Government accelerates efforts to equip cities for climate crisis

Recent assessments rank Porto Alegre among cities in Rio Grande do Sul with a “very high” capability to manage hydrological disasters

27/05/2024

Pelotas on May 26: city impacted by floods in Brazil’s southern state is among those with “very high” capacity to manage hydrological disasters — Foto: Eduardo Rodrigues/Agência Pixel Press/Folhapress

Pelotas on May 26: city impacted by floods in Brazil’s southern state is among those with “very high” capacity to manage hydrological disasters — Foto: Eduardo Rodrigues/Agência Pixel Press/Folhapress

Nearly a month after being devastated by floods, cities like Porto Alegre, Rio Grande, and Pelotas are classified as having a “very high” capacity to manage hydrological disasters, including floods, flash floods, and inundations, according to “Adapta Brasil.” This mapping, orchestrated by the Ministry of Science and Technology, assesses the readiness of regions to confront the impacts of climate change.

Prompted by the calamity in Rio Grande do Sul, the federal government is expediting the development of a robust strategy for both mitigation and adaptation to extreme weather events. This initiative, spearheaded by the Department of Climate Change of the Ministry of the Environment, is expected to be unveiled in the coming weeks, potentially introducing a new dedicated agency, although its ministerial affiliation remains undecided.

The findings from Adapta Brasil underscore the critical need for this policy. Even areas deemed highly capable of adaptation have experienced prolonged flooding, signaling dire consequences for regions classified with lower adaptive capacities. The North and Northeast of Brazil, along with the states of Mato Grosso, Goiás, and Minas Gerais, are labeled as having “low” adaptive capacity. Particularly concerning are Maranhão, Piauí, and Paraíba, each marked with a “very low” index.

In contrast, the Southern states, along with São Paulo and Mato Grosso do Sul, hold a “medium” adaptive index, while Rio de Janeiro and Espírito Santo enjoy a “high” rating. Brasília stands out with a “very high” level, with the study considering factors such as the capacity for municipal public investment and income, governance, disaster risk management, and municipal capabilities in citizenship and sectoral policies.

The municipal data from Adapta Brasil shows “very high” adaptive capacity indices in Porto Alegre and the principal cities surrounding Lagoa dos Patos, with the capital of Rio Grande do Sul achieving the highest score on the adaptive capacity index, which ranges from 0 to 1.

Suely Araújo, former president of the Brazilian Environmental Protection Agency (IBAMA) and a specialist in public policies at the Climate Observatory, emphasizes the challenges and expenses involved in preparing Brazilian municipalities for adverse climatic events. She highlights the financial constraints faced by two-thirds of Brazilian municipalities, each with populations under 20,000, which struggle to fund the necessary infrastructure to respond to disasters.

“Adaptation involves significant funding,” Ms. Araújo explains. “While some measures like restoring native vegetation or enhancing urban drainage are straightforward, implementing them becomes challenging without financial resources.” Ms. Araújo advocates for “a robust federal role in supporting states and municipalities through non-repayable funds,” pointing out that “municipalities that frequently experience flooding each year lack the capacity to incur more debt.”

Additionally, despite the severe impacts observed in Rio Grande do Sul, Guilherme Syrkis, the executive director of the Brazil Climate Center, indicates that the situation could have been even more catastrophic in Santa Catarina. He notes that due to its geography and urban layout, Santa Catarina’s cities are far more vulnerable to such disasters than those in Rio Grande do Sul.

According to Mr. Syrkis, developing a comprehensive adaptation plan requires analyzing local vulnerabilities and identifying key risks. Engaging civil society, businesses, and local populations is crucial to tailor strategies effectively to each area’s needs.

In addition to flooding, Mr. Syrkis emphasizes the increasing threat posed by heatwaves, which need greater attention due to their severe but often overlooked impact. “Heatwaves are particularly deadly, causing silent deaths, such as heat-induced heart attacks,” he notes. Mr. Syrkis suggests that regions like the Northeast and Rio de Janeiro should implement early warning systems to alert the public about impending heat waves.

While acknowledging the constraints imposed by budgetary concerns, Mr. Syrkis points out that some adaptive measures can be both cost-effective and impactful. He references a government initiative from India, where houses are painted white to reduce heat absorption—a strategy that could be beneficial if applied in economically disadvantaged communities across Brazil. “Implementing such a simple measure could significantly mitigate the effects of high temperatures in Brazil’s poorer areas,” he explains.

Recently, Environment Minister Marina Silva confirmed plans to establish a dedicated authority to oversee adaptation policies, though she did not specify if this would be part of the previously announced but unrealized federal climate authority.

Suely Araújo advocates for this new structure to be integrated within the Ministry of the Environment and stresses the necessity for a dedicated budget, not only for this new body but also for other ministries involved in specific adaptation projects.

“Adaptation involves assessing risks and vulnerabilities and implementing measures such as reinforcing dykes and embracing the ‘sponge cities’ concept, which absorbs and reuses rainwater,” explains Mr. Syrkis. “It also means leveraging nature-based solutions and rethinking infrastructure design.” He emphasizes the need for public officials to adopt a climate resilience perspective in their planning. “Construction secretaries, for instance, must no longer design bridges at heights susceptible to flooding.”

