ECONOMIC & COMMERCIAL REPORT Number 01 | November 2012 Embassy of India Brasília
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Economic and Commercial Report
Index Editorial Board Economic and Commercial Report Number 01 November 2012
04 Brazilian Economy 07 Investment 10 Focus Story: Brazilian Banking Sector
Published by Embassy of India BrasĂlia SHIS QL 08 conjunto 08 casa 01 - Lago Sul BrasĂlia-DF
12 Special Article: The Current Context of the Brazilian Oil and Gas Industry
Editor: Raj Srivastava Texts: Yatin Patel Layout: Hadassah Levyski
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Brazil industry expands at fastest pace in August in past 15 months
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ndustrial production in Brazil expanded in
Industry has been a weak spot in the Brazilian
August at the fastest pace in 15 months
economy in recent years, prompting President
thanks to heavy government stimulus,
Dilma Rousseff to introduce a string of tax
underlining signs of recovery for struggling
breaks, credit incentives and other measures to
manufacturers. Output grew 1.5 percent in
support local factories. The central bank has also
August from July, as per release of October by
provided aggressive monetary stimulus, with
government statistics agency IBGE. Of the 27
nine straight interest rate cuts that brought its
industrial sectors surveyed, 20 expanded in
benchmark rate to an all-time low of 7.5 percent.
August from July, including foods, tobacco and
Production gained in August due partly to rising
chemicals. Signs of broader growth came from
auto output as consumers took advantage of a
HSBC's Purchasing Managers' Survey (PMI)
tax break expected to expire that month. The car
index for the month of September, released on
industry is one of the most important in Brazil,
Monday, with the first rise in output since March.
accounting for nearly a fifth of manufacturing. 
Economic and Commercial Report
BRAZILIAN ECONOMY
September Trade Surplus of US$2.5 Billion
B
razil in September posted a trade
1.2% at US$168.870 billion. Despite the year’s
surplus of US$2.557 billion on exports
reduced surplus, the numbers are far better than
of US$19.999 billion and imports of had been pre¬dicted at the start of 2012 when
US$17.442 billion. The month’s exports fell
many analysts were projecting a surplus of under
5.1% on a daily average versus September 2011
US$12 billion.
while im-ports declined by 4.6%. For the year,
In September, exports of manufactured
the country’s surplus now totals US$15.727
goods
rose
2.9%
billion, down 31.8% compared with the first nine
Ship¬ments
months of 2011. Exports have fallen by 4.9%
however, fell 15.6% and exports of basic products,
to US$180.597 billion and imports are down by
including minerals, declined by 7.9%.
of
over
September
semi-manufactured
2011. goods,
Brazil loses only to India in global trade confidence index
B
razil ranked second in a global ranking
showed a drop in confidence levels in developed
of trust prepared by Regus, a company economies and the developing world. In the that offers business solutions, despite
second pack, however, the decrease was more
its dropping of 15 points as compared to April.
discreet. In the Brazilian scene was no difference
According to the Business Confidence Index
in perception for trade between the different types
released on Monday, based on interviews with
of companies. Small recorded 127 points in the
more than 24,000 executives from 95 countries,
confidence level, while large were more optimistic:
Brazil ranked with 133 points, second only to
149 points. Compared to April the percentage of
India. According to the survey, which presents
firms that reported increased profits fell slightly
a profile of the Brazilian scenario in October,
from 71% to 69%. Regarding the measures
Brazilians were also more confident than the
taken by the Brazilian government in recent
global average, which was two points lower
months to stimulate production, 56% of business
compared to April: 11 points. Germany, Mexico
entrepreneurs said that they were satisfied with
and Canada are just below Brazil’s index, which
the actions of the Brazilian Government. www.indianembassy.org.br
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BRAZILIAN ECONOMY
Moody’s Unlikely to Give Brazil Upgrade in December
A
lthough risk rating agency Moody’s Brazil continues to face fiscal difficulties which will review its classification of Brazil
he attributed to excessive spending by the
in
the
government. Brazil’s rating today is Baa2 with a
This was
positive outlook but this is expected to remain
the impression left by Mauro Leos, Moody’s
unchanged in the agency’s December review.
