Banks raise inflation projection driven by Russia invasion

For Bradesco, the country is experiencing a supply shock and monetary policy has low effectiveness to control prices

09/03/2022

Fernando Honorato Barbosa — Foto: Leo Pinheiro/Valor

Fernando Honorato Barbosa — Foto: Leo Pinheiro/Valor

The banks Bradesco and BNP Paribas raised their projections for inflation in 2022 due to the global price shock. Bradesco revised its forecast to 6% from 5.4% due to the global price shock. For 2023, still counting on a certain reversal of these shocks, the projection went to 3.5% from 3.3%. BNP raised to 7% from 6% the IPCA (Brazil’s benchmark inflation index) for this year but maintained the 4% projected for 2023.

Bradesco’s team, led by Fernando Honorato Barbosa, also says it now believes that the Central Bank will take the Selic — Brazil’s benchmark interest rate — to 12.75%, and no longer 11.75%, and postpone the beginning of interest rate cuts.

“The country is experiencing a classic supply shock in which monetary policy has low effectiveness to control prices. But given the already high level of inflation and significantly above target, the Central Bank is likely to raise interest rates a little more than we had imagined and opt for a more gradual convergence of inflation, even beyond 2023,” Bradesco wrote in a report.

Next year’s GDP will already be significantly impacted by monetary tightening and there is a probability of some reversal of the commodity shock in the next 12 to 18 months, the team says. “Therefore, we understand that the Central Bank will opt for a cautious stance at this time that will keep it alert to inflation, but without exaggerating the monetary policy dosage. This will avoid sacrificing growth more than necessary if there is a reversal, at least partial, of the global scenario,” says the report.

Bradesco ponders that it is still difficult to predict the outcome of the war between Russia and Ukraine and says that this may significantly alter the numbers of the scenario. “In any case, the global economic effects are likely to be more inflation and less growth, results that we may also see in Brazil.” Bradesco projects 0.5% growth for the Brazilian economy in 2022 and 2023. Global GDP growth in 2022 was revised from 4.3% to 4%.

The Brazilian economy shows some resilience to war, in Bradesco’s assessment, but rising inflation and interest rates may limit growth starting in the second half of the year.

“Finally, the exchange rate tends to be a little more appreciated than we imagined because of the rise in commodity prices in a context of high local interest rates and low solvency risk,” says the team. The bank reduced the projection for the exchange rate to R$5.3 to the dollar from R$5.5.

“Once supply shocks fade, we expect inflation to return to expectation levels, not the target level,” said Laiz Carvalho, Gustavo Arruda and Michelle Hwang in a BNP report.

The bank also started to project a Selic rate of 13.25% in 2022, compared with 12.25% in the last forecast. The projection for 2023 went to 10.5% from 9.5%. Now, for this year, BNP Paribas expects a rise of 100 basis points in the Selic in March, the same in May and 50 bp in June. For the team, the Central Bank is likely to start cutting the rate only in the second quarter of 2023.

“The conflict is expected to reduce global wheat production and fertilizer exports and raise oil prices, affecting grain prices and costs for the protein sector,” the team says.

This is compounded by domestic sources of inflation, which include adverse weather conditions, adjustment of service prices to compensate for pandemic losses and supply chain disruptions — the latter, globally, is expected to improve less than previously anticipated also due to the Russia-Ukraine war.

In the case of fuels, as diesel and gasoline account for about 6% of Brazilian inflation, if oil barrel prices remain at their current higher levels, the impact on the IPCA could be significant, of about 1.5 percentage points, the report indicates.

Source: Valor International

https://valorinternational.globo.com
/by

Private-equity firms not afraid of high interest rates

Funding totaled R$46.5bn last year, and several initiatives are now testing investor’s appetite for illiquid classes

09/03/2022

Patrick Cannel, Caio Costa, Guillaume Sagez, with Fors Capital — Foto: Silvia Zamboni/Valor

Patrick Cannel, Caio Costa, Guillaume Sagez, with Fors Capital — Foto: Silvia Zamboni/Valor

The cycle of high-interest rates in Brazil has not been enough to stop private-equity companies. Last year was a busy one, especially in the venture capital segment, as funding totaled R$46.5 billion – out of R$53.8 billion, according to data from Abvcap and KPMG. And this year began with several initiatives testing the investor’s appetite for illiquid classes even as the Selic, Brazil’s benchmark interest rate, is back to double-digit levels.

