Management of pre-salt oil royalties: Wealth or poverty for Brazilian coastal zones as a result?

Abstract

Brazil is the largest country in South America in terms of both area (8,515,767,049km2) and population (203,912,619 of inhabitants). Over the last decade, it has also become one of the world׳s fastest-growing economies; today, it is the world׳s seventh largest economy and plays a substantial role in the international oil and gas production market. The recent discovery of the huge amount of petroleum in the oceanic pre-salt layer can position Brazil as the world׳s fourth largest petroleum producer by 2030. As a result, the country is facing the challenge of finding a non-predatory development strategy for the sector, especially one that will protect the coastal environments and local communities. The Brazilian system of royalties, initially thought to counteract negative impacts, has encountered social and governmental disapproval, and has subjected the communities affected by the oil findings to considerable uncertainty and increased disputes over the fairness of the returns from the use of this resource. Both national and international experiences have shown that when mismanaged, royalties from oil production create an economy that is heavily dependent on oil, and often lead to fiscal inefficiency and corruption. These effects happen because government ownership of the oil resources alone does not guarantee social and economic development or higher quality of life for local people; this part of the population is generally the group that is harmed by the activities. The key is in defining the implementation and management frameworks for the efficient utilization of oil resources. The development of the Brazilian oil industry should account for the fact that these activities are predominantly carried out in the coastal zone, a region whose ecological and economic relevance was recognized by the Brazilian Constitution of 1988, which gave it the status of a national heritage site. This study discusses Brazilian practices in royalty management and compares them to international experiences in terms of legal, social and economical aspects. We also provide a historical summary of the use of oil resources in Brazil, advocating for responsible utilization that includes obligatory compensation for social or environmental impacts on coastal and oceanic zones.