meauring local content - brazil, 2006
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Global Local Content Summit forOil and Gas 2006
London, UK
Oswaldo A. Pedrosa Jr.
National Organization of thePetroleum Industry - Brazil
October 2006
Local Content Initiatives and
Measuring Tools in the BrazilianPetroleum Industry
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Attractiveness of the O&G Sector
The Oil & Gas Sector has to becompetitive internationally
Attractive resource bases upstream
Internal or regional market opportunities downstream
Adequate fiscal regimeStable and transparent rules
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Assurance of sufficient conditions toattract foreign investments
Internal economic constraint to develop theO&G Sector
Need to attract investments to compensatethe lack of domestic investment
Internal pressure to develop the local industry
for supplying the O&G projects
Trends on the development of
O&G Sector
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Potential for employment creation
37,100 jobs (direct, indirect, and income effect) pereach US$ 1 billion invested in O&G projects (*)
Local content = 55%
No. job creation as local content
Employment Creation
Case of Brazil
(*) 2001 UFRJ Study for ONIP
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Comparative Advantagesfor Buying Locally
Easy access of products and services
Use of local currency
Ease of after-sales services
Fast substitution of spare-parts
Use of local language
Simplified logisticsReliability in delivery time
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Local Industry Development
Size of the O&GSector
Existing TechnicalCapability
Local IndustryCapability
GovernmentalPolicies
Driving Forces forBuying Locally
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Local Industry Development
Size of the O&GSector
Existing TechnicalCapability
Local IndustryCapability
GovernmentalPolicies
Driving Forces forBuying Locally
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Other Companies
Investment Plan
(2007-2011)US$ 25 Billion
Upstream54%
Downstream31%
Corporate2%
Distribution3%
Gas andEnergy
10%
Petrobras
Investment Plan
(2007-2011)US$ 75 Billion
Upstream48%
Downstream36%
Gas and Energy
8%
Distribution8%
Size of the O&G Sector
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Local Industry Development
Size of the O&GSector
Existing TechnicalCapability
Local IndustryCapability
GovernmentalPolicies
Driving Forces forBuying Locally
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Technical Capability
Experience in engineering design andproduct development.
Human resources availability foroperation, engineering and management.
Incentive programs for R&D.
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Local Industry Development
Size of the O&GSector
Existing TechnicalCapability
Local IndustryCapability
GovernmentalPolicies
Driving Forces forBuying Locally
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Local Industry Capability
Well Established Local Industry
Experience in manufacturing products andserving the upstream and downstream
segments of the O&G Industry
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Equipments For Offshore Production Development
Wet Christmas Tree
BOP and Control Unit
Local Industry Capability
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API, ASME/ANSI, DINSpecifications
150 to 5000 psiUp to 600C
P & T range
to 42Sizes
Standard steel, stainless steel, andsuperduplex steelMaterials
Manual, pneumatic, and electrical Actuato rs
Globe, ball, gate, and butterflyvalves, safety and control valvesTypes
Welded Steel Pipe Manufacturing
Product ion capacity: 2.1 millions tons per year(longitudinal and spiral welded pipes)
Size: up to 100 O.D.
Specifications: API 5L, API 2B, API 5CT, ASTM,NACE, DIN 2440, AWWA, BS1387
Local Industry Capability
40 Manufacturers registered in ABIMAQ
Valves Manufacturing
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ISO 2858, ANSI B73.1, API 610, NFPA-20, API 614, API 682Specifications
Up to 15.000 HPCapacity
1 to 60Sizes
Standard steel, stainless steel, duplexand superduplex steelMaterials
Pressure, temperature, flow rate and
vibration
Monitoring /
Automati on
Centrifugal pumps and positivedisplacement pumpsTypes
38 Manufacturers registered in ABIMAQ
Local Industry Capability
Pumps and Motor-Pumps
Drivers manufactured in Brazil:
Electric induction motors
Diesel motors (up to 500 HP)
Steam turbines
Pump Manufacturing
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Local Industry Capability
Engineering Design Construction and Assembly
Equipment Manufacturing
Instrumentation and Control Technical Services
Modules forOffshore Top Side
Facilities
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Local Industry Capability
Pressure vessels
Storage tanks
Reactors
Fired heaters
Boilers
Heat exchangers
(ASME and API Specifications)
Equipments for Processing Plants
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Local Industry Development
Size of the O&G
SectorExisting Technical
Capability
Local IndustryCapability
GovernmentalPolicies
Driving Forces forBuying Locally
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Governmental Policies forLocal Industry Development
Requirements for buying locally
Local ContentCommitment