SPX has unveiled the intention to raise up to R$2.5 billion in its first private-equity fund after taking over Carlyle’s portfolio and team in Brazil. Romero Rodrigues, with Headline Global, now part of XP Asset, envisions a new vehicle to invest in VC newcomers, with plans to hold R$5.5 billion in the sector in five years. Daemon Investimentos will launch a renewable power private-equity investment fund, while Fors Capital and Blustone have sought capital and selected businesses with an impact bias.

Fors Capital, which emerged from the split of Performa Investimentos, one of the first venture capital managers with an emphasis on environmental, social and corporate governance (ESG) in Brazil, intends to raise up to R$500 million for a new fund. Caio Costa, Banco Nomura’s CEO for Brazil in the past four years, has joined the company as a partner.

With a long career in investment banking – including stints in BI&P, Nomura Securities, Deutsche, ING and UBS – the executive took part in the privatization of the electricity and telecommunications industries in Brazil, and since 2018 he had been studying a change to the venture capital segment but wanted a focus on sustainability. “Since the cycles are seven to ten years – raise, invest, divest – it was important to find the right people to set this up,” he said. “We discussed an agreement, a real [corporate] partnership, everyone participates in the exact same proportion.”

If recent history is any guide, corporate divergences often split teams, a sore point in an industry where human capital is worth as much as money. Fors itself has faced changes in the original team. The first cleantech fund, with R$175 million, was created in 2013 by Guillaume Sagez, a Frenchman living in Brazil, alongside Eduardo Grytz, who joined Carlos Miranda’s BR Opportunities to found X-8 Investments in 2019. Patrick Cannel arrived in 2015 and now with Mr. Costa, the three make up this new stage under the Fors Capital brand.

The new structure is already born with three invested assets, Mr. Sagez said. The target return is around 25% per year, a multiple of 3 to 5 times throughout the investment. The focus is on the “growth” segment, entering series C and D rounds onwards, in companies with revenues between R$50 million and R$500 million. Mr. Costa added that he prefers “B2B” businesses that directly serve the consumer, in sectors linked to agribusiness, energy, logistics, health and financial products.

In the portfolio are Unicoba (Led lighting), Contech (solutions for the pulp and paper industry) and Globalyeast (biotechnology). The firm left Intelipost (freight management through technology), Tecverde (efficient construction) and Mandaê (logistics), the latter sold to Nuvemshop, an e-commerce unicorn.

Another asset manager that proposes to make impact investments and is trying to raise up to R$100 million is Blustone, founded by Colombian-American Marlon Ramirez – who co-founded Azul Linhas Aéreas, Azul Cargo and Azul Viagens. Next to him is Carlos Lopes, who worked at Pátria Investimentos between 2014 and 2020 and has also been vice president of Standard Bank in Brazil, had a stint at TowerBrook Capital (spin-off of George Soros’s asset-management firm) and was an analyst at Goldman Sachs.

Mr. Ramirez is based in Miami, while Mr. Lopes is looking for deals in Brazil. The goal is to make investments in Latin American companies at different stages, from seed capital to series A and B rounds, taking part in the several stages of growth of the selected companies. The firm has just closed an investment in the freight platform Goflux, a kind of “Uber” of cargo transport, which operates in the agribusiness chain, including multinational shippers.

Blustone has already invested in the Mexican logistics company Cubbo and in the Brazilian Canal Dstak, a wholesale application.

The idea is to raise the first tranche by the third quarter and then reach R$300 million in a secondary offering. In the prospecting effort are both U.S.-based institutional investors and clients served by wealth managers and funds of funds in Brazil, who like to get in on the initial rounds.

The goal is to have a pulverized portfolio with 25 to 30 companies in different sectors of logistics and commerce in Brazil and other Latin American countries, such as Mexico, Colombia and Chile. “This class of ‘growth capital’ showed the best returns in the last 10 years,” Mr. Lopes said. The Blustone fund targets a return of 25% per year.

Mr. Ramirez says that the ESG bias enters the evaluation of the investments as the technology has the potential to bring efficiency to the business. He cites the reduction of carbon emissions in the logistics chain and the cheapening of products in the wholesale-retail flow, a segment that usually employs women who are heads of families and that is dominated by large online marketplaces.

“Startups, because they are growing, don’t focus on creating ESG processes. But some can be adopted on a daily basis, following the World Bank standards, such as issues related to diversity and sustainability,” Mr. Ramirez said. On the advisory board, Blustone is supported by Tariq Fancy, founder of the Rumie Initiative and former sustainable investing CIO at BlackRock.