December,
it
is
unlikely
coun¬try will receive an upgrade.
top analyst for Brazil in comments before a conference in São Paulo. According to Leos,
Brazil Charged with Protectionism before WTO
B
razil was subjected to a day of
new auto regime also came under attack for
accusations of protectionism before
raising excise taxes on imported cars. Brazil’s
the World Trade Organization on
representative Márcia Donner defended the
Oct. 1. Representatives of the United States,
government’s poli¬cies, arguing that the 4G
the European Union and Japan questioned
rules were created to improve the country’s
recent policy decisions that have prejudiced the
competitiveness and the higher taxation for
exports of these countries. The government’s imported cars was designed to compensate for
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mobile phone policy was criticized for requiring
the negative impact of the appreciation of the
that 60% of the content in fourth generation
real. For the moment, the US, EU and Japan are
cellular phones be composed of products and
merely questioning Brazil’s policies and no formal
technology made in Brazil. The government’s
challenges have been filed before the WTO.
Economic and Commercial Report
investments
Oi To Invest R$1 Billion in 4G Technology Phone
company
Oi
cities that will host the Confederations Cup soccer
announced that it will
championship, a prelude to the 2014 World Cup.
invest R$1 billion (US$495 On 1st October, Oi installed five 4G transmission million)
in
its
fourth antennas in Rio de Janeiro. The com-pany said
generation mobile phone that by the end of the year it will have set up network
between
now
trial transmission in São Paulo, Brasília and
and 2015. Brazil’s mobile operators are facing an
Belo Horizonte. This month, Oi is expected to
April 2013 deadline to set up 4G service in the six
announce its selection of technology suppliers.
Health Insurance Giants come together
T
he
largest
health
insurer
in
the
biggest health insurer and hospital operator.
UnitedStates, UnitedHealth Group Inc.,
UnitedHeath will pay US$4.9 billion for its
announced it has reached an agreement
90% stake in Amil. The purchase still must
to buy 90% of Amil Participações S.A., Brazil’s
be
approved
by
Brazil’s
regulators.
Brazilian Low-cost Gol airline purchases 60 Boeing 737 Max in a US $ 6billion deal
U
S manufacturer Boeing announced in the first week of October that it sold 60 aircrafts to Brazil’s Gol Linhas
Aereas Inteligentes, comprising the largest order ever from a single airline in South America. All 60 of the airplanes will be the 737 Max model, at a value of about 6 billion dollars at list price. www.indianembassy.org.br
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investment
Foreign investment in Brazilian Automotive Sector flourishes on the back of Local Content regulations implemented by the Brazilian Government:
G
erman auto manufacturer Volkswagen
as the company had at one stage planned to
(VW) has announced that it is
import completely knocked down kits (CKDs)
expanding its factories in Brazil in and assemble them in the country. Under Brazil’s
an effort to offset ongoing losses in Europe.
new legislation, however, such plans would not
VW plans to invest EUR 3.4bn (US$4.4bn) in
meet the minimum local content requirements,
Brazil, upgrading its model line-up and factories.
and would, as such, face higher import duties.
This will include EUR126mn (US$164mn) at
According to Brazil’s auto association Fenabrave,
its component plant in São Carlos to expand
BMW sold 4,308 units in the first nine months of
production to 4,800 engines per day, from 3,800
2012, giving the company a market share of 0.2%.
now. During the first nine months of 2012, VW’s
Japanese supplier Nitto Denko Corporation
sales in the county increased 9.6% year-on-year
has announced it will invest JPY1,400mn
(y-o-y), to 482,085 units, while sales in the wider
(US$17.7mn) to build a new manufacturing site in
passenger car segment increased 7.2% y-o-y,
Sao Paulo, Brazil. Suppliers will continue to invest
to 2,052,049 units. A number of companies
“
have invested in Brazil across the supply chain on the back of this strong sales outlook. In the first nine months of the year, VW’s sales in Europe declined 1.2% y-o-y to 2,311,410 units, while sales in the wider passenger car market decreased 7.6% y-o-y, to 9,368,327 units. Premium German auto manufacturer BMW has announced that it is to build a production
A number of companies have invested in Brazil across the supply chain on the back of this strong sales outlook. in Brazil as original equipment manufacturers
facility in Brazil. Clearly, Brazilian government’s (OEMs) produce in the country on the back of
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local content requirement for vehicles is paying
government incentives, strong domestic sales,
dividends. There had been ongoing negotiations
and the potential for the country to serve as an
over the government’s local content requirements,
export hub. Construction of the new plant is to
Economic and Commercial Report
from international auto manufacturers. Nitto
completed by December 2013. Until then Nitto will
says this investment may lead to further
continue importing to Brazil from its production
developments in its other business areas,
facility in Mexico. The company has chosen to
hinting that Brazil may become a production
produce in Brazil thanks to the introduction of
hub for exports across Latin America.
