With acquisition, Paraná’s state-owned company has a total generating capacity of 6.7 GW
10/07/2022
Daniel Slaviero — Foto: Divulgação
State-run Copel (Companhia Paranaense de Energia) has acquired the wind farms Aventura and Santa Rosa & Mundo Novo from EDP Renováveis for R$1.8 billion. In all, there are nine wind farms in operation in the municipalities of Touros and São Tomé, in Rio Grande do Norte, totaling 260.4 megawatts of installed capacity.
Of the total, the amount of R$965 million is expected to be paid via equity, and the remainder can be paid through funding or with its own money. The project has long-term financing with maturities up to 2043 contracted with Banco do Nordeste (BNB) with rates of IPCA (Brazil’s benchmark inflation index) + 2.19% per year (Aventura) and IPCA + 1.98% per year (Santa Rosa & Mundo Novo).
Most of the power generated (76.5%) was sold in auctions in the regulated environment, and 13.7% of the power generated is sold in the free market. There is still 9.8% left for new contracts.
With the acquisition, the state-owned company of Paraná has a total generating capacity of 6.7 GW, including hydro, thermal, wind, and solar. The company’s goal is to have a more diversified portfolio, reducing exposure to hydrological risk. The operation will be carried out by Copel GeT, a wholly-owned subsidiary of the company.
CEO Daniel Slaviero highlighted the strategic location of the farms and the importance of acquiring an operational asset for the business. According to him, the company consolidates its presence in Rio Grande do Norte and increases its wind generation capacity by 28%, thus reaching 1.2GW of wind generation in its portfolio.
“The acquisition achieves a major strategic goal, which is to recompose the EBITDA with the sale of Copel Telecom to focus on the power business. The largest investment plan is focused on Copel Distribuição, but the company has the muscles to make those acquisitions in power generation” and “brings what matters most, which is a double-digit return,” he said.
Cássio Santana da Silva, the company’s chief business development officer, said that with the EBITDA plan the company reaches a turning point and will start to analyze closely greenfield assets, which “despite having more risks, bring higher returns.”
In the view of Marcelo Sá, a utility analyst at Itaú BBA, the management team has done an important job by improving efficiency, selling non-strategic assets, implementing governance improvements, and acquiring the Vilas wind farm in 2021.
“The company now has a clear dividend policy, in addition to control mechanisms such as investment committees, which reduce the risk of capital allocation. The growth strategy focused on M&A is the most appropriate, with much lower execution risk, since the current moment is challenging for the development of new renewable projects, given the increase in Capex costs and the drop in power prices,” he said.
Pulp producer allegedly acquired properties above limits imposed by law
10/06/2022
A court in São Paulo forced Bracell, the pulp maker owned by the Asian group Royal Golden Eagle (RGE), to comply with the legal limits for the acquisition and exploitation of land in Brazil, and may later order the sale of areas or the termination of lease agreements that exceed the provisions of a law that restricts the purchase of land in the country by foreigners.
The preliminary injunction favored the Brazilian Agribusiness Association (Abag) and the Association of Cane Planters of the Mid Tietê (Ascana), which filed a suit accusing the group of land grabbing – the acquisition of agricultural land in a predatory way, with social, economic and environmental damage.
The associations filed a public civil action against the group, accusing it of wrongdoings in the purchase and leasing of agricultural land, violation of national sovereignty, and of putting food security in Brazil at risk.
Bracell may appeal the injunction granted by Judge Valdeci Mendes de Oliveira, of the 4th Civil Court of Marília, São Paulo.
In the lawsuit, Abag and Ascana also requested that the Asian group be forced to sell or terminate the leases in the municipalities where the limit of 10% of the total area, provided for in the legislation, has not been observed.
In at least three cities in São Paulo — Oriente, Álvaro de Carvalho and Vera Cruz — the areas leased by Bracell, 32.7%, 11.8% and 10.9%, respectively, exceeded the legal limit.
The associations accuse the group of using corporate structures that break the law and camouflage its majority participation in Brazilian companies. And they attached to the lawsuit a technical evaluation from the Program for Continuing Education in Economics and Business Management (Pecege), linked to the Luiz de Queiroz School of Agriculture (Esalq/USP), which associates Bracell’s operations with the reduction of arable land, the lower supply of food, and the weakening of the local economy in the municipalities where the group is present.
