Brazil's plans to control oil could cause delays

By Fernando Exman and Natuza Nery - Analysis

BRASILIA (Reuters) - The Brazilian government's plan to take greater control over huge new oil discoveries will face obstacles in Congress and could delay its ambitions to become a global oil player, experts said on Thursday.

President Luiz Inacio Lula da Silva wants to change the structure of oil control to give the government more funds for social welfare and education while reducing the power of state-owned oil firm Petrobras and its partners.

"Some think that the oil is for Petrobras. The oil is for the union," Lula said on Thursday at an event in the Amazon state Para.

In neighboring Venezuela, President Hugo Chavez has tightened controls over oil to fund social projects. But in Brazil the plan could face a long battle in Congress.

"The debate in Congress won't be easy, it's a debate over trillions (of dollars)," Ideli Salvatti, Senate leader for the ruling Workers' Party, told Reuters.

Petrobras shook the oil world last November when it discovered a deposit with estimated reserves of 5-8 billion barrels, the world's second-biggest find in 20 years.

Other reserves thought to exist in the area could vault Brazil from 17th to 10th among world oil producers. The government has said it plans to join The Organization of Petroleum of the Exporting Countries (OPEC).

Under guidelines from Lula, government sources say a new state holding company would now manage exploration and production in the so-called sub-salt fields, taking some power from the oil industry regulator ANP.

In addition, production-sharing contracts would give the government the right to sell the oil and pay companies a share. Currently, oil companies own the oil they produce and pay the government royalties and taxes.

"The idea of a new state company and of production-sharing contracts are guidelines by the president but nothing has been decided yet," a spokesman for the Ministry of Energy and Mines told Reuters.

With more control over oil, the government wants to export more derivatives than crude.

"What are we going to do with this oil? Sell it purely and simply? No. Whoever wants to come here and get oil and take as much as he likes. Can he come? No," said Lula in Para.

PANDORA'S BOX

Even government supporters say the government may be opening a Pandora's box by renegotiating spoils after finding the treasure.

If reforms involve constitutional amendments, the opposition may be able to block the proposal, Salvatti said.