The recent discovery of immense oil reserves trapped deep under water off the coast of Brazil has spurred a lot of strong reaction. President Dilma Rousseff famously stated that the discovery proved that God was Brazilian, and many people view it as a godsend that can catapult Brazil into economic prosperity for decades to come. Others are concerned about the level of foreign involvement as the government auctions off lease rights. Yet many groups are concerned about the environmental impact, especially in the wake of a leaking well administered by Chevron that reminded some of the massive spill in the Gulf of Mexico a few years ago.
The sheer amount of trapped oil and the technical difficulty involved in accessing it, however, essentially guarantees that Brazil will have to auction off lease sites. In fact, demand is so strong for the sites that the government has moved the auction date up by a month, to October according to a Reuters report. Foreign companies will take the lead, bringing the resources and technology required. Estimates of the amount of oil range from 50 to 100 billion barrels.
The 2010 law that authorized the leases stipulates that only production-sharing contracts can be offered, and the winning companies will be the ones that let the Brazilian government sell the largest share of the oil on its own terms. The law was designed to ensure that Brazil shares equitably in the profits, unlike previous leases that were royalty-based, allowing the winning companies to own 100% of their production.
While the infusion of oil profits is largely seen as a positive development, there is already some concern about the corrupting influence of oil money. Political discussions concerning reforms to the tax code and labor laws have to some degree died off as everyone assumes the influx of cash from oil will solve all economic problems. But as has been seen in countries as diverse as Saudi Arabia and Venezuela, assuming that oil income will perpetually solve a country’s problems can lead to corruption, mismanagement, and the intrusive influence of foreign interests.
Some see the auction process itself as the first sign of this slippery slope. Previously, concessions were sold to any company, Brazilian or foreign, with the best bid. Yet the new leases are being sold on a completely new model that shows hints of a return to the state monopoly policies of the past, when the slogan “The Oil is Ours” had a more ominous overtone.