Bracell’s activities, according to the lawsuit, have also resulted in overpricing of rural properties in the areas where it operates and in the loss of purchasing power of the population on agribusiness production. Abag and Ascana are represented in the lawsuit by the law firms Modesto Carvalhosa Advogados and Chiarottino & Nicoletti Advogados.
Bracell has pulp mills in Camaçari (Bahia) and Lençóis Paulista (São Paulo). The group has invested about R$15 billion in recent years in São Paulo, according to market estimates, to increase production capacity to up to 3 million tonnes per year of eucalyptus pulp or 1.5 million tonnes per year of dissolving pulp.
In a statement, Bracell said its business in Brazil “is in accordance with all legal regulations in force” and adds that “the company is aware of the public civil action and is preparing all the necessary legal clarifications,” it added.
Arabica future contracts rose 1.57% on Tuesday and 1.92% on Wednesday
10/06/2022
Hailstorms damaged not only coffee crops, but also beans, vegetable and other plantations — Foto: Emater-MG/Divulgação
The strong hailstorms that hit Minas Gerais state in recent days again made the prices of arabica coffee rise Wednesday in the New York Stock Exchange. The problem affects the southern region of the state, one of the most important producing poles of the commodity in the country, which leads the harvest and world exports.
The futures contracts maturing in March, which currently occupy the second delivery position – and had already risen 1.57% on Tuesday – advanced another 1.92% and closed at $2.1465 per pound. According to Valor Data, the negative variation in the year fell to less than 5%, and in the last 12 months the second position bonds started to see a high of approximately 10%.
According to the Company of Technical Assistance and Rural Extension of the State of Minas Gerais (Emater-MG), the hailstorms on Tuesday and Wednesday damaged not only coffee crops, but also beans, vegetable, citrus, persimmon, peach, plum, and avocado plantations. Rural producers in the south of Minas Gerais even reported that the hail even killed a cow.
According to Emater-MG, the rural producers affected should be cautious for the moment. “The plants are expected to present lesions caused by the hailstones, which are gateways for fungal and bacterial diseases. We recommend that they seek technical assistance from Emater for guidance on how best to reduce the problem,” said Sérgio Brás Regina, Emater’s technical coordinator of crops, in a statement.
“Don’t rush into pruning, which is sometimes unnecessary, or use ‘miracle’ products. Don’t do anything without a technical follow-up,” he emphasizes. Emater-MG technicians are currently in the field investigating the most affected areas and the losses. “A preliminary survey indicates that only in the south of Minas Gerais, the region with the highest losses, more than 20 municipalities were affected, especially São Gonçalo do Sapucaí, Três Corações, Cambuquira, Campanha, Turvolândia, and Careaçu.”
“We are providing a task force to do all the mapping of the extension of the effect of this hailstorm. Just as it happened at times of frost and floods, we will prepare free reports for family farmers served by Emater,” says Otávio Maia, president of Emater-MG, in the statement released.
*By José Florentino, Fernando Lopes, Fernanda Pressinott — São Paulo
IAEmp rose 1.5 points in September compared to August, strongest rise since April
10/06/2022
Rodolpho Tobler — Foto: Leo Pinheiro/Valor
Influenced by good results in services, the largest employer in the economy, the employment leading indicator (IAEmp) rose 1.5 points in September compared to August, to 83.8 points. It was the strongest rise since April 2022 (4.5 points) and took the indicator to the highest level since October last year (87.1 points), said Fundação Getulio Vargas (FGV) on Wednesday.
When detailing the result, Rodolpho Tobler, the FGV economist in charge of the indicator, recalled that services are currently undergoing a process of recovery – after the “thump” suffered by the sector during the most acute period of the pandemic, which began in 2020. However, when questioned about the continuity of the IAEmp’s high, he was cautious. In practice, the sustainability of greater openings, as well as the positive balance of the indicator, will depend on the trajectory of the economy, which still has many uncertainties for the future, especially for 2023, he noted.
