Government to launch biomethane promotion plan

Biogas, Green Gas, or Biomethane? Explained

The federal government is preparing a set of measures to encourage the production and consumption of biomethane, a gas produced from the decomposition of organic materials, equivalent to natural gas of fossil origin, whose main manufacturing potential is in agriculture. The measures, which will be announced on March 21, involve tax relief on investments and attraction of international resources, according to a source who followed the discussions.

The first measure will be a decree by the Ministry of Mines and Energy to include investments in biogas and biomethane in the Special Incentive Regime for Infrastructure Development (REIDI), which suspends social taxes PIS and Cofins on contributions in new industries in the segments of infrastructure and mobility. The tax exemption is expected to reduce the cost of investments in biomethane by 9%.

The measure is supposed to equalize the tax treatment of biomethane projects to that of natural gas, which are already included in REIDI and, therefore, have the tax break. As it stands today, investments in natural gas of fossil origin end up in practice having an economic advantage over investments in biomethane, which avoid methane emissions.

The second measure will come from the Ministry of the Environment, which is expected to issue a decree to expand the resources of the Climate Fund, managed by the Brazilian Development Bank (BNDES), aimed at investments in biogas and biomethane. The expectation is to guarantee an offer of around $500 million in financing for the sector.

Biogas is already one of the energy routes planned for financing the Climate Fund’s renewable energy sub-program. Current rates range from 1.9% to 5.4% in indirect operations and stand at 1.9% in direct operations. The term of the financing agreements is 16 years, with a grace period of up to eight years.

The two decrees come as after the country joined the Global Methane Pledge during the last COP26, by which 100 countries committed to cutting gas emissions by 30% by 2030. Brazil is the fifth largest emitter of methane in the world, but the main culprit is the cattle’s enteric fermentation (belching and flatulence), which accounts for more than half of the country’s methane emissions.

Environment minister Joaquim Leite has said in recent public statements that the government also intends to create a “methane credit” instrument, along the lines of a carbon credit, which could serve as additional revenue for biomethane production projects.

In a recent event by consultancy Datagro, Mr. Leite said that methane credits could guarantee extra income to biomethane producers, both related to methane that ceases to be released into the atmosphere with the biodigestion of waste, and related to diesel that is no longer consumed in heavy vehicles and is replaced by renewable gas. The tool, however, will not be announced next week.

In recent months, ministry officials have met with representatives of the private sector to discuss the new measures. There was also a request to make the environmental licensing requirement more flexible for biogas projects with up to 10 megawatts in power.

Source: Valor International

https://valorinternational.globo.com

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Prysmian gears up for 5G expansion of Brazilian telecoms industry

The Italian group Prysmian, a manufacturer of phone and energy cables with seven plants in Brazil, will increase investments in technological innovations and in its main plant in Sorocaba, São Paulo, to expand its production capacity.

The overall industry figures point to a growth in fiber optics. In 2020, there were 8.9 million kilometers of cable across Brazil; in 2021, 9.8 million; and for 2022, the forecast is 10.5 million kilometers.

Alejandro Quiroz, the company’s new CEO for Latin America, told Valor he expects a positive year despite the economic crisis the country is going through, compounded by the war in Ukraine, inflationary pressures and political uncertainties.

Prysmian is developing a new fiber-optic cable technology through which it will be able to transmit the 5G signal and power supply. The company is one of the leading cable suppliers to the Brazilian market.

“The pandemic period, for us, brought an additional increase in demand for cables in telecommunications, due to the growth in connectivity, both from large carriers and smaller providers. Over the past two years, our fiber optic factories have worked at full capacity, but following sanitary protocols. At the same time, we had to deal with problems in the supply chain,” Mr. Quiroz said.

About the current Brazilian economic moment, the Mexican executive says that Prysmian is growing above the gross domestic product for the third consecutive year. “Demand in Brazil remains high,” he said.

For the Brazilian telecommunications sector, Prysmian develops cables and optical fibers for data, image and voice transmission, conventional copper and aluminum cables, accessories and specialized services.

In the energy segment, the group supplies terrestrial and submarine wires and cables for electricity transmission and distribution, in addition to specialized services and integrated solutions. The company has been active in Brazil since 1929, when it was a wire and cable unit of Pirelli. In 2005, the company became independent after acquiring rival Draka. In 2018, Prysmian bought General Cable, one of the largest cable producers in the Americas.

