Abstract

This paper addresses some issues that E&P companies in Brazil have been struggling in relation to Local Content Rules, whether to understand the regulation enforced by clause twenty of the concession agreement and regulatory provisions or to meet the targets set in the tenders' bids. Several public data was gathered to support a better analysis of some regulatory challenges of Local Content Rules.

Introduction to Local Content in Brazil

The oil companies interested in E&P activities in Brazil must previously win a bidding round for the chosen block, which activities will be regulated by a concession agreement and several regulatory provisions issued by the federal agency responsible to the industry, ANP, which name stands for Agency of National Petroleum, Natural Gas and Biofuels. Another possibility is entering into a farm-in agreement with an oil company that already has a concession agreement.

In this context, Local Content presents a twofold nature:

  1. Local Content target weighting 20% in the tender bids;

  2. a contractual obligation based on the tender bids, once the oil company wins the block bidding.

Nowadays, the legal provision of Local Content is Law #9478/97 article 2, item X, included by Law#12351 issued on 2010. The sole logical deduction arising from the aforementioned rule is that Local Content can be used as a national policy instrument, although there is no definition of how it should be calculated and what it is the exactly definition thereof.

Even prior to 2010, Local Content was enforced by regulatory provisions issued by ANP and the clause twenty of the concession agreement.

Several authors from many countries defines Local Content as a political orientation designed to improve the participation of local/domestic companies in providing services and goods for a specific economic sector, generating revenue, jobs and technological development. A secondary goal of Local/Domestic Content policies is to increase the likelihood of local companies to export to other countries, as it will be increased in scale production and technological competitiveness along the years of this policy protection.

Accordingly, Local Content can be defined in its political aspect as a policy to enhance local goods and services industry capacities, helping forward the country's development and increasing employment offers.

In light of this, Local Content aims to increase the participation of local inputs in the product's added value either by employing goods manufactured locally or services provided by local workforce.

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