CTG Brasil, controlled by Chinese company, questions change in firm energy of its plants; R$500m have already been charged from consumer
08/05/2022
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CTG’s hydroelectric plant in Rosana — Foto: Henrique Manreza/Divulgação
A legal imbroglio in the power industry may open precedents for a multi-million hole in the consumers’ electricity bills. The hydroelectric plants of CTG Brasil, controlled by China Three Gorges, caused an impact of R$496.1 million in the electric sector due to an injunction that prevents the review of the firm energy of the Capivara (643 MW), Chavantes (414 MW), Taquaruçu (525 MW) and Rosana (354 MW) plants, sources say.
In technical jargon, firm energy is the volume of power that an project can deliver to the system and determines the form of remuneration of the companies. In May 2017, the Ministry of Mines and Energy (MME) published Ordinance No. 178/2017, which defined the new firm energy values for power from centrally dispatched hydroelectric plants, valid from January 2018.
It is the up to the ministry to define every five years the maximum energy that can be sold by the power plants, since new concessions for multiple uses of water have changed the flow of rivers. The measure reduced by 4.9% the firm energy of CTG’s hydroelectric plants in relation to the one in effect in December 2017.
Before that, when CTG bought Rio Paranapanema Energia, it modernized the plants and requested an extraordinary revision of the firm energy to the Brazilian Electricity Regulatory Agency (Aneel). In the lawsuit filed against the federal government, CTG says that there are illegalities in the ordinance, since the reduction of the firm energy was made before the five-year period since the last revision.
The Capivara, Rosana and Taquaruçu plants were the subject of extraordinary reviews in May 2015, and the Chavantes plant, in June 2013, and, according to CTG, the value of firm energy could only be reviewed again in May 2020 and June 2018, respectively.
The Ministry of Mines and Energy says that this argument does not apply to extraordinary reviews. In addition, CTG presented a contribution in the public consultation without questioning the revision process.
The Chinese company also says that the reduction of firm energy in more than 4.8% causes distortions, since the plants have a history of generating 22.1% more. However, as recommended by the Federal Court of Accounts (TCU), the federal government reviewed the firm energy of the plants involved because it considered them overestimated, and also to standardize the criteria for firm energy calculations for all players.
Another argument of the company is that the action represents an act of confiscation, because it restricts the right to economically exploit its concession. Power generation companies heard by Valor, which are in the Energy Relocation Mechanism (MRE), a risk-sharing system to avoid shortages during periods of drought, have another understanding.
The plants have an interconnected operation and when a company wins a concession, it must submit to the rules of the sector and the operation is commanded by the national grid operator ONS. This happened, for example, in the water crisis, when the ONS needed to save water in the Paranapanema basin and requested that some hydroelectric plants reduce their generation.
Of the R$496.1 million, nearly 60% was paid by the energy consumer and the rest was borne by the MRE companies. The situation raises the concern that other companies will go to court to avoid a reduction in the firm energy of their plants.
“Distribution companies are bothered because they foot the bill and fear default, power generation companies bear part of the burden, and the average consumer has not yet realized that they are paying most of this cost,” says a source who asked not to be named.
CTG Brasil said that the judgment of the appeal filed by the company in the review process of the firm energy of its plants is still in progress. “An eventual favorable outcome to the company will not bring impacts to the energy market, since the company’s request is aimed at preserving the firm energy amounts of its plants, which were reduced in disagreement with the legislation,” it declared in a statement.
Marcos Meira, a lawyer and president of the Special Infrastructure Commission of the Brazilian Bar Association (OAB), disagrees. For him, a decision that is eventually favorable to a generation company causes an imbalance in cascade, generating several other lawsuits of competing ventures. In other words, decisions handed down in these cases have the potential to impact the entire system, because it operates like a communicating vessel.
“A favorable decision obtained by CTG will arouse the interest of other companies, which will also seek to reverse the proposal to reduce the firm energy of their plants in the courts. The arguments are almost always the same … ranging from the economic-financial imbalance of the contract, to exogenous political interference,” explains Mr. Meira.
Much larger power plants, like Jirau, Santo Antônio, and Teles Pires, have had extraordinary reviews recently and in theory could use the same thesis as CTG.
