ANP starts consultation in wake of Petrobras bid for Libra waiver

Company campaigns against requirements

Brazil’s hydrocarbons regulator ANP has began a month-long public consultation phase as part of its response to an application by a Petrobras-led consortium to obtain a waiver on the highly prescriptive local content requirements governing the pre-salt Libra development, write Gareth Chetwynd and Fabio Palmigiani.

Petrobras claims its attempts to charter a pilot floating production, storage and offloading unit for Libra have shown that local content requirements would have inflated costs by 40%.

This claim was largely based on the price submitted by Modec at the second attempted tender, though critics have questioned the logic of this argument in a scenario where the Japanese company was the only contractor to actually submit a bid.

In its waiver claim, Petrobras commented on rules that would have mandated domestic conversion or construction of the Libra hull by recalling delays on similar projects in recent years.

These included the cases where Brazilian contractor Engevix took 40 months to build a hull for the P-66 floater and where the Odebrecht-led Enseada consortium took just as long to convert the hull for the P-74. Neither unit has entered production.

Overall local content requirements came to around 80% and 70% respectively but the rates varied among dozens of different categories and were zero in several categories.

Even in the fabrication and supply of topside modules, where Brazilian yards have more experience, the waiver plan sees 10 of Libra’s 19 modules being fabricated and integrated with the hull overseas.

Petrobras’ submissions point to productivity gains from focusing on fabrication, integration and commissioning work at more efficient yards, and refer, among other things, to skills shortages in Brazil.

Petrobras also cited the financially delibitated state of local yards but stepped lightly over the impact of the Car Wash corruption scandal involving bribes solicited by several of former executives.

In documentation submitted to support the waiver claim, Petrobras cites methodological input by DNV GL and research on Brazilian costs and competitiveness by IHS Energy.

Some IHS research purports to show that a more flexible and less prescriptive local content policy would boost oil production and overall investments with local and foreign suppliers.

The argument that local content was a barrier seems to be supported by an upsurge in interest from potential bidders since Petrobras opted to apply for the waiver.

However, sources also reported a dramatic fall in local content proposals.

“Non-Brazilian content in all of the proposals has soared to around 80%,” said one source who has been consulted by potential bidders.