Lawmakers in Brazil's largest oil and natural gas producing state, Rio de Janeiro, have approved a new monthly fee to be paid by producers that may cost the industry an additional R600mn/yr ($121mn/yr), according to oil and gas producers' institute IBP estimates.
The bill, approved on 12 December, creates a monthly R43,329 inspection fee for exploration companies — adjusted annually by state fiscal unit UFIR-RJ.
Along with the fee is a proposal that state law enforcement monitor and inspect oil and gas exploration and production activities, particularly with regard to environmental issues, stepping into Brazilian environmental watchdog Ibama's territory.
Governor Claudio Castro has until 5 January to sanction the bill. If approved, the measure would take effect on 1 April.
The new state fee would affect much of the country's production, as Rio de Janeiro state produces 86pc of Brazil's oil and 73pc of the country's natural gas at 48 fields, largely offshore. The proposed new measures are seen as a disappointing development by producers who have been hoping for no significant increase in regulation.
The fee has consistently been considered unconstitutional since its creation and has "fallen outside the principles of proportionality and reasonableness," according to independent oil and gas producers' group Abpip chief executive Marcio Felix.
A prior attempt to enact the fee in 2021 was vetoed by then-governor Wilson Witzel. A similar proposal was declared unconstitutional by the country's supreme court (STF) a decade ago, highlighting a history of unconstitutional and impractical proposals and casting doubt on the legitimacy of the bill. But STF does not always reach a unanimous decision and its decisions may change over time, so market participants are not confident the court would rule the same way if the matter came before it again.
The short-term effect of the bill may be small if it is approved by Castro, but it could curtail investment decisions, Felix said.
"We are facing new challenges from many different fronts," he said. "One is the international competition for investments from neighbors such as Guyana, Suriname, Venezuela and other countries. A second concern is the energy transition agenda which starts to compete for investments."
The bill establishes an 80pc discount on the monthly fee for blocks and fields that have yet to start the exploration phase, that have small scale production, mature and marginal fields, and fields with no flaring or large amounts of gas loss when gas reinjection rates are below 30pc. Full value would be applied in areas under the production-sharing regime or in the concession model.
The bill was approved in a single session of the state legislature, the day before the hydrocarbons regulator ANP auctioned concession contracts for 33 oil and gas exploration areas.
"The moment is peculiar and with no doubt was chosen deliberately, as the nation's attention is on the national congress voting a tax reform bill," Felix said.
Hydrocarbons producers in Brazil have constantly advocated for regulatory stability and for the market to abide to the path laid out by the 2021 gas law.
