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Petrobras’ Overwhelmed Ship Suppliers Seek Waiver on Asian Help

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July 24, 2014

Ocean Rig drillships at Samsung Heavy Industries, Image courtesy Ocean Rig

By Sabrina Valle and Mario Sergio Lima

July 24 (Bloomberg) — Petroleo Brasileiro SA’s vessel suppliers are urging Brazil to ease limits on foreign-built equipment as orders from the state-run company fall behind schedule at local yards, people familiar with the proposal said.

A group of shipbuilders met with government officials in Brasilia last week to propose changes to national content rules that would allow them to have more construction and engineering work done in Asia, three people with direct knowledge of the request said, asking not to be named because the talks aren’t public. They propose investments they make in local shipyards be taken into account when calculating how much equipment made overseas can go into the vessels, the people said.

Petrobras, the biggest oil producer in waters deeper than 1,000 feet (305 meters), is counting on the delivery of floating platforms and drill ships to develop the biggest oil finds in the Americas this century and double output by 2020. Most Brazilian companies hired to supply the units aren’t yet fully capable of building them after shipyard construction delays and cost overruns.

Sinaval, the industry group representing Brazil’s largest shipyards, didn’t respond to e-mails seeking comment on the proposal.

“In highly complex projects, it’s common to identify delays in stages of the construction process, without any impact on the final deadlines for delivery of the units,” Petrobras, based in Rio de Janeiro, said in an e-mailed response to questions. “Suppliers can alter the construction strategy, including the hiring of products and services abroad, as long as in agreement with and authorized by Petrobras and in compliance with local content rules.”

Rousseff’s Idea

Brazilian President Dilma Rousseff helped draft legislation that increased the requirement for locally made equipment in Petrobras contracts 11 years ago — when she was the energy minister to her predecessor and mentor Luiz Inacio Lula da Silva — in a bid to revive the country’s shipyards. The front-runner for the October presidential elections, Rousseff has heralded the revival of Brazil’s shipbuilding industry as an example of job-creation policies.

More than 10 shipyards are being built or expanded in Brazil to supply the oil industry, mainly because of contracts from Petrobras.

In the proposal presented last week, the ship suppliers are seeking to include the construction of dockyard infrastructure such as piers and cranes as part of the calculation of minimum local content requirements, the people said.

Petrobras rose 0.5 percent to 20.36 at 4:21 p.m. in Sao Paulo.

–With assistance from Juan Pablo Spinetto in Rio de Janeiro.

Copyright 2014 Bloomberg.

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