The newest target of investments, Goflux, was founded by Rodrigo Gonçalvez, an entrepreneur who made a career in the logistics sector, including stints at Log-in, Vale and Algar Agro. He seeks a round of R$15 million after having received, in a previous stage, support from Banco Rendimento and SP Ventures, which is focused on startups in the agricultural segment.

One objective with the proceeds is to strengthen the financial operation, one of the biggest difficulties in the cargo transport chain, Mr. Gonçalvez said. “Traditional banks don’t look so favorably on the sector. They consider it risky and have little knowledge about it. In addition, with the pandemic, credit availability got worse.”

With more than R$2.5 billion in freight transacted through the platform last year and expectations of reaching R$6.5 billion by 2022, Mr. Golçalvez says that Goflux is able to have a unique view of credit risk and can offer funds to carriers even before a receivable is created tied to the payment of the service.

The company also intends to offer factoring of receivables and digital custody of documentation such as invoices, transportation contracts and inventory. The funding comes from some financial partners, but a credit-receivable fund (FIDC) is already in the final stages to supply this capital demand.

Source: Valor International

https://valorinternational.globo.com
/by

Brazilian carmakers concerned about war impact

Industry fears conflict may worsen current crisis, but says it is too early to make forecasts

09/03/2022

Luiz Carlos Moraes — Foto: Silvia Costanti/Valor

Luiz Carlos Moraes — Foto: Silvia Costanti/Valor

After two years of pandemic, the automotive industry has not yet managed to fully overcome the impacts on the supply chain and already sees a new wave of potential problems with the war in Ukraine. For the National Association of Vehicle Manufacturers (Anfavea), it is still too early to measure the consequences of the conflict, but there are a number of concerns.

The first is the price of commodities (such as oil, steel, aluminum, etc.). Another fear is the supply of semiconductors — an item that has already been a limiting factor for the sector’s production. “Certain raw materials for the production of semiconductors are produced in Russia and Ukraine [such as palladium and neon gas],” says Luiz Carlos Moraes, president of the association.

There are also doubts about the impact of the war on agribusiness, which is an important buyer for automakers, since Russia is also an important supplier of fertilizers. The effects of the conflict on the global logistics chain, which is already experiencing a chaotic situation since the beginning of the pandemic, is another concern. “These are problems that we expected to see equated over the course of this year. With the war, they should continue to put pressure on sea freight and air freight, which the sector has been using to move up deliveries,” he says.

Finally, there is the fear of how the crisis may increase inflationary pressure and generate an increase in interest rates in Brazil. “We already have economists signaling that the Selic can go to 13%, 14%. We hope that the Central Bank will be careful in calibrating the interest rate, because it is not demand inflation, it is structural inflation, brought about by elements from outside. We are very concerned, because this may negatively impact economic activity, especially in the second half of the year”, he stated.

The sector started 2022 in decline, both in production and sales. In February, the industry produced 165,900 units, which represents a decline of 15.8% compared to the previous year, according to data from Anfavea released Tuesday. In the accumulated first two months of the year, the reduction is 21.7%. Sales in the month fell 22.8%. There were 129,300 vehicles licensed in February. In the first two months of the year, the drop is 24.4%. Only exports presented growth this year, 25.4% in February and 17.3% in the first two months of the year.

Even with the negative results and the concerns about the war in Ukraine, the association believes that it is too early to review its projections for 2022. Earlier this year, the association released an estimate of a 9.4% increase in production, compared to 2021. There was also a projection of an advance of 8.5% in domestic sales and 3.6% in exports.

For Mr. Moraes, there are still not enough elements to review the year’s forecasts, which were already made with a relatively conservative view, according to him.

“We have already planned a lower first semester due to the semiconductor restriction, supposing that there could be a lower restriction in the second semester. We have also considered an interest rate at a high level. So we still don’t have elements for a revision. Nobody does. Everybody is trying to understand the dimension of the crisis, the effects on the supply chain. Let’s wait a little longer,” he said.

To compensate for the series of crises, the automotive industry had an important victory in February, with the announcement of the 18.5% reduction in the Industrialized Products Tax (IPI), announced by the federal government.

The association calculates a potential impact on the final price of vehicles of -1.4% to -4.1%. Mr. Moraes points out that the transfer of this discount depends on the individual strategies of the companies, which have also suffered from rising costs. Some companies, such as Ford, Toyota, and Kia, have already announced new tariffs.

Source: Valor International

https://valorinternational.globo.com
/by

Analysis: How should Brazil’s Central Bank react to oil, food shock?

