Brazilian Local Content Policy: An Overview and Analisys of Adjustment Clauses Applications

Abstract

Local Content Policies are worldwide applied to oil and gas (O&G) exploration and production (E&P) contracts, in order to stimulate the national goods and services industry. This policy implements Local Content (LC) commitments in contracts for O&G exploration blocks. In this way, minimum LC percentages are established and supervised in Brazil by the National Agency of Petroleum, Natural Gas and Biofuels (ANP). Additionally, this minimum percentage is taken as a judgment criterion for the concession regime bidding rounds, as well as pre-established in Production Sharing and Onerous Cession contracts. In the past years, high levels of LC, coupled with oil price drop, have taken oil companies to request adjustment and/or exemption of this contractual commitment. Although provided for in E&P contracts, the mechanism regarding the exemption and adjustment of Local Content clauses had not yet been regulated by ANP until 2017. Then, in 2018 ANP approved Resolution No. 726/2018, defining clear and objective criteria for the request and its conditions. Therefore, this paper intent to present and analyze the history of local content policy in the Brazilian O&G industry, the regulatory framework, also evaluating the quantity of requests for changing CL commitments and ANP responses.