A very good morning to you and my thanks for looking in.
One thinks of auctions as being competitive affairs, with the prize going to the highest bidder.....but not so in Brazil's auction of the Libra oil field rights, where victory went not to the highest bidder but to the bidder! Having had only eleven potential bidders pay the millions of dollars necessary to register for the auction, well below the expected number of forty four, only one group actually tabled a bid.
The 'winning' consortium comprises the Brazil owned Petrobras (40%), Shell and Total (20% each) and the Chinese CNPC and CNOOC (10% each). With the North American majors having decided not to bid, the involvement of Shell and Total may be seen as important not just in terms or resources but in bringing some gravitas to the group.
The bid was at the lowest possible numbers to meet the requirements for it to be accepted. The consortium will pay R$15Bn (about $7Bn) to the Government up front and then follow that with 41.65% of profits. President Dilma Rousseff expressed her happiness with the result, pointing out that with the profit share that Petrobras will earn, ''....85% of the profits generated in Libra will stay in Brazil and Petrobras....''. There had been anger in some quarters about auctioning the Brazilian natural resource to foreign concerns but the 85% figure and 40% Petrobras stake may assuage such concerns; though Senator Agripino Maia said of Monday's event, ''....this is the auction of a country's dreams, in regard to health and education....''. Others have countered by pointing out that Petrobras may well have been incapable of developing the field on its own.
The Senator's comments, above, sought to play on the legitimate concerns about the state of crucial social services in Brazil, particularly the national health service (yes, Brazil believes in access to health care, free at the point of delivery being a right in a civilised liberal democracy, unlike states such as the USA) and public education system. Whereas this South American power has shown itself to be far more socially advanced than many older, more established liberal democracies such as the USA in some areas (with its national health service, marriage equality etc) practice has often failed to live up to the theory. Health and education services are underfunded and in a woeful state, requiring huge investment to improve the quality of product delivered to the people and better match Brazil to its growing role in the developed world. Such legitimate concerns were aired in the amazing country wide protests of last June and, in swift response, President Dilma announced that the majority of oil profits would be allocated to these key public services.
The Libra field is expected to realise tens of billions, some even say trillions of dollars for Brazil and one imagines that, as long as those sums are properly managed they will, indeed, sustain immense improvements in the fields of health, education and other social policy/social services areas. That said, it is widely reported that the Government hoped that the cut and thrust of competition at the auction would result in it being offered a higher percentage of Libra's profits by the winning bidder. As we noted above, that was not to be!
Auction over, the real work begins. The development of the pre-sal field will be a gargantuan challenge costing billions of dollars. On top of that, there were real concerns about Petrobras' ability to claw together the liquidity to float the 30% of the costs that Brazilian law required to fall to the national giant....but, in the wining bid, the company takes up 40% of the requirement. This may further fuel worries about the ability of Petrobras to progress other crucial domestic exploration and development projects, such as the Forfan 1 field off our cost, here in Aracaju. Some fear that other projects may have to be postponed or cancelled in order to redirect all funds to Libra (see also the post, Libra - Balance and Partnership on 18 Oct).
Oil is big politics in Brazil and the success of Libra's development, the management of the resultant profits that accrue to the Government and the ability turn them into quality of life improvements for Brazilians may determine the shape of the county's short to mid term political future. The ability to deliver on promises made in the wake of June's protests will impact on the potential for civil protest and unrest when the eyes of the world are upon us next year and on the voting intentions of the electorate; 2014 being soccer World Cup year and election year (see also the posts, Fears for the World Cup, 14 Oct, and More World Cup Worries, 16 Oct). It is interesting to see former President Lula da Silva raising his profile currently. The almost sainted political leader is becoming more publicly engaged in electioneering, one year out from the vote, recently criticising potential presidential candidate Aecio Neves and supporting the record of his successor, President Dilma Rousseff. It might be expected and logical to find a popular statesman stand up and speak for his party and its leader in the run up to an election but, despite President Dilma leading her nearest rival by 35 points, President Lula's increased profile has again given rise to speculation about him stepping in and taking the candidacy if his successor is not looking good early next year; though he has constantly denied any such thoughts and any one imagines the move would be fraught with risks of all sorts. No doubt it will be down to the economy, as ever, and the way that Libra's initial earnings will be spent.
Lastly, today, further news relating to the police in Rio de Janeiro that different commentators are reading in different ways. You will recall our discussion about Rocinha favela and its new Police Pacification Unit (UPP) commander in the post, Cometh the Hour, Cometh the Man and Woman, 22 October. In that post I highlighted the recent arrest and charging of ten Rocinha UPP police officers in relation to the alleged torture and murder of 42 year old construction worker and Rocinha resident, Amarildo de Souza, who has been missing since being arrested on 14 July. We are now told that a further fifteen officers have been charged in relation to Amarildo's disappearance and alleged murder. On the one hand, it is shocking to find that twenty five police officers may somehow have been complicit in the alleged events. It is totemic of the serious concerns so many communities have in relation to policing and the judicial process and underscores the need for radical reform of policing in many parts of Brazil....while, on the other hand, the fact that these officers have been charged and will be brought before the law is flagged up by some as indicating that fundamental changes are already afoot in policing. We shall return to policing and the judicial system as a separate post.
That's all for today and I am so very grateful to you for dropping in....and would be delighted if you felt so moved as to leave a comment on any of the above.
The next post for this Blog will be FRIDAY; I shall put a note out shortly explaining a change in the schedule for posts.
Until next time, stay safe.
Dave
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