Equatorial Margin is Petrobras’s new target

Region in the North and Northeast has potential for 7.5bn barrels

11/11/2022

Magda Chambriard — Foto: Leo Pinheiro/Valor

Magda Chambriard — Foto: Leo Pinheiro/Valor

Despite environmental sensitivities, Petrobras will release this month a business plan that reinforces its intention to open a new exploratory frontier in deep waters in the so-called Equatorial Margin. This is the region between the coast of Rio Grande do Norte and Oiapoque, Amapá, in the far north of the country, and includes the mouth of the Amazonas River, Pará-Maranhão, Barreirinhas, Ceará and Potiguar basins.

Petrobras’s goal is to ensure a new production front starting in the 2030s, to replace the loss of reserves with the advance of pre-salt extraction, which began 12 years ago. Experts assess that the cycle of great potential discoveries in the pre-salt is over, hence the priority given by the company to the Equatorial Margin.

“It is a very promising region,” says Magda Chambriard, former director general of the National Petroleum Agency (ANP) from 2012 to 2016. In her view, the environmental sensitivity of the Margin exists, but the environmental risks are reduced by the fact that the activities are carried out in a region far from the coast and with reserves in deep water. O Globo’s columnist Lauro Jardim informed on Wednesday that Ms. Chambriard would be a name to preside Petrobras.

Sought by Valor, Ms. Chambriard said that her name has been mentioned for the government transition by the president of the Legislative Assembly of Rio de Janeiro (Alerj), André Ceciliano. “André [Ceciliano] is my boss at Alerj and is interested in my participation in the transition for the benefit of Rio.”

Today, Petrobras’s production is concentrated in the Campos and Santos Basins, in the Southeast region, and eventual discoveries in the Equator region may expand the state-owned company’s presence in the North and Northeast regions. It is necessary to consider, however, the social and environmental sensitivities of the Equatorial Margin. The list includes the proximity to the Amazon rainforest and the existence of marine structures similar to corals, in addition to the flow of sea currents that, in case of accidents, may extend eventual leaks to neighboring countries, such as French Guiana.

The Margin is considered a new exploratory frontier since there is low geological knowledge compared to other more explored areas in the country. According to the former director of the ANP, Felipe Kury, the region may be “the new Brazilian pre-salt,” with the possibility of producing from 5 billion to 7.5 billion recoverable barrels of oil. He estimates an initial in situ volume in these basins of 20 to 30 billion barrels of oil, equivalent to almost half of the resources discovered in the pre-salt. With the exhaustion of the potential for new major discoveries in Campos and Santos, the Equatorial Margin becomes the candidate for a new production hub.

The new Petrobras planning for the years 2023 to 2027 is expected to have an update concerning the previous plan, released at the end of 2022, but without major changes in the ambitions drawn in the Equatorial Margin, for now. An expansion of activities beyond the South and Southeast regions is expected. One of the efforts to decentralize investments includes, for example, the start of deepwater production in the Sergipe-Alagoas Basin, which is not part of the Margin.

In the 2021 plan, the company said it intended to allocate $2 billion in investments to the Margin, 38% of the total set aside for exploration from 2022 to 2026. The goal is to drill 14 exploratory wells in this region by the end of the period. An environmental permit process is underway at Brazil’s environmental protection agency Ibama for Petrobras to start the first deepwater drilling off the coast of Amapá, in the mouth of the Amazonas Basin.

According to sources, the company has accelerated hiring for this activity and the permit is expected to be issued later this year so that drilling can begin quickly. “Petrobras is working technically for the permit to be issued, to meet [the requirements of] the characteristics of the place. The currents, for example, are different from other basins where the company operates,” said a source.

The definition of the company’s strategy in this area will depend on the results of this first well. Sources say that, so far, the licensing follows the normal Ibama procedures and there have been no requirements beyond the requests normally expected in those processes.

In September, units of the Federal Prosecution Service (MPF) in Pará and Amapá issued a recommendation that Ibama should not grant the permit under the current conditions. The prosecutors say there was no prior consultation with indigenous communities in Amapá and quilombola (descendants of escaped slaves) and riverside communities in Pará, which will be impacted. According to them, the Karipuna, Palikur-Arukwayene, Galibi Marworno, and Galibi Kali’na peoples will have their lands affected by the construction of an air base with an expected 3,000% increase in air traffic, while Para’s quilombola and riverside communities may suffer impacts on fishing activities and from the reception of waste.

Fernando Borges, the chief exploration and production officer at Petrobras, said in a conference call last week that the company is complying with the entire licensing process and has held three public hearings with local communities. Gabriela Câmara, a federal prosecutor in Amapá, says that the consultations had a low quorum and that it is necessary to hold new meetings with the traditional peoples. In the case of the people of Oiapoque, for example, there is a specific consultation protocol, which has not yet been followed.

The prosecutor also says that Petrobras must present a new Spill Dispersion Forecasting Model, a document that guides responses to potential accidents. The initial model was presented in 2015 and should be updated. “The MPF recommends that Ibama does not issue the permit under the current conditions. If this happens, the MPF will possibly take the issue to court,” she said. One of the next steps for issuing the environmental permit is to carry out a pre-operational simulation, which is expected to begin in the coming weeks.

Petrobras is betting on the ability to reduce costs and risks in the region with the use of technologies such as artificial intelligence and big data. Experts emphasize that the technological advance of the equipment also helps to better deal with the strong sea currents in that area. One of the main environmental controversies is related to the marine structures supposed to be corals. The Marine Geology professor at the Fluminense Federal University, Alberto Figueiredo, says that the structures found in the region are calcareous algae on granites, and not coral reefs, and that most of them are lifeless. The structures are even similar to those found in the basins where Petrobras produces, says Mr. Figueiredo.