investment
begin in February 2013, and is expected to be
local content requirements for automotive goods in the country, in addition to ongoing investment
Japanese Investment into Heavy Industries in Brazil grows:
T
he recent issuing of a US$1bn loan
financing is being given in the context of a 2005
from the Japan Bank of International
Memorandum of Understanding (MoU) between
Cooperation and the Bank of Tokyo- JBIC and Petrobras, which seeks to facilitate
Mitsubishi to Petrobras is part of a broader trend the greater participation of Japanese industry of deepening Japanese-Brazilian trade relations,
in Brazilian energy projects. One example is
especially in terms of
growing Brazilian interest
Japanese investment into
in Japanese shipbuilding
Brazilian heavy industries.
technology, which has
In particular this loan
seen the Ishikawajima-
for
technology
Harima Heavy Industries
will contribute to more a
group provide technical
more efficient Brazilian
services to the country’s
energy sector, while also
Estaleiro Atlântico Sul
green
supporting Japanese environmental priorities.
(EAS) and Jurong Aracruz shipyards. Indeed, this
The funds will be allocated to two projects - a is part of a broader trend of improved Japaneseco-generation plant at the Comperj refinery and
Brazilian trade relations in recent years, including
a flaring gas reduction project in the Campos
an increasing flow in Japanese investment into a
Basin - with the overarching goal of reducing the
number of industries from mining to automotives.
company’s greenhouse gas emissions. JBIC’s www.indianembassy.org.br
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FOCUS STORY
Focus:
Brazil’s Banking Sector
C
entral Bank of Brazil released
fall to 17.5% from 22.7% the previous year.
report on 26th October that
Brazil´s government has finally decided that
confirmed
loans
era of high profitability for the banks should end.
in Brazil´s banking system which has grown
In an interview in the O Globo newspaper earlier
by 15.9% to reach 2.23 trillion reais (1.1 trillion
this month, Finance Minister Guido Mantega
USD) from last year. Just when you thought
said all banks should be able to cut loan costs
that it can´t get worse for Brazilian Banks,
by as much as half, given the economic stability
bolt from the blue is always around the nook.
of recent years. And he definitely meant what
For years, Brazil's biggest banks posted
he said because the Brazilian Central Bank
return-on-equity, or ROE, levels well above
has been systematically reducing its Selic base
20%. ROE is a key measure of profitability.
interest rate, which now stands at 7.5%, since
But
quarter
last year when the rate peaked at 12.5%. This
awakening.
resulted into reduced net interest spread that is
Brazil's two largest private banks by
difference between loan rate and deposit rates.
brought
the
outstanding
a
third rude
assets, Itau (ITUB) and Banco Bradesco (BBD),
The
government
also
controls
two
saw ROE levels reaching their lowest points
large banks viz. Banco do Brasil and Caixa
since the turbulent 1990's. Bradesco posted
Economica Federal. By reducing their own
an ROE of 19.9%, down from 22.4% for the fees, the big government banks have forced third quarter of 2011, while Itau saw its ROE
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Economic and Commercial Report
their private sector competitors to do the same
been piled into new technologies, as banks seek
more reduction in the profitability for the banks.
to automate processes in an effort to reduce
Banking
Federations
are
not
subtle
costs. But if we take the word of the government,
in expressing their woes. "The reduction of
writing on the wall is clear for banking sector in
bank rates is very welcome, in itself, but it
Brazil: Gone are the days of high profitability.
FOCUS STORY
or risk losing customers. This has resulted into
must be based on solid criteria," said Roberto Troster, former chief economist at Brazil's banking federation, Febraban. "Instead of using public banks to force the issue, it would be better for the government to reduce taxes on loans to the benefit of all customers of all banks." According to Mr. Troster, taxes alone represent about 20% of the costs associated with taking out a loan while provisioning against delinquencies adds another 35%. Like they say, even the darkest cloud has some silver lining, banking sector optimists are pointing at few reliefs in near future. a.
Prospects
of
economic
growth
rate of Brazil going up to 4% next year would result into fewer delinquencies and would reduce the pressure on the banks. b. They are expecting slight inflationary
"
The reduction of bank rates is very welcome, in itself, but it must be based on solid criteria," Roberto Troster, former chief economist at Brazil's banking federation, Febraban.
tendencies that would make Central Bank to
allow
banks
to
increase
the
rates.
