2018 Economic Outlook Brazil: Regulated Markets

This is the second chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

This series of posts is an attempt to highlight the central policy overviews in order to clarify way for the inflow of international investments in the country. The previous post on Structural Reforms can be found here.

Read below the policy higyhlights on regulated markets.

1. Oil & Gas

Law No. 13.586 of December 28, 2017 was part of a broad set of measures that altered the regulatory framework for the oil sector. The act aimed to increase competition in the exploitation of reserves and thereby increase the income absorbed by taxpayers in the form of tributes, royalties, special participations, signature bonuses or oil surplus.

Decree No. 9.128 of 2017 extended the benefits of Repetro until 2040. This is a special customs regime for importing and exporting goods for research and drilling activities of oil and natural gas. This regime has been in place since 1999 and aims to equate the taxation of the oil sector in Brazil with the practices of other producing countries.

Resolution No. 17/2017 from the National Council for Energy Policy (CNPE) established the Petroleum and Natural Gas Exploitation and Production Policy, which defines the guidelines for policy implementation for the planning and realization of public bids. Resolution 10/2017 from CNPE establishes the schedule for the bidding rounds of blocks and fields for oil & gas exploitation and production for the biennium 2018-2019.

There was a change in the clause of Research, Development and Innovation of the Programme for the Competitiveness of the Productive Chain, Development and Improvement of Suppliers of the Petroleum and Natural Gas Sector (Pedefor, Decree No. 8.637 of 2016): A percentage of 30% to 40% of eligible expenditure in PD&I should be destined to universities or research centers; 30% to 40% for programs, and the remainder to qualified activities defined by the concession itself.

2. Mining

Throughout 2017, the Brazilian government reviewed the legislation of the mineral sector, with the objective of restoring the credibility and legal certainty demanded by the investors. Provisional Measure No. 789 (converted into Law No. 13.540/2017) provides for the Financial Compensation for the Exploration of Mineral Resources (CFEM); Provisional Measure No. 790, amends the Mining Code (Decree-Law no. 227/1967); and Provisional Measure No. 791 (converted into Law 13.575/2017) creates the National Mining Agency (ANM) for the regulation of the mineral sector, substituting the former National Department of Mineral Production (DNPM).

3. Electricity

The Brazilian government issued new legislation in 2017 to support and encourage the process of privatization. This is the case of Decree No. 9.192/2017, which regulates the bidding process and the respective transfer of share control of electricity distribution companies controlled by Eletrobras. Provisional Measure No. 814/201 gives incentives for the transfer of share control and includes Eletrobras in the National Program for Privatization.

4. Basic Sanitation

Population in Brazil still faces serious problems related to access to basic sanitation services, despite advances promoted by the last legislation revision enacted by Law 11.445/2007. There are deficiencies mainly in the water supply and treatment and sewage collection and treatment services.

There is a general understanding that it is necessary to increase legal certainty aiming at investment expansion. As per current regulatory framework, the country has more than 50 regulating agencies in the sector, with municipal, regional and statewide outreach. This multiplicity of actors contributes to the context of low investments due to the intertwined complexity of rules. The government is considering changes in Law 9.984/2000 in order to assign to the National Water Agency (ANA) new competences for the coordination of services in basic sanitation.

5. Telecommunications

The General Telecommunications Law No. 9.472/1997 was published two decades ago and, given the rapid technological innovations in the sector, a regulatory reform is urgently necessary, since the concession of fixed telephony becomes less attractive in relation to emerging broadband technologies. The Draft Bill PLC 79/2016 that is under discussion in the Federal Senate is proposing legislation reform in order to reverse the obligation of investment in fixed telephony in favor to investments in broadband expansion.


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