The Brazilian Institute of Oil and Gas (IBP) points out that the structures are in depths of up to 120 meters, while the planned well-drilling activities will be far from these formations, more than 2,000 meters deep. The entity points out that oil spill modeling was done for more than 600 different scenarios and that there is no possibility of an eventual accident leading to leaks that reach the Brazilian coast. Daniela Jerez, an analyst of public policies at WWF, said there is still little knowledge about the region’s biodiversity, which increases the risks.

Allan Kardec, CEO of the Maranhense Gas Company (Gasmar) and a former director of the ANP, says that the states in the area of influence of the Equatorial Margin want to be listened to. “We want to take a stand to conduct the debate in a way that is not imposed by Brasília. We want to have a voice to dialogue and be able to encourage regional development,” said Mr. Kardec.

Production on the Brazilian Equatorial Margin is viable, in the view of specialists in the energy sector. So far, however, history points in a different direction. There are more than 600 wells drilled in the region, but most of the drilling in these basins took place before the 2000s and, among those drilled in the last 20 years, most did not find enough oil to make commercial activities viable.

In the past decade, oil companies other than Petrobras have become interested in the area again, but have been unable to proceed with exploratory campaigns. In 2017, British Petroleum even started logistical planning for activities in Pará, but the process did not move forward.

The following year, French oil company TotalEnergies had a request to drill in the mouth of Amazonas denied by Ibama. The environmental agency argued that the company failed to present appropriate logistical solutions for potential emergency scenarios. Sought about the possibility of returning to operate in the region, TotalEnergies declined to comment, and BP said it continually evaluates opportunities but does not comment on future investments. Ibama did not reply to a request for comment.

Last year, Petrobras took over TotalEnergies and BP’s stakes in five concessions where it was a partner of the companies in Margin. Executives with the state-owned company, however, have stressed that the company would not enter the venture alone and that it will seek the support of partners, should it develop discoveries in the region. It was precisely the presence of large international oil companies that made the activities on the Guyanese margin feasible.

Given the history of difficulties in issuing permits, there are doubts in the industry about the interest of oil companies in obtaining new areas on the Margin. The delay in issuing permits, however, has not been exclusive to this region. The Ministry of Mines and Energy has two working groups in progress to improve the environmental assessment process before the bidding for areas, to give more predictability and legal security to the licensing.

*By Gabriela Ruddy, Fábio Couto — Rio de Janeiro

Source: Valor International

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Gerdau sees positive steel demand in North America

CEO says U.S. government’s infrastructure package is likely to generate demand for 5 million tonnes of steel, which will translate into actual demand as early as next year

11/10/2022

Gustavo Werneck — Foto: Julio Bittencourt/Valor

Gustavo Werneck — Foto: Julio Bittencourt/Valor

Gerdau is optimistic about steel demand in North America and sees robust cycles ahead in the region, despite logistical and labor hurdles, CEO Gustavo Werneck told reporters in a conference call.

“The current level of incoming orders and available production capacity give us confidence for a solid demand next quarter and next year,” he said. He cited incentives to reshoring – the U.S. government’s initiative to regain industrial processes.

Earlier this year, Gerdau received many orders for industrial warehouses to deliver products online, he said. In the last quarter, however, the orders shifted to new plants built to transfer production capacity to the United States from other countries.

“The phenomenon of reshoring is already a reality in our orders,” he said, without citing numbers. Mr. Werneck said the U.S. government’s infrastructure package is expected to generate demand of 5 million tonnes of steel, which will translate into actual demand as early as next year.

He also said that no new capacities have started to compete with Gerdau, and that inflation and economic slowdown will have fewer impacts on the company’s business.

The executive cited logistics and labor as challenges. He said Gerdau has many open positions and did not need to paralyze operations. This phenomenon is expected to be solved in the short term, he said.

The logistical challenges are mainly related to labor, the executive said, citing the difficulty of finding truck drivers and concerns about truck driver strikes in North America, while the record low water level on the Mississippi River impacts scrap purchasing and, to a lesser extent, affects customer deliveries.

Mr. Werneck also said that he is following uncertainties regarding global economic growth, the inflationary impact on steel demand in the international market, and the potential slowdown in China as a result of the country’s zero-Covid policy. He is monitoring the impacts of the Russia-Ukraine war as well, particularly on production and energy costs.

“We highlight the company’s resilience in the face of uncertainties in the macroeconomic scenario and as a result of transformations experienced in recent years,” he said, citing record results in North America in the third quarter.

“Our strategy and positioning in the region have been successful in recent years, with high volumes and strong demand from non-residential, manufacturing and energy sectors,” he said.

He also highlighted strong demand for heavy-duty vehicles and energy in the specialty steel operation, as well as the gradual recovery of semiconductor inventories, favoring the resumption of the automotive industry with the Chips and Science Act in the United States.

In South America, demand remains strong for construction and industry in Argentina and Uruguay, with construction activity at a high level this year, while Peru sees a growing volume as well, especially with the construction sector.

*By Cristiana Euclydes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Shell bets on agave as alternative energy source

Company invests R$30m in innovation and signs partnership with Unicamp to study production of ethanol and biomass

11/10/2022

Shell will research the energy viability of agave, a typical crop of semi-arid regions, as an energy source. If the potential foreseen by the specialists is confirmed, the cultivation of agave can transform the Brazilian hinterland into a great production hub, with productivity similar to that found in sugar cane cultivated in other regions of Brazil.

