The New Oil and Gas Industry in Brazil: An Overview of the Main Legal Aspects

Article excerpt

I. INTRODUCTION

The challenges of the 1990s were faced by the Brazilian economy with a drive towards decreasing the share of the state's participation. The large privatization program initiated in the early 1990s set forth the basis and was strengthened with the approval of the so-called Concessions Law in 1995.1 This law, on which we shall comment further in this article, allowed a framework to attract foreign and national private capital to big projects of electric generation, telecommunication, transportation, and other projects, which were formerly under state control. In a way, this process may be viewed as a revival of the concession already encountered in Brazilian law in earlier stages.2

The understanding of the opening process applicable to oil and gas requires a brief understanding of the principles underlying the overall process of opening the Brazilian economy. With this goal, it is interesting to analyze the evolution and proposals of the privatization and deregulation program,3 which shows a switch from direct participation in economic activities through state companies to survey and control through governmental agencies.4

Oil and gas, however, had long been under a separate track from mining in the statutory and lower level legislation, although with a common doctrinal background and under the same governmental entity supervision.5 Beyond the constitutional framework that allowed ownership of mineral resources by the state, the legal basis for the oil and gas regime in Brazil was set forth by Law 2004/53, which followed a big campaign over the ownership of oil and gas by the Brazilians.6 The slogan of such campaign, the "Petroleum is Ours" ("O Petrdleo e nosso "), was always mingled with the image of Petr6leo Brasileiro S.A. (Petrobras), the company created in 1953 to carry out the activities of the monopoly.7 This whole process seemed to qualify Brazil as a "visible absence" in the international scenario, as we can verify in the lack of any reference to Brazil in the epic book, THE PRIZE, by Daniel Yergin.8

The summary of the evolution of the legal background for oil and gas in Brazil and the dramatic switch represented by the Federal Constitution of 1988 indicate that this field of activities was still the most difficult area for opening to private investors in the country.

II. HISTORICAL AND DOCTRINAL BACKGROUND

The evolution of the legal regime applicable to oil and gas in Brazil may deserve a more specific analysis from the perspective of constitutional law, at least with a simple comparison of the wording of the articles in the constitutions applicable to oil and gas prior to 1988.9 Until then, since there was no formal prohibition, an enlargement of the notion of service contracts already performed by Petrobras with service contractors for usual services in the industry allowed the introduction of a hybrid type of contract, called "Service Contract with Risk Clause."

In the international panorama of oil and gas contracts, the evolution was already paving the way for the hybrid contracts of the 1980s, which merged characteristics of models adopted in other countries and challenged the initial classification of exploration and production contracts.10 The Chinese missions that were in Brazil in the late 1970s certainly studied many contracts around the world trying to learn from other countries' experiences and also analyzed the Brazilian model, importing some of its elements.

If we try to account for the main phases of petroleum legislation in Brazil, we need to identify the first period, prior to 1938; a second from 1938, when the national Petroleum Council was created; and a third, from 1953, when Law 2004 created Petrobras. Although 1977 can be referred to as a significant year, because of the adoption of risk contracts, the third period actually lasts from 1953 until 1995, when Constitutional Amendment Number Nine introduced the change to the 1988 Constitution, which suppressed the prohibition concerning risk contracts. …