Regarding the conflict in Ukraine, the group believes that the war can accelerate an energy transition to renewables. “The increases in energy and fuel costs, which will affect regional economies, once again show us the need to accelerate the global energy transition. To reduce this dependency, we will look to the potential of the natural resources we have in Latin America,” Mr. Quiroz said.

According to the group, many wind and solar farms are integrated into the nationwide electric power transmission management system, but there are regions in which the connection is weak, especially between the North and Northeast with the South and Southeast regions. At the same time, the company foresees expansion in applications for the mining industry.

In Brazil, the group employs about 1,500 people in seven units: two in Sorocaba (São Paulo) and the remainder in Poços de Caldas (Minas Gerais), Vila Velha (Espírito Santo), Cariacica (Espírito Santo), Joinville (Santa Catarina) and Londrina (Paraná).

The company’s head of telecommunications for Latin America, Marcelo Andrade, said that, due to the size of the sector, it is necessary to get ahead of investments and open several initiatives.

“We invested R$50 million in telecommunications last year, but this started before in order for us to be prepared for this consumption boom,” the Brazilian executive said.

As for the future, Mr. Andrade points out two key points: increasing the coverage of broadband internet in the country and the implementation of 5G, which will increase digital inclusion and the need for fiber connected to the antennas – which will spread the signal of the new technology.

The assessment is that 5G will need 5 to 10 times more base transceiver stations than 4G. The executive says that Prysmian has innovation projects with phone carriers to develop a new network structure that can help to “clear” the tangle of wires seen in Brazilian cities, since the transmission system in the country is overhead, as in most Latin American cities, and not underground, as in Europe.

“We are designing a hybrid cable with the help of Brazilian engineers from our research center. That is, we are going to bring an optical and power cable together, so they can connect to the antennas,” he said.

The product has been tested and, at this moment, Prysmian is in the final phase of negotiations with phone carriers. In addition, the group is working on the miniaturization of the cables. “They will need more and more optical fiber to meet the capacity of 5G. A cable had six, 12 fibers before. Now it will have 24, 36, or even 288 fibers. This is called densification. The goal is to have the smallest possible cable to take advantage of the existing infrastructure,” Mr. Andrade said.

Source: Valor International

https://valorinternational.globo.com

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Analysis: “Tax cushion” idea always returns when oil rises

The idea of creating a “tax cushion” to soften the blow caused by fluctuations in fuel prices has come up cyclically when oil prices rise in the international market.

That’s how the government responds to pressures to “do something” to tackle the rise in fuel prices in the domestic market. The debate is dropped as soon as the price declines. This was the case in the 2018 truckers’ strike.

This once, the “tax cushion” resurfaced in an interview with the Minister of Mines and Energy, Bento Albuquerque, published on Wednesday’s edition of the newspaper O Globo.

When asked if the federal tax Cide no longer fulfilled this function, the minister said that this tax has lost this role.

Cide was created in one of these moments of high oil prices precisely to be the so-called “tax cushion.” The law that created it in 2001 says that its collection is intended to the “payment of price subsidies or transportation of fuel alcohol, natural gas and its products and oil products,” before mentioning other purposes.

But, as time went by, Cide lost this regulatory function and became a tax to raise collection. Currently, its revenues are shared with states and municipalities and linked to the financing of transportation infrastructure, for example.

The creation of a new tax to resume the original idea of Cide, however, is not the object of in-depth studies at the Ministry of Economy at the moment, the source says.

The strategy outlined by the economic team goes another way: the Supplementary Law 192, which made its way in Congress as Supplementary Law Project 11/2020, which changes the taxation on fuels. This law exempts diesel, cooking gas and aviation kerosene from federal taxes and changes the way sales tax ICMS is levied.

The economic team is now waiting for the effects of this bill, signed into law last week, before deciding on further steps.

The decline in the price of a barrel of oil to levels below $100 strengthens this line. The expectation behind the scenes now is that Petrobras can reduce its prices, as President Jair Bolsonaro demanded on Wednesday.

