Oil trade group the Brazilian Petroleum Institute said during Congressional testimony Tuesday that proposals to change the country's oil laws will limit competition.

Brazilian President Luiz Inacio Lula da Silva submitted four bills to Congress that would give the government a greater stake in recently discovered offshore oil reserves. The measures would also make state-run energy giant Petrobras (PBR) the operator in the so-called subsalt region.

IBP President Joao Carlos de Luca said putting Petrobras in the primary position to develop the recent oil discoveries would hinder competition and would reduce private companies to merely private investors.

"This is not good, not even for Petrobras," said trade group President Joao Carlos de Luca.

"Petrobras will always be a leader in the industry, much like it is today. But to extend to the company the sole operation (of the subsalt) is going to limit the appearance of other companies," he added.

The so-called subsalt discoveries were made under a thick layer of salt off the coast of Rio de Janeiro and Sao Paulo states. The oil lies under more than 2,000 meters of water and a further 5,000 meters under sand, rock and a shifting layer of salt.

In 2007, state-run energy giant Petrobras (PBR) shocked the world with the announcement of the Tupi discovery, the Western Hemisphere's largest oil find in more than 30 years.

The IBP also raised questions about the power of Petrosal, the new state-owned company that will be created to manage the government's subsalt assets. The company will have no operational activities, but will have veto power on development plans for subsalt blocks.

"The IBP defends the rights for investors, who are going to struggle with the risks and significant investments, to have the capacity to influence the way in which those investments are managed," said Ivan Simoes Filho, an IBP director and vice president of the local unit of BP PLC (BP).

There also remain doubts about how the subsalt areas are delineated in the new legislation. Murilo Marroquim, president of the Brazilian unit of independent producer Devon Energy (DVN), said some oil deposits above the salt layer could fall under the new regime.

"There's a need to define which areas are classified as subsalt because there are other fields above them, where exploration would become unfeasible if done under the proposed subsalt rules," Marroquim said.

Smaller subsalt deposits would also be vulnerable under the new regime as well, the executive added.

-By Jeff Fick and Gerald Jeffris, Dow Jones Newswires; 55-21-2586-6085; jeff.fick@dowjones.com