To Valor, the leader of an association, on condition of anonymity, points out the lack of a more incisive action of the Ministry of Mines through the Federal Attorney General’s Office (AGU) in solving the case. The matter was under the care of the then-executive secretary Marisete Dadald, but with her departure, the ministry has not given the case the proper attention.
“At the hearing of the case, the oral argument was made only by the CTG’s lawyer. The government, which was the one who created the rules and should watch over this, didn’t show up. An incomprehensible disregard.”
Without giving any details, the ministry only informed that it is working on the suit so that the injunction is denied.
In the event of an unfavorable decision to CTG, the doubt remains as to how this amount will be reimbursed to consumers, since, according to the Electric Energy Trading Chamber (CCEE), any recalculation of the amounts cited will depend on the terms defined by an eventual court decision.
*By Robson Rodrigues — São Paulo
Source: Valor International
Assessment that key rate Selic will stay at 13.75% prevails, sustains rally of risk assets
08/05/2022
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Benchmark stock index Ibovespa showed a firm rise on Thursday — Foto: Silvia Zamboni/Valor
A clearer signal from the Central Bank’s Monetary Policy Committee (Copom) about the end of the cycle of Selic hikes was all it took for the market to start a rally in Thursday’s trading session.
The indication by the committee that in September it will evaluate the need for a residual adjustment in the key rate brought down future interest rates, insofar as market participants were waiting for the Central Bank’s signal to set up positions betting on a drop in interest rates. The inflow in the interest and fixed income markets helped to bring down the foreign exchange rate and, in face of such an intense fall in future rates, benchmark stock index Ibovespa showed a firm rise and even tested the 106,000-point level throughout the session.
The entire yield curve showed a sharp decline in Thursday’s trading session, with emphasis on medium- and long-term rates. The interbank deposit rate (CDI) for January 2025 fell to 12.09% from 12.47%, while the CDI for January 2029 retreated to 12.3% from 12.65%.
Although Copom has kept the door open for a residual adjustment in the Selic in September, the change in the committee’s communication, now saying that it will evaluate if an additional hike is necessary, reinforced the perception among market participants that the cycle may have ended on Wednesday, when the Selic reached 13.75%.
Part of the market still points to the chance of a 25-basis-point increase in September, while banks such as Bradesco, Barclays, Itaú Unibanco and Banco do Brasil have maintained their projections of a Selic rate of 13.75% at the end of the year.
In the interest rate market, the willingness to risk was substantial, and in the first deals of the day, the rates already showed relevant drops. The movement intensified throughout the day, as more players built positions in an attempt to take advantage of the downward movement of rates.
Citi, for example, has set up a position to gain from falling rates for the interbank deposit (DI) in January 2025. “We like this point on the curve to capture more cuts,” said strategists Andrea Kiguel and Dirk Willer in a report sent to clients, where they justify the position.
They note that the 1-year rate is now below the Selic level, which historically indicates that the cycles tend to change direction, unless there are risk aversion events that make this dynamic unfeasible in the market. For Ms. Kiguel and Mr. Willer, “the risks for the trade include another global inflationary shock or stronger than expected inertia, which would make the Central Bank more hawkish in relation to expectations, in addition to electoral noise.”
For Victor Candido, chief economist at RPS Capital, “when the end of the cycle is announced, the positions go in the same direction and the fixed interest rate melts.” He believes the movement is natural, but points out that, despite his long position and the fact that he likes this position, he has doubts about the sustainability of the movement ahead.
“I think the level of interest rates in this cycle will be higher than the market wants to believe. There’s a lot of stimuli in the economy and the government is putting even more into an economy with the labor market gap closed. I think activity will remain challenging for the Central Bank. What can help – and has already contributed a lot – is the fact that commodity prices, especially oil, are falling a lot and this encourages the market even more with this trade of lower interest rates,” says Mr. Candido.
Adverse surprises on the fiscal front and in the economic activity scenarios may even push the Copom to act again in September, but the committee decision on Wednesday gave the impression that the monetary authority “would prefer to leave interest rates where they are,” said Roberto Secemski, chief economist for Brazil at Barclays, whose baseline scenario indicates that the tightening cycle has come to an end with the Selic at 13.75%.
In his view, if medium-term inflationary expectations do not change much until the September meeting, the Copom may keep interest rates unchanged at 13.75%. “Of course, adverse surprises on the fiscal, labor market and/or growth fronts could also push the Central Bank to act, but our impression is that, all else being equal, it would prefer to leave interest rates where they are, also because of the extension of the relevant horizon into 2024 (when it wants to avoid the risk of going below target),” says Mr. Secemski.