Por Murillo Camarotto — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Taxing super-rich requires global agreement

Measure is one of the main agendas of the Brazilian presidency in the G20

05/24/2024

One of the key agendas of the Brazilian presidency in the G20, the taxation of the super-rich at a global level, will only be feasible through international cooperation, said Felipe Antunes, coordinator of the International Financial Architecture Working Group, on Thursday. Before him, Finance Minister Fernando Haddad said that Brazil’s proposal “has gained traction” within the group.

Minister Haddad participated in the G20 International Taxation Symposium in Brasília. The event brought together representatives from various countries to discuss improvements in tax collection and the allocation of these resources. Another Brazilian initiative is for taxation to help combat social inequality and climate change.

Felipe Antunes noted that the wealthiest 0.1% of the world pays less tax proportionally and that “correcting this distortion is a challenge even for rich countries.”

The coordinator explained that only effective international cooperation, with the exchange of information between countries, will allow more effective control over transactions made to evade taxation. He also noted that the super-rich are “very mobile,” meaning they can efficiently move resources between countries.

The need for more equitable taxation on this demographic is one of the points of consensus among G20 members, both at the governmental level and within civil society. The challenge, however, will be finding a convergence point on how to operationalize higher tax collection.

Mr. Antunes also noted that tax autonomy is an important attribute of national sovereignty and that any changes require extensive debate. “It’s difficult to advance, hence the importance of international cooperation,” the coordinator emphasized.

Another Brazilian initiative during its presidency of the group, the reform of multilateral organizations, was addressed by Mr. Haddad. “We will need to rethink institutions, multilateral organizations, and multilateral banks, as well as international relations,” he said. “From there, we will rethink the financing of this equation, which is difficult,” the minister added.

Brazil, the minister said, needs to contribute “because inequality is a hallmark of our history.” “To this day, we face the challenge of reducing inequality. At times, we have managed to make some progress with great effort, but the results have been modest so far. There is still much to be done,” he argued.

The topic of global taxation will be discussed again in person at the G20 Finance Ministers’ meeting, scheduled for July in Rio.

*Por Murillo Camarotto, Guilherme Pimenta — Brasília

Source: Valor International

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Foreign shareholders join forces to ask for general meeting at Petrobras

Meeting could risk members elected by unbundled vote; board elected Magda Chambriard as new CEO

05/24/2024

Investors’ move is motivated by concerns around the oil giant’s future following the dismissal of CEO Jean Paul Prates — Foto: Leo Pinheiro/Valor

Investors’ move is motivated by concerns around the oil giant’s future following the dismissal of CEO Jean Paul Prates — Foto: Leo Pinheiro/Valor

Foreign shareholders are joining forces to gather 1% of Petrobras’s capital stock to ask the state-owned company’s general secretariat to call an extraordinary general meeting. By the end of the afternoon on Thursday (23), the required percentage of the capital had not been reached. The move is motivated by concerns around the oil giant’s future following the dismissal of CEO Jean Paul Prates and threats to the company’s governance due to internal changes in the composition of advisory committees to the board of directors, largely occupied by members linked to Minister of Mines and Energy Alexandre Silveira.

The Petrobras board met on Friday (24) and elected Magda Chambriard as a director and the company’s new CEO.

Holding a shareholders’ meeting in the short term would put at risk the terms of all board members elected by the unbundled voting system in the April 25 election, including all those representing the majority shareholder—the federal government—including Ms. Chambriard.

The Brazilian Corporation Act (6404/76) provides that a meeting may be called by shareholders representing at least 5% of a company’s capital stock. However, in 2020, the Securities and Exchange Commission of Brazil (CVM) made the quorum more flexible. In the case of companies as large as Petrobras, it reduced the minimum percentage to 1% of capital stock, facilitating minority shareholders’ moves. This rule is set under CVM’s resolution 70.

In practice, if shareholders comply with the legal requirement, the company cannot prevent the meeting from taking place. If it attempts to do so, the CVM could order that a meeting be called, a person familiar with the matter said.

The possibility of names appointed by the federal government being vetoed in a new election was opened by a recent decision by the Federal Supreme Court (STF) confirming the constitutionality of the State-Owned Companies Act. According to the law, some of the members appointed by the federal government could be barred due to a conflict of interest as they hold concurrent positions in ministries and at Petrobras.

Some names that could be barred in a possible new election include chairman Pietro Mendes, Renato Galuppo, Bruno Moretti, Rafael Dubeaux, and Vitor Saback, in addition to two minority directors, Marcelo Gasparino and Juca Abdalla. It is also uncertain whether Ms. Chambriard would pass the scrutiny of the law. Soon after Mr. Prates was dismissed by President Lula, last week, Petrobras hastened to say that the executive’s resignation as a board member would not require calling an extraordinary general meeting. It would likely wait until the next shareholders meeting, possibly the April 2025 Ordinary General Meeting. The decision was interpreted at the time as a maneuver by the government to avert questioning of its candidates.

A financial market analyst pointed out that the request if confirmed, could create concerns in the government, as its members could be barred from being re-elected under the State-Owned Companies Act. A possible new election would allow for a change of conflicting board members, which could improve the state-owned company’s governance and reveal the strength of minority shareholders, the source said.

“In the event of a new meeting, the Supreme Court rule applies,” says a lawyer familiar with Petrobras-related matters. “With a new election, there is no reason to protect the rights of those who the Supreme Court said is incorrect. There is no doubt that the State-Owned Companies Act must apply,” he adds.