Prevailing view is still that monetary authority will maintain course of monetary policy

08/03/2022

The new rounds of oil, grain and metal price hikes are expected to add even more pressure on inflation. But the prevailing view in the financial market is still that Brazil’s Central Bank is likely to maintain the course of monetary policy, without intensifying the pace of interest rate hikes in relation to what is forecast.

The Focus bulletin released on Monday morning indicates that the Central Bank’s Monetary Policy Committee (Copom) will rise the Selic, Brazil’s benchmark interest rate, by 100 basis points next week, to 11.75% per year.

The Copom options traded on the B3 indicate a 63% chance of a 100 bp increase, while the probabilities of higher hikes are just over 30%. The future interest rates were at a high level on Monday.

Analysts, including some with stints in the Central Bank, told Valor that the Copom’s most likely response to the shock is a little more monetary tightening over time. But, in general, they argue that the monetary authority is likely to move cautiously in the face of uncertainty because it is not yet certain at what level the commodity prices will stabilize.

One economist says that there is no way to escape the handbook of the inflation-targeting regime: the Central Bank must accommodate the primary effect of the shock within the tolerance range, but firmly fight the so-called secondary effects.

A key point is that price hikes in food, metals and oil hit inflation fast, so it tends to be concentrated this year in particular. As for food and metals, there is little left over for inflation two years ahead. In the case of oil, the effect is longer, but much of it is concentrated in the first year.

Thus, most of the primary effect of this shock is likely to impact inflation in 2022, a year that is already moving out of the Central Bank’s focus of action. The Central Bank is working with a longer horizon, with an eye mainly on the 2023 target. Since for the coming year there are basically the secondary effects left, there will be little alternative but to fight them with greater firmness.

The good news is that, for now, the impact of the war on inflation expectations for 2023 has been contained. The variation of Brazil’s benchmark inflation index IPCA expected by the market for next year was stable at 3.51% last week. It is precisely in inflation expectations that the bulk of the secondary effects is concentrated.

In part, this has to do with the Central Bank’s credibility. The market believes that whatever interest rate is needed to combat the new price shock, the Copom will act. Hence, the slightly longer rates traded in the market have moved more, pricing in the chance of a bigger squeeze at the end of the interest rate hike cycle.

The stability of expectations, on the other hand, allows for the Central Bank to follow the script in the short term: raise the Selic by 100 bp next week and leave some room for maneuver to define its next steps when the inflationary impact of the war becomes clearer.

/by

Uber still battling with iFood after leaving meal delivery

Multinational told Brazil’s antitrust watchdog that exclusivity model was main reason for exit

08/03/2022

Uber ended on Monday meal delivery service through Uber Eats app — Foto: Pixabay

Uber ended on Monday meal delivery service through Uber Eats app

Uber left the meal delivery market in Brazil, but continues to fight against exclusive contracts with restaurants established by iFood in the country.

The multinational, which ended on Monday the food delivery service through the Uber Eats app, filed a complaint against iFood with the General Superintendence (SG) of the Administrative Council for Economic Defense (CADE) on Friday

The company made clear that the exclusivity model maintained by iFood, the market leader with 80% market share, was the main reason for Uber to leave the Brazilian restaurant delivery market.

“Unfortunately, the artificial barriers imposed by iFood with its exclusionary conduct, which are the focus of the present Administrative Inquiry by this SG, contributed to Uber’s decision to terminate the operations of the Uber Eats meal delivery intermediation application,” said the Uber lawyers in the document filed on Friday.

Uber announced its decision to leave the Brazilian meal delivery market on January 7. The company was the second largest. Rappi was the third, according to data from the Brazilian Association of Bars and Restaurants (Abrasel).

In mid-February, Rappi filed a new petition with CADE asking the antitrust watchdog to review a provisional measure from March last year that determines the blocking of new exclusive iFood contracts with restaurants, preserving the agreements prior to the determination.

The exit of Uber Eats from the Brazilian market, as well as the end of the operations of the Delivery Center, an application by BR Malls and Multiplan, in November, were cited as arguments against exclusive contracts with restaurants by iFood, especially for anchor establishments, such as large fast food chains.

“In fact, the evident focus of the exclusionary strategy adopted by iFood with the most popular restaurants, responsible for a significant volume of orders on its platform, reduces the ability of competitors, such as Uber Eats, to compete with iFood,” says the company in its manifestation. “Even if Uber Eats develops business relationships with smaller restaurants and more stores, that would not be enough to exert effective competitive pressure on iFood.”