The market’s good mood with the fall in interest rates was reflected in a greater demand for fixed-rate government securities in the weekly auction held by the National Treasury, which increased the supply of securities. The Treasury managed to sell in full 9 million National Treasury Bills (LTNs) maturing in January 2025, in addition to 300,000 fixed-rate bonds (NTN-Fs), which are longer term fixed-rate securities usually in demand by foreign investors.
Laszlo Lueska, a partner and manager at Octante Capital, says that the softer-than-expected decision by the Copom, indicating the end of the monetary tightening cycle, “generated optimism in foreigners, who brought dollars today to invest in fixed rate.” Not by chance, on a day when the dollar was weaker worldwide, the domestic forex market managed to benefit. Thus, the exchange rate ended the trading session at R$5.2219 to the dollar, down 1.06%.
The Ibovespa took advantage of the significant drop in long interest rates and ended the Thursday up 2.04%, at 105,892 points, the highest level since June 10. “The recovery will not be a straight line. We will have volatility, but a big restriction on Brazil seems to be behind us. My scenario for Brazil is less negative than the market average, despite the risks (fiscal and political). There seems to be enough risk premium in local assets and margin of safety,” said Dan Kawa, chief investment officer at TAG Investimentos.
Ibovespa’s best performing companies were, precisely, those linked to the local economic activity, such as the retail and construction sectors. The common shares of Magazine Luiza, for instance, jumped 13.99%, while those of Via rose 12.6%.
*By Victor Rezende, Igor Sodré, Augusto Decker — São Paulo
Source: Valor International
Case involves five companies, eight individuals and a relevant discussion about fines for all cases of anticompetitive conduct
08/04/2022
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CADE’s building in Brasília — Foto: Jefferson Rudy/Agência Senado
Antitrust regulator CADE has acknowledged the existence of a cartel in bids held for the installation of cafés in airports in São Paulo (Congonhas), Florianópolis, Recife, Campo Grande, Curitiba and Maceió. The case involves five companies, eight individuals, and a relevant discussion about fines for all cases of anticompetitive conduct.
The judgment has an important aspect for competition law: the calculation of fines imposed as a penalty on businesspeople and employees involved in cartels and other competition violations. In this case, the amount of the individual penalty for two individuals goes from R$139,000 to R$28,000, depending on the criteria used.
The bids were conducted by state-owned airport operator Infraero. The complaint of alleged anticompetitive conduct was filed with CADE by the company. According to the investigation conducted by the state-owned company, five companies and eight individuals have acted in a coordinated manner to defraud seven public tenders held by Infraero.
The companies involved are: Alimentare Serviços de Restaurante e Lanchonete, Boa Viagem Cafeteria, Confraria André, Delícias da Vovó and Ventana Manutenção e Serviços.
The rapporteur, CADE member Sérgio Costa Ravagnani, voted for the dismissal of the process in relation to one defendant who died, and for the condemnation of the others – cafés and individuals. He was defeated only on the way to calculating the penalties.
Law 12,529 of 2011 sets penalties for cases of anticompetitive conduct. Companies are fined between 0.1% and 20% of the value of gross revenues in the last fiscal year before the administrative proceeding was started. And it must not be less than the advantage gained when it is possible to estimate.
As for individuals, managers can be fined between 1% and 20% of the value defined to the company. Others, such as employees and associations, may have to pay amounts ranging from R$50,000 to R$2 billion.
CADE member Gustavo Augusto’s vote prevailed in the judgment on the fines. In his view, the economic capacity must be considered in the calculation, even if not as a determinant.
*By Beatriz Olivon — Brasília
Source: Valoar International
Terminals in Brazil’s North region account for a quarter of inputs from abroad
08/04/2022
As grain crops grow in the Matopiba region (bordering the states of Maranhão, Tocantins, Piauí and Bahia) and in northern Mato Grosso, the Arco Norte (North Arch) ports become increasingly attractive to logistics service providers. In the wake of the growth of soybean shipments, fertilizer imports are increasingly gaining space in the ports of the North and Northeast regions.
The main ports of the Arco Norte – Santarém and Belém (Pará), Itaqui (in São Luís, Maranhão), and Salvador (Bahia) – handled 4.4 million tonnes of fertilizers between January and June. They accounted for 25% of the total volume imported by the country, and the volume handled grew 39% year-over-year.