The Petrobras case is an opportunity to assess the practical effects arising from the Supreme Court’s decision, said Leonardo Ugatti Peres, a lawyer at Azeredo Santos & Ugatti Peres Advogados. While there will be arguments that the law will apply in the case of a new election, on the other, it may be questioned whether, in the case of re-election, the changes made by the STF should prevail. These adaptations ensured that the rules would not apply in cases where positions were previously occupied. “The issue will be debated. Those who are in office will claim they should stay.”

Lawyer Maurício Moreira Menezes, partner at Moreira Menezes, Martins Advogados, emphasizes that the law establishes that minority shareholders must have at least 5% of the capital to request a meeting, while CVM resolution 70 reduced this share to 1% for large companies, such as Petrobras: “These shareholders can request a meeting with duly substantiated reasons and, if the management fails to call it, due to inaction or refusal, shareholders can call it on their own,” Mr. Moreira explains. He says there is no penalty provided for managers if they fail to call the meeting following a request from minority shareholders.

Regarding the specific Petrobras case, Mr. Menezes says members appointed by the federal government who may be in a conflict of interest will no longer be protected by the preliminary injunction issued by then Justice Ricardo Lewandovski suspending sections of the State-Owned Companies Act. A recent decision by the Supreme Court overturned this protection. “In the event of a new election, the federal government will have to appoint names that comply with the legal requirements,” the lawyer said.

Alexandre Calmon, partner and co-leader of the energy sector at Campos Mello Advogados, points out that, in theory, a new extraordinary general meeting would not be required to re-elect the entire board, just Ms. Chambriard, as she succeeds Mr. Prates in a seat that represents the government as controlling shareholder. “I don’t see a violation of the unbundled vote,” Mr. Calmon says. As for the call intended by the shareholders, if Petrobras refuses to call an extraordinary general meeting, the shareholders could go to court.

*Por Maria Cristina Fernandes, Juliana Schincariol, Rafael Rosas, Fábio Couto, Kariny Leal — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Petrobras elects Magda Chambriard as new CEO

Chambriard was inaugurated as CEO of Brazil’s state-owned oil company and member of the board of directors this Friday

24/05/2024

Magda Chambriard — Foto: Tânia Rêgo/Agência Brasil

Magda Chambriard — Foto: Tânia Rêgo/Agência Brasil

Petrobras announced this Friday (24) that its board of directors has approved the appointment of Magda Chambriard as a board member and has elected her as the new CEO of the company.

Ms. Chambriard assumed both positions this Friday and joined the board immediately, without the need to convene a shareholders’ meeting, the state-owned company said.

The new CEO of Petrobras is an engineer who has built her career within the company. She served as the director-general of the National Agency of Petroleum, Natural Gas and Biofuels (ANP) from 2012 to 2016.

The executive takes over the position vacated by Jean Paul Prates, who was dismissed by President Lula on May 14 after a series of disagreements regarding the management of the company.

*Por Felipe Laurence — São Paulo

Source: Valor International

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Lula to veto end of tax exemption for purchases up to $50

Proposal backed by Lower House speaker is being discussed under new policy for automotive industry

05/23/2024

Presidente Lula — Foto: Brenno Carvalho/Agência O Globo

Presidente Lula — Foto: Brenno Carvalho/Agência O Globo

President Lula said on Wednesday (22) he would veto the end of the import tax exemption on international purchases of up to $50 if it is approved within the Green Mobility and Innovation Bill, known as Mover, Congressman José Guimarães, leader of the government in the Lower House, told Valor. Lower House Speaker Arthur Lira insists on passing the legislation and has postponed the vote. A new attempt to vote on the matter should take place on Thursday (23).

In recent weeks, the inclusion of the topic in the Mover Bill divided the groups in the Parliament and led the vote to being postponed on multiple occasions. Members of President Lula’s Workers’ Party (PT), understand that the end of the tax exemption could generate reactions in the party’s electoral base and hurt the Lula administration if approved. The Liberal Party, former President Jair Bolsonaro’s party, is also against it and proposed the approval of an amendment that would exempt from tax all domestic sales of up to $50. The proposal is considered a “fiscal time bomb” by government supporters and even oppositionists.

In a text message sent on the WhatsApp group of government leaders in the Lower House, Mr. Guimarães said that President Lula is in favor of the approval of the Mover Bill—the country’s new policy for the automotive sector—but is against eliminating tax exemption on international purchases up to $50. Mr. Guimarães confirmed his statement to Valor: “He [President Lula] will veto it [if it is approved].”

Mr. Lira insists on taxation and has received support from prominent Brazilian businesspeople in recent weeks. Fábio Faccio, the CEO of Renner, was in Brasília to meet with Mr. Lira and other Lower House members and present some reasons to support the taxation. “We are not asking for commercial barriers. We’re asking for fair competition. If we also had tax exemption, our products would be sold at half the price and with better quality,” he argued.

In previous weeks, executives from retailers Petz, Leroy Merlin, Riachuelo, and Mercado Libre also engaged in this effort to raise awareness among legislators and the government. “These e-commerce platforms claim that they are helping those with less purchasing power, but they are actually taking away these people’s jobs and the money for social policies by not paying taxes,” Mr. Faccio said.