Uber stressed that it will continue to cooperate with CADE’s investigation into iFood practices, which began in September 2020 by Rappi and which it entered as a third party in January 2021.

In December 2020, Abrasel filed a parallel representation against the market leader in which it defends the end of exclusivity contracts for all companies in the sector.

“Any serious company interested in continuing to operate in the country must adopt the posture that Uber has adopted,” said Paulo Solmucci, president of Abrasel. “Regardless of direct competition, the company must make a contribution so that the market remains competitive,” he said.

Uber concludes its manifestation by stating that it understands “that the practice of exclusivity by iFood constitutes an artificial barrier to entry and expansion in the market of meal delivery services.”

For Victor Rufino, a lawyer at Mudrovish Advogados, which represents Rappi, Uber’s statement “leaves latent the need for continuous monitoring of the market by the CADE, in order to guarantee its timely and effective action in defense of free competition.”

IFood declined to comment.

Source: Valor International

https://valorinternational.globo.com
/by

Higher wheat prices to reach Brazilian consumers in coming weeks

In one week, prices rose by $100 a tonne, on average, in the physical market

08/03/2022

Wheat production in Russia — Foto: Andrey Rudakov/Bloomberg

Wheat production in Russia — Foto: Andrey Rudakov/Bloomberg

With the beginning of the war between Russia and Ukraine, in one week the prices of wheat rose by $100 a tonne, on average, in the Brazilian physical market. This rise is expected to be felt by consumers as early as next month in the prices of products on supermarket shelves, but it is still difficult to know the size of adjustments and how long they may last.

“It all depends on the extent of the war. If it ends soon, there will be a downward adjustment, although prices will certainly not return to the pre-conflict level. If the war goes on, there is no way to know the ceiling, because the production of Russia and Ukraine make a lot of difference in the wheat market,” Luiz Pacheco, an analyst at T&F Consultoria, told Valor. The two countries account for about a third of the global wheat trade.

The fact is that, today, Russian and Ukrainian exports through the Black Sea and the Azov Sea are completely paralyzed. According to Bloomberg, 140 bulk carriers are stranded off the coast of Ukraine. There are also 54 freighters and a container ship that entered Odessa shortly before the port closed, and another five merchant ships have been blown up in the region since the attack began.

Ships cannot leave Ukrainian waters because there are no crews, according to the vessel’s owners and managers. Furthermore, reports Bloomberg, citing the Spanish Navy, navigation in north-western parts of the Black Sea is restricted due to the threat of undersea mines.

In Brazil, the state of Rio Grande do Sul, which had ended its participation in Brazilian wheat exports this season, sold 50,000 tonnes this week. As a result, internal availability decreased. “The mills in Rio Grande do Sul are tense, because prices were already high and now nobody knows where they are going,” Mr. Pacheco said. According to him, the state exported 2.6 million tonnes of wheat out of an estimated production of 3.3 million.

In the state of Paraná, the situation is more relaxed, with foreign sales of 60,000 tonnes and a production of 3.2 million tonnes.

With regard to Argentina, which supplies more than 80% of the wheat imported by Brazil, availability was good, with a harvest of 22.5 million tonnes, compared to 20 million in 2019/20. However, with the onset of the conflict, producers have been holding back sales in anticipation of even higher prices.

“The tendency would be for the U.S. to supply the world market, but the U.S. winter wheat crop will be much smaller than needed,” Mr. Pacheco said. Production as of April, plus the spring harvest, is expected to reach 44.8 million tonnes in 2021/22, up from 49.7 million in the last cycle and 53 million in 2019/20, according to the U.S. Department of Agriculture (USDA). As in southern Brazil, American crops were hampered by excessive rainfall in 2021, followed by an intense drought.

There is still stock in the country, but as the overall picture is not of abundance, there are no signs of retraction in wheat prices. The International Grains Council (IGC) estimates global wheat production at 781 million tonnes. This number exceeds by 7 million the calculation for the last season, but is lower than the initial projection of the IGC itself, in July, of 795 million.

As consumption perception is at 781 million tonnes, above the previous harvest (771 million), inventories are projected at 274 million tonnes, compared to 278 million in 2019/20.

Without Russia and Ukraine, the picture tightens and the relationship between stock and use is negative. The Russian wheat production estimate for 2021/22 is 75.5 million tonnes, with exports of 35 million. The Ukrainian wheat production is estimated at 33 million tonnes, with shipments of 24 million.

