Author: Mota Advogados

Published at TN Petroleum Magazine in 05/28/2018

Decree 2.745/1998 simplified Petrobras’ procurement processes, bringing the required agility to compete in a market that became competitive after the opening of the oil and gas sector to the private sector, with the advent of Law 9.478/1997 (The Petroleum Law). After almost 20 years of the simplified regime, Petrobras is forced to comply with a public bidding regime, with the enactment of the State Law (13.303/2016). This law will govern all procurement by all Brazilian state-owned companies – around 150 of the federal government alone, not counting the state and municipal state-owned companies, which operate in several areas such as agriculture, tourism, ports, nuclear, war, banks, among others.

The process of adaptation to the State Law by Petrobras has been very difficult. This is because it treats the purchase of simple items, such as a common engine, for example, in the same way as sophisticated equipment such as christmas trees, which is not in line with industry best practices. The upstream sector presents peculiar characteristics, and the major oil companies in the world follow a specific pattern of procurement, due to the reduced number of suppliers in certain segments and the high technology involved. Oil companies need to develop strategic partnerships with their main suppliers, a business model not contemplated by the State Law, precisely because the law is generic.

A critical point is the 5th paragraph of Article 1 of the law, which provides that the state-owned company participating to a consortium, as operator, is subject to the law. This generated a problem because Petrobras, as operator of consortia formed for joint operation of oil and gas exploration, is in charge of the procurement of the consortia, which have always ran under a private legal regime. Compliance with public procurement rules came against Petrobras’ business plans and projects economics in the partnerships with other oil companies.

The recent Decree 9.355/2018, published on April 26, determines in its Article 1, paragraph 7 that goods and services procurement performed by the consortia operated by Petrobras are subject to the private regime of private companies, in which case the public tendering procedure is not applicable. The inclusion of this provision in this Decree was surprising, as its purpose is to determine rules for the assignment of Petrobras’ rights to the exploration, development and production of oil and gas. Timely or not, the new rule exempts Petrobras from the obligation set forth in above mentioned paragraph 5 of Article 1 of Law 13.303.

Petrobras plans to invest US$ 60.6 billion in exploration and production of oil and natural gas by 2021. The largest projects, especially in the pre-salt, will be explored by Petrobras in partnership with other companies. In this context, suppliers are confused and do not know how to act and participate in the projects developed by the consortia. A question arises: how to reconcile two different procurement regimes in the same company?

Petrobras has made a huge and commendable effort to inform and train suppliers in the new procedures of Law 13.303, including providing an application where suppliers can track all bids in progress. However, there is no information available on the procurement of the consortia. Without going into the merits of the (debatable) legality of Decree 9.355, the situation is Kafkian because Petrobras is currently exercising unfair competition with itself: when it operates alone, it does not have the same tools as when it acts in a consortium. In order to avoid bureaucracy, objections, delays and, as a consequence, cost increases, Petrobras tends to change its business model and to explore all its fields in partnership with other companies, in order to simplify procurement procedures.

To be efficient and fulfill its purpose, a company, state or non-state, must obey management principles and rules, not just legal principles and rules. The São Paulo Stock Exchange B3 recently authorized Petrobras to join the special Corporate Governance Level 2 listing segment: “These achievements reinforce the progress made in Petrobras’ corporate governance and ratify its commitment to continuous process improvement and alignment with best practices in the market” as stated by the oil company itself. In fact, there has been a significant improvement in its disclosure, transparency for stakeholders and compliance (code of ethics and organizational integrity). Advances are evident, and the risk of illegalities has been significantly reduced. This may be enough to prevent criminal actions, and the company could count on a uniform, simpler and more agile procurement procedure, in line with international standards, similar to other oil companies.

We are living a new context in Brazil: intolerance to corruption, bargaining and other crimes is notorious, reflecting a deep and historic cultural change. State companies needed a management, governance, and compliance clash. But when it comes to procurement procedures, although Law 13.303 is less bureaucratic than Law 8.666/93 (public procurement law), should Petrobras not have its own rules, adapted to the reality of the oil sector? In an extremely competitive market, this may be necessary.