Valor found that retailers linked to IDV, the main retail association in the country, are hoping that, despite a possible veto by Mr. Lula, it will be possible to bring the import tax back through a debate with the president.

“We have to move step by step, dealing first with the approval of the bill in the Lower House. Then, if the Executive branch resists, we can prove that the tax exemption is harmful to companies and jobs,” said a person familiar with the matter. “One battle at a time.”

President Lula’s opposition to the idea of returning the import tax is not new to retail and industry members and the possibility of a presidential veto did not surprise those who were in Brasília on Wednesday (22) following the matter. The companies had been increasing pressure on Congress and seeking support from the government.

This week, the CEOs of retailers such as Renner, Petz, Marisa, and Caedu sent video and text messages to Lower House members asking for support to eliminate the tax exemption, Valor found.

International marketplaces claim that the exemption for purchases of up to $50 is a global practice that has allowed low-income people to have access to the same benefits as richer people who make purchases on international trips and has generated thousands of jobs in the logistics sector in Brazil.

Furthermore, they argue that the impact on the domestic retail and industry is not as big as the companies say. “The share of international e-commerce platforms would not reach more than 0.5% of national retail,” trade associations Proteste, Free Market Institute, and the Brazilian Association of Transportation Companies wrote in an open letter.

If the exemption is eliminated, the taxation would be a 60% import tax on the products, in addition to the 17% Tax on Circulation of Goods and Services (ICMS) under the Federal Revenue’s Remessa Conforme program. International companies claim that would create a global tax of 90%, making the cross-border market unfeasible.

As an alternative, the Mover Bill rapporteur, Congressman Átila Lira, suggested changing the text to set an import tax of 25% or creating a schedule for levying the tax. However, the idea received no support from the Lula administration. “I’m hoping that it will be voted on Thursday [23] as I don’t want to harm the bill,” the rapporteur said. He pointed out that the government has requested the postponement fearing that an amendment by Congresswoman Adriana Ventura suggesting the extension of tax exemption to the domestic industry could be approved by the House floor.

To legislators, Finance Minister Fernando Haddad advocated for a “joint solution” involving the three branches of government to determine how the taxation of imports below $50 would be carried out.

“The retail and industry segments’ concerns are legitimate but we need to have an understanding between the three branches of government on this issue,” he said at a public hearing in a committee by the Lower House.

Mr. Haddad praised governors Tarcísio de Freitas (São Paulo) and Romeu Zema (Minas Gerais) for the agreement reached in the National Council of Finance Policy (Confaz) to levy ICMS on these imports.

At the end of the hearing, Mr. Haddad told reporters he does see the topic being decided under the Mover Bill.

*Por Marcelo Ribeiro, Raphael Di Cunto, Gabriela Pereira, Estevão Taiar, Adriana Mattos — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government forecasts increased deficit amid escalating expenditures

Deficit projection climbs from R$9.3bn to R$14.5bn; Ministry of Finance remains satisfied with financial performance through April

05/23/2024

Rogério Ceron — Foto: Geraldo Magela/Agência Senado

Rogério Ceron — Foto: Geraldo Magela/Agência Senado

The Lula administration has revised its primary deficit forecast for 2024 upwards, as revealed in the latest figures from the Ministry of Planning and Budget. The deficit projection has increased from R$9.3 billion to R$14.5 billion due to an escalation in primary expenditures, which do not include interest expenses, according to the bimonthly revenue and expenditure evaluation report.

Despite this year’s primary result target being set at zero, the new fiscal framework permits the government a deficit margin of up to R$28.8 billion, approximately 0.25% of the Gross Domestic Product (GDP). This provides the government with considerable fiscal flexibility to achieve its target by year-end.

The first four months of this year saw a significant rise in federal revenues, allowing the government to authorize additional credit of R$15.8 billion. This increase in the spending ceiling will enable the government to release R$2.9 billion that was previously restricted in March and to address new obligatory expenditures, details of which are pending. Despite these adjustments, a budgetary shortfall of R$2.5 billion remains under the new credit framework.

However, this fiscal room does not equate to surplus funds, cautioned Federal Budget Secretary Paulo Bijos. “We must stay vigilant [regarding spending],” he emphasized. Dario Durigan, the executive secretary of the Ministry of Finance, reassured that the additional credit would not compromise the government’s commitment to meeting the zero-deficit target for the year. “The activation of the framework is harmless in terms of our projections,” Mr. Durigan stated.

Despite the deteriorated primary deficit forecast, the deputy head of the Ministry of Finance expressed satisfaction with the financial outcomes of the early months of the year. “The foundation of the national fiscal policy is being reconstructed,” he stated. “What we are witnessing in the first four months aligns with our projections and the objectives we set forth in 2023,” he further explained, noting that the primary revenue projection had increased by R$16 billion.

This revision in revenue estimates includes a heightened projection for dividend receipts, spurred by the government’s strategy to count on distributing 50% of Petrobras’s retained profits from 2023.

At Petrobras’s shareholder meeting at the end of April, the decision was made to distribute 50% of these extraordinary dividends, which amounted to R$21.9 billion. Of this, the federal government received R$6.4 billion, while the remaining half was retained in the company’s remuneration reserve account.