ANPs rules for localcontent commitment
PETROBRAS requirementsfor units construction
Primary objective Increase in localemployment and wealth
BNDES financingrequirements
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ANPs Rules for Local Content
Regulations establishing requirements forfull and fair opportunities for local suppliers
Local content commitment established in theConcession Agreement
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Requirements for Full and Fair Opportunities
for Local SuppliersNeed to include local suppliers in the vendors list
Provide same technical specifications for all suppliers
Accept equivalent specifications when applied
Require same delivery time for all suppliers
No preferential treatment to Affiliates
Get knowledge about the Brazilian industry capability
Require full and fair opportunities for local suppliers tosub-contractors
ANPs Rules for Local Content
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Bid Round 1 to 4: Local content commitment: 15 % Signature bonus: 85%
Bid Round 5 and 6: Local content commitment: 40% Signature bonus: 30% Minimum Exploration Program: 30%
Bid Round 7: Local content commitment: 20% Signature bonus: 40% Minimum Exploration Program: 40%
ANPs Rules for Local Content
Weighting Factors for Judging the Bids
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ANPs Rules for Local Content
Industry perception on the local content regulation
Consequences:
Unfeasible to be effectively implemented
Potential for conflicts involving the players in the O&G Sector
Regulatory uncertainties affecting the attractiveness of the Brazilian O&G Sector
Highlyprescriptiveregulation
Enforcement actions not feasibleto be implemented because of
the lack of adequate legal framework
Local content requirementsestablished individually for
a large number of supply itemsin the E&P projects
High complexity of the rulesfor verifying
local content commitment
Current Situation
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Governmental Policies for
Local Industry Development
PROMINP Governmental Program for the Development of the
Brazilian Industry serving the O&G Sector Started in 2003 by the Ministry of Mines and Energy (MME) Coordinated by PETROBRAS
Participation of institutional representatives from the supplychain and from the operating companies
Objective
Maximize the participation of the Brazilian industry in supplyinggoods and services for the O&G projects in Brazil and overseas,on sustainable and competitive basis.
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Values of materials andequipments directly imported
by the main contractor ,including importation tax
Values of materials andequipments directly imported
by the oil company , includingimportation tax
Values of imported mats. andequipts. purchased by the
main contractor in the localmarket, excluding internal tax
Values of imported mats. andequips. purchased by the oilcompany in the local market,
excluding internal tax
Values of foreign servicesneeded for the project
X
Y = total value of the project, excluding internal tax
100 xYX
- 1 LC
= Metrics based on
ad valorem criterion
Check on values of imported components
Measuring Local Content
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Topside construct ionLC min = 60%
TG module construc tionLC min = 75%
Turbo generatorsLC = 0%
TC module construc tionLC min = 75%
Gas compressorsLC = 0%
Hull conversion
Usually LC = 0%
Measuring Local ContentPETROBRAS minimum requirements on local content
for production platform construction
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BNDES
Suppliers ofGoods and
Services
EPC PETROBRAS
Certifier
Auditor (ONIP)
Special Committee (PETROBRAS/BNDES)
Players in the Local Content Assessment
Measuring Local Content
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Main Contractor
80,0Structure Integrator / Brazil
0,06,0
2,6
100,0 55,1
3,2
Compressors 6,2 0,0 0,0Manufacturer/Overseas
TC Module
2,9 85,0 2,5
Hull
0,0
Structure
Manufacturer/Overseas
Integrator / Brazil
Generators
11,2
Relative Part. (%) LC (%) Overall Content (%)
0,0 0,0
70,5 71,0 50,0Topside Yard / Brazil
TG Module
Yard / Overseas
Local Content Assessment forSemi-Submersible Platform
Measuring Local Content
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Export ing System
FloatingProduction
Unit
Subsea
ProductionSystem
LC = wells LCwells + subsea LCsubsea + FPU LCFPU + exporting LCexporting
system relative participation on the overall field development expenditures
LCsyst local content of each system
Wells
Local Content of Offshore Field Development Project
Measuring Local Content
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International Industry Best
Practices
Fiscal Regime Financing Capability
Exchange rate policy Technology updating
P r ice
De live ry tim eQu al ity
Impact on Industry Competitiveness
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Petroleum Industry
E&P
Refining
Transportation
Distribution
Universities andR&D Insti tutions
Governmental Agencies
Supply Chain ofGoods and
Services
FinancialInstitutions
Harmonical development of the Oil and Gas Cluster
All local institutions should benefit from the O&G projectsdevelopment in the country
Final Conclusion
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