When detailing the behavior of the September indicator, Mr. Tobler pondered that, in his understanding, the good performance of the IAEmp reflects what has been happening in employment, and in the economy, in recent months. There has been an improvement in the health outlook related to the pandemic, with an advance in vaccination against Covid-19 and, consequently, a reduction in the rate of cases and deaths. This has pushed more consumers to face-to-face activities, which were heavily restricted during the pandemic.
This aspect, he noted, has mainly benefited the services economy, which has a higher “face-to-face” profile, such as bars, hotels, restaurants, and tourism, among other activities. Therefore, this sector has been recovering month by month, which boosted the economy as a whole. On the supply side, the services activity represents more than 70% of the Brazilian GDP, reminded Mr. Tobler
At the same time, the outlook of recovery in services favors employment, since the sector generates many jobs, acknowledged Mr. Tobler. “In the IAEmp, we had a total high of 8.8 points in six months [until September],” he says, while illustrating the impact that services had on the indicator in recent months. “The economy has shown resilience,” he said. “And the services sector has been stronger [in pace of activity] than expected.”
However, when talking about the future, the same statements cannot be repeated, according to him. Mr. Tobler recalled that there is consensus, among analysts, of a weaker economy in 2023. This is because there are signs of a continuing environment of higher basic interest rates, a way to tackle inflationary advances. This curbs greater consumption power, as well as the cadence of economic activity, with an impact on different activities in the economy, including services, he says.
For Mr. Tobler, whether employment remains in a favorable scenario will depend mainly on the future trajectory of the economy. “The labor market is fine. But as good as it is, it still has a long way to go,” he added.
Crisis generated by pandemic still impacts companies, which are seeking out-of-court settlements
10/06/2022
Since the beginning of the pandemic, never have so many companies gone bankrupt as in the first eight months of this year. Between January and August, 474 companies went bankrupt, 9% above 2021 and 1.5% higher than in 2020, data collected by credit bureau Serasa shows. At the same time, the search for out-of-court debt renegotiation reached the highest level in five years.
Also according to Serasa’s survey, from January to August there were 15 out-of-court agreements. The previous peak, of 30 in the same period, had been in 2017. In these situations, a judge is appointed only to oversee the case and monitor compliance with the law – and ratifies or not the plan agreed upon by the parties.
Lawyers understand that the crisis generated by the pandemic still impacts operations, but the number of companies that have closed their doors is still far from the peak of the decade seen in the 2015-2016 recession. In that period, there were, on average, 1,100 bankruptcies per year.
The higher number of defaulting companies has been the main indicator of this deterioration in business, Serasa’s economic team said.
“In August, there were 6.2 million companies with debt [versus 5.8 million a year earlier] for a total of 22 million active firms in the country. Even when the number of bankruptcies drops, if this number goes up, for us it is a warning sign,” said Luiz Rabi, an economist with Serasa.
Antonio Mazzucco — Foto: Divulgação
“The banks took the pressure off the companies [until 2021] because they renegotiated contracts at the beginning of the pandemic,” said Antonio Mazzucco, a founding partner at the law firm Mazzucco & Mello. “But the maturities of those renegotiated debts returned as of this year, and will extend through 2023 when we will see even more attempts to make agreements as economic activity is still recovering.” His firm represented creditors in the Ricardo Eletro reorganization process and the lawsuit of the lighting company Bronzearte.
According to Laura Bumachar, a lawyer specializing in judicial recovery, civil litigation, and arbitration at Dias Carneiro Advogados, “this scenario is expected to continue this way next year due to the current economic uncertainty,” and because she does not believe in a permanent solution for the business without the injection of new capital into the companies.
“The current environment of insecurity about the economic activity and expensive money, with the escalating [Brazil’s key interest rate] Selic, do not contribute to creating competitive lines or to the search for companies open to some partnership,” she said.
From January to August 2021 and 2022, there were 40 requests for out-of-court reorganization, of which 19 were approved after the OK of banks and suppliers. As those negotiations are long, extending over months, it is more appropriate to consider periods longer than a year to get a more accurate picture of the situation.
