Bolsonaro may ‘revise pre-salt oil contracts’

Brazil’s far-right presidential front-runner Jair Bolsonaro could revise the country’s model of production-sharing contracts in its coveted pre-salt oil fields if he wins this month’s election, newspaper Valor reported yesterday.

The poll leader ahead of the October 28 run-off vote could also end overseas financing by state development bank BNDES, Valor reported, citing unnamed campaign sources, as Bolsonaro looks to overhaul the country’s state-run entities.

A longstanding advocate of state control over key strategic assets like government-run Petroleo Brasileiro SA and Centrais Eletricas Brasileiras SA, Bolsonaro has recently changed tack, falling more closely in line with key advisors who favor privatizing assets.

But a rival camp of advisors, made up of military generals, have urged Bolsonaro to maintain control of Petrobras and other assets they consider strategic, Reuters reported last week, opening up a split that could disappoint investors who snapped up Petrobras shares in the wake of Bolsonaro’s first-round win.

Bolsonaro’s campaign did not immediately respond to a request for comment. Petrobras shares were up 2.2% in late morning trading.

Brazil’s production-sharing contract model for its pre-salt oil fields was rolled out by the leftist Workers Party, which ran Brazil for 13 of the last 15 years, and has been blamed by many for a weak economy and endemic graft.

Reformed by the center-right government of Michel Temer, who took office in 2016 after former president Dilma Rousseff was impeached, the production-sharing model has proved successful in recent auctions, luring oil majors like Exxon Mobil Corp Chevron Corp, Repsol SA, Royal Dutch Shell Plc, and BP Plc.

Higher oil prices and the need to replace shrinking reserves have boosted oil majors’ appetites for costlier offshore ventures, pumping much-needed money into Brazil’s coffers.

The Valor article did not give details on how Bolsonaro would tweak the production-sharing model, but cited campaign sources who said the aim was to attack some of the political abuses perpetrated by previous administrations.

Under Rousseff, Brazil’s government used the BNDES to offer loans to countries like Venezuela, Cuba and Mozambique that they would use to contract Brazilian firms.

The Brazilian government, under Rousseff, had agreed to act as the guarantor of the loans.

The funds were used by Venezuela and Mozambique to pay works carried out by Brazilian firms.

In May, Brazil said it would continue to insist Venezuela and Mozambique pay back nearly 1bn reais ($281.05mn) in loans they defaulted on to BNDES and Switzerland’s Credit Suisse.