Source: Valor International

https://valorinternational.globo.com
/by

Embraer enters cargo market with jet conversion

Jets are designed to meet transportation demand of e-commerce and modern trade

08/03/2022

Embraer’s converted E-Jet — Foto: Reprodução

Embraer’s converted E-Jet

Embraer unveiled on Monday its entry into the air freight market with the launch of passenger-to-freight conversions of models E190F and E195F.

The jets are designed to meet the transportation demand of e-commerce and modern trade, which “require fast deliveries and decentralized operations,” the company said.

The conversion is available for E190 and E195 aircraft, scheduled to start operating in early 2024. Embraer projects a market for aircraft of this size of nearly 700 units over 20 years.

The new freighters fill a gap in the market, positioning themselves between turboprops and larger narrowbody jets, said Arjan Meijer, CEO of Embraer Commercial Aviation. “Our P2F E-Jet conversion hits the market as the demand for airfreight continues to take off, and as e-commerce and trade, in general, undergoes a global structural transformation,” he said.

The conversion will be done at Embraer’s units in Brazil and the jets can handle payloads of 10.7 tonnes (E190F) and 12.3 tonnes (E195F).

By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com
/by

Solar financing in Brazil totaled R$16bn in 2021

Amount is more than double volume negotiated in 2020, survey shows

03/07/2022

The financing for solar power generation in Brazil totaled R$16.2 billion in 2021, according to a survey conducted by Clean Energy Latin America (Cela) with the main financial firms that foster the source.

This is the third consecutive year that the country sets a record for financing in the sector. Of the total resources, R$9.5 billion were destined to distributed generation. The other R$6.6 billion were directed to centralized generation (large power plants).

Cela founder and CEO Camila Ramos has been monitoring the sector since 2019 and says that the amount financed in 2021 increased by more than 100% compared to the previous year, which shows a growing interest of organizations in leveraging renewable power projects.

“The year 2021 more than doubled the amount of financing compared to 2020, which shows that the development of the sector came followed by new operators, fintechs and commercial banks entering the market to finance these projects.”

The executive highlights important institutions in the supply of credit, highlighting development banks, such as BNDES, BNB and Banrisul; multilateral banks, such as the Inter-American Development Bank and the European Investment Bank; cooperative credit systems, such as Sicredi; commercial banks, such as Santander, Bradesco, Banco do Brasil, among others, as well as bonds and fintechs.

In centralized generation, Ms. Ramos highlights a 70% increase in the volume financed due to the maturity of solar projects for the free energy market with many contracts signed “and now we see the construction of these projects.”

In distributed generation, the jump in financing was 2.4 times over 2020. “This is due to the increase in tariffs for the final consumer, new investors entering the sector, and more credit lines from financial firms,” she said.

What may hinder the number of deals in 2022 are the interest rates. Brazil has gone from a historic low to a double-digit rate, which is likely to make loans less attractive. However, the executive argues that, in spite of that, financing will continue attractive.

“When looking for financing, the consumer compares the cost of capital, rate of return, and interest rates. For centralized generation, we are going to see a dominance of development banks, such as BNB and BNDES, and bonds, besides the opportunity of financing in foreign currency. For distributed generation, the interest rate variation is going to be less important if consumers are able to exchange their electricity bill for the portion of the financing,” Ms. Ramos said.

What she has also noticed is that the financing companies are improving other financing conditions, such as extending the terms to fit the consumer’s budget. In addition, 2022 will be the first year of Law 14.300/22, which establishes the legal framework for self-generation of energy, microgeneration, and distributed minigeneration, “which can bring greater comfort for financial firms and can impact the risk spread.”

Source: Valor International

https://valorinternational.globo.com
/by

Impasses with Paraguay challenge new head of Itaipu

Anatalicio Risden has to come to an agreement with the neighboring country to define the power plant’s budget for 2022

03/07/2022

Anatalicio Risden Junior — Foto: Sara Cheida/Itaipu Binacional

Anatalicio Risden Junior — Foto: Sara Cheida/Itaipu Binacional

Without consensus on the power tariff for the Brazilian and Paraguayan markets, Itaipu Binacional power plant still has no defined budget for the year 2022. Facing the impasse between the Brazilian and Paraguayan boards, Admiral Anatalicio Risden Junior takes over the command of the company with the mission of sitting at the table with the Paraguayans — who own 50% of the company — to negotiate the new hydroelectric power plant tariffs.

The challenge will not be easy. The part of the electricity that Paraguay does not use, according to the Itaipu Treaty, must be sold to Brazil, and in this assignment the neighboring country has always been hardline when it comes to changing tariffs. This should have been approved since October of last year, but there is still no agreement on reaching a base.