The company has signed a partnership with University of Campinas (Unicamp) to implement a program of studies and development of technologies for the production of ethanol and biomass from agave – a plant used as raw material for tequila and, in Brazil, in the production of sisal.

Initially, the program, called Brave (Brazilian Agave Development), will receive investments of R$30 million from the research, development, and innovation clause of the National Agency of Petroleum, Natural Gas and Biofuels (ANP), and is expected to be completed in five years.

At first, the research will focus on aspects related to the productive potential of agave, such as genetics and types of the plant, then will evolve to studies of planting and harvesting mechanization on an industrial scale – today, agave harvesting in the country is still manual – to finally enter in the third phase, the implementation of ethanol and biomass pilot project.

The next stages are under negotiation between Shell and the partners, and the agreement is expected to be signed by early 2023, said Alexandre Breda, Shell’s low-carbon energy manager in Brazil.

In a preliminary estimate, Mr. Breda calculates a potential of 6 billion to 10 billion liters of agave ethanol, against 35 billion liters of sugarcane ethanol produced per year in the country, considering the planting of up to 2 million hectares in the semi-arid region (or 2% of the total area of 100 million hectares). In other words, the potential corresponds to almost one-third of the national ethanol production. Not all of this semi-arid area would be used because some portions of caatinga must be preserved.

The project started three to four years ago, based on the work of a master’s degree student at Unicamp. The talks with Gonçalo Pereira, the coordinator of Unicamp’s Laboratory of Genomics and Bioenergy, evolved last February.

The initial idea is that agave has a high energetic potential for ethanol production in semi-arid regions, with productivity as high as that of sugarcane. Agave can resist unpredictable weather because it can survive up to several years without rain, unlike sugarcane, which is more susceptible to climate variations. On the other hand, agave planting and harvesting cycle take five years, longer than that of sugarcane, which is annual.

The research was also stimulated by the fact that agave can be found in other countries, while sugarcane is more limited to Brazil and some regions of India. Agave is found in Central America, Mexico, Africa, and Australia, in addition to Northeastern Brazil, among other regions where there are also semi-arid climate areas.

“The research project will try to prove that these potential numbers are real and thus seek to develop a new industrial chain,” said the manager.

The executive pointed out that only 4% of the plant is used in sisal production, which makes the product even more attractive for energy production, reducing the waste generated in this industry. Besides ethanol, Shell intends to study the use of agave in the production of biomass, biochar (a type of charcoal that can be used as a bio-fertilizer, rich in carbon), and biogas, as well as in the production of second-generation ethanol. The agave project is one of several from a portfolio of initiatives being considered as part of Shell’s zero-carbon goal by 2050.

*By Fábio Couto — Rio de Janeiro

https://valorinternational.globo.com/
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Nestlé invests R$2bn in Brazil, bets on ‘ESG coffee’

Company will sell capsules made of paper and a biodegradable polymer that can be used in home composting

11/10/2022

Marcelo Melchior — Foto: Claudio Belli/Valor

Marcelo Melchior — Foto: Claudio Belli/Valor

When asked about what scenario he draws for 2023, the CEO of Nestlé in Brazil, Marcelo Melchior, raises his eyebrows, opens a smile, and says “next year in Brazil is never peaceful. I have been working at Nestlé for 34 years and it is that way. We are confident, though. We have great investments, in many fronts.”

Next year Mr. Melchior will run investments of R$2 billion. In 2022, he had planned to invest R$1.8 billion but will reach December having disbursed R$1.3 billion, due to delays in some construction works. The difference of R$500 million will be spent in 2023.

The company is expanding operations in several areas — from animal feed to coffee. And Mr. Melchior, who spoke to Valor this week alongside Nestlé’s top coffee executive Rachel Muller, is especially excited about Dolce Gusto, the coffee brand that debuted in Brazil in 2009, three years after Nespresso.

The company that invented the market for coffee in aluminum capsules to be used in its machines, and was copied by rivals, chose Brazil to launch its newest business in the coffee market: the sale of capsules made of paper and a biodegradable polymer that can be used in home composting. They break down in the ground in six months and have a watermark on the lid that can be “read” by the coffee maker, adjusting the machine to the type of coffee. This project in Brazil received investments of R$300 million.

The new machines, made in China by Wik, can be activated by the consumer’s cell phone, through an app. This way, Nestlé collects data and knows how the product is being consumed. “We can establish a closer relationship with the consumer,” says Ms. Muller. If the customer used to drink four coffees a day and now drinks one or none, the company can send him a message. The development of the machine and capsules took five years and was done by Nestlé technicians in Switzerland.

The executive notes that the Dolce Gusto Neo project was designed to be an environmentally friendly line, in line with ESG practices. The factory in Montes Claros (Minas Gerais) is the first Nestlé unit in the world to receive neutral environmental impact certification at all stages — it uses only reuse water, does not generate waste for landfills, and neutralizes 100% of its emissions. Women make up 50% of the workforce and some hold leadership positions.

The sale will start slowly, on December 1st, through Nestlé’s website. The marketing campaign will debut on November 20 on social media. “We will not make a massive sale because we do not know the size of the demand yet,” said Mr. Melchior. It takes 90 days for the machines shipped from China to arrive in the country.

Those who want to buy the novelty can sign up for a list on Nestlé’s website. On December 7, a megastore for Dolce Gusto Neo, as the new machine was named, is expected to be inaugurated. Also in December three kiosks are expected to be opened in shopping malls in the city of São Paulo.

This is not a cheap product. The machine, made from recycled plastic and metal, will cost R$899, and each capsule will cost R$2.8. There are 10 flavors of coffee from farms in Minas Gerais and Espírito Santo — six of the regular line, two organics, and two of Starbucks brand.

