Perspectives on doing oil and gas business in Brazil
Rio Oil & Gas 2010
IAN WILKINSON
Director
PETROLINK SERVIÇOS LTDA
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
IAN WILKINSON
Director
PETROLINK SERVIÇOS LTDA
Secure data distribution for E&P – managing and tracking data between
operators, partners and contractors
ISO9001:2008 certified
Petrobras approved supplier
Petrobras contractor since 2001
Certified 99,6% local content
Currently on 15 rigs in Brazil, 170 worldwide
Specialists in witsml solutions
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Typical challenges facing UK companies coming to Brazil
•Language issues
•Physical distance - personal contact with Brazilian customers
•Brazilian local content levels
•Petrobras supplier approval and contracting bureaucracy
•Customs and import complexities
•Visa necessities for UK personnel
•Taxation traps
•Competition from local suppliers
•Overall sales and administration cost of establishing a business or developing the
market for products in Brazil
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
LANGUAGE
• Portuguese is the preferred language for all activities, except technical.
• English is widely understood, but an inability to sell and build client relationships
in Portuguese will have a significant impact on your rate of penetration into the
local market
• Countering this, the ability to communicate in English is a major benefit when
dealing with technical and purchasing teams headed by ex-pats.
It is vitally important to have access to Brazilian Portuguese speakers in any
serious attempt to do business in Brazil, whether they be agents, employees or
venture partners
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The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
CONTACT WITH CUSTOMERS
• Similar to many Latin cultures, Brazilian business draws heavily on personal
relationships.
• Incoming UK companies do not have the inherited family and career contacts in
the market that local suppliers benefit from
• Increasing travel costs means that giving the Brazilian market enough personal
attention by UK sales staff is increasingly costly
• Nothing happens quickly in Brazil. If your company is not regularly presenting to
clients in Brazil, the likelyhood of quick sales and growth diminishes drastically
A good agent, partner or local employee is almost impossible to do without
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Perspectives on doing oil and gas business in Brazil
Challenges
BRAZILIAN LOCAL CONTENT
• Most major offshore exploration and production developments come with a local
content percentage stipulation, both for equipment and services.
• Important that companies investigate local assembly and fabrication options
early
• Important that a means of invoicing in locally in R$ is established
• Tax pressures suggest that registering a local subsidiary or JV is often the best
route
• Unlikely that local fabrication will be cheaper – but some services may be able
to recruit local staff with lower wages than UK – but remember high
taxes+benefits on salaries
Information (in Portuguese) on local content certification can be found on the ANP
website: www.anp.gov.br
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The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
BRAZILIAN LOCAL CONTENT
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
PETROBRAS SUPPLIER APPROVAL
• Petrobras supplier approval, formerly relatively straightforward, is now a webbased process, with new areas – such as policies on social responsibility,
sustainable development etc. applicable to some types of company.
• This change accompanies a tightening up of qualification procedures and (in
many cases) a ongoing re-classification of supply categories.
• The core documentation requested is normally not much more than you are
used to in approvals from IOCs: legal; financial; technical & HSE - with a few twists
• Approval is SLOW. Rarely less than 6 months and often taking more than a year,
requiring repeated re-validation of documents – but stick with it!
But…..
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
PETROBRAS SUPPLIER APPROVAL
• Petrobras supplier approval is not needed for many categories of goods and
services.
• Sales to contractors by non-approved suppliers remain common. In this case,
contractors approved supplier procedures are applied
Agents, or local associations, can help by coordinating the approved supplier
process locally, but the forms still need to be filled in!
If only to provide “insurance” it is wise to get your firm on the Master Vendor List
Be warned, once qualified, you will be exposed to the Petrobras bidding process,
which is either electronic bidding through “petronect” or by traditional means.
Either way, that process is also complex and is a major impediment to business in
Brazil for UK firms without much local support.
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
PETROBRAS SUPPLIER APPROVAL
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
CUSTOMS AND IMPORT
• Brazil is notorious for difficulties and delays in importing goods
• Goods attract IPI tax, ICMS tax and Import Duty.
