RIO DE JANEIRO—A bill that could end a special customs regime issued by Brazil’s energy ministry relating to the import of equipment used in oil exploration, drilling and production is set for a congressional vote next week in the state of Rio de Janeiro.

Repetro, officially called the Special Regime of Incentives for the Development of Oil Industry Infrastructure, suspends federal taxes and administrative fees, such as the Contribution for Renovation of the Merchant Fleet, charged on imported goods. Repetro was established in the 1990s by the Brazilian government and was previously scheduled to last until 2020. But in 2017 the Brazilian government published a decree extended Repetro until the end of 2040.

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The vote in Brazil’s second largest city would end Repetro and comes as the government prepares to carry out its 15th Bid Round for exploratory blocks under the concession regime. Scheduled for March 29, the round will offer 70 onshore and offshore blocks, and 21 companies have qualified to participate.

The auctions are expected to raise US$10 billion in signature bonuses, surpassing the success of the 14th bidding round in September 2017. However, the potential end of Repetro in Rio de Janerio could dampen optimism for the round, particularly for offshore areas. This is because Rio’s Legislative Assembly may agree to end Repetro for oil companies that operate offshore.

For many experts, Repetro was an important move to attract investment to Brazil’s oil and gas sector.

If legislators vote to end Repetro, taxes may increase for oil companies, mainly during the field development phase for projects offshore Rio de Janeiro. Representative Andre Ceciliano (Workers Party,) the author of the bill, only intends to exempt taxation during the exploratory stage.

According to Ceciliano, taxing equipment imported for field development activities will be crucial to improve the finances of the state where public services have been affected, including as a result of the drop in oil prices during the market downturn

Yet, for many members and executives of the oil and gas industry, the state could be missing an opportunity to help overcome its current economic crisis, if the local politicians decide to end Repetro. Decio Oddone, head of Brazil’s oil regulator ANP, said he hopes this political deadlock does not interfere with upcoming auctions in Brazil.

In interview with Brazilian newspaper Valor Econômico, Oddone said that Rio de Janeiro needs to attract investments. The Campos Basin, located offshore Rio de Janeiro, needs huge investments in technology to recover from output declines at mature fields.

According to Rio de Janeiro Industries Federation, Firjan, the bill could threaten investments in the state and lead companies to invest in other Brazilian states such as São Paulo and Espírito Santo. In those states, Repetro was approved.

“Without Reptetro, over 600 suppliers and 100,000 jobs can be harmed in Rio de Janeiro because the state will lose its competitive advantages,” Firjan Oil and Gas Manager Karine Fragoso said.

Repetro is very important to stimulate investment from companies that will participate in the March 29 bidding round, according to the Brazilian Institute of Petroleum. “Repetro is necessary for the financial recovery of Rio de Janeiro,” the institute said in a statement. “Adhesion to Repetro will enable to attract investments of US$ 10 billion per year in the state.”

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