Brazil drafting legislation to create new state-owned oil company

“We don't have a definite position yet” said Brazil Presidential Chief-of-Staff Dilma Rousseff. “When we do, we'll make an announcement." Rousseff said a “preparatory” meeting was held with the Brazilian president last week concerning the legislation.

Mines and Energy Minister Edison Lobao earlier told the Estado news agency a government panel formed by Lula da Silva would complete its work on the proposed changes by mid June.

Lobao said the Brazilian government would send a new regulatory regime for the country's oil and natural gas industry to Congress by August, with passage of the bill expected in 6 months.

"This year, we will have a new regulatory regime for the sub-salt," said Lobao, who repeated his desire to create a separate state-owned company to manage sub-salt oil assets. The working panel is discussing the option, under which the proposed company—to be called Petrosal—would manage development of the reserves and production-sharing agreements.

The idea is based on Norway’s Petoro, a state-owned company that manages the country's offshore oil and gas reserves. Like Petoro, Petrosal would offer concessions for exploration and production under production-sharing agreements.

“The president is insisting strongly that we complete the bill quickly so it can be submitted” to the legislature, said Senator Ideli Salvatti of the ruling coalition Workers Party.

“It is obvious that a bill of this magnitude, involving billions of dollars, is something that needs to be written very carefully, especially so that it will not generate questions," said Salvatti, who is the government leader in Congress. He said adjustments are needed so as not to generate legal doubts concerning the presalt layer.

Lula da Silva created the working panel last year to draft the new law, with the aim of giving the government a greater share of the revenues from potentially huge oil discoveries made in the sub-salt region offshore Brazil.

A social investment fund is to be created to direct proceeds from oil revenues toward improving Brazil's education system and diminishing poverty, fulfilling long-standing pledges by Lula to utilize the country’s oil wealth to aid the broader population.