The Minas Gerais plant received new machinery to manufacture the capsules, certified by the non-governmental organization Forest Stewardship Council (FSC). The paper and polymer are imported, but Nestlé is already in talks to have local suppliers.

Melchior estimates that exports to other Nestlé units around the world will begin in 2023. His goal now is to map the Brazilian market. The consumer who likes coffee is concerned about the environment and has enough income to afford the machine and the capsules.

The executive says that this new biodegradable line is the future of the capsule system. The new capsule can be used in composting at the consumer’s home — mixed into the soil of a vase, for example, or it can go into the household’s regular organic waste. The paper and biodegradable polymer are gone within six months. The Nespresso line uses aluminum capsules. To recycle, consumers must take their capsules to the brand’s collection points.

Nestlé is not alone in this segment. The Swiss supermarket chain Migros announced two months ago for its CoffeeB coffee machines a biodegradable coffee capsule, covered by an algae-based film, which can also be used in home composting.

In Brazil, Nestlé says it is a pioneer in compostable capsules — made of paper and that can be composted at home, with certification. Other capsules on the Brazilian market “communicate the attribute of being biodegradable, however, they are made of plastic and require industrial composting,” Nestle says in a statement.

The new launch is being seen by the company as a way to get closer to customers — a concern that was put to the test a few weeks ago when Nestlé decreed a recall of Garoto brand chocolates. The sensor of a control equipment had broken on top of the production line and there was suspicion that glass fragments could have contaminated the product. The recall is now over, and the company has received no complaints from consumers.

When asked about what measures had been taken so that the accident would not happen again, Mr. Melchior said: “We are going to change the control and we are not going to use glass.” He was emphatic when affirming that the company is present in 99% of Brazilian homes and that it is concerned with the quality of what it produces. “We cannot disappoint. Otherwise, you buy another brand.”

*By Cynthia Malta, Ana Luiza de Carvalho — São Paulo

Source: Valor International

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Investors recalculate route after presidential election

Brazilian assets are attractively priced, says Xavier, from SPX; spending evolution concerns Stuhlberger, from Verde Asset

11/09/2022

Roberto Sallouti — Foto: Carol Carquejeiro/Valor

Roberto Sallouti — Foto: Carol Carquejeiro/Valor

After the electoral race, capital and investment market heavyweights are in “recalculating route” mode, based on the signals given by President-elect Luiz Inácio Lula da Silva about the design his administration may have as of 2023. The spotlight is on the transition team and the names that may take over the economy and state-owned banks and companies.

There are the optimistic ones, such as Rogério Xavier, founding partner and CIO of SPX Capital, who evaluates that the Brazilian assets “are for free,” while the team of Luis Stuhlberger’s Verde Asset points out concerns with public spending. Roberto Sallouti, CEO of BTG Pactual, still has doubts about how the fiscal policy will be conducted in Mr. Lula da Silva’s third term.

The price of Brazilian assets is attractive to investors and the economic scenario tends to be favorable for the country, in Mr. Xavier’s view. For this more benign environment to materialize, Mr. Lula da Silva must pick a highly-qualified economic team, he said. “I think Brazil is for free, prices (of assets) are good, and the exchange rate is in the right level. Brazil has no problems and is doing its role,” he told Valor during the Brazilian Private Equity and Venture Capital Association (ABVCAP) Congress in Rio.

According to him, the elections took place democratically in an appropriate manner, and surprisingly calm, considering previous expectations about political polarization. He reiterated his “relatively optimistic” view and believes that Mr. Lula da Silva knows that he was elected by forces that tend to the center and not by the “Workers’ Party’s flag.” If the president-elect wants to work only with the left, the government will be at risk, he said.

In Mr. Xavier’s view, the starting point of the economy is not bad, but the commitments made ahead are a problem. “What helped us in the last years will not help us from now on. We need people and policies in line with the strategy of taking care of the fiscal situation,” he said, adding that the president-elect is aware of this. He expects that Mr. Lula da Silva will compensate for the waiver he is asking from the National Congress to breach the spending cap by picking a good economic team.

In Mr. Xavier’s view, Brazil has fallen off the foreign investor radar in recent years due to some unfortunate statements by President Jair Bolsonaro. “On the Amazon issue, funds withdrew their support basically because of the government positions. Now they are returning expecting dialogue and a different stance towards the environment [under a new administration],” he said.

The executive also commented that Brazil is “completely alone” in the universe of emerging markets, in a privileged position to attract capital. “We don’t have to do spectacularly well, we just can’t mess up,” he said, adding that it is still necessary to show a sustainable trajectory for the debt-to-GDP ratio.

Mr. Sallouti, with BTG Pactual, confirmed that the economy is experiencing a moment of great uncertainty because there is no clarity about what the fiscal policy of the new administration will look like, and consequently the trajectory of public debt and the size of the tax burden. The lack of definitions regarding reforms and public concessions is also a factor.

“We don’t know what the posture of the state-owned banks is going to be. In the last six years, we have had a classic ‘crowd in’ effect, with private-sector banks gaining space,” he said during an earnings conference call. “I think that no matter the change in the agenda of the state-owned banks, it will not put an end to the growth that we have seen in recent years in the capital markets. The continuity of that growth curve will depend on those policies.”

Meanwhile, Mr. Stuhlberger’s Verde Asset multimarket team wrote in its monthly letter that the outcome of the second round of elections, with Mr. Lula da Silva’s rather narrow victory, went in the direction, though not to the magnitude, expected by most analysts, and that markets had already priced that somehow.