For comparison purposes, from 2015 to 2016, another period of strong economic crisis, there were fewer cases, with 24 requests and 14 granted in the two years until August (before the new judicial recovery law, in force since 2021).
According to attorney Vitor Ferrari, with Mazzucco & Mello, mediations in scenarios in which creditors identify feasible payment schedules and business resumption planning are welcome. “We have a case of a client with R$260 million in liabilities and we are managing to negotiate because the banks are open to this case. The payment terms expired in March and were extended for more 12 months,” said Mr. Ferrari.
“Nobody wants a partner in default if there is room for agreement. But renegotiations made in 2020 and 2021, with payment terms of up to 36 months, will come partly this year and next year.”
One of the main positive data from the survey shows 520 recovery requests from January to August this year. That’s less than half the numbers for 2015 and 2016, and 19% lower than the previous year.
This happens exactly at the same time that out-of-court mediations have gained some traction. “There is more openness and tools available today in the search for agreements, in a more mature model than 10 or 20 years ago, well before the changes in the recovery and bankruptcy law,” said Mr. Rabi.
Also according to the analysis, six out of 10 requests for recovery in court (62%) were approved from January to August 2021 and 2022.
This rate is more than double the rate of 24% of requests granted in the interval between 2015 and 2016, when the new recovery law (Law 14.112 of 2020), was not yet in force.
Experts understand that those numbers of judicial recoveries were impacted by the more active stance of the judiciary system, which is maintaining channels of negotiations between companies and creditors, and by a greater willingness of creditors to seek agreements — although the high debt discounts presented in the plans, by debtors, are being criticized.
“There are recent proposals submitted by companies with a 90% haircut. The economic benefit to the creditor in the agreements is very low,” said attorney Ronaldo Vasconcelos, a partner at VH Advogados and a professor of law at Mackenzie University.
There is still criticism of cases that do not come to an end because debtors fail to comply with their recovery plans. “There are cases of recoveries that go on and on for years. Just look at Oi and Inepar. Inepar had an eight-year recovery and more than 25 court enforcements. Certain courts are very pro-business in a bad situation because of the social effect, and that don’t consider the effects to creditors, to the market, of the decisions,” says a court administrator and lawyer who has been in the sector for 25 years.
Today, according to the law, it is the creditors who have the power to reject plans and take a company into bankruptcy. The courts follow and make sure that the legal procedures are followed, and decree bankruptcy when there are certain violations. This allows companies to continue operating if they comply with the terms of the approved plan.
The Serasa Experian Bankruptcy and Judicial Recovery Indicator is built from monthly statistics on bankruptcies and recoveries from courts across the country and the Daily Gazette.
Company will have a sustainability and circular economy vision
10/05/2022
Amando Varella — Foto: Claudio Belli/Valor
Papirus, one of the most traditional Brazilian manufacturers of paperboard, is discussing a new long-term strategic plan with a sustainability and circular economy vision, which may culminate in a future expansion project with substantial investments.
The company, which has been operating at full capacity since the end of 2019, is concluding an investment package of around R$40 million to expand the production capacity in Limeira, São Paulo, to 115,000 tonnes per year in 2023, from 96,000 tonnes in 2019. According to the company, the capacity has already increased in 2022, to 105,000 tonnes per year.
“Apparently, the current machines do not allow a new round of growth and the investment would have to be much higher. We are studying how to do that and if we will set up a new expansion project,” Papirus Co-CEO Amando Varella told Valor.
Founded 70 years ago by the Ramenzoni family, the company hired Falconi Consultoria to help in the strategic planning for the next five years. The consulting firm participated in the preparation of the previous plan, in 2018.
Mr. Varella, the company’s chief commercial and marketing officer as well, told Valor that Papirus reached a new level in terms of financial results, which allows looking at the possibilities of improving efficiency and costs – and expansion.
The company does not disclose EBITDA figures. The projected revenue for 2022 is R$750 million, compared to R$460 million last year. Higher sales volume and higher prices boosted the results.
If the company decides to pursue a larger growth project, it will evaluate all available financing alternatives, including the eventual arrival of a new partner or an IPO. “We know there is potential for growth, but the decision is up to the shareholder,” he said.
