Rio de Janeiro (Platts)--29May2012/405 pm EDT/2005 GMT

Brazil's "local content" policy presents "challenges" for the oil industry, a senior Brazilian oil industry lawyer said Tuesday.

Under the government's strict local content rules, up to 65% of goods and services used in the oil industry must be produced in Brazil. The regulations have been blamed for the delays companies like Petrobras have experienced in platform and rig deliveries.

"It is a policy that has challenges of commitment, challenges of development for the local sector, but it reflects a noble intention, which is capacity in the local sector of goods and services," the lawyer, Humberto Quantas, said in an interview.

Quantas was speaking in his capacity as a member of the commission for legal subjects at the IBP (Brazilian Oil, Gas and Biofuels Institute), although he is also a vice president of the legal department at BP Brazil.

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After addressing a conference on local content, Quantas highlighted two problem areas.

"First, the question of certification, which is still being developed. How does the certification question work?" he said. "The second is what to do with items where there is not so much supply in the local market, like drilling rigs, seismic, FPSOs. For these items specifically, there is a big difficulty to meet local content with the internal market."

Quantas said the government could offer "incentive mechanisms" for international oil companies struggling to meet local content requirements, and said that rather than penalizing companies who fail to meet local content rules, the government could offer a bonus on Brazilian concessions for IOC's that voluntarily buy in Brazil, "something that the government could think of as something to make local content more competitive here."

Quantas joins a growing chorus of voices in the Brazilian oil industry voicing concern about the policy.

On May 15, Andre Araujo, CEO of Shell Brasil, criticized local content rules. "We can't be imprisoned in a percentage," Araujo told an event in Rio, local press reported. Araugo also suggested incentives rather than penalties for IOCs.

In research by the International Quality and Productivity Center, carried out in April and quoted before Quantas's talk, 34% said the price of domestic products was the main barrier to meeting Brazil's local content regulations. 27% said there were not enough Brazilian suppliers to meet demand.

Among other areas of concern, 36% also said that high Brazilian taxes caused problems, 32% said low qualified labor and lack of competitivity in the supply chain were barriers, and 43% said their main problem was in understanding the rules Brazil's National Petroleum Agency, the ANP, sets.

--Dom Phillips, newsdesk@platts.com
--Edited by Robert DiNardo, robert_dinardo@platts.com

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