ANP Faces Uncertain Future

By Jewellord T. Nem Singh, Contributing Reporter

RIO DE JANEIRO – The National Agency of Petroleum, Natural Gas and Combustibles (ANP) has recently confirmed operational difficulties causing interruptions in running the main well in the Libra drilling project. This is the second interruption in the Santos Basin at the pre-salt reserve oilfields and the report suggests that the well will now not be ready until November 2010.

The Libra offshore drilling is expected to produce five billion barrels for the state, and the regulation of licenses for exploration, the overseeing of operations, and upholding of environmental standards in the upstream activities are the main organizational objectives of the ANP.

Created in 1998 to regulate the oil sector in accordance with Petroleum Law (DL 9478/97), the ANP, under the direction of the Ministry of Mines and Energy, formed a key part of the overall aim of Fernando Henrique Cardoso’s (FHC) government; self-sufficiency in oil consumption.

In the process, the fifty year monopoly of Petrobrás, Brazil’s state-owned oil company, in the sector came to an end. The regulatory institution was created as part of the broader political strategy of liberalization and breaking the state monopoly and allowing foreign investment to compete for oil explorations.

Since its inception, the ANP has been the main state agency dealing directly with oil investment, and, together with IBAMA, the environmental consequences of oil extraction. Setting guidelines in the commodity chain from upstream and downstream to the distribution of petroleum derivatives, their specialized role in an increasingly important sector set it apart from other bureaucratic agencies and its political success was to introduce new companies within the oil industry, although Petrobrás remains the dominant player.

The agency is also in charge of calculating the value of royalty fees, which are distributed between the federal and state governments, as well as the supervising and authorization of the sales of derivatives of oil, alcohol, and biodiesel.

The liberalization of the oil sector by the ANP introduced new regulations both for Petrobrás and private firms to follow, in turn making oil extraction more sustainable. Beyond investment rules, it has gained importance in setting up standards on workers’ security, health issues, and the environment.

Today, however, its is faced with a huge responsibility in overseeing the pre-salt oil reserves. A current bill is set to be passed that will create a new state-owned petroleum company, Petrosal, to manage the new oil reserves. How this will shape the division of labor between Petrosal, Petrobrás, and the ANP remains latent until the bill becomes law, but a new system of concessions is likely to be approved, where services for oil exploration also known as sharing contracts, or contrato de partida, will be outsourced to companies rather than giving them concession rights, or contrato de concessão, to explore and produce.

If today ANP is responsible for giving concession rights, moving to the new system can potentially change its functions. This is one of the biggest uncertainties that is yet to unfold as the election year and decision time nears.