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Brazil: Promoting investments

The Brazilian government has been promoting several measures to remove investment barriers and develop the country’s business environment

Rafael BaleroniEduardo Abrantes

The Brazilian government has been promoting several measures to remove investment barriers and develop the country's business environment. The aim is to recover economic growth and international visibility, amid the ongoing political and financial crises. Two of these initiatives benefit the aviation and oil and gas sectors.

In the aviation sector, the President issued a Provisional Measure on March 1 2016. This increased the limit for foreign investment in Brazilian airline companies, from 20% to 49%. Foreign investors can also be controlling shareholders in Brazilian airline companies, provided there is reciprocity from their home countries.

Congress has 60 days to approve this Provisional Measure into law, otherwise it will lose its validity, but any acts from when it was in force remain valid.

This measure comes at a strategic time: foreign companies have surplus funds due to the reduction of oil prices and, consequently, fuel costs; while Brazilian commercial aviation is in need of investment.

In the oil and gas sector, the national oil company Petrobras is in the process of divesting assets. Meanwhile, the government has passed several rules to foster investment in the sector.

On January 18 2016, the President issued a Decree to make local content rules more flexible and facilitate the business of supply chain companies. These companies have struggled to achieve the requisite level of local content since the inception of the national content programme. The decree: (i) gives additional weight to local content in equipment and activities deemed strategic; and, (b) counts as local content investments made in Brazil for the establishment of new suppliers, development of additional capacity, technological innovation and acquisition in Brazil of equipment intended for use abroad.

The Brazilian government took four measures to promote investments in exploration and production companies. First, it authorised the National Petroleum Agency (Agência Nacional do Petróleo, or ANP) to extend concession contracts entered into in 1998 conditioned to additional investments by concessionaries. Second, it required ANP to notify operators that have not produced for the past six months to either resume production within 12 months or assign their rights to someone else willing to conduct production, under the penalty of forfeiting the concession. Third, it established that the Ministry of Mines and Energy shall conclude, within six months, the necessary studies so that a new bid round can be held for reservoirs in the pre-salt area that extend beyond current blocks and will have to be unitised. Finally, it proposed the extension of the special customs regime for the import of equipment used in oil operations (REPETRO), currently scheduled to end in 2019. This is the framework for the tax incentives underpinning the whole sector.

In the natural gas sector, ANP issued rules to improve third party access to gas transportation pipelines. It alters rules for the assignment of contracted capacity and procedures for public calls offering idle capacity to the market in existing or any new network of pipelines. It also set up rules for the operational swap of gas among carriers to encourage effective utilisation of the pipeline infrastructure.

In light of the deep recession and unprecedented political turmoil Brazil is currently facing, the government is making efforts to foster investments in the country and rebuild trust.

Rafael Baleroni and Eduardo Abrantes

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