However, Verde Asset is concerned with the first fiscal signals and discussions of the new administration. “The so-called Transition PEC [proposal to amend the Constitution] is turning out to be (yet another) Brazilian uncontrolled spending spree. The suggested value, over R$200 billion, is something ‘completely unreasonable’,” they wrote.

The president-elect’s rhetoric, which assured during the campaign that he would have fiscal responsibility as in the previous two terms and that he would not need a spending cap or other framework, “this kind of ‘take-my-word’ approach risks to be very short-lived if not followed by decisions and behaviors that corroborate it.”

The days following the second round happen to encounter a friendlier global market, the Brazilian assets performed very well, and hedge fund Verde benefited from this rally.

The fund closed October with an appreciation of 3.51% and has gained 15.2% this year, compared with an interbank deposit rate (CDI) of 10% in 10 months. Positions in the Brazilian stock market, oil, currencies, global interest rates, and offshore credit have driven the good performance, thus offsetting bets in global equities, inflation-indexed bonds in Brazil, and gold, which performed poorly.

SPX’s Nimitz fund, on the other hand, lost 1.21% in October, but gained 26.4% this year. In Brazil, the fund bets on lower interest rates.

*By Juliana Schincariol, Álvaro Campos, Adriana Cotias — Rio de Janeiro, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Outgoing minister plans to open markets for Brazilian farmers

Marcos Montes will travel to Mexico and Dominican Republic to sign agreements that will benefit pork producers

11/09/2022

Marcos Montes — Foto: Divulgação

Marcos Montes — Foto: Divulgação

Outgoing Agriculture Minister Marcos Montes wants to use the remaining two months in office to expand the number of markets open for Brazilian agribusiness products and get more funds for rural insurance.

Mr. Montes will travel to Mexico and the Dominican Republic to sign agreements to open those markets to Brazilian pork. The two countries are currently reliant on imports from the United States. He also mulls going to a business fair in the Middle East in December.

Other openings may materialize without trips. A mission from Indonesia will arrive in Brazil on November 19, two months after Mr. Montes’s visit to Jakarta. In September, Brazilian officials discussed the expansion of exports and the opening of markets for beef, bovine genetic material, and live cattle.

Despite a canceled trip to Asia last week, there are still chances to close agreements with South Korea for beef and pork exports this year, said the minister. The agreement with Japan, a country Brazil is trying to sell pork to from areas free of foot-and-mouth disease without vaccination, such as Paraná, will still depend on further talks led by the next administration.

Since 2019, 210 markets have been opened for agribusiness products and exports reached $122 billion between January and September this year. There is also great expectation with the conclusion of the United Kingdom’s technical mission, which visited plants and analyzed the Brazilian sanitary inspection system last month.

This is Britain’s first audit since the Brexit to recognize the equivalence of the agricultural defense services, which could open the doors for more beef and chicken slaughterhouses to be qualified to export there.

Although Brazilian trade with China continues to expand and the authorization given by the Chinese last week for the shipment of corn by 136 units is good news, Mr. Montes regretted that the Asians have not qualified more slaughterhouses to sell there. The latest list was approved in 2019.

“We are waiting, of course, for the opening of beef slaughterhouses. We keep talking, but it is difficult because of Covid there,” he said. “Maybe with a new administration they will change a little.” According to Mr. Montes, the pandemic blocked exports from plants that were already qualified. Seven slaughterhouses are still embargoed. Last week, two were authorized to resume sales. “I find it difficult to qualify any of them until the end of the year.”

Another mission of the minister until December 31 is to get more funds for rural insurance, but he indicated that it is up to the elected government’s negotiate the amount for 2023. He intended to get R$2 billion for next year, compared with R$990 million this year. “Our biggest concern is insurance. It has to be very robust.”

In July, the Board of Budget Execution (JEO), an advisory body of the president for the handling of the federal fiscal policy, approved an extra amount of R$200 million, then backtracked. Since early September, there are no extra funds for contracting subsided policies. “The JEO lifted the R$200 million previously approved vowing that it would release this amount until the end of the year, which would bring the budget to R$1.1 billion. But this is not enough,” he said.

The minister expects advances in the negotiations for the financing of national agriculture at the United Nations Framework Convention on Climate Change (COP27), in Egypt. Members of two secretariats of the Ministry are at the event, which started Sunday.

“COP will mix environment with hunger and food security. It will be a milestone in how the world sees sustainability. We all want to preserve the environment, but not in the way that France wanted to do, preventing Brazil from producing.”

Mr. Montes said he will support legal changes to open up even more possibilities for issuing rural producer bills (CPRs). In October, the stock of these securities reached R$204 billion. The goal is to double this number in the next four years with the new legal adjustments.

The minister also hopes to advance in a project on the traceability of production, especially beef. A working group has been created between the Ministry and the Brazilian Confederation of Agriculture (CNA).

*By Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Ascenty invests R$1.5bn in five data centers

Company plans to expand in Brazil and Chile and enter in Colombia

11/09/2022

The data center infrastructure company Ascenty will invest R$1.5 billion in the construction of five new data centers in Brazil, Chile, and Colombia, starting at the end of 2023. “We are reinvesting 100% of our return in expansion,” CEO Chris Torto told Valor.

According to him, two thirds of the investments comes from the company’s own cash flow and contributions from controlling shareholders – the U.S.-based data center company Digital Realty and the Canadian asset manager Brookfield Infraestruture.

The remaining R$517.4 million ($100 million) come from a R$4.8 billion ($925 million) loan taken by Ascenty in March from Brazilian and international banks to expand existing data centers, increase its fiber optic network, and build new units in Brazil by 2024.

