When officials from Brazil’s main environmental protection agency, Ibama, advised against the auction of oil exploration blocks near Abrolhos national park, they were told by their boss, Eduardo Bim, to think again. Bim had been informed by the executive-secretary of the Ministry of the Environment that the issue was of “strategic relevance” and so wrote a report overruling his own staff and allowing the auction to go through.
Abrolhos national park is the richest area of marine biodiversity in the South Atlantic Ocean, home to endemic coral species and a nursery for humpback whales and marine turtles.
The news came as yet another blow to environmentalists in Brazil. Last November, voters elected president Jair Bolsonaro, a far-right politician who believes the nation has already done more than its fair share to protect the environment. Since coming into power, his team has undermined the Ministry of the Environment by slashing its budget and appointing as minister Ricardo Salles, a lawyer who appears to be more friendly to businesses that commit environmental irregularities than to his own staff.
Carlos Rittl, the executive secretary of the Climate Observatory, a Brazilian panel of climate change specialists, called the oil blocks episode a show of “atrocious irresponsibility.”
“The signal the government is sending is that whatever environment there is to be protected will be run over,” he said. “It’s an incentive of economic activities at all costs.”
Controversy may spook investors
Ibama is tasked with the approval of any oil blocks proposed for auction by the National Petroleum Agency (ANP). In this case, Ibama’s technical staff ruled against the inclusion of seven of the 36 blocks listed by ANP for an October auction.
The overruling of that decision was revealed in documents obtained by the Associated Press and Brazilian newspaper O Estado de São Paulo last month. They show that one Ibama study that backed the original decision warned of the potential for an oil spill in one of the blocks to destroy the Abrolhos park, even though the closest block is 300 kilometres away.
ANP did not disclose whether any companies have already showed interest in bidding for any of the blocks. But industry observers believe it will attract many of the multinational companies that work in Brazil, such as Shell, Chevron and Petrochina. The blocks are estimated to be worth just under $1 billion.
China has been one of the most prolific investors in Brazil’s oil sector, with nearly $40 billion directed to projects such as building pipelines and oil-for-loan contracts.
But exploring offshore oil blocks hasn’t been a target in Brazil for Chinese companies until recently. Its investments in the field started in 2010, after Brazil announced the discovery of huge oil deposits beneath a thick layer of salt crust on the ocean floor. Five years later, three companies with Chinese capital were already among the top 10 players in Brazil’s oil and gas production: Sinochem Petróleo, Repsol Sinopec and Petrogal Brasil.
In early May, Sheng Jianbo, head of Chinese state-owned firm China National Offshore Oil Corp in Brazil, said his company wanted to expand production in Brazil.
The latest controversy may, however, spook investors. After the auction, the companies that buy the right to explore the blocks will still have to get an environmental permit from Ibama to go forward with their investment. Questioned in Congress about the episode, Salles said Ibama could still refuse the permit, which would mean a loss of investment.
“If it’s declared impracticable, it’s impracticable,” he said. “The [company] that bought it is out of luck.”
Rafael Schiozer, a professor of finance at Fundação Getúlio Vargas university, and a specialist in the oil industry, says the episode will undermine the trust companies have in the government’s ability to provide a legally safe environment for them to operate in.
“When ANP auctions a block, whoever is making a bid feels assured everything is OK. Obviously, there is the geological risk [of not finding oil], but the risk regarding the environmental permit should already be resolved,” he said.
Schiozer said the overruling of official advice effectively adds another layer of risk to oil ventures. He said he would not be surprised if no investors were to bid for the blocks near Abrolhos.
Pressure on Ibama
Brazil had been improving its protection of marine biodiversity in recent years. In March last year, it announced it was multiplying its marine protected area by 16 times, creating new marine conservation units which aim to restrict fishing and protect fish populations.
As recently as March, Salles himself had stressed the need to protect marine life. “Oceans are the new frontier for environmental protection and conservation,” he said in a speech to the United Nations Environmental Assembly in Nairobi.
But from the point of view of Rittl, from the Climate Observatory, it is now clear that this was an empty statement. He fears the pressure will be great on Ibama to approve environmental permits, even against the judgment of its technical staff.
“This is a sign Ibama is merely decorative,” he said.
Ibama has been under intense attack under Bolsonaro. The former head of the agency resigned in January when the attacks started, its budget has been slashed and its press office has been extinguished. In the past weeks, the government has taken to announcing the agency’s operations to stop deforestation before they happen, which, critics say, could seriously undermine their success.
And environmentalists believe Abrolhos could be only a first, as other protected areas have oil and gas near them. In December last year, Ibama blocked a proposal by Total to drill for oil and gas at the mouth of the Amazon river.