This is not new. Past administrations have also had difficulties. Until this happens, the plant uses a provisional tariff from the previous year, which is $22.60 per kilowatt, a value frozen since 2009. As any buyer, Brazil, obviously, is interested that the value falls. The executive’s strategy will be to maintain the policy of good neighborliness in the negotiation with the Paraguayans to define the budget of the state-owned company, as well as to carry out a series of structural works in progress. In his first interview since taking office, Mr. Risden says that the negotiations are underway, but without any further definition.

“What we have to do, and this is a point that Minister (of Mines and Energy) Bento Albuquerque and President Jair Bolsonaro put to me, is to maintain the dialogue without losing the bases that Brazil needs. This is the exercise that I have been doing together with the Paraguayan director-general of trying to find a solution in which I can bring the least possible impact to the Brazilian consumer and at the same time have a viewpoint of the Paraguayan problem”, he said.

Mr. Risden is familiar with the business — as he has been working at the company since 2019, when he held the position of chief financial officer. Now as Brazilian CEO, he hopes his time there will be marked by a practice of market management, prioritization of business cost reduction, and planning for the medium and long term.

“To calculate the tariff, which is how much the Brazilian and Paraguayan consumer pays us, there are four elements. One is the budget base. We were able to define all the other elements, but we couldn’t reach an agreement with the budget base. We are running the company without a pre-placed budget.”

Another goal will be to continue a management marked by austerity and major works. The review of contracts and agreements resulted in resources for structuring works, such as a new bridge between Brazil and Paraguay, and the revitalization of the Furnas transmission system to make it more robust, among others. In all, there are about R$2.6 billion invested.

In 2021, the company completed the payment of $600 million for part of the debt, and operating expenses fell. With this, there is the possibility of reducing the tariff value of the plant in the same proportion. All that remains to be done is to agree with the Paraguayans. “What I defend is the lowest cost for the Brazilian consumer. The point is that we are partners in a company and we have to negotiate, and this is what is happening,” he says.

Another of Mr. Risden’s missions will be to assist Brazilian diplomacy in the negotiations on Annex C of the Treaty, which establishes the financial and electricity service provision bases of the binational company. With just over a year to go until the Itaipu Treaty turns 50 years old, the negotiations for the revision of Annex C are with the Foreign Office, known as Itamaraty.

Time is pressing and the date that marks this turning point between the neighboring countries on the company’s financial bases will be April 26, 2023, when the countries will be able to adjust it to current reality, and the plant’s construction debt will be practically zeroed, which will bring the contracting cost to a lower level.

“We have to move towards a market model,” he defends. “The difficulty is that our partner’s integrated power system is far behind ours. They have only one company, Ande [Paraguay’s state-owned company], which does everything,” he adds.

Half a century after it was created, Itaipu is still a key piece in the power security chessboard of both countries. The hydroelectric plant has 14 gigawatts (GW) of installed power, accounts for 8.4% of all the electricity consumed in Brazil and 85.6% of Paraguay’s power. Even though it is the second largest in the world in installed capacity, the binational power plant holds the title of largest power generator on the planet, having produced more than 2.8 billion MWh.

It will be difficult to balance these interests. The Brazilian diplomacy is trying to convince the Paraguayans to give in the negotiations, especially in relation to the price of Paraguayan electricity sold to Brazil. The expectation is that both countries will benefit from Itaipu’s power generation without paying construction costs that represented more than half the price of the company’s power.

Source: Valor International

https://valorinternational.globo.com
/by

War to boost renewables, expert predicts

To former president of Energy Research Company (EPE) Luiz Barroso, rising oil prices may drive demand for biofuels

03/07/2022

Luiz Barroso — Foto: Leo Pinheiro/Valor

Luiz Barroso — Foto: Leo Pinheiro/Valor

Luiz Barroso, former president of Energy Research Company (EPE) and the current president of consultancy PSR, sees opportunities, especially in Brazil, for renewable energy with the rise in oil and gas prices caused by the Russian invasion of Ukraine. Last week, after the outbreak of the conflict, the international prices of the oil barrel went over the barrier of $100 and saw the highest prices of the last eight years.

For Mr. Barroso, the global geopolitics are already aligned towards the replacement of fossil sources, with higher carbon emissions, by renewable ones. With the scenario of rising fossil fuel prices, the search for clean energy and greater consumption efficiency is likely to accelerate, as well as the development of new technologies, he believes. “Access to energy transition technologies is a geopolitical tool,” he emphasizes.