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BTG mulls investment in Braskem through debt

Braskem tried to tap market through secondary offering of shares held by Novonor and Petrobras, without success — Foto: Edilson Dantas/Agência O Globo
Braskem tried to tap market through secondary offering of shares held by Novonor and Petrobras, without success — Foto: Edilson Dantas/Agência O Globo

After the failed attempt to sell Braskem and the suspension of a secondary offering of shares in the Brazilian stock exchange B3, Novonor (formerly Odebrecht) is again studying alternatives to sell its stake in the petrochemical company.

BTG Pactual is said to be interested in buying the holding’s debts from creditor banks, which have Braskem shares as collateral. At the same time, talks with investment funds and rival companies for the sale or some of its assets have resumed, sources say.

BTG Pactual and funds focused on distressed debts once again spoke with Novonor, which seeks to generate liquidity for its securities. The “special situation” team of André Esteves’s bank is interested in buying debts in hands of Banco do Brasil, Bradesco, Itaú and Santander, as long as the financial firms agree to grant a hefty discount, a source familiar with the matter said.

According to a source, BTG’s most recent proposal was presented indirectly to Novonor through Braskem’s executives. There is no formal offer on the table yet. For the negotiations to move forward, it is necessary to have an alignment of the company’s shareholders with the banks. None of these players could sell their shares individually.

It is not the first time that funds and banks specialized in “special situations” have tried to purchase debt from Novonor, which owns 38.3% of the petrochemical company’s total capital. Braskem currently has a market capitalization of R$35 billion and is the main business of the group, which went into judicial reorganization in June 2019, with R$100 billion in debt.

The challenge in this transaction is to convince the banks to negotiate discounts. Novonor’s debts with Banco do Brasil, Bradesco, Itaú, Santander and the Brazilian Development Bank (BNDES) totals nearly R$15 billion. These banks have Braskem shares as collateral. “The value of the shares no longer covers that debt,” a person familiar with the matter said, justifying the request for a discount on the debts.

People familiar with the creditors told Valor that this proposal has not yet reached the banks and that there is no willingness of financial firms to grant discounts.

On another front, Novonor is said to be in talks with rival companies and investment funds to discuss the sale of Braskem again. Groups such as Unipar and the holding company J&F Investimentos, which owns JBS, were sought for talks. U.S-based fund Apollo was also approached, another person familiar with the matter said.

There is no firm proposal so far, but interested parties are said to have presented different structures for a potential deal. In 2018, LyondellBasell came very close to buying the petrochemical company before giving up due to environmental problems in Alagoas.

In January, the petrochemical company tried to tap the market through a secondary offering of shares held by Novonor and Petrobras, without success. Although there was demand for the shares, investors were asking for a discount.

Given the uncertainties in the market, worsened in recent weeks by the war in Ukraine, analysts believe that this is not the time for the company to resume the secondary offering.

Braskem has been preparing to migrate to the Novo Mercado, a section of the B3 exchange with stricter governance rules, which should bring gains for the shares. The original idea is to sell common shares held by Novonor after the migration. Two weeks ago, shareholders holding PNB shares in the company rejected the conversion of these shares into PNAs, a step that is preparatory to the unification of the different classes of shares into common stocks.

Apollo, BB, BTG, BNDES, Bradesco, Braskem, Novonor, J&F, Santander and Unipar declined to comment. Itaú and Petrobras did not immediately reply to a request for comment.

Source: Valor International

https://valorinternational.globo.com

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Central Bank raises interest rate, signals new hike

For the next meeting, the Copom foresees another adjustment of the same magnitude — Foto: Jorge William/Agência O Globo
For the next meeting, the Copom foresees another adjustment of the same magnitude — Foto: Jorge William/Agência O Globo

The Central Bank’s Monetary Policy Committee (Copom) raised on Wednesday the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 11.75% per year. This is the ninth consecutive increase. For the next meeting, the Copom foresees another adjustment of the same magnitude.

“The Copom emphasizes that its future policy steps could be adjusted to ensure the convergence of inflation towards its targets and will depend on the evolution of economic activity, on the balance of risks, and on inflation expectations and projections for the relevant horizon for monetary policy,” says the committee’s statement.