“The increase is directly related to the expansion of soybeans in Matopiba and northern Mato Grosso,” said Luigi Bezzon, a fertilizer and vegetable oil analyst at U.S.-based consultancy StoneX and author of the survey based on federal government data.
The larger grain cultivation in these regions has driven structural changes in roads and ports. According to Mr. Bezzon, the increase in the supply of trucks, for example, improves freight prices because farmers can send grains to the port and bring fertilizers to the interior on the return trip.
From January to June, soybean shipments through Arco Norte grew 8%, while in the South-Central region there was a 16% decrease compared to 2021, according to StoneX. The largest increases in volume handled were seen in Itaqui and Salvador.
In the first half, the arrival of fertilizers through Itaqui grew 51%, to 1.62 million tonnes, the survey shows, and the soybean shipments grew 19%, to 7.1 million tonnes. “Ports connected to railroads, such as Itaqui, make perfect sense [for expanding logistical alternatives],” says Marcos Pepe Bertoni, chief operating officer at Corredor, Logística e Infraestrutura (CLI).
CLI, which is controlled by asset management company IG4 Capital and has just acquired two terminals in Santos from Rumo (also connected to railroads), is one of four companies that make up Consórcio Tegram, charged with operating grains in the Maranhão port. Mr. Bertoni said the company is looking with interest at providing services in the fertilizer market.
According to him, grain exports in Itaqui are advancing rapidly, so “it will inevitably” be necessary to think about return cargo to improve costs for the client. “It is necessary to ‘tie up’ the logistics to improve effectiveness,” he adds. CLI expects to handle 4 million tonnes of grain in 2022.
The biggest local player for fertilizer imports is the Companhia Portuária Operadora do Itaqui (Copi), owned by the Fertipar and Rocha groups. Copi is charged with handling 80% of the volume of fertilizers received in Itaqui, and wants to expand its services. In 2021, Itaqui handled 3.2 million tonnes of the input.
*By Érica Polo — São Paulo
Source: Valor International
Committee hinted possibility of new hike in September
08/04/2022
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Central Bank’s building in Brasília — Foto: Divulgação/Rodrigo Oliveira/Caixa Econômica Federal
The Central Bank’s Monetary Policy Committee (Copom) raised the Selic policy interest rate by 50 basis points on Wednesday, to 13.75% per year, and hinted that it will evaluate the need for a “residual adjustment, of lower magnitude,” in its next meeting, to be held on September 20 and 21. Another novelty was the 12-month projection for inflation until the beginning of 2024, presented because of the impacts of elections on prices.
“The Committee will evaluate the need for a residual adjustment, of lower magnitude, in its next meeting,” it said in a statement released after the unanimous decision. The Copom stated, however, that it “it will remain vigilant and that future policy steps could be adjusted to ensure the convergence of inflation towards its targets.” Another highlight is that “the uncertainty of the current scenario, both domestic and foreign ones”, coupled with “the advanced stage of the current monetary policy cycle, and its cumulative impacts yet to be observed, require additional caution in its actions.”
According to the Copom, it was noted that inflation projections for the years of 2022 and 2023 “were heavily impacted by temporary tax measures across calendar years.”
“Therefore, the Committee decided at this moment to emphasize the projections for 12-month inflation in the first quarter of 2024, which reflects the relevant horizon, smoothens out the primary effects from tax changes, but incorporates their second-round effects on the relevant inflation projections for monetary policy decisions.”
The Copom stated that the decision to raise the Selic rate by 50 basis points, taken unanimously, reflects “the uncertainty around its scenarios for prospective inflation, an even higher-than-usual variance in the balance of risks and is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon,” which includes 2023 and, to a lesser extent, 2024. The last time the rate was at its current level was in December 2016 and early January 2017.
“The Committee 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 even more restrictive territory,” said the Central Bank in the statement.
The monetary authority also pointed out that the external environment remains “adverse and volatile,” citing “marked downward revisions on prospective global growth in an environment of inflationary pressures.”
“The process of normalization of monetary policy in advanced economies has accelerated, affecting the prospective scenario and increasing the volatility of assets,” says the statement.
