Electricity bill reduction is new test for minister

Adolfo Sachsida — Foto: Dênio Simões/Valor
Adolfo Sachsida — Foto: Dênio Simões/Valor

Having passed the crucial stage of Eletrobras’s privatization, which was approved by the Federal Court of Accounts (TCU), Mines and Energy Minister Adolfo Sachsida will now negotiate a proposal to reduce electricity bills, which is under negotiation with Congress, and debate the use of public money for gas pipelines. The minister did not reply to a request for comment.

Both themes are seen as key by President Jair Bolsonaro’s allies. Regarding the increase in electricity tariffs, that exceeded 20%, the concern is with the negative impact of inflation on the popularity of the president and allies in search of reelection in regional elections.

Mr. Sachsida has already begun to point out alternative paths that would lead to the reduction of tariffs, which could become a package of measures if it adds other proposals from Congress. He is also trying to avoid other legislative proposals that concern the government, such as the one that imposed on the sector the construction of 8-gigawatt gas-fired thermal plants in regions where there are no gas pipelines.

The reduction in electricity bills meets the wishes of President Jair Bolsonaro, who is concerned with eliminating risks to his reelection. The skyrocketing cost of electricity, added to the cost of fuel, increases inflationary pressure and affects his popularity.

In a meeting with Chamber of Deputies Speaker Arthur Lira (Progressive Party, PP, of Alagoas), Mr. Sachsida signaled that he will use funds from the privatization of Eletrobras to neutralize part of the tariff increase. The operation itself already guarantees the transfer of R$5 billion this year to the Power Development Account (CDE).

When approving the 2022 CDE budget, in the amount of R$32 billion, the Brazilian Electricity Regulatory Agency (Aneel) considered the contribution of R$5 billion that already make up the calculation of the distributors’ adjustments. It remains to be seen whether the minister, when making the promise to Mr. Lira, will look for a way to bring forward the transfers that the “new” privatized Eletrobras will make to the CDE over 25 years. In all, the privatization will yield a total of R$32 billion to CDE.

Another way to bring more funds from Eletrobras’s capital increase to CDE this year is to convince the National Treasury Secretariat to give up part of the R$25.4 billion that will be received as fixed concession payment for changing the contractual regime of the plants. This would require more than good will from the economic team, since it would imply breaching the spending cap rule, which limits growth in public spending to the previous year’s inflation.

In recent days, the proposal to limit sales tax ICMS rate charged on electricity bills to 17% has gained strength, which would also be applied to other essential services. On Thursday, the Chamber speaker assured that the bill that deals with the issue will be put on the agenda next Tuesday.

The Brazilian Association of Power Distributors (Abradee) estimates that limiting the ICMS charged on electricity bills to 17% provides a 15% reduction in tariffs. The calculation was based on a ruling by the Federal Supreme Court, in December last year, which had already limited the state tax on power to 17%, also considering the essential nature of the service. Abradee estimates that the average rate charged to consumers is around 27% and believes that the state lacks goodwill in enforcing the Court’s decision.

More recently, on the initiative of Senator Fabio Garcia (União Brasil of Mato Grosso do Sul), Aneel came under pressure to speed up the use of tax credits related to the exclusion of ICMS from the calculation basis of PIS/Cofins. According to the senator, Aneel allows access to only 20% of what is made available.

The tax credit, estimated at R$60.2 billion, was also generated by Federal Supreme Court’s ruling. Of this total, R$48.3 billion, which has been declared final and unappealable, have already been qualified by the Federal Revenue. However, only R$12.7 billion were considered in the adjustments, causing tariffs to fall 5%.

Source: Valor International

https://valorinternational.globo.com

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Russia became fifth-largest exporter to Brazil despite war

The value of what Brazil bought from Russia grew 142% year over year — Foto: Portos do Paraná/divulgação
The value of what Brazil bought from Russia grew 142% year over year — Foto: Portos do Paraná/divulgação

The Brazilian imports of Russian products accelerated at the beginning of this year at a much faster pace than the total of foreign purchases. As a consequence, the Russians, despite being at war with Ukraine, have climbed up the ranks and became, from January to April, the fifth-largest exporter to Brazil. In the same period last year, they were in the 12th position.

