Bolsonaro to Push Forward Giant Brazil Oil Sale, Adviser Says

(Bloomberg) -- Jair Bolsonaro's energy team is keen to push for the sale of prized Brazilian crude deposits in an auction that could give Big Oil access to more black gold than all of Mexico's proved reserves.

The plan would be to take bids in mid-2019 to help raise billions of dollars needed to reduce the South American country's ballooning budget deficit, said Luciano de Castro, an adviser to the president-elect who's leaving the faculty of the University of Iowa to join Bolsonaro's transition team. The current administration estimates the sale could raise as much as 100 billion reais ($27 billion).

“The auction would bring valuable resources to Brazil and to the government, and help on the fiscal deficit,” Castro said by phone from Iowa City, where he taught as an associate economics professor until last week.

The plan further confirms that Bolsonaro will seek energy asset sales to raise cash as he enlists pro-market hawks for his team -- a stark contrast to his past views in favor of state control before running for president. Bolsonaro was elected on Oct. 28 promising to welcome foreign producers, but his closeness to nationalist military leaders cast some doubt over those pledges.

A bill authorizing the sale, which had stalled in congress because of Brazil's unpredictable presidential race, is expected to be voted by the Senate this week.

Unlike other Brazilian oil auctions offering exploration rights to high-risk areas with no guarantee of commercial reserves, this sale would be for an area where state-run Petroleo Brasileiro SA has already made major discoveries. The so-called transfer-of-rights area is part of Brazil's giant pre-salt reserves in the Atlantic Ocean.

The government transferred 5 billion barrels of those deposits to Petrobras in 2010, but the country's oil regulator later found they hold more crude than initially estimated. The surplus that would be offered to oil majors could amount to as much as 15 billion barrels. If such volumes turn out to be commercially recoverable, it would represent about twice the proved reserves of Mexico or Norway.

The bill authorizing the sale also aims to remove the obligation for Petrobras to develop the offshore region by itself, a legacy of the leftist Workers' Party that governed Brazil for 13 years through 2016. The party, which tried a comeback but finished second in the elections, viewed oil as a strategic industry where foreign control should be limited.

Daily Talks

Castro said he's having daily talks with Paulo Guedes, appointed to be Bolsonaro's finance minister, and with a group of generals gathered in Brasilia to set up the government's agenda.

This week, he starts working with Bolsonaro's transition team as they prepare to take office on Jan. 1. Castro, a former Brazilian Air Force lieutenant turned academic, says he will be focused on the new government's energy program full-time, but that no official invitation for a position in the new administration has been made.

Among the energy team's top priorities for the next weeks, Castro said, is finding a solution to keep a steady power supply for consumers in northern states served by state-controlled utility holding company Centrais Eletricas Brasileiras SA.

Eletrobras, as the holding company is known, recently sold four regional power providers buried in debt, in an attempt to improve its balance sheet. But it failed to sell power distributors Ceal and Amazonas Distribuidora, which run the risk of being shut.

“There is a chance we have a huge problem. There is a lot of concern about what will happen with these distributors,” Castro said.

To contact the reporter on this story: Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Carlos Caminada, Steven Frank

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