Meanwhile banks have moved forward with strategy of looking for new customers and cutting costs. Huge amounts of money have
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SPECIAL ARTICLE
The current context
of the Brazilian oil and gas industry The new Regulatory Framework: perspectives, opportunities and challenges. Nearly 100 years ago it was said the oil reserves in the world would last for only 40 years; Less than 50 years ago it was believed Brazil had no great petroleum potential; Less than 20 years ago it was believed the natural gas discoveries were not economically viable; Less than 10 years ago the pre-salt was not explored in Brazil and it was believed the Santos Basin would not have the same potential as the Campos Basin
Originally published by T&B Petroleum.
Claudia Rabello g r a d u a t e d in Social Communication at the Catholic University of Rio de Janeiro (PUC-RJ), Post Graduated in Business Administration and Marketing at the Brazilian Institute of Capital Markets (IBMEC) and Post Graduated in Oil and Gas Management at the Federal University of Rio de Janeiro (UFRJ/COPPE). Work at the energy sector for 13 years and is currently the General Manager of Licensing Rounds Promotion at the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP), which is the area responsible for the Bidding Rounds and in charge of the qualifications of companies interested in joining the E&P industry in Brazil by means of Bidding Rounds or farm in.
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How many myths will still fall down thanks to the evolution of technologies and the continuing activities of exploration and production (E&P)? Exploration activities in blocks awarded in the Bidding Rounds promoted by the National Agency of Petroleum Natural Gas and Biofuels (ANP) enabled Brazil to reach the pre-salt reservoirs; discoveries of such magnitude rarely seen in the world which placed Brazil in a new level at international geopolitics. Consequently, the country is currently experiencing such a particular moment of its history linked to oil and natural gas. This new paradigm has put Brazil in the spotlight and brought forth the necessity to review the National Regulatory Framework for oil and gas. In 2008 Brazil began to review the Regulatory Framework and as it deals with issues of national wealth and great complexity, only in 2010 the laws were enacted. H o w e v e r Figure 1- Brazilian sedimentary basins
Economic and Commercial Report
SPECIAL ARTICLE
Figure 2 – The institutional evolution of the E&P in Brazil there is still no definition on the distribution of the pre-salt royalties among the Federal Union, states and municipalities. It is not easy to understand the reasons that led Brazil to stop the Bidding Rounds or why the new Regulatory Framework has not been fully defined yet. The point is: Brazil’s necessary pause should not overshadow the country’s huge energy potential and even businesses opportunities that are present today and those that will arise in the coming years Brazil is a country of 8.5 million square kilometers, nearly 200 million people and it’s
tidal, wave, among others. Not to mention the sedimentary area: there are approximately 7.5 million square kilometers - 5 million onshore and 2.5 million offshore - a giant area where studies and discoveries in the pre-salt layer indicate great potential for hydrocarbons. Besides brazilian privileged geographical and geological environment, there are no wars, terrorism, nor religious, racial or political conflicts and it possesses a reliable Regulatory Framework: the rules are clear and the E&P signed contracts are respected. The institutional context is stable and very favorable. Since the abolishment of Petrobras’ monopoly in 1995, ANP has promoted 10 Bidding
currently the sixth largest economy in the world. With US$ 377 billion in international reserves and Investment Grade status, there is economic stability and, additionally, calling for different energy sources. Considering Brazil’s experience in ethanol production since the 70s and the land available for agriculture, the perspective regarding biofuels (biodiesel and ethanol) is very positive. As a country with continental dimensions and a huge coast, Brazil opens up possibilities for other renewable energies such as solar, wind,
Rounds and as a result, there are currently 77 concessionaires in the Brazilian E&P industry responsible for producing more than 2 million bbl of oil and 70 million m³ of natural gas per day. Importantly, 50% of the concessionaires currently in Brazil are from 20 different countries, reinforcing the fact country is considered to be a prime destination for investment. However, only 4.5% of the Brazilian sedimentary area is under concession for E&P activities. Today there are 295 blocks in the exploration phase and 418 fields in production. www.indianembassy.org.br
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SPECIAL ARTICLE