This Wednesday’s decision was in line with the median of market expectations and within what was signaled by the monetary authority at the previous meeting – at the February meeting, the Central Bank indicated it would reduce the pace of monetary tightening, but did not specify the magnitude of the next adjustments. At the time, the Selic was raised by 150 bp, to 10.75% per year

In a survey carried out by Valor with 93 financial and consultancy firms, 82 expected the Selic to be raised by 100 bp, to 11.75%. Nine projected a 125 bp increase, while two believed the committee would keep the pace of interest rate hikes at 150 bp.

The Copom meets again on May 3 and 4.

For the Copom, in the external scenario, the environment has deteriorated substantially. “The conflict between Russia and Ukraine has led to a strong tightening in financial conditions and higher uncertainty surrounding the global economic outlook”, it stated. “In particular, the supply shock resulting from the conflict has the potential of increasing inflationary pressures, which had already been rising both in emerging and advanced economies.”

The committee says that it considers it appropriate for interest rates to advance significantly towards an even more contractionary terrain and “considers that, given its inflation projections and the risk of a deanchoring of long-term expectations, it is appropriate to continue advancing in the process of monetary tightening significantly into an even more restrictive territory.”

The Copom stated that “consumer inflation continued to surprise negatively. These surprises occurred both in the more volatile components and on the items associated with core inflation.”

In the statement, the Central Bank stressed that various measures of underlying inflation are above the range compatible with meeting the inflation target.

Regarding Brazilian economic activity, the Copom highlighted that the release of the GDP figures for the fourth quarter of 2021 indicated a higher-than-expected pace of activity.

The committee states that “the current projections indicate that the interest rate cycle in its scenarios is sufficient for inflation convergence to levels around the target over the relevant horizon.”

The Copom published two inflation projection scenarios, both considering a rise in basic interest rates to 12.75% per year, with a fall to 8.75% per year next year.

“The committee’s actions aim at curbing the second-round effects of the current supply shock in several commodities, which appear in inflation in a lagged manner”, it stated. “The Copom judges that the moment requires serenity to assess the size and duration of the current shocks.”

“If those shocks prove to be more persistent or larger than anticipated, the Committee will be ready to adjust the size of the monetary tightening cycle. The committee emphasizes that it will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate,” the statement continues.

“The Committee assesses that the uncertainties regarding the fiscal framework maintain elevated the risk of deanchoring inflation expectations, but considers that this risk is being partially incorporated in the inflation expectations and asset prices used in its models. The Committee maintains the assessment of an upward asymmetry in the balance of risks.

The committee still sees both upside and downside risks to inflation.

“On the one hand, a possible reversion, even if partial, of the increase in the price of international commodities measured in local currency would produce a lower-than-projected inflation in its scenarios,” says the document.

“On the other hand, fiscal policies that imply additional impulses to aggregate demand or deteriorate the future fiscal path may have a negative impact on prices of important financial assets as well as pressure the country’s risk premium.”

Source: Valor International

https://valorinternational.globo.com

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Mining companies stand against use of indigenous lands

Illegal mining on Yanomami people lands — Foto: Daniel Marenco/Agência O Globo

Brazilian and foreign mining companies operating in the country said Tuesday they are against the bill sponsored by the Bolsonaro administration that foresees the opening of indigenous lands for mining projects. The companies say the issue needs a broader debate. And they are against the limited role that the bill gives to the indigenous people.

The bill establishes that the indigenous people need to be consulted on future projects on their lands, but without the power to veto them. The mining companies defend that the projects could only be put in place with the consent of the indigenous people.

The position was issued through a statement released by the Brazilian Mining Institute (Ibram), which brings together mining companies and companies that support the sector, among them giants like Vale, Anglo American, CBMM, Rio Tinto, Vallourec, Huawei, Gerdau and Votorantim.

Ibram’s president is Raul Jungmann, former Minister of Defense in the Temer administration. Mr. Jungmann took over the command of the organization recently.

The bill number 191 is making its way in the Chamber of Deputies, and it foresees the regulation of “the research and exploitation of mineral and hydrocarbon resources and the use of water resources to generate electricity on indigenous lands.”

The exploitation of indigenous lands is foreseen by the 1988 Constitution but has never been regulated.

The issue is dear to President Jair Bolsonaro and right at the beginning of his term was presented as one of the priority projects by the Minister of Mines and Energy, Bento Albuquerque, to representatives of large mining companies at an industry event in Toronto, Canada.

