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Libra Is The New Deal | Celso Ming


Source: Celso Ming | Estado de S. Paulo

The fact that there was only one consortium willing to provide the federal union with the minimal share of 41.65% of production (zero bonus) was, strictly speaking  the only negative note of the first pre-salt auction, involving the Libra field, realized Monday in Rio.

In general, it is possible to say that the auction was relatively successful. The major surprise was the presence of two foreign giants in the winning consortium: the Anglo-Dutch Shell  (20%) and the French Total (20%). The presence of the two state-owned Chinese companies (10% each) was expected. In general terms, the auction can be called a relative success. 

The participation of the massive global private firms Shell and Total refute the argument of those who demand more efficient production from the Libra field: that the auction was an arrangement among state-owned firms and that there would not be sufficient oversight of production costs to be subtracted from the surplus oil that is to be granted to the federal union. As public companies, Shell and Total will have to keep their shareholders —  normally strong advocates of transparency and results — happy.

The presence of Petrobras with a 40% stake in the investments and net production, meanwhile, belies the accusations of the unions, and especially the union of Petrobras employees, that the company would bear the major part of these costs and receive little reward in return.

Weakened as well is the criticism of those who consider themselves as guardians of the national interest, according to whom the governor is surrendering national resources to foreigners, and especially to the Chinese.

If the federal union gets to keep the 41.65% of production provided by the public notice and Petrobras controls 40%, then no less that 81.65% will remain in Brazil. After all, the Chinese are left with 11.7% of net production; Shell receives another 11.7%, as does Total.

Several months  ago, government figures commented on the immediate expenditure of a signing bonus of at least R$ 4.5 billion, could have been banked by another consortium partner. With the expansion of the Petrobras share in the deal, this bonus immediately jumps to R$ 6 billion. It has not yet been explained exactly where this financial shock wave, equivalent to nearly the entire net profits in the second quarter, will come from.

Also to be expanded is the total amount of investments in the enterprise, to more than R$ 40 billion in the development phase alone, a situation that increases pressure on the company’s frail cash position. It seems more than inevitable now that the government will immediately adjust national fuel prices.

The experiment concluded on Monday showed that there are modeling problems in the auction of the pre-salt fields. But that will be the subject of a future column. There are two more observations to make today:

(1) Though she defended the actions of her government, at no point has the president taken the trouble to explicitly refute, as expected, the antiquated arguments of those from her base of support who opposed the auction.

(2) On another front, the former governor of São Paulo,  José Serra of the PSDB, was practically the only senior opposition figure to denounce the auction as [kow-towing] to the Chinese. But he, too, was unable to muster the support of his allies for this position.