Regarding the Brazilian economic activity, the Copom wrote that the set of indicators released since the last meeting “continues to suggest that the economy grew throughout the second quarter, with the labor market recovery stronger than expected by the committee.”
“Consumer inflation remains high in volatile components and items associated with core inflation,” it stated. And concluded: “The various measures of underlying inflation are above the range compatible with meeting the inflation target.”
Copom’s inflation projections in the baseline scenario stand at 6.8% for 2022, 4.6% for 2023 and 2.7% for 2024, according to the Central Bank. For regulated prices, inflation projections are -1.3% for 2022, 8.4% for 2023 and 3.6% for 2024.
“The projections based on the reference scenario incorporate the tax measures recently approved,” highlighted the Copom in the statement. “For the six-quarter-ahead horizon, which mitigates the calendar-year impact but incorporates the second-round effects of the tax measures that occur in 2022 and the first quarter of 2023, the 12-month inflation projection stands at 3.5%. The Committee judges that the uncertainty in its assumptions and projections is higher than usual.”
*By Estevão Taiar, Guilherme Pimenta — Brasília
Source: Valor International
According to association of securities firms, class accounts for 61.3% of investments volume in first half
08/03/2022
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Investments by individuals in retail, high income, and private banking reached R$4.65tn in the first half of the year, Anbima says — Foto: Silvia Zamboni/Valor
The giant flow of individuals into fixed income is more related to the rising interest rates than to the inadequate supply of riskier options during the era of ultra-low interest rates in Brazil, says Ademir Correa, head of the distribution forum of the Brazilian Financial and Capital Markets Association (Anbima).
“What we actually see is that even clients with a bold profile are scared with the movement, with the prolongation of this scenario that has affected even the seasoned ones. It doesn’t have much to do with whether the profile is right or if [funds] are correctly allocated,” said Mr. Correa, during the virtual press conference with the presentation of the individual investments data for the first half of the year.
Investment funds lost 3.5% of their stock in the first half, to R$1.42 trillion. Hedge funds had a decrease of 5.1%, or R$35.2 billion, despite the good performance of asset managers in the period. Stocks portfolios have also shrunk, with a loss of R$38.6 billion from January to June, a decline of 18%. In the same period, fixed-income portfolios grew R$20.3 billion, up 4.5% year-over-year.
Overall, fixed income now accounts for 61.3% of the investment volume of the traditional retail, high-income, and private-banking audiences combined, compared to 57.1% in December.
Savings accounts are still the main retail product, with a 32.9% share, followed by certificates of bank deposit (CDBs), with 19.9%.
Mr. Correa, also an executive with Bradesco, said he sees great demand from clients for fixed-income products as a safer haven. “The scenario for variable income is still very troubled worldwide with the inflationary environment and stock markets down. We don’t see a recovery yet, it’s a moment of great mistrust of investors with the market. They are waiting for the next steps.”
A potential recession amid rising interest rates in developed countries, the Russia-Ukraine war, and the elections in Brazil are all ingredients of this uncertainty.
For Mr. Correa, the movement towards diversification is not exhausted, however, with rising interest rates and the Selic back to double-digit levels, at 13.25% per year. “The falling interest rates [in the past] has forced people to explore new investment opportunities with higher returns and this has brought a greater knowledge of the customer of this market,” he says. “What we notice is that high-income investors generate more demand for diversification, which is a healthy movement.”
Anbima has been working on an agenda to improve suitability, or the correct fitting of the offer to the risk tolerance profile. “With falling interest rates, we have seen a strong movement of clients looking for options with higher volatility and financial firms placing more and more products available for smaller ticket sizes.”
Within Anbima, the idea is to update self-regulation, standardizing the financial firms’ policies and establishing minimum risk levels for the products.
Another work that the distribution forum is expected to develop this year is to establish some regulation for financial firms that hire digital influencers. These professionals would be subject to the same requirements as those who serve the customer directly when recommending investments.
In the first half of the year, investments by individuals in retail, high income, and private banking reached R$4.65 trillion, up 2.8% year-over-year.
In the more affluent customer segment, more exposed to the international classes and to higher risk alternatives, assets shrank 1.7%, to R$1.75 trillion, while high income retail had an increase of 5.4%, with R$1.29 trillion. In the base, the traditional retail totaled R$1.61 trillion, with a high of 5.9% in the first half.