The discussion, however, did not move forward. It has only gained momentum now under the argument that — with Russia’s war against Ukraine and the limitations imposed on fertilizer exports from the region — Brazil could multiply its potash production if mining on indigenous lands is allowed.

The argument is not sustained by proof, since the vast majority of deposits of the mineral is not on indigenous lands. Even so, last week, federal lawmakers passed an urgency request to evaluate the proposal.

“The Brazilian Mining Institute understands that bill 191/2020, presented by the executive branch of government in the National Congress, is not appropriate for its intended purpose, which would be to regulate the constitutional provision that provides for the possibility of implementing economic activities on indigenous lands, such as power generation, oil and gas production and mining,” Ibram said in a statement.

“Since mining on indigenous lands is in the Federal Constitution, articles 176 and 231, its regulation needs to be widely debated by Brazilian society, especially by the indigenous peoples themselves, respecting their constitutional rights, and by the Brazilian Parliament.”

Ibram argues that mining can be viable in any area of the country, abiding environmental rules. But when it comes to indigenous lands, the entity adopts a stricter stance than that advocated in bill 191.

“In the case of mining on indigenous lands, when regulated, the Free, Prior and Informed Consent (FPIC) of the indigenous people is essential. FPIC is a principle provided for in International Labor Organization ILO 169 and in a series of other international directives. It established that each indigenous people, considering their autonomy and self-determination, can define their own consultation protocol to authorize activities that impact their lands and ways of life,” say the mining companies, through the Ibram statement.

The bill does not mention consent. It establishes the “procedure for hearing the affected indigenous communities,” but it does not say they have the power to say no to the project of a company that intends to exploit their lands.

In chapter 4, article 14, the project points out that: “It is up to the President of the Republic to send to the National Congress a request for authorization to carry out the activities provided for in this Law on indigenous lands.”

It continues: “The President of the Republic will consider the manifestation of the affected indigenous communities to carry out the activities referred to in the first sentence. The request for authorization may be forwarded with a manifestation to the contrary from the affected indigenous communities, provided that it is motivated.”

Although mining on indigenous land may represent new opportunities for companies, there is a view in the sector that it will only be possible to consider projects in these areas if there are transparent rules that reduce the risks of conflicts with the indigenous peoples. Another concern in the sector is that the bill may end up paving the way for mining companies that have been operating illegally for years in some indigenous lands in the Amazon rainforest – especially extracting gold and diamonds – sometimes in agreement and sometimes in open conflict with indigenous peoples.

In the note, Ibram condemned illegal mining and demanded that the activity be combated. “The preservation of the Amazon is a necessary condition for the discussions of all matters related to mining in Brazil.”

If approved by the Chamber of Deputies, bill 191 will still need to go through Senate.

Source: Valor International

https://valorinternational.globo.com

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War intensifies battle between fertilizer giants in Brazil

Fertilizer issues coming from every angle

The unfolding of the war in Ukraine blared a warning for the global operations of the Norwegian Yara, one of the largest suppliers of fertilizers in the world — and a company that competes for the leadership of the Brazilian market with U.S.-based Mosaic. Brazil is among the biggest consumers of fertilizers in the world, as well as the Unites States, China and India.

This year, the global geopolitical scenario forces the company to race against the clock to serve Brazilian farmers in the final stretch of the first half of the year, when they make stocks for the next harvest. Yara has one of its largest subsidiaries in Brazil, where it delivered 8.8 million tonnes of products in 2021 — on the European continent, where it is headquartered, deliveries totaled 9.2 million tonnes in the period.

“Yara is a strong company, and very professional, but it is now poorly positioned in terms of its own supply,” said a source in the chain. Mosaic and Yara are almost isolated leaders in Brazil, with 22% and 18% of the market in 2021, according to data prepared by consultancy StoneX. Paraná-based Fertipar is the third, with 10%.

According to sources in this chain, Yara is in a “delicate strategic situation”, since the company buys phosphates and potassium while the main competitor, Mosaic Fertilizantes, is holding its production. “Mosaic has its own phosphate fertilizer in the U.S. and is part of an operation in Saudi Arabia. In addition, it also has potash mines in Canada,” the source said.

With the war and other geopolitical issues facing Belarus, Yara International has restricted its raw material procurement origins. In early February, the company had already announced the interruption of potash purchases from Belarus, a country sanctioned by the U.S. and EU last year.