China is still the absolute leader in the supply of products to Brazil from January to April of this year, followed closely by the United States. Germany and Argentina come next. Russia, in fifth place, sold to Brazil in the period a total of R$2.4 billion, practically tied in value with India, which comes right after. In relation to last year, the Russians left behind countries such as Korea, Mexico and Japan.

Brazilian purchases from Russia grew 89% from January to April this year in relation to the same period in 2021. Overall, Brazilian imports rose 28% in this same comparison.

Specialists point out that Russia’s current position among Brazil’s five largest suppliers is not permanent, but the result of a scenario that came with the pandemic and was exacerbated by the Russia-Ukraine war.

The composition of our economic activity and the items Brazil buys from Russia help explain this. Fertilizers or chemical fertilizers are the main ones and account for 70% of the basket. Coal accounts for 15%, while petroleum fuel oils represent 7.1%.

Russia is one of the largest global suppliers of fertilizers. From January to April, Russians supplied $1.65 billion in these items, which represented a quarter of what Brazil imported in the period. The value of what we bought from Russians grew 142% year over year.

The increase in value was driven by prices and purchases brought forward. The prices of fertilizers imported by Brazil jumped 130.7% in April year over year. The data is from the Foreign Trade Secretariat (Secex/ME) and is valid for all the fertilizer we imported that month. However, the input that came from Russia was also more expensive. Data from consultancy MacroSector show that the price of Russian fertilizers that Brazil bought in the first quarter of 2022 increased 149% year over year.

Price increases reflect an increase that had already been happening since the beginning of 2021, said Fabio Silveira, partner and head of the consulting firm. Under the effect of the pandemic, fertilizers became more expensive due to increased demand, shortage of supply and logistical bottlenecks. The war brought even greater fear for the shortage of raw materials.

When releasing April’s trade balance data, Herlon Brandão, Secex’s undersecretary of Foreign Trade Intelligence and Statistics, explained that, according to the agency’s survey, farmers moved up the acquisition of inputs, probably due to fear of shortages, now already under the influence of the war in Eastern Europe. The usual, he explained, is that the import of these inputs increases in the second half of the year.

Mr. Silveira recalled that the robust agricultural production last year created a kind of “euphoria” in the industry regarding the prospects for 2022. The agricultural revenue in 2021, he says, reached R$893 billion, up more than 50% year over year. Capitalized, with high expectations for this year and with fears of a shortage of inputs, farmers have moved up the purchase of fertilizers and pesticides, he said.

Weather issues, he recalled, later led to a reassessment of the 2022 harvest. In spite of that, important crops, such as grains, are expected grow around 3% in volume, he estimated.

Mr. Silveira recalled that fertilizers imported now is likely to be used for next year’s crop, since this year’s is already planted.

José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), says prices are expected to remain high and there is no prospect of a greater adjustment, either in fertilizers or in oil as long as the war continues.

For Mr. Silveira, it is possible that in May imports of fertilizers, including from Russia, will remain high. For him, however, demand will not remain at this level, because prices are very high, with a big impact on producers’ costs. In case the account shows that the price of the agricultural product will not allow farmers to pass on costs, the purchase of fertilizers and other inputs will be reduced. Producers will, at least in part, choose to use already fertilized soil from previous harvests, which, in turn, is expected to reduce productivity, he said.

Source: Valor International

https://valorinternational.globo.com

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Petrobras mulls investing in offshore wind power

Petrobras CEO said company joined forces with Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin — Foto: Brennan Linsley/AP
Petrobras CEO said company joined forces with Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin — Foto: Brennan Linsley/AP

Offshore wind power generation is one alternative studied by Petrobras in the long run, considering the energy transition context, CEO José Mauro Coelho said.

“Offshore wind power has great potential in Brazil and synergies with Petrobras’s operations. This is one alternative under study. There are others,” he said.

