By MARY ANASTASIA O'GRADY

Why Brazil Isn't Ashamed to Exploit Its Oil
June 16, 2008; Page A13

Petrobras CEO José Sergio Gabrielli was flush with bullish insights when he stopped by the Journal's New York office last week to talk about the Brazilian oil company.

One reason for Mr. Gabrielli's optimism is last year's discovery of the offshore Tupi field, which is said to contain between five billion and eight billion barrels of black gold. Another, equally important reason is that, according to Mr. Gabrielli, neither environmentalists nor Brazilian politicians have raised concerns about exploiting oil in the waters off the Brazilian coast.

THE AMERICAS IN THE NEWS

Get the latest information in Spanish from The Wall Street Journal's Americas page.

That's quite a contrast with attitudes in the U.S., where offshore exploration and development has been all but shut down save in the Gulf of Mexico. One company official explains the difference by saying that Brazilians understand the importance of energy to their future, while Americans do not.

I have another theory. And mine fits the pattern of resource development – or lack thereof – all over the Western Hemisphere. It comes down to this: Where government has the property right, restrictions on development tend to be low. But when the private sector is the owner, environmental concerns blossom.

Exhibit A is Petrobras. Not only did Mr. Gabrielli say there is no appetite for stopping offshore projects in his country. He went further. "Brazil has one of the freest and most investor-oriented regulation in the world. Even freer than the United States of America," he said, referring to the climate for oil exploration.

That may be so, but it would be interesting to know why, given Brazil's prominent embrace of socialism. It could be that the country is changing. After all there is now private-sector competition in the oil industry. Yet it is also worth noting that the Brazilian government has a 58% controlling stake in Petrobras's voting shares and 32% of its total shares. This means that some of Petrobras profits go straight to the government's bottom line, giving the politicians more money to spend on bribing their constituents.

In the U.S., Congress doesn't have nearly such a vested interest in a successful oil industry. What good are corporate profits if they go to shareholders, pensioners and employees? Congress has even been denied the windfall profits tax. For American politicians there is a much greater incentive to respond to the concentrated power of the special interest group known as the "greens."

There are plenty of other examples. In 1995, the British government sold its final remaining shares of British Petroleum, which had been largely privatized throughout the 1980s. In October 1996, a British member of the European Parliament, Socialist Richard Howitt, began harassing BP for alleged environmental and human-rights violations in Colombia. Had the company suddenly gone from being a model citizen to a murderous, contaminating corporation? Or did the Socialists lose their incentive to support the company and discover new reasons to attack it, since left-wing constituents were ideologically allied with the Colombian rebels who were blowing up BP pipelines?

At least Petrobras is a well-run, publicly listed company that has to answer to shareholders. Pemex, Mexico's state-owned oil monopoly, has a history as a notorious polluter yet is seemingly exempt from political pressure to clean up its act.

Mining provides an even better window on this contradiction. Bolivia, Venezuela and Cuba all boast aggressive, state-owned mining operations. Yet neither the nongovernmental enviro-movement nor the political class utters a peep to object.

Wherever the private sector is proposing mineral exploration, the story is flipped on its head. In February, I visited a rural town in El Salvador, where Pacific Rim Mining Corp. is trying to reopen the El Dorado gold mine. The company spent a year building the designs for the mine, in a process that included more than 20 public meetings with the local community. It says that the final design exceeds international standards. The government of President Tony Saca acknowledges this by telling the company that there is no technical problem with the mine, only political ones.

Those political problems come from the left-wing FMLN political party, and the NGOs that share the FMLN's antiprivate-sector ideology. They have raised an environmental stink about the mine, though none of it has been substantiated. Even so, the Saca government has responded by sitting on Pacific Rim's permits for four years, sending a signal to investors that El Salvador is not open for business.

The local mayor told me that the community wants the project, which will directly create 600 new jobs and could produce as many as 3,000 indirect jobs. The real problem is that since the government isn't the owner, El Dorado doesn't inspire politicians in San Salvador the way Petrobras inspires Brasilia.

Write to O'Grady@wsj.com