NEW REPORT: Brazil's energy privatizations

Brazil’s energy sector is undergoing transformational years. After going through an acute crisis caused by its heavy dependency on state firms Petrobras and Eletrobras, which has seen investment capacity heavily reduced in recent years, it is now opening up for private investors.  

Consensus in society regarding the need to reduce the state’s participation in this sector increased after the Lava Jato corruption probe, and after management issues led the two companies to a severe financial crisis. Despite the challenges in the global landscape to attract investors, privatizations are considered important to increase efficiency in the Brazilian state. 

“These are long processes that involve many political questions. Transparency and good communication are important, in addition to having a technical team evaluating how to make the sales benefit the population the most,” says Luciana Nazar, CEO of consultancy Fineggi. 

During 2015-19 Brazil experienced historically low levels of investments in oil and gas exploration and production activities as a result of Petrobras’ financial crisis and the lack of oil tenders between 2008 and 2013 that prevented other operators from increasing their Brazilian portfolios. Suppliers were affected and unemployment rates in the sector rose. 

The scenario increased public support for measures to increase the country’s attractiveness for private investment in order to diversify players in the oil and gas sector. Since then, several regulatory updates, such as a reduction in local content requirements, the establishment of a permanent offering system, and detailed announcements of auction schedules, are increasing the number of private firms with oil and gas operations in the country. 

After the election of right-wing President Jair Bolsonaro in 2019, the country accelerated efforts to attract investors. Discussions that started in 2017 continue about abolishing state control over Eletrobras, and there has even been consideration of the privatization of oil firm Petrobras - a subject seen as a taboo as the firm was created in the 1950s with the nationalist “oil is ours” campaign. 

Although Petrobras’ full privatization is unlikely to materialize, the company is holding a series of assets sales that are expected to enhance dynamism in the energy market. Moreover, there are also initial discussions about a possible privatization of another state oil firm, PPSA, which is responsible for managing production-sharing contracts.   

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