In this context, the expert says that Brazil may pay more attention to biofuels, in addition to pre-salt gas, as a way to become less dependent on liquefied natural gas (LNG), which is imported.

On the energy planning side, he also believes that the crisis will lead to questions about energy integration in Europe and, consequently, to the search for reducing European dependence on Russian gas, which can increase exports from regions such as North Africa and the United States. Below are the main excerpts from the interview.

Valor: What are the impacts of the Russia-Ukraine crisis for the energy transition in Brazil?

Luiz Barroso: Brazil automatically aligns the main objectives of the energy transition: the cleanest energy, the renewable ones, are the most competitive. This foundation remains and already places us among the global leaders in terms of low carbon intensity in the energy sector. With the crisis, LNG [liquefied natural gas] becomes more expensive, which increases the attractiveness of renewables. This scenario also brings pre-salt gas into the energy equation, with the attribute of greater independence from international prices.

Valor: And biofuels?

Mr. Barroso: The increase in oil prices may stimulate the demand for biofuels, a sector in which Brazil is self-sufficient, in addition to accelerating the discussion of other forms of sustainable mobility. Brazil can also seek to reduce its international dependence on other important components, such as fertilizers, and increase its role in other energies that will redesign the future of energy, such as green hydrogen and, who knows, carbon capture and sequestration.

Valor: Is there any other source that can benefit, in the Brazilian market, from the geopolitical crisis?

Mr. Barroso: The current scenario reminds us of the importance of actions on the demand side and is an opportunity to organize the national energy efficiency agenda. There is room for much gain in commerce and industry. Reducing consumption, through efficiency, is the cheapest and most self-sufficient energy the system can achieve, in addition to being a permanent energy gain. This adds to dynamic demand response actions at prices and tariffs [mechanisms to charge more for energy at times of peak consumption]. On the other hand, there is the reflection that it is essential to transform the way we consume energy with new emerging technologies. There is no point in having an abundant supply of hydrogen and electricity if most of the demand does not run on hydrogen and electricity.

Valor: Could there also be a trend towards greater search for the use of oil, gas and coal in Brazil?

Mr. Barroso: For purely economic reasons, I don’t believe so; all these energy sources will be much more expensive in this decade.

Valor: What are the immediate impacts that you see on global energy policy, especially in Europe, as a result of the current crisis?

Mr. Barroso: More immediately, there will be a quest to reduce dependence on Russian gas, which supplies 40% of European gas consumption, and to ensure sufficient storage levels to ensure consumption in the coming winter. Russia is responsible for more than 60% of the total energy imported by the European Union.

Valor: How can Europe replace Russian gas?

Mr. Barroso: On the supply side, abandoning Russian gas means importing non-Russian gas, basically from North Africa, Norway and the United States, increasing coal production and relying on nuclear power plants. It will also be important to reduce energy consumption. This can be done through energy efficiency actions, such as reducing the temperature of heaters, which are mostly gas-powered in Europe.

Valor: How will conflict impact the energy transition? 

Mr. Barroso: The European energy transition was already one of the most ambitious before the war and it could be accelerated. The geopolitical imperative is aligned and the current environment puts further pressure on reducing dependence on fossil fuels. This can accelerate the development of the technologies we will need in a carbon-neutral future. Massive investments have made it possible to create economies of scale that, together with increases in oil and gas prices, reduce the additional cost of choosing a clean technology over one that emits a greater amount of greenhouse gases, making renewables more accessible to others parts of the world, such as Brazil. But it is not possible to say that it will be a global trend, as each country has its reality and its energy transition.

Valor: May it be necessary to review the emission reduction targets?

Mr. Barroso: I don’t believe in expanding emission reduction targets right away, but the possible increase in emissions in the short term could, in fact, impact the planet’s carbon budget. Further on, this can challenge the sufficiency of the targets, which can trigger a global discussion about who should raise the target and when.

Valor: Could an eventual increase in military spending in the world as a result of this crisis lead to a reduction in resources and collaborative efforts between countries for the energy transition?

Mr. Barroso: It’s still too early to talk about that. In absolute terms, the North Atlantic Treaty Organization [NATO] has planned military expenditures that have not always been met, in amounts currently lower than the annual budgets of government stimulus programs and private direct investment to new technologies for energy transition. So, in theory, I don’t believe in resource reduction. However, and speculating a bit, we may have Western sanctions that ban some countries, like Russia, from accessing some key technologies. Access to energy transition technologies is a geopolitical tool.

Source: Valor Econômico

/by