Having concluded the first round of strategic planning discussions, it is time now to detail the potential expansion project. This stage will take at least six months.
Growth potential, both of the market and Papirus, comes from the increasingly stronger demand for more sustainable packaging. However, it is still necessary to develop barriers – which protect the packaging and its contents – that are more sustainable and make plastic replacement possible.
It will also be necessary to expand the collection of packaging and remove it from the environment. “Looking ahead, there is a lot of opportunity in sustainable packaging, but collecting it from the environment,” he said. To this end, the company is expected to expand partnerships with the so-called cleantechs, following the example of the pioneering recycling credit project already started with Polen.
According to Mr. Varella, the company tends to stand out by making cardboard with an increasing share of recycled content. Today, the use of recovered scrap by Papirus is around 35% to 40%. The company plans to reach 60%.
To assure that there will be demand for a more sustainable cardboard, the company has held talks with consumption companies that are clients of the printing companies to which Papirus supplies paper. “Large brands have established goals for the use of recycled content, and we want to approach these consumers,” he said.
Pioneer experience in Espírito Santo will be a benchmark for sector
10/05/2022
Ilson Hulle — Foto: Gabriel Lordello/Valor
Codesa, the Espírito Santo Port Authority that is now officially privatized, plans to expand the capacity of the state’s ports and draw new types of cargo. The new management team took over operations on September 21 and is already preparing four work fronts: the adaptation of the existing contracts; the search for new businesses for idle areas; the contracting of the construction works; and internal transformations in the company.
“The great challenge is to build a new business environment. We have a port with idle capacity and many people wanting to do business. The goal is to bring these investors into the port,” said Ilson Hulle, the company’s new CEO.
Codesa is Brazil’s first privatized port authority. Its controlling shareholder is the investment manager Quadra Capital, which won the auction in March this year. The privatization included the sale of the company and the signing of a concession that gives the group the right to operate the ports of Vitória and Barra do Riacho for 35 years.
One of the first tasks of the new management team, to be done in the first six months, is the adaptation of the contracts with the terminals to the private-sector reality from the state-owned reality. According to the privatization rules, Codesa cannot reduce the scope of any operation, but extensions can be negotiated.
“I don’t foresee very troubled adaptations. For the lessee, it can only get better. New areas and new cargoes may be included to expand the volumes of the terminals, something that was not possible before. There are already groups interested in making this type of change,” the executive said.
In the coming months, the guidelines for the expansion of the ports operated will also be defined. Especially in Barra do Riacho, there are empty areas likely to house new terminals. The plan is still being designed and will depend on the conversations with interested parties. The goal, according to Mr. Hulle, is to strengthen the cargoes already present in the ports, but new operations are also in sight.
Among the segments with growth potential, he cited grains, fertilizers, containers (possibly by grabbing cargo that goes to other states), steel, and oil and gas, especially to decommission oil platforms.
The executive also foresees the need for expanding the port’s capacity through interventions.
The expansion of railroad accesses is seen as crucial. According to the contract, Codesa will have to reform the internal tracks of the port. It will also be important to make investments to connect with the great railway network. Today, the ports already have an active connection with Vale’s Vitória-Minas railroad, but an expansion is necessary.
“We will establish contact with the operator [to request the expansion],” said Mr. Hulle. “The railroad is already there, but with a very reduced volume. It would be necessary to gain the capacity to give us a leap in volume, especially in grains.”
When contacted, Vale said in a note that it “periodically evaluates the need and feasibility of making investments in cases where there is a concrete increase in demand in the region.”
Regarding road access, the necessary renovation will also depend on investments that go beyond Codesa’s contract. It will be up to the company only to make the executive project for the construction works.
As for the waterway access, the authority itself will have to increase the capacity of the ports through dredging and other interventions. “We have physical restrictions for the entry of ships, but I see an opportunity to enable slightly larger vessels, which can expand the range of cargo possibilities in Vitória.”
This may be possible both through construction works and simulation studies of the entry and exit of ships, which may indicate gaps so that larger ships can enter the port in certain time slots, with some kind of restriction. “We will work to find the maximization point,” he said.