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Petróleo S/A., and Law No. 12,276/10 that defined the Onerous Assignment of Rights to Petrobras. The Strategic Areas will be those holding the same characteristics as the Pre-salt Polygon: high potential and low exploratory risk. The House of Representatives is still discussing Bill No. 2,565/11 regarding the distribution of royalties. This is the last spot open for the full definition of the new Regulatory Framework. The new model provides different types of contracts: PSC for future contracts in the Pre-salt Polygon, located in the southeast of the country, representing only 2.3% of Figure 3 - Pre-Salt Polygon - 2.3% of the Brazilian the Brazilian sedimentary basins; and the sedimentary area Concession Contract for blocks already granted in this area – a good example of the respect for contracts – and for the rest of the sedimentary areas, almost 98% of the Brazilian basins. The new model also includes the Onerous Assignment of Rights, signed with Petrobras specifically for 5 billion bbl. The duties of ANP, Pré-Sal Petróleo S/A. and Petrobras are absolutely clear in the Production Sharing System: ANP has maintained its functions of promoting Bidding Rounds, monitoring contracts and inspecting activities; Pré-Sal Petróleo S/A. is the representative of the Federal Union in consortia, mainly in economic issues (– and will Figure 4 – Franco & Libra structural map approve the cost oil); and Petrobras will be the Brazil has proven reserves of 15 billion bbl only operator with a minimum share of 30%. This model conciliates the interests of the of oil and nearly 450 billion m³ of natural gas and, taking into account the current discoveries Federal Government, oil companies and the in pre-salt, the oil reserves may jump to Brazilian society as it keeps the Pre-Salt Polygon 30 billion bbl - a new paradigm for Brazil. open to the participation of several Brazilian and The high potential and low exploratory risk also foreign companies, but the Federal Union observed in the Pre-salt Polygon has led Brazil and Petrobras have their participations ensured. In order to enhance the value of the Brazilian to enact three new laws within the Regulatory Framework for the oil and gas industry: Law Pre-salt, in 2010, two wells were drilled in the No.12,351/10, which introduced the Production Polygon based on studies of theAgency’s technical Sharing Contract (PSC) for the Pre-salt Polygon and staff. As a result, Brazil reached giant discoveries: Strategic Areas and also created the Social Fund; Franco and Libra. Interestingly the blocks that Law No. 12,304/10, which created the Pré-Sal encompass Franco and Libra were returned to
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Economic and Commercial Report
Figure 5 - 11th Bidding Round
Figure 6 - Analogies between the coasts of Africa and Brazil
ANP in Round 0 and were offered by the Agency in the 6th Round, but no company was interested. Currently, these two discoveries represent an estimated volume of 10 billion bbl of oil. It reinforces the theory that the Stone Age did not end due to the lack of stones and the Oil Era will not end due to the lack of hydrocarbons. Evolving technologies in E&P enable new discoveries and the best use of the reserves. Franco was used for the Petrobras Capitalization and Libra should be the area offered in the first Pre-salt Bidding Round. The only offer criterion for the Auction will be the percentage of oil addressed for the Union. The Signature Bonus, Local Content and Exploration Program will be defined in Tender Protocol. The first Bidding Round of Pre-salt is eagerly awaited by the
SPECIAL ARTICLE
market but it is worth remembering the opportunities in Brazil go far beyond Pre-salt. The 11th Bidding Round (with areas just outside the Pre-Salt Polygon) focuses on the Brazilian Equatorial Margin and includes 174 blocks, half onshore and half offshore, in mature basins and new frontiers - a way to spread the benefits of oil and gas activities among the many Brazilian states and municipalities. There are opportunities for small, medium and large companies. One reason to focus on the Equatorial Margin is the analogy between the coasts of Brazil and Africa (Schiefelbein et al. 2000). As there were giant discoveries along the west coast of Africa, such as Jubilee Field in Ghana, it is believed the Brazilian Equatorial Margin has great potential. This Round was approved by the National Council for Energy Policy (CNPE) in 2011; otherwise the Government Resolution that authorizes ANP to perform the Auction has not been signed yet. Bill No. 2,565/11, currently under discussion in the Brazilian Congress, refers not only to Production Sharing Contracts, but also to the distribution of royalties relating to Concession Contracts. Considering the discussions have not ended and that the process involves several states and municipalities, new issues may arise; therefore new contracts should only be signed after the complete definition of the new Regulatory Framework. Importantly, the pause in Bidding Rounds was a consequence of the presalt discoveries, which made the review of the Regulatory Framework necessary. The Bidding Rounds are a way to reset exploration areas in Brazil. Based on current contracts, in 2016 there will be no blocks under exploration phase. The ANP is hiring exploratory activities throughout the country in order to better know the Brazilian oil and gas potential - strategic for all countries, and also to decentralize the www.indianembassy.org.br
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SPECIAL ARTICLE