Treasury Secretary Rogério Ceron commented that the oil company’s announcement in April is considered sufficient assurance by the economic team that the second installment of dividends will be distributed within the year. He refuted any suggestions that the government had exerted pressure to secure these funds, which are crucial to achieving a zero-deficit target.

“There’s no element of pressure involved; we’ve proceeded with caution,” emphasized Secretary Ceron. He noted that any changes in the economic landscape would be reflected in subsequent bimonthly budget evaluation reports.

This year, the government’s projection for dividends and shareholdings increased significantly, from R$43.7 billion to R$57.9 billion. This rise includes almost R$13 billion in extraordinary dividends from Petrobras, R$400 million from the Brazilian Development Bank (BNDES), and additional funds from other state-owned enterprises.

On the expenditure front, projected spending has increased by R$24.4 billion, bringing the total to R$2.209 trillion. This includes a R$20.1 billion rise in mandatory expenditures and an additional R$4.3 billion in discretionary spending, which covers investments and operational costs of the public sector. Fortunately, this increase in spending has been offset by an additional R$15.8 billion in credit, which has expanded the spending limit within the framework of the new fiscal rules for this year. As a result, there was no need to impose any budgetary restrictions.

The bimonthly report also detailed a consolidated assessment of the primary financial impact of government interventions addressing the public calamity in Rio Grande do Sul. To date, these measures have resulted in a primary financial impact of R$12.9 billion. Notably, this figure is exempt from the calculations of both the primary result target and the constraints set by the new fiscal framework.

Included in these calculations is an overlooked impact of R$1.1 billion stemming from the Reconstruction Aid—a grant of R$5,100 allocated to families affected by the calamity. Executive Secretary Gustavo Guimarães of the Ministry of Planning and Budget assured that federal support to Rio Grande do Sul would “be provided without restraint” but with a “diligent regard for public finances,” which are “crucial for the economic growth of both Brazil and Rio Grande do Sul in particular.”

Secretary Guimarães further clarified that while federal aid does not factor into the calculations of primary and fiscal framework limits, the ministry is committed to full transparency regarding these expenditures, ensuring they are publicized and open to public scrutiny.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International

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Petrobras gains CADE approval to retain five refineries

The antitrust watchdog allows Petrobras to negotiate new pipelines and sets new conditions for the state-owned enterprise

05/23/2024

With the antitrust watchdog’s latest decision, Petrobras will retain ownership of some refineries it was initially required to divest, including Repar, in the state of Paraná — Foto: Divulgação

With the antitrust watchdog’s latest decision, Petrobras will retain ownership of some refineries it was initially required to divest, including Repar, in the state of Paraná — Foto: Divulgação

Petrobras has successfully renegotiated the terms of its 2019 agreements with the Administrative Council for Economic Defense (CADE), the antitrust regulator. The agreements were initially established to suspend investigations into Petrobras’s dominance in the refining and gas markets. With the new arrangement, approved by CADE’s tribunal on Wednesday, Petrobras is no longer obligated to divest five of its refineries and the Transportadora Brasileira Gasoduto Bolívia-Brasil (TBG).

Under the revised terms, Petrobras faces new responsibilities. Notably, CADE will oversee the methodology used to set oil prices at refineries for the next three years and renewable energy pricing for an additional three years. In the gas sector, although Petrobras will maintain its investment in TBG, it will relinquish operational control, as the pipeline operator is to appoint independent members to its board of directors.

Should Petrobras fail to comply with these stipulations, CADE retains the authority to reopen investigations. Any findings of misconduct could result in penalties for Petrobras, including fines and mandatory changes to its business practices. Existing inquiries into allegations of price discrimination will be on hold throughout this monitoring period.

This agreement, the result of months of negotiations with CADE, coincides with a leadership transition at the state-owned company. Magda Chambriard, recently endorsed by the company’s eligibility committee, is set to assume the presidency with a directive to augment Petrobras’s refining operations.

The initiative to revisit these agreements began under the leadership of Jean Paul Prates in 2023. The company communicated to its board that the mandated divestments conflicted with its strategic objectives, a plan originally put into place during the Bolsonaro administration.

Following the new agreement, Petrobras has proceeded with the sale of three refineries: Six (Pará), Reman (Maranhão), and Rlam (Bahia). However, with CADE’s latest decision, the company will retain ownership of the other refineries it was initially required to divest: Repar (Paraná), Refap (Rio Grande do Sul), Rnest (Pernambuco), Regap (Minas Gerais), and Lubnor (Ceará).

As part of the commitments negotiated with CADE, Petrobras will also make public its general commercial policies for oil deliveries to ensure non-discriminatory practices. It will offer a specific type of contract, known as a Frame agreement, to any independent refinery on Brazilian soil concerning oil supply. Additionally, Petrobras is required to provide easy access to confidential data to facilitate ongoing monitoring by the antitrust watchdog.

During the session, CADE’s president, Alexandre Cordeiro, emphasized that the proposed consent decree for refining will not only bolster the transparency of Petrobras’s operations but also enhance CADE’s ability to access complex information, thus improving oversight.

He also noted that the proposal includes a robust monitoring mechanism that enables CADE to promptly verify Petrobras’s compliance with competition rules and respond swiftly to any discriminatory practices. Other board members echoed the significance of this structure, which aligns with the technical opinion provided by CADE’s General Superintendence.

