VZCZCXRO3989 
PP RUEHRG 
DE RUEHSO #0335/01 1780929 
ZNY CCCCC ZZH 
P 260929Z JUN 08 ZFF6 
FM AMCONSUL SAO PAULO 
TO RUEHC/SECSTATE WASHDC PRIORITY 8347 
INFO RUEHAC/AMEMBASSY ASUNCION PRIORITY 3443 
RUEHBR/AMEMBASSY BRASILIA PRIORITY 9482 
RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 3195 
RUEHCV/AMEMBASSY CARACAS PRIORITY 0764 
RUEHLP/AMEMBASSY LA PAZ PRIORITY 3854 
RUEHMN/AMEMBASSY MONTEVIDEO PRIORITY 2737 
RUEHSG/AMEMBASSY SANTIAGO PRIORITY 2443 
RUEHRG/AMCONSUL RECIFE PRIORITY 4149 
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 8770 
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY 
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY 
RHEHNSC/NSC WASHDC PRIORITY 
RHMFISS/CDR USSOUTHCOM MIAMI FL PRIORITY 
RUEAIIA/CIA WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 SAO PAULO 000335 
 
SIPDIS 
 
STATE FOR WHA/BSC,WHA/EPSC, EEB/ESC 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSON/ADRISCOLL/MWAR D 
DEPT OF TREASURY FOR JHOEK 
NSC FOR TOMASULO 
 
E.O. 12958: DECL: 03/14/2018 
TAGS: ECON ENRG EPET PGOV EINV EAGR BR
SUBJECT: AMBASSADOR DISCUSSES BRAZILIAN OIL CONCESSION 
MODEL WITH DELFIM NETTO 
 
REF: A. RIO DE JANEIRO 138 B. RIO DE JANEIRO 135 C. 07 SAO PAULO 953 D. SAO PAULO 247 
 
 
Classified By: Consul General Thomas White; reasons 1.4 (b) and (d). 
 
¶1. (C) SUMMARY: During a June 13 meeting with the 
Ambassador, former Minister of Finance Antonio Delfim Netto 
(strictly protect), who is currently working as a political 
and business consultant and widely believed to be an 
unofficial advisor to President Lula, discussed his views on 
Brazil's newfound oil reserves. Delfim Netto did not see any 
strong desire on the part of the GOB to nationalize existing 
fields or to substantially change the rules governing 
concessions (Ref A). Instead, Delfim Netto indicated that 
the GOB would support a continuation of the concession 
framework but indicated that royalties would increase. He 
stated that the GOB (through the National Energy Petroleum 
Council) would maintain existing royalty agreements for all 
fields currently under production, and that the National 
Petroleum Agency (ANP) would open bidding for the exploration 
rights on the new reserves to foreign competition. Delfim 
Netto told the Ambassador that foreign investment would be 
necessary to finance development of these reservoirs to 
ensure near term production. END SUMMARY. 
 
¶2. (C) In a meeting on June 13 with the Ambassador, Delfim 
Netto said that the GOB and Petrobras do not share the same 
goals for developing reserves from the newfound deep-water 
petroleum discoveries. Many energy insiders believe 
Petrobras is stalling the bidding process in order to pull 
together the financial resources to win concessions for many 
of the pre-salt oil blocks that had been removed from the 
ninth round of oil block auctions in November 2007 (Refs B 
and C). (Note: Petrobras was privatized in 1997 and 63 
percent of the company is now publicly traded on the NYSE and 
Bovespa. End Note.) Delfim Netto confirmed that the GOB 
wanted to move forward on the exploration of these reserves 
and that its goals and those of Petrobras have diverged. 
 
¶3. (C) Despite the public rumors regarding changes to and 
potential abolishment of the concession model, Delfim Netto 
told the Ambassador that Brazil would keep the same 
concession model, but could increase the percent of royalties 
charged for the new reserves (Ref A); with which he agreed. 
He added that he supported charging Petrobras royalties. He 
told the Ambassador that he promoted the idea that Petrobras 
open up the energy market and that the GOB realizes it would 
be a necessary condition to finance the exploration of the 
new reserves. 
 
¶4. (C) Likewise, Delfim Netto acknowledged that Petrobras 
was also a potential obstacle on biofuels issues. Given the 
inherent conflict of interest for Petrobras to manage 
bio-fuels initiatives, Delfim Netto told the Ambassador that 
Petrobras should and would be "removed from the equation." 
When asked if the GOB would support a spin-off of the 
Biofuels Unit within Petrobras, Delfim Netto thought it was 
assured. 
 
¶5. (C) At the Ambassador's suggestion of high-level meetings 
between the two governments, Delfim Netto said he estimated 
that it would take 30 to 60 days for the GOB to solidify a 
new concession and royalty framework, and that after that 
point he believed USG engagement would be welcome. 
 
¶6. (C) COMMENT: Delfim Netto's analysis of the divergence of 
interests between Petrobras and the GOB bears watching. 
Given the recent negative history of Bolivia's 
privatizations, it seems unlikely that the GOB would abandon 
the concession model and even more unlikely that it would 
choose to change the rules on existing concessions. 
Political and economic stability have been the cornerstones 
of Brazil's policies and largely led to Brazil obtaining 
investment grade status (Ref D). While some modification of 
exploration and concession rules may take place for these new 
"mega fields", it is doubtful the GOB would do anything to 
undermine the overall image of Brazil as a stable country in 
which to invest. 
 
¶7. (C) Unlike Delfim Netto's view that the USG should hold 
off on intervening to establish these new rules, Brazil's 
Ministry of Mines and Energy, regulators, and US energy 
companies have suggested that it could instead be within this 
period for the USG to intervene. Indeed, Petrobras' interest 
in consolidating deep-sea drilling in the Gulf of Mexico and 
vertical integration in the US market could open an important 
window of opportunity for the USG. Furthermore, ANP has 
expressed interest in learning more about US small and medium 
sized energy companies operating in US states to develop a 
similar capacity in Brazil. They have, in fact, asked for 
USG assistance to travel to the US to meet with and further 
learn about this important part of the energy equation. 
Clearly, Brazil's energy sector offers new partnerships, 
opportunities, and increased energy security for the US. As 
Brazil begins to increase exploration of its newfound 
"pre-salt" reserves that many believe could be larger than 
the finds in the North Sea, the US could potentially 
capitalize on these new technologies to develop our own 
offshore exploration efforts. Early engagement may be 
crucial to ensuring that US firms will have opportunities in 
this market. END COMMENT. 
 
WHITE