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Page added on September 30, 2009

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Brazil's Energy Dilemma

The Santos Basin and a string of other discoveries of vast offshore oil deposits along Brazil’s coast have sparked a host of thorny policy debates about the state’s role in the country’s oil and gas sector and the hefty, multi-year investments needed to develop the industry fully. Concerns are also growing over whether the increasing importance of oil and gas in the Brazilian economy will detract from renewable and alternative fuel programs that the government has been developing in recent years.
Yet experts agree that oil and gas are providing a wealth of economic opportunities at a critical juncture in the Latin American country’s development. “Brazil aspires to become Latin America’s economic leader and its engine of growth, and one of the foundations of that leadership, without a doubt, will be energy,” says Xavier Mena, professor of economics at EsadeBusiness School, in Barcelona. “A substantial part of the country’s growth will be sustained by petroleum.” It’s one of the reasons why he rates Brazil as the having the greatest economic potential among all the BRIC countries.

With the latest discoveries, Brazil will have reserves of some 100 billion barrels, according to some estimates, making the country one of the largest producers in the world, on par with Venezuela and Saudi Arabia and surpassing Libya and Nigeria. But even before September’s find, President Luiz Inacio Lula da Silva was stoking nationalism as he pledged to take control of various new hydrocarbon deposits. Through Petrobras, the state-controlled oil and gas company, the government plans to control the fields discovered two years ago, and in the case of partnerships with foreign companies, Petrobras will have a minimum 30 percent stake. Adopting a similar model used in Norway, the aim is to channel profits from these fields into a fund aiding the country’s economic development, including programs for reducing poverty, improving health care and education, and undertaking research in science and technology.

But in its bid to replicate the growth of other oil-producing powerhouses, will Brazil struggle with an over-reliance on the sector as many of its predecessors have?

Latin Business Chronicle

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