• Customs delays are the norm (but vary by location) & storage charges are high
• Temporary tax-free import (under REPETRO) is complex to administer. Standard
temporary import may be easier – especially for your client
• Consider bonded warehousing and the use of favourable import regimes and
locations (eg Vitoria FUNDAP)
• Always get the documentation right before shipping (try to pre-clear)
• If your goods have a Brazilian manufactured equivalent, and your customs agent
cannot prove otherwise expect higher import duties
• Running stock in bonded facilities is feasible for some businesses where
premium prices for rapid delivery apply
Thorough research of importation alternatives is crucial. Your customs agent must
be selected carefully
Ongoing favourable exchange rates make imported UK goods very competitive.
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
VISA REQUIREMENTS
• Visas are essential for any UK worker coming into Brazil. There is a certain
amount of time, paperwork and inconvenience in the UK or US involved in
successful issue of visas.
• Visas will take about a month to be issued, when you need one in less time you
will require “emergency” dispensation – so it is best to plan well ahead
• Contract a visa specialist “despachante” as this is a constantly changing area and
professional assistance (in all its forms) is needed.
• Cost around $1000 per visa (working visas, technical visas or crew visas) valid
up to 2 years. Always based on contracts, either with client or between local
subsidiary and parent company. An INPI registered technical services contract can
serve as the basis for visas for multiple employees or multiple client jobs
• The number of visas being issued is significantly higher in 2010 than 2009,
especially to the offshore sector – indicating a recognition of skills shortage
Note that vigilance at the airports is always high and entry is regularly refused
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
TAXATION
Tax planning must be the cornerstone of your strategy for Brazil. The tax regime
as a whole in Brazil is high – but good planning will bring corporate income tax to
levels lower than those in the UK
Goods - sales taxes – ICMS 18%, IPI (varies) 5%
Services - ISS 5% (or less in some municipalities or concessions)
Also “turnover” taxes PIS+COFINS 4.65% of gross (3.65% for PPR**)
Basic profit tax is 15%, with additional 9% social tax, plus additional 10% on
income of over R$240k p/a – ie 34% total
Direct payments abroad attract 25% witholding tax
Company dividends are not taxed, even if remitted abroad
**Service companies can opt for presumed profit regime, where taxes are paid on
an assumed profit equivalent to 30% of billed value.
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
LOCAL COMPETITION
• Brazilian quality - Often, Brazilian firms are viewed as employing low-tech, high
man-power solutions, with lower-than-UK levels of quality and training. However,
pressure from purchasers like Petrobras have improved standards with insistence
on ISO, HSE-MS and training. This is creating a more mature domestic service
sector with quality-price-local content at the level that Petrobras is seeking.
• Local knowledge – local companies always have the major advantage of knowing
how to work with the contracting and bidding system, and know how to deal with
corruption as it arises. Recognize that corruption does exist in Brazil. This needs to
be recognized from the outset, and appropriate policies adopted.
Local labour taxes, labour regulations & high wages (driven by shortage of local
trained personnel) & a strong R$ make locally supplied services expensive when
compared to expats.
Likewise locally manufactured goods are often unable to compete on price with
similar quality imports.
www.petrolink.com
The Independent Data Distribution Company
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© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
Challenges
COST OF DEVELOPING BUSINESS
• Business in Brazil demands higher levels of administration effort than is normal
in most markets. Company administration, accounts-tax administration, currency
movements, stock administration and payroll administration all consume large
amounts of time and cost.
• It often takes much longer to break into the market in Brazil than in other
countries, but once you are established as a supplier, Petrobras is a loyal customer,
and typically prefers to renew trouble-free contracts.
• Be aware of this long lead time to break-in, and the costs involved.
Reducing this lead time using a well planned local partnership or by contracting a
good agent, is clearly a strong strategy
Experience shows that major investment, without first securing contracts, is often
a risky strategy.
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International
Perspectives on doing oil and gas business in Brazil
CONTACT
I am happy to hear from you and help answer any questions you may have
[email protected]
Petrolink Serviços Ltda
Rua Voluntarios da Patria 45, Salas 407-408
Botafogo
Rio de Janeiro
Direct line 021-2226-6383
Cel 021-8106-0744
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www.petrolink.com
The Independent Data Distribution Company
© 2010 Petrolink International