In 2023, the data center segment is expected to gross $3.8 billion in Latin America, said Luciano Ramos, research and consulting manager at IDC Brasil. “This means a growth of 9.2% compared to 2022,” he said.

This year, according to the CEO, the company will disburse R$1.4 billion for data center expansion. In 2021, R$1.5 billion were set aside to expand the structure.

The new data centers in São Paulo and Bogotá will start operating by the end of 2023. The company will activate the second facility in São Paulo, the second one in Bogotá, and one more in Santiago by the end of 2024.

With the expansion, Mr. Torto said, the company meets the demand of its three main customer profiles: cloud service providers, corporations, and telecommunications companies.

Ascenty’s focus is on the cloud computing service providers of large technology companies. “They are our flagship and are expanding worldwide,” Mr. Torto said.

In Latin America, the executive says he does not feel the impact of slower growth in cloud computing revenues of giants like Amazon, the market leader, and Microsoft in the third quarter.

“Maybe the United States and Europe will feel the slowdown because they are more mature markets, but in Latin America we won’t see that, at least in the next six to 12 months,” he said. “If we have a very strong global recession, demand may fall.”

Microsoft’s revenue from its Azure cloud computing platform grew 24% to $25.7 billion in the company’s fiscal first quarter. The advance was lower than the 36% rise in the third quarter of 2021. Amazon Web Services’s (AWS) third-quarter revenue advance of 27.5%, to $20.5 billion, meanwhile, was the slowest since 2014, when Amazon began releasing the earnings results for its cloud business.

Other customer profiles in Ascenti’s sights are corporations that usually use the structure to allocate their equipment, managing cloud services remotely, and telecommunications companies, which prepare their structures for applications such as the Internet of Things (IoT), artificial intelligence, big data, and virtual reality.

Born in Boston and settled in Brazil for more than 30 years, Mr. Torno also notes that the electoral race has not slowed down the local demand either. “It is the first time in 35 years that I do not see an impact of the election in the country,” he said. “Clearly, I see a more mature country.”

Ascenty’s CEO is concerned with the global shortage of semiconductors, which has extended the delivery deadlines of high-capacity generators, which are key to ensure that data centers remain active in case of power outage. With the shortage of components, he said, the delivery time for generators coming from China, Europe, and the United States, which used to be a few months, has risen to nine to 12 months. “If the equipment comes from China, the current impact is usually greater because of the pandemic control in the country, but equipment coming from Europe and the U.S. also face a 50% increase in delivery time,” he said.

Currently, the company has 23 data centers in operation, 19 of them in Brazil, two in Chile and two in Mexico, and more 10 under construction in Latin America, considering the operations announced Tuesday by the company.

Competitors Scala, Odata and Equinix are also among the large companies in the sector expanding in Brazil and other Latin American countries.

Scala Data Centers, from the U.S.-based group DigitalBridge, is advancing in the construction of new data centers in Brazil, Chile, Colombia, Mexico and Peru. On Tuesday, the company unveiled an agreement with Brazilian power distributor Enel to guarantee a supply of more than 1 gigawatt for its operations.

In March, Equinix announced a R$17 million investment in the expansion of its fifth data center in São Paulo by the end of the year, while Brazilian Odata received a R$181 million ($35 million) loan from the World Bank in August for data center expansion in Mexico. The loan comes on top of another one, of $ 30 million, announced in January for expansion in Latin America.

*By Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Iguá seeks R$3bn investment with new partner

Sanitation company has already hired Bradesco BBI and Morgan Stanley to find investors

11/08/2022

Deals will help Iguá leave behind turnaround process and consolidate itself as one of the largest players in the sector — Foto: Divulgação

Deals will help Iguá leave behind turnaround process and consolidate itself as one of the largest players in the sector — Foto: Divulgação

Sanitation company Iguá has hired Bradesco BBI and Morgan Stanley to find a new partner. According to three market sources, the mandate for private placement is already in place, aiming for a primary transaction of R$2.5 billion to R$3 billion ($500 million), in a minority position that could reach a shared control.

Banks and the company have started conversations with at least four potential investors: the U.S.-based fund Ontario Teachers Pension Plan (OTPP), Canada’s CDPQ, and the Brazilian groups Votorantim and Equatorial, sources told Pipeline, Valor’s business website.

Iguá’s shareholders are the Canadians CPPIB and Aimco, and the management company IG4, investors with cash to finance the company. BNDESPar, the Brazilian Development Bank’s equity arm, is also a shareholder. The participation of the current partners in the capitalization is not ruled out, sources say. “They are looking for this capital from a new investor as a minimum amount, but they say they can follow up,” said a source that had access to information on the capitalization process

The company set the beginning of November as the deadline for non-binding offers, sources say.

The final amount will depend on the type of opportunity Iguá finds. The goal of the capitalization is to prepare the company to compete in new concessions and potential privatizations, such as Corsan, Copasa, and Sabesp — an expectation of the sector considering the elected governments in the respective states. But the company’s interest in buying competitor BRK Ambiental is no secret.

BRK is controlled by Brookfield and FI-FGTS, the investment arm of the Workers’ Severance Fund, and had been giving preference to an IPO. There have already been two attempts to launch the offer, but with no progress given the market conditions. Brookfield seems to have changed its mind about the outcome for the asset — the fund would have authorized Itaú BBA to sound out potential buyers, according to two sources, but one of them says there is no formal mandate yet.

Some of Iguá’s shareholders prefer not to have the complexity of the FI-FGTS on the board, which means that a deal will only happen in a full transaction. Another operator that may place a bid for BRK in case the shareholders decide to follow through with a formal process is Aegea, which has Equipav, GIC, and Itaúsa as shareholders, as well as potential interest from infrastructure funds. The current management of the federal bank is sympathetic to the idea, but next year, everything can change — which also explains Iguá’s timing.

