Brazil’s oil, gas reforms likely to continue under new President

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Brazil's President-elect Jair Bolsonaro

Brazil’s oil and gas industry is expected to continue seeing reforms boosting both investments and production, as President-elect Jair Bolsonaro puts an end to 16 years of labor party rule.

The so-called far-right candidate won Sunday’s second round of voting against leftist Fernando Haddad of the Workers’ Party by a 55%-45% margin, Kallanish Energy reports.

No major announcements were made by Bolsonaro in terms of energy policies Monday, but based on his campaign plans, recent efforts by Michel Temer’s administration luring investments from big oil companies are likely to continue.

The President-elect has said he supports the divestment plan state-run oil firm Petrobras is undertaking, but will limit foreign ownership of “strategic areas” such as oil and gas exploration, mineral extraction and power generation. Instead, he aims to reduce the government’s monopoly in areas of refining, distribution, logistics and transport.

Promising to revamp the economy, open the Brazilian market and work closely with the U.S., Bolsonaro has also criticized China’s strong investment presence in Brazil, particularly in the so-called strategic areas.

The President-elect indicated he would follow the steps of Donald Trump and withdraw Brazil from the Paris agreement, but last week denied this would happen. He has also said he would review the country’s production-sharing contracts for the pre-salt fields and supported a government-led inquiry into management at Petrobras.

Under economic tutelage of Paulo Guedes — a free-market economist who could potentially become Brazil’s next finance minister — Bolsonaro’s liberal economic message, including proposals to slim down Brazil’s state bureaucracy and push through various privatizations and public spending cuts, has gained the support of both voters and the global markets.

“Our initial assessment of the Bolsonaro administration is that it will have a pro-business stance, focused on enhancing the country’s competitiveness,” said Ronaldo Patah, a Brazil strategist at the UBS Wealth Management. “We expect more clarity on the new government’s plan for social security reform and how to address the fiscal deficit. Up to now, its message has been ambiguous.”

Bolsonaro’s controversial nature could lead to some surprises ahead, but some market sources claim a return of the labor party to power would have definitely represented a “step back” and would likely to have led to a slowdown in the economic recovery that began last year under the temporary Temer administration, following the impeachment of Dilma Rousseff.

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