By Brazil Stock Guide – Brazil vetoed the sections of the conversion bill that rewrote the country’s oil and gas royalty formula, after Petrobras warned the changes would undermine long-term investments and inject legal uncertainty into the sector. The measure sought to tie the “reference price” to international price-reporting agencies and, when unavailable, to transfer-pricing rules normally used for income-tax purposes.
The government said the new model would distort revenue calculations because global benchmarks do not reflect the physical and commercial characteristics of Brazilian crude and gas streams. It also argued that relying on proprietary agency quotes creates information asymmetry, unstable revenue and a high risk of judicial disputes.
Mines and Energy Minister Alexandre Silveira, in an interview on Roda Viva, said Petrobras’s technical assessment was decisive: the company warned the proposed formula would hurt the economics of deepwater gas projects in Sergipe. The Planalto said altering the formula without full impact studies would raise costs, weaken project returns and jeopardize future output.
The veto also struck down related provisions that linked production-sharing royalties to the same methodology and, separately, blocked an attempt to use the sovereign wealth-style Fundo Social to finance gas-infrastructure loans through federal banks. The Finance Ministry argued the mechanism violated the fund’s long-term savings mandate.
The proposal had set off a sector-wide dispute: Petrobras and domestic producers — supported by the upstream trade group IBP — argued the rule would inflate royalties and weaken the economics of mature fields, harming national operators. Refiners, led by RefinaBrasil, backed the overhaul, claiming Brazil needs stronger incentives for domestic refining. Although the country is self-sufficient in crude, it still imports more than 600,000 barrels a day of refined products — a gap refiners say will persist without regulatory pressure to expand conversion capacity.
By siding with the upstream camp, the government signaled that stability in the royalty formula outweighs short-term revenue gains or attempts to push refiners toward new investment. For now, the reference-price methodology stays anchored in the ANP’s technical framework — and the sector’s deeper structural dispute shifts back to regulatory channels, rather than ad-hoc legislative amendments.
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