The private placement is one of three mandates Iguá is putting in place, according to market sources. The company would also have already hired BTG Pactual, Bradesco BBI, and Itaú BBA to issue R$5 billion in infrastructure debentures, a debt that will pay off part of the bridge that the concessionaire took to take a piece of the Cedae operation, in Rio de Janeiro, and lengthen its liabilities.

On the selling side, Itaú BBA has sought interested parties in 11 small concessions from Iguá, which wants to focus on larger operations. The assets for sale are concessions in cities with less than 500,000 inhabitants, in Santa Catarina, Mato Grosso, and São Paulo, and the bank has offered potentially interested buyers the closed package — estimated between R$500 million and R$600 million, sources told Pipeline.

On the three fronts, the company can raise between R$8 billion and R$9 billion in total for its market consolidation strategy. Iguá declined to comment.

The deals will help Iguá leave behind the legacy of a company in turnaround to consolidate itself as one of the largest in the sector. When IG4 bought CAB Ambiental from Galvão Group, the concessionaire posted an EBITDA of R$175 million.

The asset manager attracted Canadian funds to the company, including an investment last year in the competition for Cedae. An industry analyst estimates that, with the operation in Rio, the annualized EBITDA is around R$1 billion today.

*By Maria Luíza Filgueiras — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Labor income recovers unevenly among sectors

Usual real income for September quarter reached R$2,737, a monthly increase of 1.4%

11/08//2022

Labor income has been recovering unevenly. In recent months, sectors like agriculture, construction, services, and commerce have seen a sharp increase, while public administration and the industry decelerated. Even though inflation is up again in October, economists say this recovery is expected to continue driven by a nominal rise in salaries and the composition effect, which captures changes in the profiles of workers.

According to microdata from the Continuous National Household Sample Survey (Pnad Contínua), compiled by Tendências Consultoria Integrada, the usual real income for the September quarter reached R$2,737, a monthly increase of 1.4%. Comparing the moving quarter ended in September versus the April-June period, the increase reached 3.7%. In the year-over-year comparison, the usual real income is up 2.5%.

Lucas Assis, an economist with Tendências, said that this recovery in labor income is due to the higher generation of formal jobs and lower current inflation.

“From the sectorial standpoint, in the comparison with the third quarter of 2021, the positive highlight was the growth in real income in agriculture, forestry, fishing and aquaculture,” which saw a 13.2% increase, of more R$216. “Besides the impact of lower inflation, a composition effect may have happened, with the dismissal of low-wage workers.”

He added that the construction sector saw a 5.7% increase; commerce and motor vehicle repair is up 8.3%; and domestic services grew 4.6%.

“The sector of information, communication and financial, real estate, professional and administrative activities was among those that advanced the most in average income, with a 3.1% year-over-year growth, above the total average growth of 2.5%,” he said.

According to Mr. Assis, the sector is among the ones that concentrates the largest number of workers, with 11.9% of the total of occupied people, behind commerce, public administration and industry.

Six months ago, in the March quarter, the average income in the agriculture sector was R$1,685. It rose to R$1,855 in the September quarter. In the commerce sector, it went to R$2,270 from R$2,160. In the construction sector, it went to R$2,114 from R$2,111. And in information, communication and financial activities, to R$3,942 from R$3,748.

The downside was public administration, defense, social security, education, human health, and social services, which fell 3.4% year-over-year, equivalent to R$134. The main reason is the expansion of lower paid positions.

According to Daniel Duque, with the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), the increase in income has been driven by information and communication services, which have shown a relevant effect on wages.

“The pandemic recovery is over, but the service sector is performing better than expected. People are possibly over-consuming services after two years without doing so, but the fact is that we are seeing wage increases in services in a way that has been quite surprising this year,” said Mr. Duque.

He points out that the big drop in income in the last two years has been driven by the public sector. “It was the best-paying sector until recently, but it has fallen in terms of percentage of employed people,” he said.

“The information and communication services sector has been pulling down a lot of income because it’s overheated. The post-pandemic demand for more skilled data, information technology work, has increased a lot. And that has had relevant effects on wages.”

Claudia Jeronimo — Foto: Silvia Zamboni/Valor

Claudia Jeronimo — Foto: Silvia Zamboni/Valor

Computer scientist Cláudia Jerônimo, 43, decided to leave her job as a technology infrastructure consultant for a U.S.-based company three years ago to focus on her software development company.

At the beginning of 2019, Gestão Tecc had only Ms. Jerônimo on staff and was grossing about R$3,000 per month. Today the company has four people working on demand and has seen its expenses and gross earnings explode. Today it grosses up to 700% more than three years ago.

The big boost came with Covid-19, she said. “I have had the technology company for more than five years. But in the Covid pandemic, IT services became popular. Apps allowed a lot of people to stay home because there were delivery services. And they also helped a lot of people work remotely or without having to leave home,” she says.

Danilo Amarante — Foto: Silvia Zamboni/Valor

Danilo Amarante — Foto: Silvia Zamboni/Valor

The heating up of the sector made Danilo Amarante, 29, change jobs for better opportunities twice in the last two years. A former employee of the technology sector of a hospital chain until 2020, he joined a magazine publisher in February 2020 to work with IT support earning R$2,000 a month, 20% more than in his old job.

In February this year he was invited to work for a company that provides services for a big tech company. He works in digital marketing, ads, and merchandising, and he doubled his salary.

“I think it all came together. A better salary and also the fact that I work for a giant company, with development and microinformatics. Support is the first step on the ladder. And today I work more with code and processes than with microinformatics,” he said.

