The new Brazilian oil regulation : an ex ante economic assessment

Abstract

Following the discovery of the pre-salt petroleum fields, Brazil changed the regulatory framework of the oil industry upstream. Its main objectives are three-fold: (i) increasing the government take; (ii) mitigating the oil curse; (iii) developing the national oil industry. The paper attempts to ‘ex-ante’ assess whether the instruments of the new framework (e.g., the change in the oil regime, the creation of a social fund, the exclusive E&P rights to Petrobras) will be able to achieve these objectives (i.e., goal effectiveness) and whether the costs they entail are lower than their benefits (i.e., welfare increase). Our assessment shows that the new regulatory regime is likely to succeed. In this paper we identify what are the objectives of the new regulatory framework through the analysis of government and policy-makers declaration. We describe the instruments that the new regulatory framework contain to achieve the objectives. We examine whether the instruments seem well-suited to face the objectives. Moreover, by taking into account also the costs of the instruments, we wonder whether the welfare is likely to increase. And then, we identify some open issues regarding the implementation that may strongly impact the welfare. This paper is a prospective analysis and there are still some key open elements about how the new regulatory framework will be implemented. We cannot forecast the future but we show that it is likely that the goals will be achieved and this achievement is likely to be welfare improving.