologies available;

    • IV – establish guidelines for specific programs, such as those involving the use of natural gas, coal, thermonuclear energy, biofuels, solar energy, wind energy and energy from other alternative sources;

    • V – establish guidelines for imports and exports, to meet the domestic consumption demands of oil and its derivatives, biofuels, natural and condensed gas, and ensure the adequate functioning of the national System of Fuel Stocks and fulfillment of the Annual Plan for Strategic Fuel Stocks (…);

    • VI – suggest the adoption of measures necessary to meet the national demand for electric energy, considering long, medium and short-term planning, and indicate the undertaking that should have priority for requests for tenders and implementation, given its strategic nature and public interest, such that such projects ensure the optimization of reasonable tariffs and reliability of the Electric System.

    • VII – establish guidelines for the use of natural gas as raw material in industrial productive processes, by regulating specific conditions and criteria, aimed at its efficient use, compatible with internal and external markets.

    • VIII – define concession or production sharing blocks;

    • IX – define the strategy and economic and technological development strategies for the oil and natural gas industries and other fluid hydrocarbons and biofuels, as well as their supply chain;

    • X – increase the minimum indices for the local content of goods and services to be observed in requests for tenders and concession and production sharing concession contracts.

  18. 18.

    The Ministry of Mines and Energy (MME) was created in 1960, by Federal Law No. 3.782, of July 22, 1960. Previously, mines and energy were the purview of the Ministry of Agriculture. In 1990, Federal Law No. 8.028 extinguished the MME and transferred its responsibilities to the Ministry of Infrastructure, created by the same law, which also became responsible for transport and communications. The Ministry of Mines and Energy was created once again in 1992, by Federal Law No. 8.422. On August 6, 1997, Federal Law No. 9.478 created the National Council of Energy Policy (CNPE), linked to the President of the Republic and presided over by the Ministry of Mines and Energy, with the function of proposing national policies and measures for the sector. In 2003, Federal Law No. 10.683/2003 defined the responsibilities of the MME as the areas of geology and mineral and energy resources, hydraulic energy, mining and metallurgy, and oil, fuels and electric energy, including nuclear energy. The current structure of the Ministry was regulated by Decree No. 7.798, September 12, 2012. The departments of Planning and Energy Development; Electric Energy; Oil, Natural Gas and Renewable Fuels, Mining and Mineral Transformation were created by Decree No. 5.267, of December 9, 2004. Among the autarchies linked to the Ministry are the national agencies of Electric Energy (Aneel) and Petroleum (ANP) and the National Department of Mineral Production (DNPM).

  19. 19.

    The type of decentralization that produces independent regulators in a number of countries, specifically in what has been termed Administration reordering. Nowadays, the centralized State model is universally rejected as an outdated model. Thus, it can be concluded that, in contemporary political law, there is a demonopolization of power processes underway, giving rise to the birth of a polycentric society and state, that is, both endowed with numerous power bases, each one to a greater or lesser extent and acting with more or less social legitimacy, but increasingly independent and, paradoxically, interdependent, even though the State continues to retain a monopoly of legitimate coercion, which becomes its fundamental and unalienable deontic characteristic (Moreira Neto 2003, pp. 143–217). Independent regulatory agencies are entities endowed with administrative rather than political functions, which characterize them as administrative rather than political organs, such that their normative role contained in their regulatory function, albeit materially normative, and given the distinct nature of its legislative function, is instead a political function because the regulatory function is not meant to produce legal guidelines, but merely regulatory guidelines, with a distinctive character (Moreira Neto 2003, pp. 143–217). Delegalization is more of a doctrinaire than legislative novelty per se. In other words, before the doctrine begins to systematize it, several of our laws and regulations incorporate it. Indeed, delegalization is an institute intimately linked to its function, particularly in the economic sphere, from wide-ranging normative powers to Public Administration organs or entities. Therefore, it is not the regulation itself that revokes the previous law. It is merely the instrument that, within the principle of lex posterior derogat priori, if the subsequent law is valid for, differed and dynamically, revoking the previous law, adapting the existing judicial discipline at the moment the changing social reality took effect. Since the previous law would not be able to provide this adaptation, which must be constant and predominantly technical and must endow the necessary normative power to a determinate organ or administrative entity, it was empowered, within certain values and parameters, to regulate the issue, intensifying and executing its (from the lex posterior) finalities, public policies and standards (Aragão 2002, pp. 284–310).

  20. 20.

