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Memorandum to Clients - Infrastructure | New Rules for Local Content in Brazil

Infrastructure and Energy

The Brazilian Ministry of Mines and Energy ("MME") announced new minimum percentages of local content requirements for production and exploration of oil and gas in Brazil. The new percentages reflect a reduction of nearly 50% (fifty per cent) from requirements previously in force. This reduction will apply in upcoming bidding rounds expected for 2017.

The new minimum percentages for local content are as follow:

Onshore Areas:

  • Exploration: 50%
  • Production: 50%

Offshore areas:

  • Exploration: 18%
  • Well Construction: 25%
  • Collecting and Flow System: 40%
  • Stationary Production Units ("UEP"): 25%

Oil companies that do not comply with the mandatory requirement for local content percentages will be fined but the fine has being reduced from a minimum of 60% (sixty per cent) of the required percentage that was not achieved to 40% (forty per cent). The maximum fine was also reduced to 75% (seventy five per cent) from 100% (one hundred per cent) of the percentage not achieved by oil companies.

Local content requirements has long been a topic of discussions between the government, E&P companies and suppliers. In fact, disputes between suppliers and E&P companies related to local content have being challenged in courts as opposed to being resolved administratively as was the case in the past. 

These changes reducing the percentage of local content requirement seek to provide more legal certainty to investments, increasing interest in future bidding rounds, especially in view of our local competition for investments with Mexico.

According to the MME's minister, Fernando Coelho Filho, the changes also imply that E&P companies may no longer waive local content requirements. Prior concession contracts and waiver discussions such as the public consultation for the waiver of the FPSO Pioneiro de Libra should remain unaffected.

For additional information, please contact:

Giovani Loss
[email protected]
T +55 21 3231 8246

Pablo Sorj
[email protected]
T +55 21 3231 8241

Bruno Werneck
[email protected]
T +55 11 3147 2584

Fabiano Luz de Brito
[email protected]
T +55 11 3147 7726

Thiago Fernandes Moreira
[email protected]
T +55 21 3231 8115

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