Lula’s term has yet to reach 100 days, but Brazil’s leftist president has already drawn the ire of foreign oil companies caught off guard by the creation of a tax on crude oil exports.
Repsol, TotalEnergies, Shell, Equinor and Galp have seized a federal court to demand the suspension of the 9.2% tax over four months (from March to June) announced by the government at the end of February.
This announcement took place the day the Ministry of Finance reinstated fuel taxes abolished by the previous government of far-right President Jair Bolsonaro, in the midst of an election campaign against Lula. But they were restored only in part, to avoid too great an impact on prices at the pump.
The Minister of Mines and Energy, Alexandre Silveira, invoked an “opportunity to attract (investors) interested in refining” in Brazil the crude extracted there, rather than selling it abroad.
Brazil is the ninth largest oil producer in the world, with 3.02 million barrels per day, extracted largely at sea in “pre-salt” deposits, located in very deep waters, under a thick layer of salt.
“Easy solution”
Luiz Inacio Lula da Silva, whose third term began in January, plans to increase public spending to fund social programs like those that lifted millions of Brazilians out of poverty during his first stints as president (2003- 2010).
But the economic situation is much less buoyant than at the time, when it benefited from the boom in raw materials. According to the latest Focus weekly survey from the Central Bank, the growth forecast for this year is below 1% (0.88%).
In this context of lean cows, the government has “chosen the easy solution, which upsets the fewest people possible”, estimates Juliana Inhasz, professor of Economics at the Isper Institute.
“It’s a political decision”, which allows the government to prevent fuel from being too expensive for Brazilians, explains this specialist to AFP.
The tax on crude exports allows a “better budgetary balance”, according to the government, which can make it possible to fully compensate for the shortfall of 6.6 billion reais (about 1.75 billion Canadian dollars) due to the recovery only part of fuel taxes.
A disturbing “precedent”
But this decision was seen with a very bad eye by the oil sector, which represents 15% of the share of industry in the Brazilian GDP and employs 450,000 people in the country.
In a press release sent to AFP, Shell said it was “worried” about this measure announced “without significant dialogue” beforehand, deploring “uncertainties about future decisions concerning investments”.
Companies exporting Brazilian crude consider themselves aggrieved, citing a “contractual breach”, this tax not existing at the time when they invested in oil exploration in Brazil.
“During the next oil auctions, it is possible that players will take into account the risk of seeing the rules change” when making their bids, warns Livio Ribeiro, researcher at the Brazilian Institute of Economics of the Getulio Vargas Foundation ( Ibre-FGV).
According to him, the creation of this tax represents a “precedent” which brings legal “uncertainty”. At the risk of diverting from Brazil not only the oil giants, but also investors from other sectors.
“A very bad idea”, headlined the daily O Globo in a recently published editorial. These types of measures make the government “look like Robin Hood, redistributing money from the rich to the poor, but invariably they prove to be counterproductive”.