Brazil: Local Content In Brazil (Global Energy)

Last Updated: 22 May 2013
Article by Victor Galante
Most Read Contributor in Brazil, December 2017

Keywords: protocols, governments, companies, oil, gas

The phrase "local content" has begun to appear more frequently in the laws, internal policies and tender protocols of governments and companies around the world, particularly with regard to the oil & gas industry. The main argument to justify the local content rules is the enhancement of the local industry. But is it working?

Before analyzing the efficacy of the local content rules, it is important to understand the different approaches being adopted by different countries.

Certain countries consider a local content rule to be fully observed when a service or good is provided by a company that is owned or controlled domestically; other countries have more complex methods to calculate the percentage of good and services available in the country, by local providers.

The first model seems to fail to reach the main purpose of the ruleâ€"the growth of the local industry as it does not incentivize the manufacture, or even the assembly, of goods in the country or the provision of services, locally. Rather, the model simply creates opportunities for a few individuals who will own more than 51 percent of the joint ventures to be formed with foreign entities.

The second model seems to be more realistic, and closer to reaching the main purpose of the local content rule. However, the success of its implementation is not guaranteed, as the rule itself is not enough to ensure the development of the local industry, to develop sufficient manpower or to secure competitive prices. In this article, we will focus on the Brazilian model.

The Brazilian Model

Article 171 of the Brazilian National Constitution of 1988 used to classify companies as "Brazilian companies" or "Brazilian companies of national capital," creating a clear distinction between companies incorporated in Brazil but controlled by non-Brazilians, and companies incorporated in Brazil and controlled by Brazilians.

Under this constitutional provision, any local content rule in Brazil would probably follow what we are calling "first model," according to which the definition of local content is conditioned to the nationality of the controlling shareholder of an entity.

However, with Constitutional Amendment no. 6/1995, Article 171 was revoked and companies incorporated in Brazil were considered "Brazilian companies" for all legal purposes, no matter the origin of the capital or the nationality of the shareholders (a few exceptions still exist, but it will not be considered in this article). Therefore, since 1995, unless expressly authorized under the constitution, any rule that creates any protection to Brazilian companies controlled by nationals in detriment to companies controlled by foreigners is considered unconstitutional and is null or voidable.

Constitutional Amendment no. 6/1995 was also the amendment that opened the Brazilian oil & gas sector to private companies. This was followed by the creation of the National Petroleum Agency (ANP) and the promotion of bid rounds, where the local content policy was adopted in the country for the very first time.

In 1999, during the first bid round for oil & gas concessions, the development of the local industry was already a point of concern. An initial local content rule was included in ANP's Tender Protocol and the Concession Agreements. At that time, the Concessionaire agreed to "provide Brazilian Suppliers with the opportunity to present proposals for the supply of services in connection with Operations herein contemplated, with the objective of maximizing the Brazilian contents of such services in the Country subject to similar availability and condition in price, period and quality."

In addition to that general principle, each bidder had the opportunity to present, as part of its offer, a minimum percentage of local investment that would be dedicated to the purchase of goods and services from Brazilian Suppliers. This model was used by ANP until the 4th bid round (2002).

In 2003, in order to expedite the development of the local industry, the Brazilian regulator decided to require a minimum percentage for the acquisition of goods and services in Brazil for all concessions for exploration and production of oil & gas, whether or not the blocks are considered onshore, shallow water or deep water. Thus, during the 5th and 6th bid rounds, the local content percentage suggested by each bidder continued to represent a relevant portion of its offer, but there was a minimum percentage that had to be observed by all bidders.