    The ANP is faced with three functional perspectives:

    • 1 – regulate the oil and gas market under the precepts of the constitutional economic order, regardless of the activity regime;

    • 2 – guarantee the Union’s monopoly in sectors submitted to the monopoly regime;

    • 3 – guarantee market regulation in accordance with overall (constitutional economic order) and specific (judicial principles as regards the oil, gas and biofuel sectors) objectives in sectors not covered by the monopoly (which is the case for fuel distribution and resale);

  21. 21.

    Decree No. 2.455/1998.

  22. 22.

    Art. 2 – The ANP promotes the regulation, contracting and oversight of economic activities of the Petroleum Industry, in accordance with that prescribed by law, in guidelines put forth by the National Council of Energy Policy (CNPE) and according to the interests of the country.

  23. 23.

    Art. 3 – In the execution of its activities, the ANP will observe the following principles:

    • I – meet current societal demand, without compromising the demand of future generations;

    • II – prevent potential conflicts, through actions and communication channels that establish adequate relationships with economic agents of the oil sector, other government entities and society;

    • III – regulation for a fair appropriation of the benefits derived from economic agents of the sector, society and consumers and users of goods and services of the Petroleum Industry;

    • IV – regulation based on free competition, objectivity, practicality, transparency, in the absence of duplicity, in consistency and meeting consumer needs;

    • V – creation of conditions for reasonable prices of oil derivatives, other fuels and natural gas, without compromising supply and quality;

    • VI – oversight conducted to educate and advise the economic sectors of the sector, as well as prevent and enforce violations of current legislation, clauses established in contracts and authorizations;

    • VII – creation of an environment that encourages investments in the Petroleum Industry and segments related to the distribution and resale of oil derivatives and ethanol fuel;

    • VIII – effective communication with society.

    Art. 4 – The ANP is responsible for:

    • I – implementing national oil and gas policies contained in the national energy policy, in the terms of Chapter I of Law No. 9.478, of 1997, with an emphasis on guaranteeing the supply of oil derivatives throughout Brazil and protecting consumers and users in terms of price, quality and supply of products;

    • II – promote studies aimed at delimiting blocks, for the concession of exploration, development and production activities;

    • III – regulating the execution of geology and geophysics services applied to oil prospection, aimed at obtaining technical data, destined to commercialization in non-exclusive bases;

    • IV – elaborating bid data sheets and promoting requests for tenders for the concession of exploration, development and production, and overseeing the execution of any resulting contracts;

    • V – authorizing refining, processing, transport, export and import activities, as established by Law No. 9.478, of 1997, and its regulation;

    • VI – establishing criteria to calculate pipeline transportation tariffs and arbitrate their values, as prescribed in Law No. 9.478, of 1997;

    • VII – overseeing petroleum industry activities, either directly or through agreements with State or Federal District authorities, as well as applying administrative and monetary sanctions established by law, regulation or contract;

    • VIII – institute a process aimed at declaring it a public utility, for purposes of expropriation and administrative easement of the areas needed for exploration, development and production of oil and natural gas, construction of refineries, pipelines and terminals;

    • IX – enforce good conservation practices and the rational use of oil, derivatives and natural gas and preservation of the environment;

    • X – promote research and new technologies for exploration, production, transport, refining and processing;

    • XI – organize and maintain information and technical data related to Petroleum Industry activities;

    • XII – consolidate annually information on national and natural gas reserves transmitted by companies, taking charge of its disclosure;

    • XIII – oversee the proper functioning of the National System of Fuel Stocks and enforce the Annual Plan for Strategic Fuel Stocks, in accordance with art. 4 of Law No. 8.176, of February 8, 1991;

    • XIV – join with other regulatory organs of the energy sector regarding issues of common interest, including technical support for CNPE;

    • XV – regulate and authorize activities related to the national supply of fuels, overseeing them directly or through associations with other organs of the Union, the States, the Federal District or Municipalities;

    • XVI – inform the Administrative Council of Economic Defense (CADE) of economic fractions in the Petroleum Industry;

    • XVII – execute other functions prescribed by Law No. 9.478, of 1997.

    • Single paragraph – The ANP must make adjustments and modifications required in the current regulations of the National Department of Fuels (DNC), as a function of changes established by higher legislation.

  24. 24.

    Discretionary acts are those that the law authorizes the agent to assess conduct, obviously considering the indisputable finality of the act, such that the discretionary activity results essentially in freedom of choice between equally just alternatives, providing a certain degree of subjectivism (Carvalho Filho 2012, pp. 118–119).