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to the Local Content Policy in Brazil, defined by the Federal Government and executed by ANP, the concessionaires must hire a minimum percentage of goods and services from the domestic industry, therefore, significant part of this infrastructure will be produced in Brazil, which will be both a challenge and a great opportunity for the country. Commitment to Local Content was Figure 7 – Exploratory areas evolution required in all Bidding Rounds as one of the three bid offerings criteria used to define the bidding winners. Until the 4th Round, free local content offers were allowed, however, in the 5th and 6th Rounds minimum offer limits were stipulated and from the 7th Round on, ANP also set a maximum limit, needed to prevent unattainable Local Content percentage offered by companies aiming to ensure the block granting. In cases of deadlines and prices higher in Brazil than in the international market, the concessionaire may be released by the ANP to reach the Local Content on a specific item, but will still need to meet the global percentage committed to in the Auction. To be part of the Brazilian oil and gas industry companies must Figure 8 – PPA sedimentary basins be committed to the Local Content Policy. E&P investment, currently concentrated in the Note that since the abolishment of Southeast. The ANP’s Multi-Annual Exploratory the Petrobras’ monopoly, many newcomers Plan (PPA) is part of the Federal Government’s joined the Brazilian E&P. At that time the Growth Acceleration Program (PAC). The Plan infrastructure and suppliers of goods and foresees investments of almost US$ 1 billion in services were not sufficient to meet demand, 22 sedimentary basins in more than 15 states. there were no skilled workforce and not even Besides all the wonders of Brazilian mature regulation. Nevertheless, companies energy potential, there are challenges to be outperformed so well the difficulties that the faced in order to foster the development of the Brazilian oil and gas industry grew intensively oil and gas industry, such as: infrastructure, and the oil production almost tripled since 1995. workforce, technological innovation, supply of Taking into account the development of the goods and services, operational safety, among E&P activities, including the pre-salt, the economy others. Demand for goods and services in Brazil of scale in Brazil will allow companies to hire could reach US$ 400 billion by 2020. Brazil will goods and services in a very competitive way. have to invest heavily in infrastructure, not just 15 years ago the shipbuilding industry was platforms and FPSOs, but also supply boats, virtually bankrupt in Brazil and currently, as a pipelines, ports, shipyards, steel, etc. According consequence of the E&P activities, it is booming.
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Economic and Commercial Report
million and in 2011 it reached US$ 6.5 billion, a growth of more than 4,000%. As a consequence, the Program has invested in Brazil more than US$120 million in human resource development, including nearly 6,000 scholarships. Another opportunity in the current context ofthe oil and gas industry in Brazil is the unconventional gas. Its exploration is now a reality in Brazil and the peculiarities need to be reflected in the regulation. Currently, ANP is promoting studies in four sedimentary basins: Parecis, ParnaĂba, Reconcavo and San Francisco. In view of all of this, the country will need a great amount of money in this new context, so investments are welcome, both domestic and foreign. The expectation for concluding the new Regulatory Framework can bring anxiety to the market, however, when analyzing the perspective of Brazil, one can clearly see there are great challenges, but the opportunities are enormous and the results should be even bigger.
SPECIAL ARTICLE
Local content can be an opportunity for the country, for suppliers and for oil companies committed to the development of Brazil, which is ready to sow the seeds today and reap the benefits in the future. Comparing Brazil to other countries, the conclusion is it is a strategic partner. The country’s oil and gas potential is indisputable, there is demand and a huge market. Additionally, the economic context and the institutional environment are stable, the rules are clear and the contracts are respected. As investments in research and development contribute to the improvement of the Brazilian industry, in 1998 the ANP included the R&D Clause in the Concession Contracts. It obliges concessionaires of very profitable fields to invest 1% of their gross revenue on R&D in Brazil. Between 1998 and 2011, this percentage represented around US$ 3.5 billion. R&D contributes not only to the development of National industry, but technological innovation can also bring safety to E&P operations. The world is facing the challenge of conciliating development with environment. Operational Safety is an important issue in that context, there must be strict rules and intelligent monitoring systems to prevent increasing the number of accidents from the global intensification in E&P activities. Planning and partnerships are also very important. The ANP has signed agreements with the Navy that allowed the agency to increase the number of inspections in platforms and FPSOs. Today it is possible to hold up to 90 technical inspections per month. Aware that personnel training contribute to operational safety and also to the development of the industry, in 1999 ANP created the Human Resources Program (HRP / ANP). The PRH is funded by the R&D Clause and by CT-PETRO - a sectorial fund based on royalties revenue. In 1998 the revenue in royalties was US$ 142
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