Sept. 2 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva boarded an oil platform today to celebrate the first output from offshore deposits he's counting on to speed development and end poverty.

The oil is the first trickle from the so-called pre-salt region containing as much as 50 billion barrels of oil worth $6 trillion at current prices. Located in area is Tupi, the largest discovery in the Americas since 1976. Petroleo Brasileiro SA, the state-controlled oil company, is tapping the well about 560 kilometers (350 miles) northeast of Rio de Janeiro.

Although full-scale production is still years away, Lula's allies in congress are already writing bills to spend the windfall on programs ranging from education to nuclear submarines. Other lawmakers want to revamp Brazil's oil industry to exert more state control and limit foreign involvement. As the fight for cash intensifies, analysts and opposition lawmakers say it may scare off investment.

``We are cooking the omelets with eggs that the hen hasn't laid,'' said congressman Luiz Paulo Vellozo, who heads an opposition panel discussing pre-salt. ``We should not be discussing how to spend the money, but how to get the oil out.''

Exploration Blocks

Among the proposals under study by a panel of ministers and Petrobras's Chief Executive Officer Jose Sergio Gabrielli is one to create a new government-owned company to manage un-leased pre-salt exploration blocks. Other options include the state boosting its stake in Petrobras. While the government has voting control of the company, it owns only 38 percent of total stock. In Brazil, all subsoil rights belong to the federal government.

The committee, whose deliberations are taking place in secrecy, is expected to make its recommendations to Lula later this month.

The policy review threatens to slow the $600 billion in investment that UBS AG said in a report will be needed to develop the deep-sea fields. New auctions of exploration tracts are on hold and auctions begun in 2006 were suspended. Companies that won concessions before the halt, including Italy's ENI SpA, Norway's StatoilHydro ASA, and Australia's Woodside Petroleum Ltd., can't begin exploration until the auction process is complete.

``What we're looking at is creeping expropriation,'' said Marilda Rosado, a former Petrobras and Brazilian Petroleum Agency lawyer in Rio de Janeiro now at the Rio de Janeiro law firm of Doria, Jacobina, Rosado e Gondinho Advogados. ``Investments have already been delayed and probably will slow further,'' she said.

Politics

Politics is driving the debate. Lula, hoping to cement his legacy after he leaves office in 2010, has revived populist leader Getulio Vargas' 1950s nationalist rallying cry, `the oil is ours.'' The former labor leader has promised to spend the expected windfall on improving education for the poor.

The president is also facing pressure from his party and ex- union colleagues to use the oil windfall to expand Brazil's capacity to build ships and oil rigs, and provide oilfield services.

Oil workers have threatened to strike if the government resumes auctions under the existing legislation. In the nine auction rounds since 1999, the government has raised about $3.5 billion for 3,383 exploration blocks, an amount Senator Aloizio Mercadante called ``extremely low'' at a conference last week.

``It's an issue of national sovereignty,'' said Joao Moraes, leader of the Petroleum Workers' Union, in a phone interview.

`Paradox'

Petrobras has the most at stake in the regulatory fight. The company has evolved into the world's 11th-largest company with a market value of more than $205 billion, about half the value of Exxon Mobil Corp., the world's the world's largest company, under the decade-old system of oil rights auctions.

``The paradox is that the discovery of pre-salt is the successful culmination of the same model now under threat,'' Carlos Langoni, a former central bank president, said at an Aug. 29 conference in Rio de Janeiro to discuss the new oil laws.

Since July 9, when the price of oil reached a record, the company's shares have tumbled 16 percent to 33.55 reais at 9:10 a.m. in Sao Paulo, almost double the decline in both the Sao Paulo stock market and the New York Stock Exchange Energy Index. The shares are now trading at the lowest levels since before the discovery of Tupi in November.

Strategic Affairs Minister Roberto Mangabeira said the government will do whatever is necessary to make sure Brazil doesn't suffer ``Dutch Disease'' and grow overly dependent on oil.

Brazilians should be proud of Petrobras and the current auction system that has helped transform the country from almost complete reliance on imported oil into a net exporter, he said.

``But just because something has worked in the past doesn't mean it'll work forever,'' he said in a telephone interview.

To contact the reporters on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net; Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net

Last Updated: September 2, 2008 11:14 EDT