Mr. Correa avoided qualifying the low growth of 2.8% in the volumes of the individuals, but with Brazil’s benchmark inflation index IPCA at 5.49% until June, portfolios failed to grow above the official inflation rate. “It shows the volume drop in private banking. It has to do with the drop in the stock market, a product that has a higher concentration of this type of investor.”
In periods of greater uncertainty such as the electoral period, he said, there may still be a migration of wealthier audience for investments abroad. Anbima’s data do not include, however, the positions of private-banking clients in international accounts.
*By Adriana Cotias — São Paulo
Source: Valor International
Companies reportedly facing losses are preparing class action
08/03/2022
Brazilian businesspeople from some traditional families that allegedly rented U.S. aircraft through leasing offered by Bank of America (BofA) plan to go to the courts in New York to ask for compensation for losses resulting from the operation. Since they have already lost or are in danger of losing their luxury jets, they are preparing a class action against the bank. The combined loss is estimated at $1 billion.
Lawyers are preparing to convince the U.S. courts that when seeking financing BofA offered them an “off-the-shelf product,” which the businesspeople believed to be lawful and bought without knowing potential tax contingencies.
But such operation has consequences in Brazil. If the Secretariat of Federal Revenue finds out that the aircraft is American but flies more on Brazilian routes than abroad, it can understand that the aircraft was imported, not leased. Brazil’s customs legislation considers imports without payment of taxes as contraband or smuggling, the penalty for which is the loss of the good.
Representatives of these businesspeople call the practice illegal tax shelter. BofA allegedly bought the planes in the United States through a trustee and leased them to businesspeople in Brazil. However, the bank reduced the depreciation resulting from the use of the aircraft from the tax base to be paid in the U.S.
Experts in international taxation, however, highlight another aspect: these businesspeople did not sign a contract directly with BofA, but through a company in a tax haven. Thus, in addition to avoiding the payment of Import Tax and social taxes PIS and Cofins, they also avoided paying withholding income tax (15% or 25%).
The operation led to an investigation by the U.S. authorities, which has already resulted in a first trial by the New York Supreme Court. On that occasion, whose session is available on YouTube, BofA was ordered to disclose the bank records of the aircraft lessors.
The court decision reportedly revealed operations involving 27 aircraft. Sources involved in the case say that 24 families of well-known Brazilian businesspeople are involved. Clans cited in the 2012 Federal Police report on Operation Pouso Forçado (Forced Landing), such as Esteves and Auriemo, are among them.
Based on the U.S. court decision, which determined the disclosure of bank records, a group of businesspeople is preparing to file a mass action in the U.S. This is a class action that allows the individualization of damages of each person involved.
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Leonardo Antonelli — Foto: Divulgação
But each case is a case. According to the lawyer Leonardo Antonelli, who represents some of the Brazilian businesspeople involved in the imbroglio, one client took the aircraft to the United States for revision and, the next day, the bank reportedly seized it. “It was worth $20 million and was auctioned for $7 million. The difference is the loss,” he said.
Another four clients, according to Mr. Antonelli, were required to make deposits averaging $4 million to collateralize the transaction. The lawyer says the bank converted the funds into income for itself. “Brazil’s Secretariat of Federal Revenue confiscated the aircraft of another client because it considered the transaction an illegal import,” the lawyer said.
The issue must be discussed in the New York Court because all contracts with BofA were signed there. The New York law allegedly takes such claims based on the theory of unjust enrichment and/or fraud.
“The theory of unjust enrichment, on a first analysis, resembles the institute of unjust enrichment in the Brazilian Civil Code,” Mr. Antonelli says.
The goal is the reimbursement of all tax losses (fines, interest, confiscation of aircraft), in addition to other financial losses (return of the aircraft, retention of deposits, structuring costs) resulting from the operation with the bank.
Bofa declined to comment.
*By Laura Ignacio — São Paulo
Source: Valor International
Currently, federal environmental agency Ibama has 55 processes for environmental licenses under analysis; in 2021 there were 23
08/03/2022
The federal government hints at establishing guidelines for offshore wind projects was the trigger for companies and investors to enter the segment more willingly. The federal environmental agency Ibama is analyzing 55 environmental permit processes totaling 133 gigawatts. A year ago, there were only 23.
However, only two submitted the Environmental Impact Assessment (EIA) and the Environmental Impact Report (RIMA). Both were rejected for being in disagreement with the standard terms of reference (TR). The other projects are in the initial project phase and the agency is waiting for their work plans.