Board member Camila Cabral Pires Alves emphasized the critical nature of monitoring the commitments outlined in the consent decree to ensure the effectiveness of the negotiated remedies. Meanwhile, board member Gustavo Augusto clarified that the consent decree aimed to foster the entry of new economic players into the refining market, rather than privatizing the refineries. “We are focused on maintaining the goals and making a technical correction in how these goals will be achieved,” he noted, adding that repurchasing assets that had been divested would not be appropriate.

Board member Diogo Thomson reported that the gas consent decree had been largely fulfilled, and the adjustment made—removing political control over TBG—was enabled by subsequent legislation. This change allows the state-owned company to continue its investments in vital infrastructure and further opens up the market.

In a notice to the market, Petrobras noted that the appendix to the refining consent decree emerged from “extensive debate” with CADE. The company explained that it was unable to sell the remaining refineries, necessitating a revision of its strategic plan.

Petrobras detailed that the frame agreement model sets foundational terms for negotiating oil volumes on a cargo-by-cargo basis. It specifies that the obligation to buy and sell will only be established if both parties reach an agreement on pricing, ensuring alignment with the prevailing market conditions at the time each deal is finalized.

Regarding natural gas, the company noted that the New Gas Act, enacted after the 2019 agreement, provides an exemption from de-verticalization for companies that were already vertically integrated. This exemption is contingent upon these companies adhering to independence and autonomy requirements, which are to be regulated by the National Petroleum Agency (ANP). Consequently, specific obligations have been negotiated to ensure the operational independence of TBG.

However, lawyer Thiago Silva, a partner at Vieira Rezende Advogados, argues that under the New Gas Act, de-verticalization remains a legal imperative that must be addressed eventually. There is a two-year window for the ANP to publish the relevant resolution on this matter. “The exemption does not permit permanent vertical integration but rather provides a timeframe for compliance, which has not yet commenced,” he explained. Mr. Silva also pointed out that distributors currently face scrutiny over plans that appear similar to transportation projects and are under pressure to regularize their operations.

*Por Beatriz Olivon, Fábio Couto — Brasília and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Corporate debt market flourishes with more issuers, high liquidity

Borrowings now feature larger volumes and extended terms, becoming increasingly central to corporate management strategies, while tax-exempt bonds are increasingly drawing individual investors

05/22/2024

Pierre Jadoul — Foto: Gabriel Reis/Valor

Pierre Jadoul — Foto: Gabriel Reis/Valor

In Brazil’s relatively subdued stock market, corporate debt instruments like debentures and receivables certificates are carving out more substantial roles within investor portfolios and have become crucial elements of corporate financing strategies. This sector’s expansion and increased sophistication are clearly reflected in the secondary market activity, where these securities are traded before their maturity.

For instance, in terms of transaction volume, the secondary market concluded last year with 2.255 million operations involving all forms of corporate debt securities, marking an increase of more than sixfold over the past five years, according to data provided by B3, the Brazilian stock exchange, for Valor. This surge included a 70% growth in just one year, notably during a period characterized by globally high interest rates that generally deter investors from this asset class.

Financially, the trading volume of private bonds in 2023 reached R$839.7 billion, quadrupling over five years. In the first four months of 2024 alone, transactions have already amounted to R$277.95 billion.

The number of issuers has nearly doubled in the past five years, with a total of 626 in 2023. Regarding the value of assets traded, there was a significant jump from R$4.4 billion in 2019 to R$14.5 billion last year. In just the initial four months of this year, the figure has already hit R$5 billion, signaling solid potential for growth throughout the year.

Fabio Zenaro, B3’s director of over-the-counter products, commodities, and new business, notes that the fixed-income market has seen rapid evolution in recent years across all industry metrics. “Until recently, we were processing around 3,000 trades a day, and now, we’ve reached 20,000,” he said.

Mr. Zenaro recalls that more companies are now turning to the local market for financing, drawn by longer terms and a market capable of handling large operations, thereby enhancing the sector’s significance even further.

Despite technological advancements, corporate debt trading is predominantly conducted over the counter with broker mediation. Mr. Zenaro points out that only 1% of fixed-income trading currently occurs on electronic platforms, a stark contrast to international norms, where this could exceed 30% in the future.

On a typical day, investors contact brokers by telephone to locate assets and finalize transactions. Whereas the market previously saw fewer trades, compelling investors, including fund managers, to hold onto their assets until maturity, it now allows for much more active and flexible management.

At Legacy, for instance, securities are typically held in the portfolio for about six months, according to Leonardo Ono, the firm’s corporate debt manager. “It’s like the chicken and the egg scenario. I’m not sure if the liquidity came from the longer maturities of the assets or if the longer maturities brought about the liquidity,” he muses. With increased liquidity, the number of investors grew, but so did market volatility. “Many investors complain about the volatility, but that’s just a byproduct of increased liquidity.”

Mr. Ono also highlights that individual investors have played a significant role in bolstering the secondary market in Brazil. “The current high interest rate environment is likely to sustain the trend of individuals entering the corporate debt market,” he observes, noting that income tax-exempt bonds have made this market particularly attractive to investors, leading them to prefer corporate debt over public bonds. “Today, every investor maintains a portion of their portfolio in corporate debt,” he adds. The market could see further expansion with the entry of foreign investors and pension funds.