In all, the concession foresees investments of around R$335 million. The central works, which are expected to be done in the first two years, include reforms in the warehouses, the wharf and pier structures, and the port’s internal railroad.
In addition, Codesa will be tasked with renovating its internal structure. “Before, purchases were made by bidding. The company was privatized, but it does not have a supply team or a basic flow of purchase approval. We will have to create all these procedures and train people.”
Under the terms of the privatization, the 235 employees of the former state-owned company will have one year of stability. Codesa is also expected to open a buyout plan in the next six months.
The new CEO of Codesa is a native of Espírito Santo who began his career as a trainee 17 years ago at a terminal in the port of Vitória. Just before assuming the position, Mr. Hulle worked as a terminal director at Log-in, a company that operates in the port.
This is an unprecedented project for all involved. Quadra Capital, the controlling shareholder of the business, is having the first experience as a direct operator of an infrastructure asset, although the group had already worked with credit in the sector.
For the port market, it will be the first test of a private-sector port authority. The list of candidates to join the model is relevant: besides Santos Port Authority (São Paulo), other ports may follow, including Itajaí (Santa Catarina), São Sebastião (São Paulo), and Bahia.
“We know our responsibility. Codesa will serve as a showcase. We are challenged to do an excellent job. But the question of unprecedentedness was left to the day we signed the contract. Now, the focus is to make it happen,” said Mr. Hulle.
Strong pace of sales could have been driven by pent-up demand caused by shortage of containers, ships last year
10/05/2022
Despite the strong growth between January and August, Brazil’s tobacco exports are expected to cool down and end 2022 relatively flat in volume and with lower increase in revenue compared to last year’s results.
According to data from the Foreign Trade Secretariat (Secex) compiled by the Interstate Tobacco Industry Association (SindiTabaco), from January to August shipments totaled 349,400 tonnes, up 14.9% year-over-year, and earned $1.4 billion, an increase of 44.7%, thanks to the high average prices.
Yet, Iro Schünke, the association’s head, considers that these increases were inflated by the strong pace of sales in the first four months of the year driven by pent-up demand at the end of last year caused by the shortage of containers and ships. Thus, he expects sales to slow down in the coming months.
Consultancy Deloitte is projecting that tobacco exports will end 2022 with a stable volume compared to last year, when 464,400 tonnes were shipped out of the country, while revenues are expected to increase 6% to 10% year-over-year, to $1.5 billion.
Mr. Schünke believes that the results may come a little better than that, but reinforced that shipments are returning to normal after facing problems last year. In 2020, Brazilian exports exceeded 500,000 tonnes and brought nearly $1.6 billion.
Belgium, thanks to the importance of the port of Antwerp for the segment, continues to be the main destination of Brazilian tobacco sales abroad. From January to August, it was responsible for $360 million, ahead of China ($248 million), the United States ($103 million), and Indonesia ($70 million).
“The production chain survived the pandemic. And shipments are expected to stabilize again around 500,000 tonnes in the next few years,” said Mr. Schünke. This return to normality is a relief for farmers since nearly 85% of production goes to customers abroad.
The harvest is concentrated in the southern states. According to the Tobacco Growers’ Association of Brazil (Afubra), in the 2021/22 harvest, the region reached 560,200 tonnes, 10.9% less than in the 2020/2021 season. The drop reflected mainly a 9.8% reduction in the planted area, to 246,600 hectares, but also the decline in productivity in Rio Grande do Sul due to weather problems.
Given the reduced supply and rising production costs, prices rose. According to Afubra, the Southern producers sold a kilogram of tobacco to industries for R$17.02 in 2021/22, on average, up 61.5% over 2020/21. Thus, the total gross revenue received by tobacco growers in the South rose to R$9.5 billion from R$6.6 billion in the comparison, even with the shrinking harvest in the region.
Logistical hurdles pave the way for Virtu, a company focused on gas transportation through highways
10/05/2022
Hamilton Amadeo — Foto: Leo Pinheiro/Valor
An unsuccessful auction held by the federal government on September 30 put the viability of thermoelectric projects in the interior of Brazil in jeopardy. It was expected to contract 2,000 megawatts in the North and Northeast regions, but only 729 MW were negotiated thanks to the gas from the Amazonas state, which made projects possible.
