Monday, August 31, 2009

Dutch Disease - Brazilian style

Today the Brazilian government launched the regulatory mark for the exploring the gigantic deep-sea oil fields found near the coast of Rio de Janeiro in 2008. For those who haven't heard about it, the "Tupy" oil field is the biggest Western Hemisfere discovery in the past 30 years and could make Brazil have the fourth largest oil reserves in the world.

The billion-dollar question is whether Brazil will follow Norway into sensibly using these riches or will be another case of the "Dutch disease". Alas, the government did not make a good start, following the old populist tune of politically exploiting something that will only be operational around 2020-2025. Rather than following the mark established in 1998, which gave a huge boost to oil exploration in Brazil by creating incentives to private-sector investments, it is bringing back the old nationalized system, recapitalizing Petrobras (the Brazilian oil company) and giving it at least a 30% stake in any group exploring the wells.


It is a mistake to change the system. They should just sell licenses to the highest bidder as under the current legislation. This would reduce the CAPEX burden on the company, increase government intake and foster further development of the reserve...

We have a saying in Brazil "De onde menos se espera, daí é que não sai nada mesmo" that can be poorly translated as: "From where you least expect things to happen, this is from where things really won’t be happen"...

I'm pessimistic about raising my (future) children in Brazil.

4 comments:

  1. This should go to the front page of FT! And you should translate as well to be published on Folha, Estadao and OGlobo.

    janio

    ReplyDelete
  2. The one dollar question: If you are expecting a child, is that considered a future child, or only the ones that you are not expecting yet? Another way of asking ... should we open a bottle of Cava?

    j.

    ReplyDelete
  3. You should have more faith in Brazil. The country proved over time that it is very resilient to political non-sense. And you turned out (reasonably) fine even being raised during hyper-inflation times. The kids will be swell.

    Queiroz

    ReplyDelete