On the other hand, Pierre Jadoul, corporate debt manager at ARX Investimentos, points out that despite its growth, the Brazilian market remains highly concentrated in the banks, contrasting with more developed countries where capital market participation is more pronounced. “The migration of credit from banks to capital markets is a natural progression,” he asserts.

Mr. Jadoul reflects on a recent revelation within the Brazilian market: the realization that fixed income can be volatile, a fact underscored by mark-to-market practices, and that securities are susceptible to defaults, as seen in the recent cases involving Americanas and Light. He points out that mark-to-market practices have introduced more efficiency, allowing assets to be bought and sold at fair prices.

At ANBIMA, Brazil’s association of securities firms, the scope of private securities monitored has seen substantial growth year over year. Over the past five years, for instance, the assets tracked have tripled, now totaling around 900.

Vivian Lee, chief credit strategist at Ibiúna Investimentos, observes that improved transparency in pricing has played a crucial role in drawing investors, thereby boosting market liquidity. “Five years ago, the secondary market had fewer significant players,” Ms. Lee remarks. She notes that, following the pandemic, bank treasuries and multimarket funds have become more active participants.

With individual investors increasingly entering the market, regulatory oversight has intensified to prevent any misuse of the spread level, according to Mr. Zenaro from B3. He adds that BSM, the self-regulatory body of the stock exchange, plays a critical role in this oversight, ensuring that assets are not sold at prices that significantly deviate from market norms, thereby enhancing the transparency of corporate debt trading.

*Por Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Foreign investor maintains a wait-and-see approach in Brazil

More dismayed than optimistic tone marked conversations between companies, banks, and funds at a series of events in New York

05/22/2024

Flavio Souza — Foto: Silvia Costanti/Valor

Flavio Souza — Foto: Silvia Costanti/Valor

Foreign investors are putting Brazil on hold for now. In addition to local and global macroeconomic issues, the country has its own homework to do to avoid losing this capital flow for a long time—or the money will be reallocated to emerging markets like India and Mexico. This was the overall tone, more dismayed than optimistic, of the conversations between companies, banks, and global institutional investors throughout the last week, during an extensive Brazilian agenda in New York.

“The companies are wrapping up the first-quarter earnings cycle with results in line with expectations, but on the investor side, we notice a wait-and-see attitude due to issues related to Brazil or issues beyond Brazil. Naturally, the interest rate environment in the United States is significant, as well as the recent revisions regarding the behavior of interest rates in the Brazilian market,” summarizes Flavio Souza, CEO of Itaú BBA.

The bank brought together 150 businesspeople and 500 investors for four days of debates. According to the BBA’s leader, there was a change in tone compared to last year, when there was a challenging scenario with a new government and credit events, but with a perspective of good opportunities ahead. Now, investors looking for liquid assets have shown more nervous behavior, without reallocating the capital they are withdrawing from local assets.

“There is still a lot of noise in Brazil on the fiscal side,” said Sergio Fischer, CEO of LOG, a logistics company controlled by the Menin family, after rounds of talks with foreigners. In April, the federal government included a revision of the fiscal target for 2025 in the Budget Guidelines Act, projecting a result lower than initially discussed.

For Fabio Barbosa, CEO of Natura, the transition at the Central Bank also contributes to the tension among foreign investors. Roberto Campos Neto will leave the presidency of the monetary authority at the turn of the year and, in the last meeting of the Monetary Policy Committee (COPOM), the board showed a split between directors appointed by the Lula administration and those remaining from the Bolsonaro administration, raising doubts about inflation tolerance in the next cycle.

“What disappoints me the most is seeing that Brazil is not on the map, not in the focus of investors. There is a lot of concern about the uncertainties we have, such as the fiscal issue, greater or lesser interference in the economy, what will be the trend of interest rates, and the flexibility of the Central Bank,” said Mr. Barbosa.

In his view, these issues add to the fact that Brazil is poorly positioned globally. “As interest rates in the United States are very high, the risk appetite has decreased, and Brazil today represents a risk. This disappoints me because we are better than the image that appears, better in environmental issues, economic growth. The country will grow around 2.5%, has inflation under control, institutions functioning reasonably, but that is not the perception we convey,” he said. “We convey the perception of uncertainty that some of these positive points may not be there in the future. And that makes us miss investment opportunities.”

It was precisely during the meetings promoted by Brazilian companies in the U.S. market that President Lula decided to finally replace the CEO of Petrobras, appointing Magda Chambriard, an executive with a more “expansionist” profile. The subject inevitably invaded the closed-door meetings. “Petrobras is Brazil’s largest company by market capitalization, so it is natural that it is always a focus of monitoring and attention. When there is a change in the command, and this was news all day, it becomes the subject of questions and inquiries by investors trying to understand the scenario,” said Mr. Souza from Itaú BBA. “It’s part of a broader context related to the perception of the level of government influence in the companies it participates in, the economy in general, and how this relates to fiscal, economic policy, and from the perspective of returns.”

According to him, for equity investors, this context influences more immediate behavior. However, some investors see an entry point in Brazilian stocks, as price-to-earnings multiples are below the historical average.

At Itaú, updated monetary projections now indicate the Selic policy rate closing the year at 10.25% per year. The bank still expects a window for initial public offerings in the fourth quarter but mainly counts on secondary offerings for stock market activity.