An analysis of the best practices of procurement and hiring in this sector is inevitable, tracking the worldwide recognized and standardized practices. This would help determining in a logical and objective way, the best procedures for Petrobras, taking into account the legal nature of the company – a semi-public – since this continues to be the Brazilian option, that is, to maintain a state-owned company as a leading actor in this sector.



By Julia Mota

From April 2, Petrobras Rio Unit has started procurement of goods and services under the new legal system – Law 13.303/16, and from May 15 all Petrobras units in Brazil will also be running under the new rules. See below a summary of the process:

Step 1 – Vendors List Registration

Foreign suppliers can register for the supply of goods and services. The registration is available for all goods items and around 60 different services items. If you are not yet, get registered in Petrobras vendor’s list – benefits are:

  1. a) You have easier access to all public bids through your private area in the Petronect system;
  2. b) You receive notifications by email on the bids and pre-qualification process;
  3. c) You mitigate the risk of not being qualified when winning a bid.

It is highly recommended that the process is coordinated by a Portuguese spoken person, as the bulk of information and communication with Petrobras is in Portuguese. Registration must be updated yearly. If you are already listed, you must urgently adjust the items as all 1.600 goods and services items are under a full modification and updating process.

Step 2 – Risk analysis

Check the CFM (Materials Supply Conditions) and the standard drafts contracts and bid notices related to your product or service on Petronect page. This will help you being prepared way before the bid is launched: you have access to the terms and conditions, duties and obligations, civil liability and other relevant aspects that will be the basis for your proposed price. All drafts are supposed to be published on May 15 (according to Petrobras).

Step 3 – Pre-qualification

Pre-qualify for goods and services items open for pre-qualification process (in Petronect system). Fifty nine (59) items of goods and services will be subject to pre-qualification as they are considered high-technology items. Benefits: you will be eligible to participate to bids restricted to pre-qualified suppliers, even though your pre-qualification process is not finalized. The pre-qualification must also be updated yearly. Some documents may be replaced by documents already approved in Step 1, with the relevant complements. Check for the current open pre-qualification process at purchasing and contracting, prequalification, prequalification open.

Important: Step 1 and 3 may be performed at the same time.

Step 4 – Analyze the bid notice and specific bid requirements

Follow up the international call for bid process through your logged in area in Petronect – or in the public area if you have not concluded your vendor’s list registration (Step 1); get access to the full list of requirements; analyze the bid notice and all requirements to make sure your company is capable of complying with all items. Important: the bids for Rio are already online! Take a look at (purchasing and contracting; public bidding; published)

The bid notice may be challenged up to 5 working days before the bid for non-compliance with the legislation (lack of clarity, missing information, favoring of participants, restriction of competitiveness, etc.)

Step 5 – Bid

If you decide to proceed, you will bid through Petronect system and Petrobras will select one proposal only (the most advantageous one according to the stipulated criteria). If your company win and comply with all requirements of the bid notice, you will be called to negotiate with Petrobras. If the price proposed is up to Petrobras budget for this bid, you will go to the next phase of qualification – if you are already listed in the vendors list (Step 1) this phase will be skipped, except if the bid notice require additional specific items.

Step 6 – Appeal phase

At the sole appeal phase, competitors may challenge Petrobras’ decisions and your proposal (and vice-versa if you are not the winner).

Step 7 – Award phase

PETROBRAS awards the bid and approves the result or cancel – if no bidder price is equal or inferior to the stipulated budget and for other specific reasons.

This is the basic process, subject to modification in specific circumstances.


by Julia Mota, published at TN Petroleum Magazine in 03/09/2018

The RLCP – Petrobras’ Bids and Contracts Regulation was published on January 15, 2018, in compliance with Law 13.303/16 (State Companies Law), and is already governing bids – as a pilot – in Espirito Santo unit. As of April 2, the unit of Rio de Janeiro begins to run the new system and the remaining units on May 15. By June 30, all subsidiaries must also publish their own regulations.