Due to the slow development of the local industry at that time, many concessionaires were unable to reach either the minimum local content requirement or the incremental percentages offered during the bid rounds. This inf luenced the final result, as the local content commitment was part of the offer, which ended up as just a number, unenforceable for several reasons. In order to avoid distortions in the offers, ANP decided in 2005 (7th bid round) to establish a range of percentages (minimum and maximum) that should be considered by bidders during the preparation of their proposals. Therefore, the minimum percentage of local content required under the tender rounds (and the maximum that each bidder was allowed to offer) was being constantly revised and improved by ANP, until the last bid round occurred in 2008 (10th bid round), as follows:

Brazilian Local Content Certification System

Since their beginning, the Brazilian concession agreements for oil & gas exploration and production included different provisions regarding local content and minimum percentages to be observed by the concessionaires. However, enforcing these provisions was a rather complex task, either because of the lack of qualified suppliers and service providers in the country (the main justification presented by the concessionaires) or because of the difficulty to confirm whether a specific good or service acquired in Brazil would satisfy the local content rules.

The model was improved in 2007 with ANP's enactment of the Local Content Certification rules. These rules established a methodology to calculate the percentage of local content in goods and services acquired in Brazil and provided clear rules and procedures for the accreditation of independent companies to certify such percentage.

Under this revised system, a certifying entity (accredited by ANP) is responsible for measuring the local content found in goods and services acquired/contracted by concessionaires in connection with their oil & gas exploration and production activities in the country. Using an independent certifying entity is important to ensure the transparency of the entire process; it also protects the seller/contracted parties from disclosing information that would put them at a competitive disadvantage.

Possession of a certificate issued by an independent entity enables the concessionaire to prove local content compliance for each specific good or service acquired in Brazil. Attaching the certificate to the respective invoice assists ANP with auditing the concessionaire's fulfillment of its commitment regarding the minimum or the exact percentage of local content.

Even if the concessionaire is not able to achieve the percentage of local content agreed under the concession agreement, the independent certification is important, as the contractual penalties are calculated based on the difference between the agreed and the actual percentage of local content achieved by the concessionaire.

Perspectives and Challenges

It seems clear that local content rules such as those in force in Brazil will be more efficient in developing local industry than rules where the nationality of the controlling shareholder is the sole criteria for determining whether certain equipment, materials and services have incorporated actual and effective domestic contribution. However, the legislation itself does not ensure the development of the local content.

Recent research from a reputable Brazilian university indicates that the Brazilian local industry is only able to provide 5 of the 24 categories of equipment considered critical to exploration and production activities.

In the other 19 categories, the national market prices exceed those of foreign competitors, and the products are subject to untimely delivery or falling short of the quality standards required by the oil & gas industry.

The development of a local industry, especially the segment dedicated to the oil & gas industry, takes time, and the reliability of the local suppliers is a paramount issue to be considered by the concessionaires. At the same time, if ANP simply waives compliance with the required minimum percentages of local content defined in the concession agreements due to lack of qualified suppliers in the country, the local content policy will have failed.

In recent announcements made by ANP, it seems that the local content regulation is becoming more mature. There is a clearer understanding about the kind of goods and services that can be provided in Brazil, and what still needs to be acquired abroad.

The development of the local industry is critical for the generation of jobs and maximization of the advantages that the oil industry can offer to the country. However, the pertinent policies must be implemented cautiously, without creating requirements that cannot be fulfilled or that might somehow jeopardize the safety of the operations.

Visit us at Tauil & Chequer

Founded in 2001, Tauil & Chequer Advogados is a full service law firm with approximately 90 lawyers and offices in Rio de Janeiro, São Paulo and Vitória. T&C represents local and international businesses on their domestic and cross-border activities and offers clients the full range of legal services including: corporate and M&A; debt and equity capital markets; banking and finance; employment and benefits; environmental; intellectual property; litigation and dispute resolution; restructuring, bankruptcy and insolvency; tax; and real estate. The firm has a particularly strong and longstanding presence in the energy, oil and gas and infrastructure industries as well as with pension and investment funds. In December 2009, T&C entered into an agreement to operate in association with Mayer Brown LLP and become "Tauil & Chequer Advogados in association with Mayer Brown LLP."

© Copyright 2013. Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions