The veto, formalized on November 25, 2025, by acting President Geraldo Alckmin during President Lula’s trip to Africa, struck down amendments that proposed recalculating oil royalties based on international market price averages rather than the current reference price set monthly by the National Agency of Petroleum (ANP). The original proposal sought to align royalties with global market quotations, potentially raising federal revenue by approximately R$4 billion annually starting in 2026. However, the government’s internal consensus favored maintaining the status quo due to concerns that the change would jeopardize Petrobras’ cash flow and, consequently, reduce its dividend contributions and tax payments to the state.
The Ministry of Mines and Energy emphasized the importance of preserving Petrobras’ investment agenda, especially projects critical to national development such as the deepwater natural gas exploration in Sergipe, known as Sergipe Águas Profundas (SEAP). Despite Petrobras announcing delays in SEAP’s investments and pushing production start beyond 2030, federal officials underscored the necessity to ensure continuity and stability in the company’s medium and long-term projects. The veto was framed as exercising “firm resolve” to guarantee Petrobras fulfills its development role without disruption caused by royalty recalibration.
The contested royalty recalculation had drawn opposition from various players in the oil sector, including producer groups and Petrobras itself, which argued that introducing price metrics not reflective of the country’s specific oil characteristics could trigger legal challenges and create regulatory uncertainties. This was echoed by industry bodies cautioning that the proposed model, based on transfer pricing methods designed for tax purposes rather than technical production factors, could undermine investment security, particularly for independent producers operating mature or marginal fields.
In parallel, the government rejected a measure that would have passed on to consumers the costs of compensating wind and solar energy plants suffering generation cuts—referred to as “curtailment”—ordered by the National System Operator (ONS) for grid security reasons. The compensation, linked to energy losses from September 2023 to December 2025, was projected to potentially increase electricity bills by R$7 billion. Consumer groups welcomed the veto, while renewable sector representatives warned it risked undermining project viability and slowing Brazil’s energy transition. Nonetheless, producers will continue receiving compensation when generation cuts result from technical network constraints; only the direct pass-through of costs to tariffs was blocked.
The final version of the MP retains provisions extending contracts for coal-fired thermal plants until 2040, reflecting concerns over grid reliability and the need to maintain diverse energy sources amid transition. While environmental and industrial groups expressed concern over prolonging coal usage, authorities stressed the role of these plants in ensuring system security.
The vetoes illustrate the government’s complex balancing act between advancing fiscal objectives, maintaining investment certainty in the strategic oil and gas sector, supporting energy infrastructure stability, and managing consumer tariff impacts. The ongoing debate underscores the vital role royalties play as a financial link between resource extraction, public budgets, and regional development, with future negotiations expected to continue addressing these competing priorities.
The National Petroleum Agency is expected to uphold the current reference pricing methodology for royalties calculation, while Petrobras prepares to present its 2026-2030 strategic plan, including the fate of key investment projects like SEAP, in the November 27 board meeting. The oil and gas sector remains watchful of legal and regulatory moves that could influence Brazil’s capacity to attract and sustain capital-intensive upstream investments essential to the country’s energy and economic future.
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This episode highlights the ongoing challenges in harmonizing fiscal revenue enhancement with preservation of industry stability and investment momentum within Brazil’s vital oil & gas sector.
This article was curated and published as part of our South American energy market coverage.