Last Friday, Yara expanded the list of restrictions by announcing the interruption of all purchases from suppliers linked to Russian entities and individuals included in the reprisal lists.

Western countries sanctioned officials and businesspeople close to the Russian government in response to the invasion of Ukraine, in February 24. “As a result of the additional European Union sanctions implemented on March 9, 2022, Yara has stopped all purchases from Russian suppliers linked to entities and persons sanctioned [by the bloc],” the company said in a statement.

The company said it intends to ensure the continuity of its supply chains through its operations in other countries. Despite this, it reiterated its concern for global food security and called for government actions to reduce Russia’s dependence on this segment.

“It is crucial that the international community come together and work to ensure world food production while reducing dependence on Russia, although the number of alternatives today is limited,” said Svein Tore Holsether, CEO of Yara International, in a recent article.

Among Russian businesspeople sanctioned by the EU on March 9 are Andrey Melnichenko (EuroChem), Andrey Guryev (PhosAgro) and Dmitry Mazepin (UralChem) and his son Nikita Mazepin. The three companies are major suppliers of nutrients for fertilizers. According to a Brazilian businessman, Yara is a customer of all of them.

Yara’s list of suppliers includes Russian company Acron, which recently negotiated the purchase of a Petrobras unit in Mato Grosso do Sul. Russian companies removed the executives, according to statements posted on websites on March 10.

“Without buying potash from Belarus, and now without Russia, there will be a strong impact on Yara’s business here in Brazil,” says a top sector executive. In nitrogenous products, the company has a good part of its production of ammonia, the raw material of this group of nutrients, concentrated in Europe. However, on March 9, it announced that it would reduce the volumes in two plants due to the escalating prices of natural gas – which gives rise to ammonia.

Source: Valor International

https://valorinternational.globo.com

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High fuel prices bring nuclear generation back on table

Thiago Barral — Foto: Leo Pinheiro/Valor
Thiago Barral — Foto: Leo Pinheiro/Valor

The current moment of high fuel prices, due to the geopolitical crisis in Ukraine, and the transition to low-carbon energies generate debates likely to include the role of nuclear power generation in Brazil, said Thiago Barral, head of the Energy Research Company (EPE). “The moment we are living, with rising fuel prices, brings to the fore the reflection on energy security,” said Mr. Barral on Tuesday at an online event held by the Brazilian Center for International Relations (Cebri).

A new nuclear power plant in Brazil is foreseen in the EPE’s Ten Year Energy Plan (PDE) 2031. Mr. Barral explained that the plant was included in the plan to secure supply. The nuclear source does not emit carbon and is dispatchable, that is, it can generate at any time, unlike renewable sources such as wind and solar, which depend on weather conditions.

“We brought nuclear back to the center of the discussion from the perspective of reducing the regret cost in the context of energy transition and the need to value energy security. Brazil cannot give up this technology. There are ongoing actions to ensure that nuclear participation is made feasible,” he said.

According to Mr. Barral, EPE has analyzed the technology of small modular reactors, which are projects with an installed capacity of up to 300 megawatts, smaller than traditional nuclear plants and tend to have lower costs.

“EPE has been paying attention to small modular reactors to understand the role that nuclear power can play in Brazil. We are at the stage of understanding in greater depth how this new technology brings opportunities for nuclear energy to be inserted into the power generation mix from now on,” he said.

Today Brazil has 1.9 gigawatts of installed capacity for nuclear generation from the Angra 1 and 2 plants, which represents 2.5% of the power generation mix. Angra 3 is under construction, scheduled to start operating in 2026, with a 1.4 GW capacity. The projects are operated by Eletronuclear, a subsidiary of Eletrobras.

Eletronuclear’s CEO Leonam Guimarães pointed out in the event that the company’s studies indicate that, despite the high initial investments for these projects, Angra 3 tends to reduce the total cost of operating the electrical system, as it reduces the use of other more expensive plants.

He recalled, however, that nuclear generation is difficult in an environment of high interest rates. “The initial cost is very high. This takes away the economic and financial competitiveness of the project. The balance of the cost of energy security has to be considered,” he said.

Private-sector companies are interested in investing in the source in Brazil, according to PSR consulting partner Celso Dall’orto. “We need to solve the regulatory and legal situation for the private sector to take part in this source,” he said.