  25. 25.

    Regulation, in all its forms, from delegalization to concrete application of the regulatory guideline, is submitted to several monitoring, challenge and correction systems. In order to have a broad vision of this array of control possibilities, albeit in succinct fashion, the following picture may emerge. External control can be political, judicial, financial-budgetary, intersectoral administrative and social. Political control is exercised by Congress (Legislative Assemblies or Municipal Chambers) and the President of the Republic (Governors and Mayors), notably the participation, legally prescribed, of each of the Powers in nominating and dismissing the agents of regulatory entities. Judicial control is universal, guaranteed in art. 5, XXXV of the Constitution, and extends over the entire regulatory spectrum, from constitutional control of the law (or amendment) that institutes it to the control of normative and concrete acts of agencies. Intersectoral administrative control is a new institute that emerges from the need to coordinate the regulatory activities of different agencies when they act in sectors so close that they can create conflicts of competence. Social control, exercisable in theory on all state activities, plays a very relevant role in regulation since this institute is in charge of immediately catering to the setting of their respective sectors such that it is desirable and even necessary that administrative authorities participate significantly in regulatory processes (Moreira Neto 2003, pp. 143–217).

  26. 26.

    Grau (2005), pp. 167–190.

  27. 27.

    Lucena Filho (2012).

  28. 28.

    Freitas (2013), p. 175.

  29. 29.

    Costa (2009).

  30. 30.

    Johnston (2007), p. 67.

  31. 31.

    Clô (2000), p. 59.

  32. 32.

    Di Pietro (2004), p. 275.

  33. 33.

    Cretela Júnior (1996).

  34. 34.

    Fontes (2012).

  35. 35.

    Salomão (2004).

  36. 36.

    Gomes (2009), p. 3.

  37. 37.

    Clô (2000), p. 59.

  38. 38.

    Andrade and Marcos (2013), p. 35.

  39. 39.

    This is one of the criteria used to select the proposed seller.

  40. 40.

    Freitas (2013), p. 175.

  41. 41.

    Costa (2009), pp. 187–189.

  42. 42.

    Costa (2009), p. 189.

  43. 43.

    Art. 28, Oil Law.

  44. 44.

    Contract of the 11th Round of Call for Block Tenders. Available at http://www.brasil-rounds.gov.br/round11/portugues_r11/edital.asp. Accessed on 19/nov/2013.

  45. 45.

    Costa (2009), p. 189.

  46. 46.

    Carvalho Filho (2012), p. 233.

  47. 47.

    Sayagues Laso (1991), p. 552.

  48. 48.

    Carvalho Filho (2012), p. 234.

  49. 49.

    Cuesta (1981), p. 249.

  50. 50.

    Carvalho Filho (2012), p. 240.

  51. 51.

    Art. 25, Oil Law.

  52. 52.

    4.5.1 Criteria for judging bids

    Bids will be judged according to points and weights, as follows:

    – The Signing Bonus will have a weight of 40 % of the final score to be awarded to the competing partnership or consortium, as detailed in Section 4.4.1 of this call for tenders.

    – The Minimum Exploratory Program will have a weight of 40 % of the final score to be awarded to the competing partnership or consortium, as detailed in Section 2 of this call for tenders.

    – The Local Content will have a weight of 20 % to be awarded to the competing partnership or consortium, as detailed in Section 4.4.3 of this call for tenders.

    Of this total, 5 % will be awarded to Local Content offered for the Exploration Phase and 15 % for the Production Development Phase (Contract of the 11th Round of Calls for Block Tenders. Available at http://www.brasil-rounds.gov.br/round11/portugues_r11/edital.asp. Accessed on 19/Nov/2013).

  53. 53.

    Di Pietro (2004), p. 211.

  54. 54.

    Gomes (2009), p. 23; and Costa (2009), p. 232.

  55. 55.

    Costa (2009), p. 233.

    The rights conceded to private entities can be divided into the following three categories:

    a) Accession: typical of Anglo-Saxon countries; applies to land-based blocks awarded to oil companies to explore, extract and use mineral resources, upon payment of the bonus, rent of the area and royalties; b) Dominial: the subsoil and mineral resources are the property of the State, which grants oil companies the right to explore and extract mineral resources, production being the property of the State, as well as installations, with the operator having the right to part of the production. In general, results in a Production Sharing Agreement; c) Regalist: typical of countries with a tradition of monarchies, such as the United Kingdom and Norway. It is also adopted in offshore areas of the Gulf of Mexico and Canada. In this regime, the State awards mineral rights to private entities, granting oil companies the right to explore and extract mineral resources, with free use of production and facilities. In Brazil, the exploration model is the first (Tavares 2006).