The fear is that the backlog of feasibility studies may delay the development of the sector. By law, Ibama has deadline from 6 to 12 months to analyze an EIA/Rima after submission. The analysis can take 12 to 36 months to be elaborated since the planning phase.
According to the agency, about 90% of delays in the progress of environmental permits are related to the quality of environmental studies, which do not provide enough information to attest to the feasibility of the project.
The Brazilian Wind Power Association (Abeeólica) believes that the first contracting of projects could be made in 2023 with an auction. However, this depends on a clearer definition of the rules for the cession of use of surface water, which are expected to be published by December.
Elbia Gannoum, head of Abeeólica, says that the growth of requests occurred from the moment that the regulation started to be discussed, in decree 10,946. “The agents identified potential areas and filed the process with Ibama to secure a place in line. However, there is clearly no rule about how this cession of use is going to be,” she said.
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Divulgação — Foto: Ben Backwell
Global Wind Energy Council’s CEO Ben Backwell believes it is key for the industry that a regulatory and legal framework is defined and put in place. “This will provide a long-term vision and demonstrate to the market that there is a viable route. It will give the industry and investors the certainty that they need to make the huge investments required.”
Large companies in the sector, such as Neoenergia, are interested. The segment has attracted even large oil companies such as Shell, Equinor and new companies in Brazil such as Ocean Winds, a joint venture between EDP Renováveis and Engie, with the advantage that it already has experience in open sea drilling.
But Ibama has signaled that it will not grant any permit before the rule is established. In this context, all that is left for the companies is to wait.
“Doing studies at sea is very expensive, and the companies that have filed for a permit have a place in the queue, but they won’t go ahead and spend money if they are not entitled to the cession of use,” Ms. Gannoum said.
Nicole Oliveira, Arayara International Institute’s executive director, sees it as a new frontier in energy, to expand the generation capacity in renewable sources, but demands seriousness and rigor in the environmental impact studies and social prominence in decision-making, because it is a new technology for the country.
“Unlike onshore generation farms, whose environmental impacts are to some extent more easily manageable, offshore wind farms require greater care because it is an extremely sensitive environment, rich in biodiversity, which is already being threatened by climate change.”
*By Robson Rodrigues — São Paulo
Source: Valor International
Participants in the sector say changes are needed to make this type of financing take off
08/03/2022
Microcredit grew 53.1% in the pandemic – more than credit in general, which advanced 38.1% – and surpassed the R$10 billion threshold for the first time.
With dozens of millions of informal microentrepreneurs without income due to the restrictions imposed by the coronavirus pandemic, demand has skyrocketed, although banks have somewhat restricted the supply of the modality due to fears of default.
Even so, participants in the sector say changes are needed to make this type of financing take off, including in regulation, and that there are historical and cultural barriers. Microloans account for only 0.2% of the total volume of credit in the financial system.
The 53.1% expansion took place between February 2019 and April this year, the most recent data from the Central Bank show.
Microcredit is not simply a low-value loan. The concept involves a number of factors, especially proximity to the customer – including financial orientation – and the provision of collaterals. As this credit is aimed at low-income people – some of which does not have bank accounts – the collateral is usually a guarantor, or the so-called solidarity groups. These are groups created to honor a debt when one member fails to pay.
The largest microcredit operator in Brazil is Banco do Nordeste (BNB), with a portfolio of R$7.3 billion. Next comes Santander, with R$2.2 billion, considering loans included in the National Program for Productive-Oriented Microcredit (PNMPO). According to the rules, banks must set aside 2% of cash deposits for oriented microcredit. The vast majority of banks do not meet this target and end up transferring their quotas to other lenders or leaving the funds at the Central Bank, without any remuneration.
The problem is that it is expensive to operate in the microcredit segment. As it is necessary to make on-site visits and to be very close to the client, banks have to hire credit officers. BNB alone has an army of more than 3,300 officers, while Santander has 1,600. As the average ticket is low, close to R$3,000, the average term is about seven months and the interest rate must be of up to 4% a month, it takes time to assemble a considerable portfolio and banks prefer to invest in lines with better margins.