In an event about the global carbon market in Rio de Janeiro, Mr. Coelho said that the Brazilian state-owned oil company joined forces with Norway’s oil company Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin.

Energy transition will require cooperation, he said. “Challenges of this magnitude require broad dialogue and cooperation to seek a fair transition that protects the most vulnerable ones and safeguards energy security. The achievement of climate goals is key for social welfare, economic development, and for our own competitiveness,” he said.

The executive pointed out, however, that even in the most accelerated energy transition scenarios, there will be demand for oil around the world “for decades.” “We believe that the transition will be slow and that the world will demand oil for many years.”

In this sense, Mr. Coelho pointed out that pre-salt production, in ultradeep waters, is among those with the lowest emissions and highlighted the importance of Petrobras continuing to reduce carbon emissions in oil production to be competitive.

“Our oil is produced with 40% lower emissions per barrel than the world average. Producing oil with greater efficiency and lower carbon intensity is an immediate, relevant contribution to the reduction of global emissions,” he said.

Mr. Coelho pointed out that the company also has initiatives to reduce emissions in refining. “Petrobras will have one of the most modern and sustainable refining complexes in the world,” he added.

Source: Valor International

https://valorinternational.globo.com

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Reversal of monetary tightening depends on data, Central Bank says

Bruno Serra — Foto: Carol Carquejeiro/Valor

Bruno Serra — Foto: Carol Carquejeiro/Valor

Bruno Serra Fernandes, the Central Bank’s director of monetary policy, said Wednesday that the outlook is becoming more positive for inflation, but does not yet allow one to glimpse the beginning of the reversal of the monetary tightening cycle. According to him, the cycle seems to be coming to an end, but decisions depend on the trajectory of data.

“Looking ahead, I think we start to have more positive inflation, hopefully before the peers. But thinking about easing monetary policy is a step that lies ahead. We first need to see the effect of what we have done,” he said at an event in São Paulo.

Mr. Serra added that the cycle seems to be coming to an end, but that if reality imposes a more negative scenario, the monetary authority may extend it a little further.

This month, the Central Bank raised the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 12.75% per year, and said that it sees “as probable” a new, smaller hike in June. In the minutes of the meeting that raised the rate, the directors reinforced their bet on the lagged effects of monetary policy to bring inflation and expectations to the target in 2023.

Financial market analysts see chances of the Central Bank adopting the strategy of high interest rates for a long time to combat the most recent inflationary pressures, instead of taking the Selic much higher than the current level. On Monday, Mr. Serra said that the Central Bank tries to avoid rate fluctuations, although it doesn’t always succeed.

On Wednesday, the director stressed that the effects of the interest rate hike are not yet fully tangible. He recalled that the tightening cycle was made in an intense and fast way, but that, until the second half of last year, the monetary policy was still stimulating the economy. And he said again that from the second half onwards the effects of the tightening will be clearer, here and abroad.

Mr. Serra emphasized the challenging international backdrop but said that he believes that central banks are working and equipped to bring inflation back to the target. For him, the U.S. Federal Reserve and other developed country central banks have “gotten into the game” to deal with global surplus demand.

Mr. Serra stressed that to conduct local monetary policy, it is key that global inflation moves toward about 2%, and that above that it is possible that the models will not work as well. He added, however, that he believes that the central banks are pursuing their targets.

Asked about fiscal pressures in the country, especially in an election year, he said that at the moment the spending cap, the rule that limits growth in public spending to the previous year’s inflation, is being attacked from “all sides” but that, from November on, it will be necessary to make clear the existence of an instrument that indicates the country’s fiscal direction.

“Right now, many people are attacking the cap, but I think that soon it will become clear that, whether it is the cap or something slightly different, we will need some fiscal target that addresses the situation, that reduces the fiscal uncertainty that weighs on asset prices,” he said.

