Decommissioning Offshore and Onshore Installations in Brazilian Waters
In the complex sphere of global investments, the offshore sector – encompassing shipyards, ports and vessels – has emerged as a pivotal element withing the broader context of energy markets, particularly oil and gas exploration. Following this global trend, Brazil experienced a significant boom in its shipbuilding industry during the 1970s. At that time, the country became one of the world's leading naval constructors, a position largely driven by a series of fiscal benefits and subsidies. Also, the establishment of the Merchant Marine Fund (Fundo da Marinha Mercante) and the Naval Construction Emergency Plan (1969-1970) were instrumental in propelling Brazil to this prominent position. These measures fostered fast development in the offshore sector, affecting directly Brazil's continued role in the global oil and gas marketplace.
However, alongside such growth, an inevitable and critical question arises: What becomes of these extensive offshore installations when they reach the end of their productive life?
It is well known that investments in offshore infrastructure, despite their classification as durable goods, are inherently subject to the forces of time and the harsh marine environment. Although designed to withstand decades of use, these assets inevitably experience wear and tear, gradually rendering them obsolete and unfit for continued operation.
This prevailing scenario has precipitated an accelerated reliance on decommissioning, a process that essentially entails the dismantling of ships and shipyards rendered entirely inoperative, with the dual purpose of ensuring the proper disposal of materials and facilitating their appropriate reuse. While the concept may appear simple, the intricate and bureaucratic Brazilian legal system significantly hampers the full and efficient implementation of this institute.
In Brazil, the decommissioning process lacks a dedicated regulatory framework governed by the Internal Revenue Service (Receita Federal). Additionally, decommissioning has not yet been officially incorporated into the Special Customs Procedure known as REPETRO, a regime specifically designed to benefit the oil and gas sector by suspending various taxes on imported goods. Furthermore, there is a pressing demand from taxpayers to integrate decommissioning into REPETRO’s procedural framework, establishing it as a final phase that urgently requires complementary regulatory provisions— provisions that, at present, are nonexistent. Such regulatory integration would finally enable the proper use of tax benefits extended for the companies that are also composing the decommission procedure.
Despite these regulatory gaps, there are two methods through which the assets decommissioning may be concluded without the imposition of previously suspended taxes: the re-exportation of goods or their destruction under customs supervision. In the former case, the vessel would be exported to a foreign jurisdiction for dismantling, while in the latter, the destruction would take place within Brazil, subject to strict regulatory oversight.
Although these possibilities are available, there remain significant gaps in tax benefits that could fall upon the Brazilian oil and gas marketplace, particularly in cases where foreign corporations are contracted. Such operations, which involves the importation of services or goods into Brazilian territory, are subject to exceedingly onerous import taxes. These types of contracts are common within the decommissioning regime and represents financial challenges that puts Brazil in fragility, compared to other countries where tax benefits are extended, even for decommission.
It's also important to detail intern process of decommissioning in Brazilian lands that involves several intricate steps:
- Communication to the Internal Revenue Service (Receita Federal) of the company’s intent to destroy the asset;
- Hiring of a specialized company to carry out the destruction;
- Obtaining authorization from the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) for both the company conducting the decommissioning process and the location where the destruction will take place;
- Submission of relevant documentation to the Internal Revenue Service for review and approval;
- Finally, the dispatch of a tax inspector from the Internal Revenue Service to oversee the procedure.
But why is this institute so bureaucratic yet so promising?
In April of the current year, the Brazilian Institute of Oil and Gas (Instituto Brasileiro de Petróleo e Gás – IBP) undertook a meticulous mapping of 48 shipyards across Brazil. The findings revealed that approximately six of these facilities have been rendered inactive, while nine remain operational, without any ongoing naval projects to warrant their continued activity. This prevailing scenario highlights the current state of the shipbuilding sector and signifies the imminent advancements in the decommissioning industry.
The effective management in the decommissioning process extends beyond the mere cessation of operations at shipyards and the dismantling of vessels; it encompasses mitigating potential environmental impacts. This approach necessitates not only the careful dismantling of facilities but also the consideration of sustainable practices.
Furthermore, it is also important to promote the recycling of materials derived from decommissioned assets, thereby facilitating their potential reuse in future installations. By implementing robust recycling initiatives, the industry can significantly contribute to the conservation of valuable resources, while simultaneously aligning with contemporary environmental standards (Environmental, Social and Governance – ESG, for example). Such advancements not only reflect a commitment to sustainability but also pave the way for a more circular economy within the marine sector, ultimately fostering an innovative approach to the challenges posed by decommissioning activities.
Other significant concerns related to the decommissioning sphere encompass the proper disposal of toxic wastes and hazardous materials, which pose considerable environmental risks. Effective management of these materials is imperative to mitigate negative impacts on ecosystems and public health. Such disposals are typically executed in Ship Recycling Installations that operate under strict regulatory licenses, ensuring compliance with environmental standards.
To align with prevailing international standards, there exists a novel law, waiting for approval, that plans to stimulate the Blue Economy by offering other tax benefits to companies that proficiently manage the disposal of harmful and toxic waste. This initiative aims to promote responsible environmental stewardship within the industry while providing financial benefits to enterprises that actively engage in the decommissioning of vessels, rather than abandoning them in international waters—a practice that poses significant risks to marine ecosystems.
Written by Daniella Tedeschi e Isadora Agra
DMAT Advogados
