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The Impact of Fiscal Incentives in the Pre-Salt Oil Business in Brazil

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The Impact of Fiscal Incentives in the Pre-Salt Oil Business in Brazil THE IMPACT OF FISCAL INCENTIVES IN THE PRE-SALT OIL BUSINESS IN BRAZIL Patrícia Pereira Pedra Dissertação de Mestrado apresentada ao Programa de Pós-graduação em Planejamento Energético, COPPE, da Universidade Federal do Rio de Janeiro, como parte dos requisitos necessários à obtenção do título de Mestre em Planejamento Energético. Orientador: Alexandre Salem Szklo Rio de Janeiro Março de 2020 THE IMPACT OF FISCAL INCENTIVES IN THE PRE-SALT OIL BUSINESS IN BRAZIL Patrícia Pereira Pedra DISSERTAÇÃO SUBMETIDA AO CORPO DOCENTE DO INSTITUTO ALBERTO LUIZ COIMBRA DE PÓS-GRADUAÇÃO E PESQUISA DE ENGENHARIA DA UNIVERSIDADE FEDERAL DO RIO DE JANEIRO COMO PARTE DOS REQUISITOS NECESSÁRIOS PARA A OBTENÇÃO DO GRAU DE MESTRE EM CIÊNCIAS EM PLANEJAMENTO ENERGÉTICO. Orientador: Alexandre Salem Szklo Prof. Alexandre Salem Szklo Prof. Roberto Schaeffer Prof. Edmar Luiz Fagundes de Almeida RIO DE JANEIRO, RJ - BRASIL MARÇO DE 2020 Pedra, Patrícia Pereira The Impact of Fiscal Incentives in the Pre-Salt Oil Business in Brazil / Patrícia Pereira Pedra. – Rio de Janeiro: UFRJ/COPPE, 2020. XIII, 98 p.: il.; 29,7 cm. Orientador: Alexandre Salem Sklo Dissertação (mestrado) – UFRJ/ COPPE/ Programa de Planejamento Energético, 2020. Referências Bibliográficas: p. 72-83. 1. Oil production 2. Pre-salt. 3. Fiscal Incentives 4. Economic Analysis I. Szklo, Alexandre Salem. II. Universidade Federal do Rio de Janeiro, COPPE, Programa de Planejamento Energético. III. Título. iii AGRADECIMENTOS Agradeço à minha família, especialmente ao meu marido Paulo Brandão, por seu amor em todos os momentos. Meus filhos, pela compreensão das horas deles retiradas para o estudo. Meus pais que sempre me apoiaram e incentivaram a nunca parar de aprender. Ao Prof. Alexandre Salem Szklo, pelas conversas e orientação e por ser um exemplo de mestre. Aos professores Roberto Schaeffer e Edmar Almeida pela participação na banca de mestrado. Aos meus amigos e colegas de turma do PPE, partilhamos muitas horas de estudo juntos e foi maravilhosa a convivência. Especialmente à Fernanda que foi uma ótima experiência reencontrar após mais de 20 anos! Aos professores do PPE que partilharam seus conhecimentos e experiências. Aos funcionários do PPE, especialmente à Sandrinha que está sempre à disposição para nos ajudar. E à Deus por me presentear com mais uma benção! iv Resumo da Dissertação apresentada à COPPE/UFRJ como parte dos requisitos necessários para a obtenção do grau de Mestre em Ciências (M.Sc.) O IMPACTO DOS INCENTIVOS FISCAIS NO PRÉ-SAL BRASILEIRO Patrícia Pereira Pedra Março/2020 Orientador: Alexandre Salem Szklo Programa: Planejamento Energético Sob uma perspectiva econômica, social e ambiental, é válido avaliar se a renda petrolífera do pré-sal brasileiro está sendo devidamente apropriada pelo Estado, dada a existência de incentivos fiscais na indústria nacional por mais de vinte anos. O petróleo representa uma parcela de 40% no consumo de energia primária do país e a produção e exportação do mesmo é fundamental para a balança comercial do país (i.e., foi o terceiro item com maior participação de valor nas exportações em 2017). Após a descoberta da província de óleo chamada pré-sal, o governo brasileiro expandiu até 2040 os termos do regime especial fiscal chamado Repetro, que, entre outras provisões, permite isenções fiscais, ainda que temporárias, para a indústria. No entanto, no contexto de uma recessão econômica, crescente problemas sociais e compromissos com baixas emissões de carbono, é importante verificar se tais incentivos são mesmo necessários para fazer com que os campos de pré-sal sejam atrativos economicamente. Após análise de alguns tipos diferentes de campos de pré-sal, para um cenário de preços acima de $60/bbl, os incentivos não são necessários para fazer com que os maiores campos sejam economicamente viáveis, se tornando então subsídios indiretos para a indústria nesses casos. Verificou-se também que o ajuste dos termos fiscais do contrato de partilha existente permite adequar a participação governamental na partilha a diferentes cenários de preço de petróleo. v vi Abstract of Dissertation presented to COPPE/UFRJ as a partial fulfillment of the requirements for the degree of Master of Science (M.Sc.) THE IMPACT OF FISCAL INCENTIVES IN THE PRE-SALT OIL BUSINESS IN BRAZIL Patrícia Pereira Pedra Março/2020 Advisor: Alexandre Salem Szklo Department: Energy Planning From an economic, social and environmental perspective, it is worthwhile to assess if oil rents from petroleum production in the Brazilian pre-salt fields are being appropriately perceived by the State, given the current long-lasting fiscal incentives to the industry in Brazil. Crude oil accounts for 40% of the country´s primary energy consumption, and