The letters of invitation to bid will be gone and all bids must be public. It is important to note that the bids and contracts based on Decree 2.745/98 and the MPC (contracts guide) remain governed by these rules until the termination of the contracts: the two regimes will live together for some time. This dual regime requires increased attention from the staff of suppliers who operate the Petronect and the legal departments.

The bid’s rules under Law 13.303/16 are an “adjusted” version of the bid’s rules of the Differentiated Regime of Public Procurement – RDC (Law 12.462/11), which includes phase inversion (qualification is after judgment), bids stage (with open and closed dispute mode), appeals concentrated at the end, non-disclosed budget, integrated hiring, risk sharing, judgment criteria, tie breaker and other features. The RDC, in turn, brought various concepts of the bid regime – “Pregão” (Law 10.520/02).

For state-owned companies and public companies in general, previously subject to Law 8.666/93, the new regime reduces formalism and bureaucracy, but for Petrobras it represents a major setback. The main difference is the semi-integrated contract (contratação semi-integrada) for engineer and services contracts. Law 13.303/16 establishes a new type of contract, which is basically a “turn-key with basic project”. The turn-keys projects of Decree 2745 become exceptions, subject to strict technical and economic justification, according to the understandings of the Federal Court of Auditors -TCU (due to the identity of the provisions and concepts, the TCU, under the RDC, should be applicable to Petrobras issues).

Without an acceptable justification, Petrobras will have to go to the semi-integrated modality: the basic project shall be previously tendered, and its authors are not allowed to participate in the bid for the project. The basic project can eventually be modified by the contractor, “provided that the superiority of innovations is demonstrated in terms of cost reduction, increase in quality, reduced lead time and ease of maintenance or operation”. Some doubts: in this case will the contractor have the right to amendments? And what will be the criteria for evaluating the “new methodology and technology” offered by the bidder, under the terms of 5th line of Article 43 of Law 13303/16? We do not know how Petrobras will address these issues.

Another point that deserves reflection is the inversion of phases: judging takes place first, according to the public notice criteria (lower price, higher discount, better combination of technique and price, better technique, better artistic content, higher economic return and better disposal of alienated assets). How to guarantee isonomy in determining the parameters in the call for tender when they are not simply numerical?

Bids are public and anyone can access them, which makes it possible for any company to make a proposal, even if it does not have the least capacity to fulfill the contract. One way for Petrobras to avoid a flood of proposals will be the use of compulsory pre-qualification for strategic hiring, which today correspond to 60 families in the company vendors list.

The former certificates, the CRCC and DRS are no longer issued, replaced by a single document, the Certificate of Registration Register (CRC). The registration (cadastro) is not mandatory to participate in the bids, but remains strategic because it acts as a prior assessment, mitigating the risk of the bidder not being qualified to win a bid, in the end of the bid process. Furthermore, it allows access to calls for pre-qualification and bidding processes in registered families. Hence the importance of upgrading families according to the adjustment of families in course in the Petronect, since several of the old families will be canceled soon and only the updated family roll should receive the calls.

It is worth mentioning the possibility of including mediation in the contracts, as an extrajudicial method to resolve disputes. The adoption of mediation can be a huge saving of time and money, enabling win-win solutions and the survival of some suppliers who are out of breath to await a court decision that could take a decade.

We know that Petrobras competes with other oil companies that are not subject to the same formalism and bureaucracy, and also that all this legal apparatus is not a solution to the problem of corruption. From this point of view, Petrobras is expected to be able to create efficient mechanisms to comply with the new Law, without the new requirements rendering the project’s management impractical. It only makes sense to maintain a state-owned company in the exploration of economic activity if it has the tools to act in an agile, rational and efficient manner.