Oil Majors Fight Back Against Brazil’s Surprise Export Tax
(Bloomberg) -- Five European oil majors have drawn a line in the sand with Brazilian President Luiz Inacio Lula da Silva’s administration over a surprise oil export tax that raises the specter of resource nationalism in Latin America’s biggest oil producing country.
Most Read from Bloomberg
More Eye-Drop Products Recalled in US for Possible Contamination
Companies Are Telling Us the Real Reason They're Still Raising Prices
Rookie Traders Are Earning $400,000 in One Unlikely Markets Hub
In Biden’s Tax-the-Rich Budget, Capital-Gains Rates Near 45%
The Brazilian subsidiaries of Shell Plc, TotalEnergies SE, Repsol SA, Equinor ASA and Galp Energia SGPS SA filed an injunction against the 9.2% levy that Lula’s administration announced last week to help shore up public finances and counter a weak economy.
The four-month tax was announced without significant consultation with the industry, brings uncertainty to future investments and makes Brazil’s oil industry less competitive, Shell said in an emailed statement. There needs to be “absolute respect” for contracts to have long-term and robust investments in the country, Equinor said in a statement.
A court filing reviewed by Bloomberg listed the other three oil producers in the action. Repsol, Galp and Total didn’t immediately respond to requests for comment.
Read more: Brazil’s Haddad Intensifies Calls for Rate Cuts After Oil Tax
Brazil historically has stood out in Latin America for offering regulatory and contract security in a region better known for oil expropriations and tax hikes. In the past Brazil has left existing contracts in place when it has overhauled oil regulations, which only affected future projects.
The move also sends a signal that Lula is less interested in reaching a consensus with the business community than he was during his first two terms from 2003 through 2010. Shell said it is too early to speculate on the potential impacts of the tax because it could be overturned or extended by Brazil’s Congress.
“This measure, which was announced with no significant consultation with the industry, brings uncertainty to new investment decisions, negatively impacting the country’s competitiveness in the upstream sector – one where Brazil carries significant geological potential,” Shell said.
Petroleo Brasileiro SA Chief Executive Officer Jean Paul Prates, a close ally of Lula who meets regularly with the president, said Wednesday at an oil conference in Houston the export tax wasn’t a smart way to resolve Brazil’s fiscal problems, and the state-controlled company will probably export less as a result. He expressed confidence the tax would expire at the end of June, adding Petrobras has no plans to file an injunction.
--With assistance from Lucia Kassai.
(Updates to include additional companies in lawsuit, additional comments)
Most Read from Bloomberg Businessweek
Health-Care Oversight Rule Changes Create Legal Risk for US Employers
Even Wealthy Landlords Are Skipping Payments on Office Buildings
America’s $52 Billion Plan to Make Chips at Home Faces a Labor Shortage
Business Schools Soften Admissions Requirements to Scoop Up Laid-Off Tech Workers
Google’s Plan to Catch ChatGPT Is to Stuff AI Into Everything
©2023 Bloomberg L.P.