PETROBRAS BRACES AS BRAZIL MAY OPEN COASTAL SHIPPING

PETROBRAS BRACES AS BRAZIL MAY OPEN COASTAL SHIPPING

Threatened loss of a reserved coastal shipping market for Brazilian-owned vessels is forcing federal oil monopoly Petrobras to re-evaluate the way it runs its maritime transport arm, the Frota Nacional de Petroleo, also known as Fronape.

Plans to build new tankers for the biggest of Brazil's three state-owned fleets are being canceled in favor of chartering ships on the international market, said Aurilio Fernandes, Petrobras' transport director.This dramatic strategy shuffle is motivated by a constitutional amendment that could open domestic transport along Brazil's 7,000-kilometer coast to foreign-flag vessels in an effort to lower high transport costs.

Congress promulgated the amendment in August along with three others that aim to open Brazil's long-protected economy to more private investment and competition.

Sometime this month, the presidential palace will send Congress bills to create detailed enabling laws needed to support the constitutional amendments. President Fernando Henrique Cardoso will be pushing to have many of them passed by year-end.

Looking to protect the domestic fleet as much as possible, a cabotage shipping bill being prepared by the Navy ministry is expected to permit the use of foreign-flag ships only when Brazilian ships are fully employed.

The national ship operators syndicate, known as Syndarma, is preparing its own suggestions for the enabling laws. Foreign operators should play only a complementary role to Brazilian carriers without actually contesting the market, said Goncalo Borges Torrealba, Syndarma's president.

But the Brazilian fleet, sapped by decades of inflation, financial scandal in maritime regulatory agencies, neglected ship renewals and freer international competition, today carries only about one-third of the country's trade.

Meanwhile, Petrobras faces the very real threat of another constitutional amendment that would end its stranglehold on the national oil monopoly and open that market to private competition. This one is pending before the Senate after having passed the lower house during the first half of the year.

Federal oil company administrators apparently have decided to take the cabotage threat seriously and roll with the first punch. Their decision is good news for international tanker owners, but bad news for depressed Brazilian shipyards.

Petrobras had planned to contract construction of 10 tankers of 50,000 tons capacity each from Brazilian shipyards at a cost of some $500 million. The vessels would have been used to transport petroleum from this country's Campos Basin offshore fields, Mr. Fernandes said.

Instead, Fronape will transfer five of its older tankers of 130,000 tons capacity each from international routes to coastal transport slots that would have been filled otherwise by the new ships. Two similar vessels will be turned into cistern ships.

The transferred ships, representing almost a million tons capacity, will be replaced by chartered foreign-flag vessels on the international routes.

Domestic ships with Brazilian crews cost as much as 30 percent more to operate, so Petrobras' policy will be to use more charters, Mr. Fernandes said. Fronape employs almost half of Brazil's sailors, some 3,500 of them.

Petrobras currently owns 75 tankers totaling 5.5 million tons capacity. It also operates 69 more chartered tankers totaling another 5.1 million tons capacity.

The federal oil company currently has six vessels contracted to Brazilian shipyards that will increase its fleet by another 231,000 tons capacity.

No further new shipbuilding contracts are anticipated, Mr. Fernandes said.