Source: Valor International

https://valorinternational.globo.com

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Court of Accounts greenlights privatization of Eletrobras

Aroldo Cedraz — Foto: Fabio Rodrigues Pozzebom/Agência Brasil

Aroldo Cedraz — Foto: Fabio Rodrigues Pozzebom/Agência Brasil

After almost five hours of speeches, the Federal Court of Accounts (TCU) passed in a floor vote Wednesday the government project for the privatization of state-run power utility Eletrobras. The majority of the TCU members followed the opinion of the rapporteur, Aroldo Cedraz, defeating TCU member Vital do Rêgo, who suggested several adjustments in the process. TCU is a public spending watchdog not related with Brazil’s Judiciary system.

The decision ends a process started in 2018, still in the Temer administration. If completed, it will be the first privatization of the Bolsonaro administration.

With the green light from the auditing agency, the government wants to file next week the operation to increase the company’s capital at the Securities and Exchange Commission of Brazil (CVM) and the U.S. Securities and Exchange Commission (SEC).

In parallel, the syndicate of banks responsible for the operation — led by BTG — will make a road show with local and foreign investors. Some financial centers, such as New York and London, will certainly be on the institution’s route.

The government will also launch, through Caixa Econômica Federal, a platform in the Workers’ Severance Fund (FGTS) application through which workers can opt to invest part of their funds to buy Eletrobras shares. The government plans to use up to R$6 billion from the fund.

Next, there will be the so-called book building: the collection of investors’ indication of interest in acquiring the stocks. The demand will determine the final price of the shares, when the settlement will finally take place. It is expected to take place by the end of June.

After the operation, the federal government’s stake in Eletrobras’s voting capital will be reduced to 45% from 72%. The control will then be held by individual shareholders, in a model known as corporation, in which there is no major shareholder.

TCU’s approval was announced after the presentation of a reviewing vote by Mr. do Rêgo. He pointed out at least six alleged illegalities in the privatization process, among them a possible involuntary privatization of Eletronuclear, a subsidiary that should remain under control of the federal government.

This would happen because Eletronuclear owes R$2.7 billion to Eletrobras, referring to dividends withheld since 2010. In addition to pointing out the absence of this debt in Eletrobras financial statements, Mr. do Rêgo said that the form of payment could transfer to individual shareholders the largest share of Eletronuclear.

Under the design presented by the government, at the end of the privatization, the federal government would have 64% of the voting capital of Eletronuclear, with the new Eletrobras holding the remaining 36%. The private-sector partners would also hold 99% of Eletronuclear’s preferred shares, without voting rights.

However, the debt between the two companies could change this correlation. According to current legislation, preferred shares become entitled to voting rights if dividends have not been duly paid.

In this scenario, considering the R$2.7 billion debt, the private-sector partners would have a majority in Eletronuclear’s voting capital, which in practice mean that it would be privatized. “Brazilian nuclear policy is going to be privatized. Not even the most democratic country in the world has abdicated its nuclear policy,” Mr. do Rêgo said.

He also presented problems in the Eletrobras contingency policy. The company set aside R$9 billion for potential legal expenses only in last year’s third-quarter earnings report, which raised the total amount of provisions to R$26 billion.

According to Mr. do Rêgo, depending on the outcome of the lawsuits that motivated the contingencies, the federal government could be harmed. This is because an eventual victory of the state-run company in the courts would transform the provisions into profit and, consequently, in dividends for individual shareholders, who will have a larger share.

He also pointed out flaws in hydroelectric dam Itaipu’s pricing and classified the privatization as “outrageous” and “a sweetheart deal.” “Itaipu is being almost given away. There is a plot behind all of this,” Mr. do Rêgo said.

The arguments were not enough to change the course of the trial and the privatization was authorized by seven votes in favor and only one against. The head of TCU, Ana Arraes, was the only one to show support for Mr. do Rêgo’s thesis. Even so, she did not vote, since this only happens when a tie-breaker is needed.

The other members defended the legality of the process and recalled that the market would correct any distortion presented by Mr. do Rêgo’s vote.

“Within the defeat of the thesis, we had a clear victory. The illegalities pointed out by me remain, in my opinion, unclear. During the debates, it was said that the market could adjust the directions of privatization. But it is not the constitutional duty of the market to correct the illegalities identified,” said the defeated TCU member. He believes that the case will eventually go to the courts.

