Abstract

The basic claim of this paper is that direct state participation and petroleum sector liberalisation are, for the most part, incompatible. This is because states which attempt to liberalise their petroleum sectors while simultaneously participating in them directly, mostly via national oil companies, are more often than not, inclined to confer exclusive benefits, favours and privileges on these firms. This defeats any pretence at creating a level playing ground for petroleum firms to compete on equal footing. But beyond that, such state-granted favours serve to erode the independence and autonomy of state-owned oil companies, and increase their exposure to political and sub-economic objectives. This weakens their competitiveness and, ultimately, their performance. In order to establish this claim, this paper will examine recent legislative and policy developments in Brazil since 1997 – the year it liberalised its petroleum sector. It will note the drawbacks which the Brazilian petroleum sector, in general, and its national oil company, in particular, has suffered as a result of the state’s inclination to confer exclusive benefits on the firm. The paper will conclude by offering two suggestions to countries which seek to liberalise their petroleum sectors but, at the same time, desire to participate directly in them via national oil companies: that they should either partially privatise such firms, with the state as minority stakeholder, or subscribe to legal frameworks which prohibit the conferment of exclusive privileges on them.