In recent years, the government and Central Bank have discussed several changes to try and boost microcredit, such as raising funding to 3% of cash deposits from 2%, punishing banks that do not meet their quotas, establishing a system of shared guarantees, facilitating portability, and establishing clearer rules for the Civil Society Organizations of Public Interest (Oscip) that operate the programs on behalf of the banks. Some measures were partially included in provisional measures, but, besides the fact that they did not meet the sector’s demands, they lost their validity.
Today, the microcredit limit is R$21,000 per client in the same lender, and R$80,000 considering all their credits.
In the pandemic, the government even eased the rules about face-to-face visits to customers, allowing this relationship to be made by digital means. However, as the close link is key in microcredit, in some situations, especially during the initial credit analysis, face-to-face visits are still necessary.
Aliança Empreendedora, an organization focused on supporting microentrepreneurs in situations of economic vulnerability, especially women, says it is discussing with the Central Bank the regulation of the destination of PNMPO funds.
The organization proposes that the portion of the deposits that remains idle be more easily directed to other players operating in this market, such as Oscips. “There is money sitting idle that could be invested in the institutions that already operate at the end and that have a hard time raising funds at a fair price. Banks would then stop paying fines and could even receive some return,” says Lina Useche, cofounder of Aliança Empreendedora.
The organization has already had meetings with Central Bank President Roberto Campos Neto and other members of the monetary authority, who showed interest in the proposed regulation and are open to creating a working group to discuss the topic, she said. There have also been conversations with the Economy Ministry.
“Microcredit can be a great business, but it is costly to make it happen. It has a high operational cost, and it has to have a large scale to be profitable,” Ms. Useche says, adding that, for this reason, the operation with Oscips may end up being more interesting for those who already work more directly with microentrepreneurs, and not for large institutions.
On another front, Aliança Empreendedora has just launched a platform that brings together microcredit proposals. This hub is still in the testing phase and, for now, includes four aggregated institutions and 1,000 users. A new stage is expected to begin in September, with the inclusion of more providers.
Maurício de Almeida Prado, executive director of Plano CDE, a research and impact evaluation company specializing in lower-class families, explains that among the factors that hinder the release of funds for microcredit is the fact that the segment is usually separated from others of the bank.
In other words, the microcredit officer, which works offering this credit to the client, is not the same person who offers other credit products – the bank manager. “We have already done research on microcredit in all the large banks, and the area is somewhat separated; the lenders still haven’t managed to combine both things.” He added that, despite this backdrop, he notices a greater interest from banks to grow in this segment.
The classic microcredit, with proximity to the client and the possibility of a group guarantee, was created by Bangladeshi economist Muhammad Yunus – who received later the Nobel Prize for this work. Lauro Gonzalez, coordinator of the Center for Microfinance and Financial Inclusion Studies at FGV/EAESP, says that the financial system and technology have advanced a lot since then and, in this sense, he believes that visits to borrowers no longer need to be compulsorily face-to-face. “There is the possibility of discussing new technologies that can contribute to improving this proximity.”
Even so, he says that there is no definitive solution to eliminate all the obstacles to the growth of microcredit in Brazil. For him, it might not even be necessary to set aside 2% of cash deposits if state-owned banks like Caixa Econômica Federal operated with classical microcredit. Open banking, he says, is one innovation that can help unlock this type of line. “Even so, microcredit is only one part of microfinance. It is one more mechanism that, along with several other things, can be used. But that’s not what will lift a nation out of poverty,” he says.
While the group guarantee is very strong in the Northeast, where the BNB operates, it is almost non-existent in the Southeast and South regions. Isabel Baggio, head of the Brazilian Association of Microcredit and Microfinance Operating Entities (ABCred), says there is a cultural issue and the people from these regions do not feel comfortable with solidarity lending. She also runs Banco da Família, an Oscip that has helped more than 341,000 people in the South region. “Solidarity lending is not working here. We have insisted on it for a long time, but people don’t feel comfortable acting as a guarantor of others.”
Mr. Gonzalez also explains that there are some historical factors for microcredit never having really reached a substantial slice of credit in Brazil. First, because we are a middle-income country, not as low as Bangladesh and other places where this line has expanded. Second, with the history of high interest rates and spreads, banks have always been able to find very attractive margins in other segments, thus trying to leave the lower classes aside. “Regulation, by earmarking funds, may also have been a shot in the foot, scaring away some lenders, which preferred not to take part,” he says.
*By Álvaro Campos, Mariana Ribeiro — São Paulo
Source: Valor International