Source: Valor International

https://valorinternational.globo.com

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Retailers see stronger sales of durable goods in April, May

Sales of durable goods in April and May may have been better than in the first quarter — Foto: Edilson Dantas/Agência O Globo
Sales of durable goods in April and May may have been better than in the first quarter — Foto: Edilson Dantas/Agência O Globo

Despite the difficult phase faced by retailers of durable and semidurable goods since last year, there are signs that April and May may have been better than the first quarter, which has made asset managers and executives more hopeful about a change in the consumer environment after the second half of the year.

This started to become clearer with the release of results from the companies this month. Although the sales data from January to March show what was already expected – sales volume in decline and costs on the rise – companies such as Via, Centauro, Carrefour and GPA say they saw better figures in April than in March, and May sees demand and foot traffic levels in line with April.

Via, the owner of Casas Bahia and Ponto chains, reported the best Mother’s Day since 2018. Americanas, which sells everything from food to laptops and linens, said that brick-and-mortar stores have been expanding foot traffic and show resilience.

The partial authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, the stabilization of unemployment rates (the quarter ended in February saw the lowest rate since 2016) and early payment of 13th salaries (a year-end bonus) of pensioners may have driven results, economists say.

The companies also cited the effect of Auxílio Brasil, a social program with larger monthly cash transfers than its predecessor Bolsa Família, as well as the higher number of consumers in the streets.

Another aspect that drew the market’s attention was the fashion retailers’ ability to pass on price adjustments to consumers in the first months of the year without any reduction in the volume sold.

In a way, according to analysts’ reports, this can also be understood as a sign of a greater possibility of improvement in the retailers’ margins.

Renner’s management team mentioned last week that it has been passing on higher costs to products without noting negative reactions from buyers. Centauro’s management team said it has partly passed on higher costs from input and freight without losing sales.

Despite being companies more focused on middle-class consumers, any recovery in consumer spending typically starts with this segment. As a result, consumer spending specialists expect that a little more consistent recovery may gain strength later among low-income consumers.

Despite the sharpest drop in foot traffic in January, Marisa, a fashion retailer focused on the middle class, cited an “expressive recovery” of same-store sales in February and March compared to the same months in 2019, a phenomenon noted in April and May as well.

Market analysts will monitor in the following months the higher portion of payments in arrears in point-of-sale loans. They see a slight pickup in demand in the second half as a possible outcome, despite the fact that many consumers are still paying for previous purchases.

In Marisa, Via and Carrefour first-quarter results, net losses in customer portfolios or payments in arrears (up to 90 days) drew the attention of analysts. They are already adjusting the release of POS loans, but say that the situation is under control.

Source: Valor International

https://valorinternational.globo.com

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Privatizing Petrobras would not ensure lower prices, experts say

Marcus D'Elia and José Luiz Alquéres — Foto: Reprodução/Valor
Marcus D’Elia and José Luiz Alquéres — Foto: Reprodução/Valor

The proposal to privatize Petrobras, announced by Mines and Energy Minister Adolfo Sachsida, would not ensure lower fuel prices in Brazil. That’s what Marcus D’Elia, a partner at Leggio Consultoria, and José Luiz Alquéres, advisor of the Brazilian Center for International Relations (Cebri) and former CEO of Eletrobras and Light, said in Tuesday’s live-streamed interview with Valor.

“The price of diesel and gasoline depends on demand and supply. Therefore, privatizing Petrobras in Brazil has no effect on the price of oil,” says Mr. D’Elia. He recalled that there is already a divestment program at Petrobras in which several assets are being sold and Petrobras is already a well-structured company with good productivity and good professionals.

Mr. Alquéres says that privatizing the company a few months before the elections would be “a monumental nonsense.” The executive compares it to the privatization of Eletrobras, in which several proposals to the sector were inserted in the bill and would cost even more to society.

“If the Eletrobras privatization bill received unrelated amendments, try to figure a Petrobras privatization bill in the hands of [Chamber of Deputies speaker] Arthur Lira. This is a bad joke, an abuse of common sense and an aggression to the Brazilian people,” he said.