The logistical situation is still a challenge. The bidding was designed to encourage the construction of pipelines as the network of gas pipelines, of only 9,500 kilometers, is concentrated on the coast.
Today, the fuel for Eneva’s Jaguatirica Thermoelectric Plant (140 MW) is transported by trucks in a mega-operation involving 84 vehicles, which daily carry 800,000 cubic meters of natural gas from the Azulão field all the way to the plant. Virtu LNG, a company controlled by Coencil, is in charge. The former CEO of Aegea, Hamilton Amadeo, left the basic sanitation industry and recently took over as Virtu’s CEO. He says the lack of pipelines is a growth opportunity.
“Most players still don’t know that it is feasible to do that. Everyone is focused on pipelines in their own operations. Companies that have a gas field are often reinjecting it because they have no way to transport it,” said Mr. Amadeo.
Today Brazil has less than 9,500 kilometers of gas pipelines, according to the National Agency of Petroleum, Natural Gas and Biofuels (ANP). The distribution pipelines, on the other hand, are almost 41,000 kilometers long, according to the Brazilian Association of Piped Gas Distributors (Abegás).
The bottleneck is worse in the North region: there are only 802.1 kilometers of transportation pipelines. The difficulty of environmental permit and the amortization period make transport pipelines unviable, but they could open up a market for Virtu.
From Azulão (in the cities of Silves and Itapiranga, in Amazonas) to Boa Vista (Roraima), each truck travels 1,100 kilometers. The executive says that the costs are competitive in distances above 200 kilometers.
Given the logistical challenge of the region, the company needed to set up its own support infrastructure in point-to-point operations, with dedicated support equipment. “An operation like this requires nearly R$100 million of capex,” he said.
The process is done with cryogenic technology, liquefaction solutions, storage, transport and regasification in small scales. Mr. Amadeo said that liquefaction reduces the volume by 600 times, making transportation easier.
“We are in the final stages of enabling a joint venture with Eneva to develop these alternatives. Eneva understood that much of its gas will need this knowledge,” he said.
There are 212 isolated locations in Brazil, most of them in the North region. Consumption is low and accounts for less than 1% of the country’s total, supplied mainly by diesel -fired thermal plants. Mr. Amadeo sees market opportunities, besides the advantage of using gas, a less polluting fuel.
Roraima is the only state in the federation outside the country’s integrated electrical system. For years the state was served by Venezuela’s Guri transmission line, but after several blackouts, the lines were disconnected, and Roraima’s power depends on thermoelectric plants. The Tucuruí power line, which would connect Manaus (Amazonas) to neighboring Roraima, has been promised by several administrations, but the problem comes up against the indigenous issue, since part of the route cuts through the Waimiri Atroari indigenous reserve.
The government says that a new judicial agreement allows the resumption of work on the transmission line between Manaus and Boa Vista.
Eneva was one of the winners of the last auction and will have to build a new venture to be operational by the end of 2026. Mr. Amadeo says that Virtu’s services have synergies with new power generation projects in regions not served by pipelines, but that Eneva has other plans.
The Azulão-Jaguatirica operation does not change at all. The company will continue to transport LNG by road from Amazonas to Roraima.
“For the new thermoelectric plants that will be built in the Azulão Complex, most likely small pipelines will be built within Eneva’s operation, to take the gas from the wells to the generation plants.”
In the case of the Reserve Capacity auction, the congressional lobby to create an artificial demand did not appear in the expansion studies of the Energy Research Company (EPE), and the signal the market gave was towards not contracting in the Northeast. The government already recognizes that investments in gas pipelines are not always the best alternative.
“The transportation of gas can be done in several ways. Pipelines not always are the best alternative from the economic standpoint. Many times, the traditional modes are used [road, river, among others] with compressed or liquefied gas, until a sufficient scale is achieved to economically justify the heavy investments that a gas pipeline requires. In the Amazon region, it is even more challenging because of environmental issues,” the Ministry of Mines and Energy said in a statement.
