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Brazil Senate passes bill to relax Petrobras hold on rich oil region

[BRASILIA] Brazil's Senate on Wednesday passed a bill that reduces Petrobras control over some of the country's most promising offshore oil resources, in an attempt to kick start the country's oil industry hammered by low oil prices and a corruption scandal at the state-run oil company.

The Senate passed the bill, 40-26, ending a requirement that Petroleo Brasileiro SA, as the company is formally known, operate all new developments in an offshore region known as the Subsalt Poligon and provide at least 30 per cent of investment.

If passed by the lower house of Congress and President Dilma Rousseff, the bill will overturn parts of a 2010 law seeking to increase government control of giant new offshore oil and gas resources.

The 2010 law has been criticized for limiting foreign investment in the Poligon, a region off Brazil's coast near Rio de Janeiro where large resources lie far beneath the seabed by a layer of mineral salts.

Petrobras, the world's most indebted oil company, has said it may not have the financial strength to finance exploration of such areas, putting at risk oil development and the billions in royalties the government wants.

"The only way to get the industry working again quickly is to pass this law," said Aluizio dos Santos, Mayor of Macaé, Brazil, the key offshore base for development of Brazil's offshore Campos Basin. His city has seen thousands of layoffs as Petrobras activity slows and oil prices fall.

"The requirement that Petrobras is the only operator and minimum 30 per cent financial operator has turned the promise of offshore subsalt oil into a curse," he said.

Petrobras did not immediately respond to an email request for comment.

Although previously against the legislation, Ms Rousseff eased her opposition in recent weeks as Petrobras finances continued to reel from a corruption investigation and dwindling oil prices.

Senators of Rousseff's Workers Party complained the government abandoned them in their vote against the bill. "The government changed its position... we feel abandoned in this issue that we consider strategic," said Senator Lindbergh Farias, one of the fiercest critics of the bill.

The bill still faces a tough battle in the lower house with the Workers' Party and other leftist lawmakers opposing opening up the region to more private investment.

Reflecting the conflicting views inside the administration, the government's cabinet minister in charge of legislative affairs, Ricardo Berzoini, said he opposed the changes. "This is not the time to change those rules. We believe that current oil prices and market volatility should not lead to changes now," Mr Berzoini told Reuters earlier on Wednesday.