Source: Valor International

https://valorinternational.globo.com

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Unigel raises bet on agribusiness, fertilizers

Daniel Zilberknop — Foto: Claudio Belli/Valor
Daniel Zilberknop — Foto: Claudio Belli/Valor

Unigel, one of Brazil’s most traditional petrochemical companies, is focusing on agribusiness after Russia invaded Ukraine. Months after restarting the operation of two fertilizer plants leased from oil giant Petrobras, which contributed to 2021 being the best year ever, the company will expand local production of strategic inputs for nitrogen fertilizers and chemicals that are currently 100% imported.

“In the medium term, we have growth plans in all three fields: agribusiness, acrylics and styrenics. But today the major focus is on agriculture because we can see Brazil’s reliance on imported fertilizers. This exposure makes us want to invest more,” said Daniel Zilberknop, Unigel’s chief financial officer.

The company, which is the largest producer of acrylics and styrenics in Latin America, could be exposed to the risks of shortages generated by the war. By leasing Petrobras’s fertilizer units in Bahia and Sergipe, which were previously idle, Unigel became the only local producer of ammonia, used in fertilizers and in the acrylic chain. Before, this raw material had to be 100% imported, and Russia accounts for 23% of the global supply.

Unigel Agro will complete the business portfolio and integrate the company’s other operations, first in the case of ammonia and now in sulfuric acid, Mr. Zilberknop said. There will be more developments ahead, and green hydrogen and green ammonia are on the company’s radar.

At this moment, the company is investing $100 million in a new plant for the product in Camaçari, Bahia, which will be used to reactivate an ammonium sulfate plant (a nitrogen fertilizer), which came in the package of assets leased from Petrobras – sulfuric acid is used in the production of both fertilizers and acrylics, and the steam generated in the production process is used as energy in the styrenics operation.

To reactivate the nitrogen fertilizer plants, the company had already disbursed about $100 million. “Before, we navigated more the petrochemical cycle. With Unigel Agro, the scale has also changed. We intend to expand into agribusiness production, further integrating our business,” the executive said.

Last year, while the stronger petrochemical spreads boosted performance in the first half, the full operation of the nitrogen fertilizer plants has driven the results at a time of weaker spreads – in the year, the results in acrylics and styrenics also grew compared to previous years, with a greater focus on operational efficiency.

Unigel ended 2021 with gross revenue of R$8.49 billion, more than double what was reported in the previous year, and EBITDA of R$1.7 billion, a more than threefold increase. The net income reached R$882 million and the cash generated by operational activities more than doubled to R$1.1 billion.

After a ramp-up in the nitrogen fertilizer plants in August, Unigel became the largest nitrogen fertilizer manufacturer in the country. The business had a relevant contribution in the results in 2021, accounting for 25% of the gross revenue and 33% of the adjusted EBIDTA.

Today, Unigel Agro’s installed capacity is 925,000 tonnes per year of ammonia, 1.125 million tonnes of urea, 670,000 tonnes of ammonium sulfate and 220,000 tonnes of Arla, used to reduce emissions from large vehicles.

In the executive’s view, the war in Ukraine brings direct consequences for the oil and gas and fertilizer markets but for now is not a reason for concern for Unigel Agro, which uses gas in the production of urea and ammonia.

Considering local supply contracts with Petrobras and Shell, assured demand and raw material hedging, the operation is expected to smoothly navigate the conflict. Russia is the largest exporter of ammonia and urea in the world and one of the biggest players in NPK fertilizers, which caused the prices of these inputs to skyrocket as the country was sanctioned for the invasion of Ukraine.

Unigel ended 2021 with R$849 million in cash reserves and will be able to face the investment in sulfuric acid with the funds generated by its businesses. The company was on its way to selling shares on the stock exchange but suspended the IPO in the second half of last year amid deteriorating market conditions.

“The company is at its best moment and is able to invest in growth with deleveraging,” the executive said. At the end of the year, Unigel’s net debt, of about R$2.1 billion, accounted for 1.2 times the annualized EBITDA, a ratio seen as comfortable by rating agencies.

