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Rousseff out, oil sector awaits reform: Update

12 May 2016 22:52 (+01:00 GMT)
Rousseff out, oil sector awaits reform: Update

Rio de Janeiro, 12 May (Argus) — Foreign oil companies operating in Brazil are awaiting major reforms after president Dilma Rousseff was effectively suspended from office early today, followed by the investiture of vice president Michel Temer.

In a marathon session that stretched almost 20 hours, the 81-member senate voted by 55 to 22 to approve a request to initiate an impeachment trial against Rousseff on allegations of financial maneuvers intended to obfuscate the fragile state of the country's finances ahead of her 2014 re-election bid. She denies any wrongdoing, and she and her supporters call the impeachment campaign a coup.

Temer's ascendancy is widely seen as a first step toward lifting Brazil out of a deep political and economic malaise driven in part by a gargantuan corruption scandal centered on state-controlled oil company Petrobas.

Temer formally assumed the presidency today, after Rousseff received official notice of the senate's decision. The soft-spoken academic, who is himself among a slew of senior politicians accused of corruption, has a small window to adopt measures necessary for righting the country's finances and attracting investors.

In his first presidential address, Temer said Brazil must strive to recapture "economic vitality" and regain regional and international credibility. Without specifically mentioning plans for the oil industry, Temer said his goal is to encourage public-private partnerships and re-establish security for investors.

"We have little time, but if we have the will, it is enough to develop the reforms that Brazil needs," he said.

The interim president pointed to his cabinet reduction, from more than 30 minister during Rousseff's tenure to less than 25, as a proof of his austerity commitment. Although almost all of his new cabinet, comprised of a mix of politicians and seasoned technocrats, were sworn-in today, Temer has yet to announce his pick for mines and energy minister.

Brazil's GDP is expected to shrink by 3.7pc in 2016, almost the same as last year.

He faces intense opposition from Rousseff's Workers Party (PT), which has led Brazil for the past 13 years.

For the oil industry, the wish list includes a relaxation of strict local content rules that require projects to use locally sources goods and services; elimination of a legal provision that mandates a minimum 30pc operator role for Petrobras in all sub-salt projects; clearer and more flexible rules for oil transshipment in Brazilian waters; and reforms of upstream unitization rules.

The senate needed a simple majority to initiate the impeachment trial that requires Rousseff step down for up to 180 days. A definitive removal, which would allow Temer to serve the remainder of her term until 2018, requires a two-thirds vote, which the opposition appears to have.

In October 2014, Rousseff won her second four-year term by a narrow margin and has been fighting off the threat of impeachment ever since. Her removal is the second impeachment in the 31 years since Brazil returned to democracy after a more than two-decade military dictatorship.

Labor unions opposed to Rousseff's removal and the privatization agenda Temer is expected to pursue have threatened to launch a general strike that could hinder the transition government's efforts.

The labor union representing workers in Petrobras' transportation subsidiary Transpetro say it could launch a nation-wide indefinite strike as early as tomorrow, potentially disrupting fuel supplies. Petrobras was not available to comment.

Other oil workers unions have also been threatening a walkout that could impact Petrobras' upstream and downstream activities.