From August 2021 to September, outflow reached R$131bn, while inflow totaled R$67bn
10/05/2022
Fernando Honorato — Foto: Carol Carquejeiro/Valor
Brazilians have never withdrawn so much money from savings accounts as in recent months. The total withdrawals until September 19, 2022 reached a historical record of R$131 billion, counted since the balance of deposits reached the maximum point of R$1.05 trillion on August 6, 2021. Withdrawals are equivalent to 12.5% of the balance at the beginning of the period.
In the same period, the saving accounts inflow totaled R$67 billion, equivalent to 6.4% of the deposits balance at the beginning of the period. Even so, there was a record drop of 6.1% in the amount deposited, considering inflow and interests. The savings deposits balance never shrunk so much and in such a short time.
A set of factors contributed to the negative records. Fernando Honorato, Bradesco’s chief economist, believes that the historical level of withdrawals started during the pandemic. He says that the deposits in saving accounts skyrocketed during the Covid-19 crisis because a slice of the population was at home, consuming less and saving more. “Consumption fell more than income and there was money left over for families,” he said.
In fact, between mid-2016 and March 2020, before the pandemic, the balance of savings deposits, adding inflow and interests, grew at a steady rate of 8.1% per year. From April 2020 to early August 2021, the growth rate jumped to 14.7% per year.
Now, Mr. Honorato said, with the end of social distancing measures, a portion of the population is withdrawing funds from savings accounts to consume once again, which helps explain the record number. “Consumption is growing close to income or more,” he said.
According to Mr. Honorato, the fact that the government has distributed money through social programs such as the emergency aid has also contributed to the jump in savings deposits. According to data from the National Treasury, central government expenses related to the emergency aid reached R$237 billion between April and September 2020.
Caixa Econômica Federal was the lender that made the emergency aid payment in savings accounts through the Caixa Tem app. This led to an increase in the volume and quantity of low-value savings accounts.
The figures from the Credit Guarantee Fund (FGC) show that the balance of deposits in savings accounts up to R$5,000 grew 55% in this period. The number of accounts in this range increased 36%.
A part of the clients uses savings accounts as a current account, not to invest, said Leonardo Siqueira, head of investments at Santander. Almost half of Santander’s clients with savings accounts make more than four movements a month, which indicates that they use the savings account as a cash flow tool, taking advantage of the fact that it is exempt from income tax.
“Not everyone with savings accounts is an investor. Many put and withdraw money from there several times a month and use it only to set aside funds or to transfer it to other lenders,” he said. In general, these clients have accounts in more banks and transfer the money to themselves or to people close to them.
Among higher income people, with more than R$100,000 in the savings account, the balance of deposits and the number of accounts also grew consistently from April to September 2020.
In addition to the forced savings due to the closure of economic activities because of social distancing measures, the pandemic period was very turbulent for financial assets.
In a first moment, high-income investors scared with a falling market stimulated a migration of funds to savings accounts. “The savings account is an instrument that Brazilians know and trust,” said Mr. Siqueira.
However, over time, as the Central Bank increased interest rates to fight inflation, the difference in the profitability of other fixed-income investments in relation to savings grew. This was also one reason for the record withdrawals.
“Customers have started to question and seek better investments, and savings accounts are a bad alternative. Its risk is similar to that of certificates of bank deposit (CDBs), Real Estate Credit Bill (LCIs) or Agricultural Credit Bills (LCAs), which offer higher yields,” said Lucas Queiroz, a fixed-income strategist at Itaú BBA.
In addition, high inflation has compromised the population’s income and led people to withdraw money from savings accounts to cover part of the lost income.
“High prices, especially for food, and the population’s indebtedness match the hypothesis that the savings withdrawals are directed to recompose income. People are less able to take credit amid rising interest rates and are in need of money,” said Mr. Queiroz.
Mr. Queiroz evaluates that the scenario for savings is challenging and that the withdrawals are an incentive for the financial industry to seek alternatives for raising money for real estate credit. “The withdrawals are expected to drive the market to develop sources of real estate financing,” he said.
*By Marcelo D’Agosto, Júlia Lewgoy (Valor Investe) — São Paulo
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