Source: Valor International

https://valorinternational.globo.com

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War already impacts M&A in Brazil

Daniel Wainstein — Foto: Divulgação
Daniel Wainstein — Foto: Divulgação

The Russia-Ukraine war has already started to impact M&A operations, according to investment banks and firms consulted by Valor. In these first 20 days of conflict, no deal has been canceled, but there are already discussions about repricing of assets for sale, especially in the segments of oil, gas and agricultural commodities, due to the uncertainties generated in recent weeks.

With the rise in oil prices, the market is trying to understand what the new price level for the raw materials will be. “What is the peak?” — this is the question that needs to be answered to define the prices of assets, notes Gustavo Miranda, head of investment banking at Santander. “We are watching the unfolding [of the war] to start defining the next steps.”

There is also a discussion about how Brazil may be affected by the war. “There is an understanding today that Latin American countries would be less affected because they are far from the battle area and also because they are important commodity producers,” Mr. Miranda said.

“I’m not seeing anyone postponing transactions and the interest in Brazilian assets remains solid,” said Ricardo Lacerda, a partner and CEO of investment bank BR Partners. “But we have already seen price disruption, especially for energy assets. Nobody wants to run the risk of mispricing.”

In late January, when the war was still a geopolitical tension, Petrobras and power company Eneva communicated the closure, without agreement, of the negotiations for the sale of Polo Urucu — belonging to the state-owned company, in the Solimões Basin, in Amazonas. In a statement, Eneva said that, despite the efforts between the parties, it was not possible to converge on an agreement. Petrobras, on the other hand, informed that it decided to terminate the current competitive process and would evaluate the best alternatives for the asset.

The rise in oil prices was determinant for the end of the negotiations. When Eneva started negotiating the purchase of the asset in February last year, the price of a barrel of oil was around $40. At the end of January, the price reached $90. On Monday, the barrel closed at $107 — the peak in the war was at $130 last week.

Russian investors who have been prospecting in the country may have to revise their strategies. In early February, for example, the Russian company Acron announced an agreement with Petrobras to buy a fertilizer unit in Três Lagoas, Mato Grosso do Sul. Market sources are waiting for the outcome of the negotiations.

Russian companies may have greater difficulty in creating liquidity and making payments between international banks, a source said.

Gas assets under negotiation are also likely to undergo price revaluation, according to M&A experts. They were already valued before the war, and deals on renewable energy projects will also continue to draw the interest from investors, particularly foreigners. “We will see a lot of deals in solar and wind power projects, as well as carbon credits,” said Mr. Lacerda.

According to an investment banker, two clients with mandates to sell assets (one energy and the other retail) wished to close the deal in the first half, to avoid greater price and term volatility in the second half, with the elections. Now, with the conflict, both have asked the bank to extend the process, even if it stays until 2023.

For Daniel Wainstein, a partner at Seneca Evercore, it is important to note that the country’s scenario before the war was of demand-based inflation, rising interest rates and low growth prospects. “Now you have more inflationary pressure from supply and the outlook now is for interest rates and inflation rising in Brazil and globally.”

“We are in a moment in which the investor is adopting a wait-and-see approach, without much haste, in expectation in what will happen in the coming weeks,” he said. Seneca closed four deals this year. “The appetite for Brazil has not reduced. With the war, we are holding on.”

The executive says that Brazil is among the countries that will benefit from the conflict. “The B3 in relation to other stock exchanges in the world suffered a low impact because a good part of the companies operate with commodities.”

The war between Russia and Ukraine has a special meaning for Mr. Wainstein. The Seneca Evercore executive’s maternal grandparents were Ukrainian. “My grandfather was a Bolshevik and fought in the Russian revolution. He fled there when Stalin started persecuting the Jews,” he said.

In the capital market, the short term is also uncertain. “The environment is one of volatility here and overseas. We won’t be able to see IPO operations in the short term. It is also challenging for secondary offerings,” said Mr. Miranda, with Santander, noting that the movement in the capital market was already weak because of the election year.

For Bernardo Parnes, a partner at One Partners, the capital market activities are more affected than the pace of acquisitions, especially considering the full year. “The M&A adapts terms, changes price, solves problems with clauses such as MAC or with a guarantee account. But it happens one way or another,” said Mr. Parnes.

Consulted by Valor, Eneva maintains the same position as the one communicated on January 28. Petrobras declined to comment. Acron did not immediately reply to a request for comment.

Source: Valor International

https://valorinternational.globo.com

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