is key to its trade balance (e.g., the third export good in value in 2017). After the discovery of the oil province called pre-salt, the Brazilian government expanded to 2040 and deepened the terms of the special tax regime called Repetro that provides tax exemptions to the oil industry. However, in the light of an economic recession allied with increasing social problems and commitments to a low carbon world, the question that arises is weather these fiscal incentives are truly needed to make pre-salt projects economic attractive. By evaluating some pre-salt fields, under an oil price scenario of $60/bbl, this study shows that, for some fields, fiscal incentives are not necessary, being, then, hidden subsidies. Moreover, the adjustment of the existing production sharing contract terms allows a better fit of the government take within different oil prices scenarios. vii TABLE OF CONTENTS 1 INTRODUCTION ............................................................................................................. 1 1.1 Hypothesis and Objective............................................................................................ 4 1.2 Dissertation Structure .................................................................................................. 5 2 PETROLEUM FISCAL SYSTEMS .................................................................................. 6 2.1 Oil and gas exploration and production commercial models ...................................... 6 2.1.1 Fiscal terms premises ........................................................................................... 6 2.1.2 Concession Contracts ......................................................................................... 14 2.1.3 Production Sharing Agreements ........................................................................ 16 2.1.4 Service Contracts ............................................................................................... 17 2.1.5 Others ................................................................................................................. 19 2.2 Discounted Cashflow Analysis ................................................................................. 20 2.3 Application of petroleum fiscal systems .................................................................. 23 3 BRAZIL´S OIL AND GAS FISCAL REGIMES ............................................................ 23 3.1 Oil and gas history in Brazil ...................................................................................... 24 3.1.1 Legal Framework history of the industry in Brazil ............................................ 26 3.1.2 Terms of the Concession Contract in Brazil ...................................................... 31 3.1.3 Transfer of Rights in Brazil (Onerous Assignment) .......................................... 33 3.1.4 Production Sharing Agreement in Brazil ........................................................... 34 3.2 Brazilian tax system .................................................................................................. 34 3.2.1 Changes made by Law 13,586/17 ...................................................................... 36 4 METHODOLOGY .......................................................................................................... 38 4.1 Fiscal Incentives ........................................................................................................ 42 4.2 Economic Metrics and Assumptions ......................................................................... 43 4.2.1 Oil Prices ............................................................................................................ 43 4.2.2 Metrics ............................................................................................................... 44 viii 4.2.3 Signature Bonus, Profit Oil and Cost Oil Rates ................................................. 46 4.3 Input Data – Base Case and Sensitivities .................................................................. 49 4.3.1 Base Case ........................................................................................................... 49 4.3.2 Sensitivity Cases ................................................................................................ 56 4.4 Yet to Find Pre-Salt Volumes ................................................................................... 56 5 RESULTS ........................................................................................................................ 58 5.1.1 Base Case ........................................................................................................... 58 5.1.2 Sensitivities ........................................................................................................ 62 6 CONCLUSIONS.............................................................................................................
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