Bolsonaro sends project that ends mandatory pre-salt money for education and health

BRASILIA – The president Jair Bolsonaro forwarded a bill to the National Congress that authorizes the federal government to sell its share of pre-salt of sharing contracts and still unlinks the revenues from the Social Fund. Today, these contracts are with Pré-Sal Petróleo SA (PPSA), a state-owned company that the government wants to privatize.

Created in 2010, the Social Fund is a sovereign wealth fund, intended to receive the portion of the pre-salt resources that fall to the federal government, such as royalties and special participations. At the time, Congress changed the allocation of resources to link part of the resources to health and education.

Now, in justifying the untying, the government says that there will be no “damage” to the areas. “This measure is important because, if this link were maintained, there would be inefficiency in fiscal management. This is because, given the volume of expected resources, they would not have a counterpart in the budget for expenditure forecast. However, there will be no harm to the execution of public policies covered by the Social Fund, since the resources will normally be allocated in the Public Budget according to the priorities defined by the National Congress”, said, in a note, the General Secretariat of the Presidency.

By law, the Social Fund should be a government savings account for when the Petroleum decrease, which would help to finance the country’s development and would also serve to reduce the effects of a possible “flood” of dollars in the country due to the export of pre-salt oil.

For the message of sending the project to Congress, published this Thursday, 9, in the official diary of the Union, the text “authorizes the Union to cede, in full, the right to its share of surplus oil from production sharing contracts and production individualization agreements in areas not contracted in the pre-salt area or in strategic areas”, which are marketed by Pré-Sal Petróleo SA (PPSA), a state-owned company recently included in the government’s portfolio of studies for privatization. The proposal was anticipated by the Estadão.

Created in 2013, PPSA is linked to the Ministry of Mines and Energy and acts in the management of production sharing contracts, management of the commercialization of oil and natural gas and in the representation of the Union in the agreements of individualization of production. Under the sharing regime, the Union has a compulsory participation, represented by PPSA, in the consortium that won the bid for the block to be explored and also the right to part of the oil and natural gas obtained from the respective production. According to the PPSA, 19 contracts are in force in the country on a sharing basis, including those recently signed for the Sépia and Atapu blocks.

When justifying the submission of the bill, the government says that the model adopted so far makes the Union share with private partners the risks associated with oil exploration. “In addition, in order to market oil owned by the Union, PPSA must carry out activities similar to those of private traders, which requires complex actions so that the state-owned company is able to maximize the Union’s revenues”, says the Secretary General of Presidency of the Republic in a press release.

“With the sale of the Union rights provided for in the sharing contracts, PPSA would no longer be part of the current contracts, causing business decisions to be taken by totally private entities. The measure would also make it possible to reduce the presence of the State in the economy, through the onerous transfer of assets from the Union to the private sector, and the reduction of federal participation in dirty energy, with resources that can contribute to financing an environmentally and socially responsible agenda”, he adds.

Among the arguments, the government also says that “the measure takes advantage of the significant rise in oil prices to maximize public revenue. It is an opportunity to monetize oil and natural gas, which are the heritage of the Brazilian people, opportune moment when the price of the barrel reached the highest value of the last ten years and there is strong demand for this product in the market” and, “at the same time, the measure will promote a better alignment between the parties in the sharing contracts, providing more efficiency exploration of oil and gas in the pre-salt”.

“We are providing legal certainty to enable the sale of oil sharing contracts at a time when the world is experiencing the energy transition, migrating from dirty sources to clean sources. It makes no sense for the government to continue having oil contracts for decades ahead, knowing that countries like England have banned the sale of combustion vehicles from 2030 onwards”, evaluates the special secretary for Privatization, Divestment and Markets of the Ministry of Economy, Diogo Mac Cord, in the same communiqué. According to him, “the current scenario is ideal to guarantee Brazil’s energy security and channel efforts towards a green, sustainable and renewable matrix”.