In parallel, he has with a partner the applications company Devsampa, which yields from R$500 to R$7,000. “It depends a lot on how much I invest,” he said.

The current expansion of the labor market is marked by an increase in the number of self-employed workers and formal jobs, said Hélio Zylberstajn, with the University of São Paulo.

“What we are seeing is a great boost in the labor market, which is expanding differently of what was seen in the past. We have more formal workers and more business entities, which would be the self-employed ones. There is a sign that formal jobs are growing more than informal one,” he said.

Mr. Assis argues that the advance in employment is seen mostly in the formal segment, which showed the inclusion of 4.9 million people in the September quarter, up 8.8% year-over-year. Informal jobs are up 1.4 million, or 3.8%.

Mr. Zylberstajn warned, however, that this pace has slowed down. “This indicates that the effects of monetary policy may be starting to weigh,” he said. Brazil’s Central Bank has raised its key interest rate to 13.75% per year from 2% in March 2021.

Victor Candido, chief economist at RPS Capital, points out that some sectors are still not feeling the delayed effect of the interest rate hike.

“This recovery in salaries that we have seen has much more to do with the nominal income effect. It is natural that, with high inflation, salaries recover again, the employer seeks an adjustment and this puts pressure on the labor market, which is tighter,” he said.

“This has manifested itself especially in the most heated fields, such as civil construction, retail, and services. These sectors have not yet felt the effect of higher interest rates. There was not any hit yet and there is still pressure on wages,” he said.

Despite the recovery in labor income seen in recent months, Mr. Assis argued that the average usual income remains 1.9% below the level seen in the same quarter of 2019, before the pandemic.

This is because, he said, there are still characteristics such as professional reinsertion via less skilled occupations and shorter working hours, difficulty for the employed to negotiate wage replacements, and return to the labor market for lower pay than before the pandemic.

*By Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Emerging countries drive innovation in payments, Ebanx says

Brazilian payment platform focus on African market to expand digital payment business

11/08/2022

Paula Bellizia — Foto: Silvia Zamboni/Valor

Paula Bellizia — Foto: Silvia Zamboni/Valor

Some time ago, emerging and developed economies were expected to go through the same phases in terms of payments. Today, it is clear the path is different and innovations are coming from emerging markets, said Paula Bellizia, Ebanx’s president of global payments. The Brazilian payment platform operates in 15 Latin American countries and has just arrived in Africa.

To grow in these regions, it is necessary to put alternative payment methods and local consumer preferences at the center of the discussions, she told Valor during the event Money 20/20, in Las Vegas. “To be successful in Latin America or Africa, you cannot consider only cards. In Brazil, only 40% of people have a credit card. In Nigeria, it’s 10%.”

Ms. Bellizia notes that, according to data from Americas Market Intelligence (AMI), the share of alternative payment methods in digital commerce in Latin America has grown to more than 38% now from 31% in 2020. “And it just keeps growing. The future will be instantaneous and alternative,” she said, highlighting the rapid expansion of Pix transactions in Brazil since the Central Bank launched the instant-payment system, in late 2020, as an example.

Ms. Bellizia also believes that business development in emerging countries required that companies understand users’ local preferences. “Consumer behavior in emerging markets is different, not just a matter of industry maturity. And innovation is coming from our markets.”

In her view, it is a mistake to think, for instance, that it is only a matter of time before credit card penetration in the region reaches the same level of developed countries. “It won’t be like that. The consumer habit here is going to be different.” Cards are likely to continue to grow but in parallel to the new means of payment, she said.

The executive added that the problems to be solved are different and drive the development of specific solutions. “We are still promoting bank use for part of the population. And Pix was a great financial inclusion move.” These particularities represent great business opportunities for emerging countries, she said.

Founded in Brazil in 2012, Ebanx announced in September the expansion of its operations to Africa. According to Ms. Bellizia, the choice was due to its similarities with Latin America. The challenges faced by African countries today in terms of payment are similar to those experienced by Latin America in the last decade, she said.

In addition, she points out that there are great opportunities in Africa in digital verticals such as Software as a Service (SaaS), streaming, and gaming. “The base is still being built, but Africa is growing faster than North America in gaming today. If a company misses this timing to enter Africa, it will quickly be left with a weak presence.”

Initially, the payment platform will operate in Kenya, Nigeria, and South Africa. According to the executive, the three countries were chosen because they account for more than 30% of the continent’s economy and have a strong use of smartphones. The idea is, in due time, to expand to other neighbors.

Ebanx works with global brands that want to expand their operations to Latin America, including Shein, AliExpress, and Uber. In June, the payment platform announced that it would review its operation, reinforcing the focus on international payments, which are its core business. According to the fintech, the change will discontinue projects and reduce by about 20% the group’s workforce of more than 1,700 employees.

According to the executive, Ebanx reviewed its priorities and shut down the local payment operation to focus on the core business. “We remain super focused on global expansion,” she said. “There are strong competitors in the market, but the company has a strong reputation and stands out because of the depth of partnerships, knowledge of local markets, and superior performance.”

Ebanx even filed a secret request for an IPO in the United States last year, but the plan was postponed amid the decline of technological companies. The executive did not want to comment on the subject and said that “at the right time” the company will talk about it.

As for the macroeconomic environment, she said that, although the scenario of inflation and high interest rates required attention, it also represents an opportunity for Latin America. “We also have our difficulties, but in a way, the scenario in the region, compared to the global one, brings opportunities.”

The reporter’s travel costs were covered by Nuvei.

*By Mariana Ribeiro — Las Vegas

Source: Valor International

https://valorinternational.globo.com/

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