The oil industries of Brazil and Russia usually have little in common other than great resource potential to which access by outsiders has been limited. Recently, however legislatures of both countries have taken important and long-awaited steps to make access less troublesome. In neither case do the moves accomplish everything necessary.
In Brazil, the lower house of congress voted to end the monopoly of state-owned Petroleo Brasileiro SA (Petrobras) over petroleum exploration, production, refining, imports, and exports. The measure would amend Brazil's constitution, which restricts investments by non-Brazilians.
REOPENING INDUSTRY
If passed by higher echelons of government, as it probably will be, the amendment will reopen the oil industry to international capital. But questions remain. The government will have to clarify operating terms an taxes that apply to foreign companies. It also will have to decide what to do about Petrobras.
For now, privatization is out of the question. It was a political backlash against a crippling oil workers' strike over privatization that ended the Petrobras monopoly. Apparently, Petrobras will continue to function as before, its capital dissipated and economics skewed by, among other things, the need to sell products in a highly regulated market. Only now the company faces the threat of competition-unless outsider-, are forced to follow the same rules and decide it's not worth the trouble.
Russia's legislative milestone is a production-sharing law providing a legal basis for deals involving non-Russian investors. Duma, the lower house of parliament, passe the legislation last month. Until now, international agreements in Russia have been founded in presidential decrees. The new law awaits nearly certain passage by the upper house of parliament and the signature of President Boris Yeltsin.
The production sharing law adds welcome legal certainty to contracts in Russia but can do nothing for the country's shaky politics. That problem worsened June 21, when Duma passed a vote of no confidence against Yeltsin's government over its handling of a hostage crisis involving Chechen gunmen in Buddenovsk.
Yeltsin could have ignored the rebuff; Duma then would have bad 3 months to pass another no-confidence vote and thus force the president to either accept the government's resignation or dissolve parliament. Instead, with the backing of Prime Minister Viktor Chernomyrdin and his cabinet, Yeltsin pressed the case by requesting a vote of confidence. That vote was to have been held July 1. Late last week, Duma proposed a compromise: a rushed repeat of its no-confidence vote and the hint that it would fail if Yeltsin sacked officials responsible for policy in Chechnya.
A step forward, a step back. Uncertainty alone doesn't seem to daunt companies. After Duma passed the production sharing legislation, Yeltsin's government, two Russian companies, and units of Exxon Corp. and Sodeco of Japan signed a deal for development of Sakhalin Island oil and gas fields worth an estimated $20 billion over 40 years.
IMPORTANT STEPS
Progress is progress. Russia's petroleum legislation has been a long time coming. And Brazil's oil and gas projects have been a long time shut off from international capital. But more progress, at all levels of government, is necessary. Both countries should treat these legislative welcomes to international capital as steps toward prosperity. As such, they're important. But they'll be meaningless unless others follow.