  56. 56.

    Costa (2009), p. 235.

  57. 57.

    Costa (2009), p. 141.

  58. 58.

    Bruckmann (2011), pp. 197–246.

  59. 59.

    Alves (2011), p. 14.

  60. 60.

    Costa (2009), pp. 233–235.

  61. 61.

    Martins (1997).

  62. 62.

    Costa (2009), pp. 232 and 241.

  63. 63.

    Barbosa and Bastos (2001), p. 58.

  64. 64.

    Information compiled from official report data and results of calls for tenders rounds. These data are available at http://www.brasil-rounds.gov.br. Accessed on 30/Nov/2013. It is important to underscore that there was only one call for tenders round for blocks in strategic areas (Pre-Salt), where the Libra field was auctioned with a signing bonus proposal of 1 billion reals.

  65. 65.

    Serra (2005), p. 18.

  66. 66.

    Leite and Gutman (2007), p. 32.

  67. 67.

    Joint Ordinance No. 1, OF 19.6.2000, established between the National Oil, Natural Gas and Biofuel Agency (ANP) and the National Institute of Metrology, Normalization and Industrial Quality (INMETRO), published in the Official Daily of the Union of 20/06/2000, which establishes the Petroleum Measurement and Natural Gas Regulation, which establishes the minimum requirements for petroleum and natural gas measurement systems, in order to guarantee accurate and complete results.

  68. 68.

    Gabbay (2008a, b).

  69. 69.

    Serra (2005), p. 33. Alves (2011), p. 74.

  70. 70.

    Alves (2011), p. 74.

  71. 71.

    Serra (2005), p. 33.

  72. 72.

    Hovenkamp (2010).

  73. 73.

    Consequências coletivas indiretas advindas da realização de determinada atividade econômica. São positivas (benefícios) ou negativas (malefícios) (Derani 2008, pp. 142–143; Pigou 1932).

  74. 74.

    Gabbay (2013a).

  75. 75.

    Art 11. Royalties stipulated by item II of art. 45 of Law No. 9.478, of 1997, constitute financial compensation owed to concession holders of oil exploration and oil or natural gas production, and will be paid monthly, in relation to each field, from the month in which production begins, with no deductions whatsoever.

  76. 76.

    Define criteria to calculate and charge for government participations prescribed in Federal Law No. 9.478, of August 6, 1997, applicable to exploration, development and production of oil and natural gas.

  77. 77.

    Art 20. The resources collected in the form of royalties will be distributed by the National Treasury Secretariat (STN), of the Finance Ministry, under the terms of Law No. 9.478, of 1997, and this Decree, based on calculations of the values owed to each beneficiary, provided by the ANP.

  78. 78.

    Gabbay (2013b).

  79. 79.

    ANP. Relatório de Consolidação das Participações Governamentais 2012. Available at http://www.anp.gov.br/?id=522. Accessed on 12/01/2013.

  80. 80.

    ANP. Relatório de Consolidação das Participações Governamentais 2012. Disponível em: http://www.anp.gov.br/?id=522. Acessado em: 12/01/2013.

  81. 81.

    Nazareeth (2007).

  82. 82.

    Gomes (2009), p. 7.

  83. 83.

    ANP. Relatório de Consolidação das Participações Governamentais 2012. Available at http://www.anp.gov.br/?id=522. Accessed on 12/01/2013.

  84. 84.

    ANP. Relatório de Consolidação das Participações Governamentais 2012. Available at http://www.anp.gov.br/?id=522. Accessed on 12/01/2013.

  85. 85.

    ANP. Anuário Estatístico 2013. Available at http://anp.gov.br/?pg=69132&m=&t1=&t2=&t3=&t4=&ar=&ps=&cachebust=1391355790290. Accessed on 31/01/2014.

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Gabbay, S.M., de Alencar Xavier, Y.M. (2015). Regulation of the Oil Industry According to the Brazilian Oil Law. In: de Alencar Xavier, Y. (eds) Energy Law in Brazil. Springer, Cham. https://doi.org/10.1007/978-3-319-14268-5_3

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