“Mexico is clearly much more active, and India is super strong as well. The country cannot stay out of the flow for too long; it has to more actively return to being a desirable place, capable of attracting foreign investors,” said Cristiano Guimarães, head of corporate and investment banking at Itaú BBA. “It is necessary to create some momentum, a perception that the market will move forward and unlock,” adds the institution’s CEO.

Mr. Souza emphasizes that strategic investors will continue to look at sectors such as energy, agriculture, and pulp and paper. The bank advised the sale of AES’s local subsidiary but does not see a trend in this case. “Infrastructure continues to attract investors; it is the market where project finance effectively works, with long-term capital for project development,” said Mr. Guimarães.

Sustainability and climate finance are also definitely on the bank’s, investors’, and companies’ long-term agenda—especially after the catastrophe in Rio Grande do Sul, which highlighted the urgency of the issue and the need to include this risk in business and public management models.

“There is more than objective evidence of climate change and its implications beyond the humanitarian issue, which is always the most relevant, but also in business. In our operation, we see this so clearly that the entire climate finance agenda of the Itaú Unibanco group, which has always been on the broader sustainability agenda, is now part of Itaú BBA’s activities because we understand that it has ceased to be a corporate citizenship agenda and has become a business agenda,” said Itaú BBA’s CEO.

One of the bank’s initiatives was a financing commitment of up to R$400 billion for sectors with a positive impact on ESG criteria by 2025. “We have already exceeded 90% and will reach the goal 18 months ahead of our ambition, so it will be updated.”

*Por Maria Luíza Filgueiras — New York

Source: Valor International

https://valorinternational.globo.com/
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Employment growth, consumption drive record tax collection in April

Unlike first quarter, April’s result was not boosted by single-investor funds

05/22/2024

Claudemir Malaquias — Foto: Diogo Zacarias/MF

Claudemir Malaquias — Foto: Diogo Zacarias/MF

Boosted by revenues related to consumption and the labor market, federal tax collection in April reached R$228.9 billion, a real increase of 8.26% year over year, according to data released by the Federal Revenue Service on Tuesday. This marks the fourth month of the year with revenue growth exceeding 5%, even after adjusting for inflation.

In the January-April period, total revenue reached R$886.6 billion, a real increase of 8.33% compared year over year. These results set new records in the Federal Revenue Service’s since official records began, in 1995, making them the highest values in 30 years. Without adjusting for inflation, revenue rose by 12.25% in April and 12.85% for the year.

April’s results are primarily attributed to a surge in revenue from social taxes PIS/Cofins, which totaled R$44.3 billion, an increase of 23.38%. This growth was driven by the reinstatement of fuel taxes and reduced use of tax credits from court decisions.

Another factor boosting PIS/Cofins revenue was the enactment of Law 14.592/23, which stipulated that sales tax ICMS must be excluded from the calculation base for tax credits on acquisitions.

Social security contributions were notable from an economic activity perspective, totaling R$52.8 billion in April, up 6.15%. This was due to a 5.11% increase in the wage bill compared to the previous year.

In a report to investors, economists with Warren Investimentos said that April was the first month of 2024 without revenue from the taxation of single-investor funds stocks. Despite this, revenue growth surpassed that of March (7.2%) and January (6.7%), only trailing the February increase (12.3%).

The January-April result is explained by the same factors as in April, including changes in legislation that positively impacted government revenues and more robust economic activity.

Additionally, the accumulated annual result benefited from R$11.44 billion in Income Tax from the stock of single-investor funds, an atypical revenue source that ended in March. A further positive contribution came from a 46.05% reduction in tax compensations from court decisions.

According to Federal Revenue data, companies used R$16.9 billion in tax credits from court decisions to offset their owed taxes from January to April this year, compared to R$31.3 billion in 2023. The fewer tax credits companies use, the more the Treasury collects.

Until last year, there was no limit on the use of judicial credits to offset owed taxes. This year, a limit has been implemented. It is expected that this new limit will result in an additional R$24 billion in revenue for 2024. This figure may be revised when the report on the evaluation of revenue and expenses in the Budget is released this week.

In a report to investors, Fábio Serrano, an economist at BTG Pactual, said that the data up to April indicates stronger-than-expected revenue, but is still insufficient to meet the primary surplus target, even considering the margin that allows for a deficit of up to R$28.8 billion this year.

Mr. Serrano said that the data for May and June will be crucial as they will show the impact of taxation on capital gains from offshore assets and the effects of the floods in Rio Grande do Sul, as well as the mandatory withholding of income tax on single-investor funds.

“In 2023, 5% of federal revenue originated from Rio Grande do Sul, equivalent to R$109 billion. For now, we estimate a primary impact of R$35 billion on the public sector due to the floods,” Mr. Serrano said.

Asked about the impact of the calamity in Rio Grande do Sul on federal revenue, Claudemir Malaquias, head of the Center for Tax and Customs Studies at the Federal Revenue Service, said it is currently difficult to have an economic estimate.

“Of course, we need to monitor the assessment of real losses, because we only have projections so far. While the waters are still high, it is difficult to have an economic estimate,” Mr. Malaquias said. “We will continue to monitor the situation and, when we have the information, we can release detailed data,” he added.

He also noted that the deferral of taxes announced so far does not have a fiscal impact, as the collection has only been postponed and will still be carried out within the current year.

*Por Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/
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