For them, earth-quaking statements by the minister only cause noise in the market. The ideal would be new private-sector refineries and more port infrastructure, which would increase competition and possibly stabilize prices.

Source: Valor International

https://valorinternational.globo.com

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Investment boom driven by private sector

Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor

Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor

The surge in Brazil’s investment rate between 2016 and 2021, to 19.2% from 15.5% of the GDP, is due entirely to the increase in the private sector’s slice, whose rate rose to 17.5% from 13.6% of the GDP in the period, while public investments shrunk to 1.64% from 1.93%, the same level as the previous two years. The estimates for 2020 and 2021 are from the Center for Capital Market Studies at the Economic Research Institute Foundation (Cemec-Fipe), based on data from the Applied Economics Research Institute (IPEA), the National Accounts of the Brazilian Institute of Geography and Statistics (IBGE) and the National Treasury.

Cemec recalls that, since 2018, investment rates reflect the impacts of oil rig accounting criteria, in addition to changes in relative prices of gross fixed capital formation (GFCF) and the GDP in the period. “Cleaning up” the data from these effects, based also on a paper by economist Gilberto Borça published in Valor, Cemec estimates that the private investment rate, in relation to GDP, rose 2.9 percentage points between 2016 and 2021, above the 2.7 points growth of the total rate.

Three-quarters of this increase occurred between 2019 and 2021, when the private investment rate, with adjustment, advanced two percentage points of the GDP. At that time, Cemec notes, the growth rate of the GFCF index reached 8% per year, almost double of what was seen in the entire period from 2016 to 2021 (4.5% per year), despite a sharp drop in 2020. “My interpretation is that this is an investment recovery cycle that began after the recession started in 2014, in 2016-2017, was interrupted by the pandemic shock in 2020, but then recovered strongly,” Cemec’s coordinator Carlos Antonio Rocca said.

The study suggests that the increase in private investment has been concentrated in agribusiness and the construction industry. In the period from 2016 to 2021, the physical production of agricultural capital goods and their parts grew 3.9% and 7.3% per year, respectively, only below the capital goods for the construction industry, whose production advanced 11% per year.

This performance was strengthened in the 2019 to 2021 period, rising to more than 18% per year in the case of agricultural capital goods and parts, and to 16.6% among construction capital goods. The housing industry was favored recently by household spending on renovation and maintenance in the pandemic and, mainly, by falling interest rates and the drop in financing costs for construction and selling of residential properties. The production and investments in agriculture had a strong incentive from the increases in prices of agricultural commodities and the exchange rate, says Cemec.

Mr. Rocca – who, at Cemec, closely follows public companies in Brazil – also notes that since 2018 the rate of return on total capital invested by these companies was very close to the weighted average cost of capital, but in 2021, this rate of return has improved a lot. “The relevance of these data is that one of the important elements for making the decision to invest is to knowing how the return on this invested capital will be,” explains Mr. Rocca.

Given the financial constraints on public investment, there has indeed been an effort by the government to adopt a privatization and concessions agenda as an alternative, said Manoel Pires, coordinator of the Fiscal Policy Observatory at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). But there are also, he says, some statistical and/or temporary effects that help explain the recent boost in private investment.

Besides the internalization of the oil rigs, which do not present new investments, Mr. Pires notes that the inflation of investment goods was higher than that of the GDP. “When you take the value of investment and divide it by the GDP, the investment rate goes up, but the price effect is not exactly new investment,” he says.

Looking ahead, Mr. Pires says that with the rise in interest rates, the trend is that construction, for example, will no longer be such a strong factor in the growth of private investment. Another element that may have helped explain the higher rates, according to him, is that many businesses needed to invest to adapt to the pandemic and continue producing, what could tend to create a temporary effect of increased investment. “We will have to wait a bit to better evaluate the trend, but these questions serve to say that it is difficult to see we are living a new cycle of investments with the information we have now, that can raise the growth of the economy,” he ponders.

In a recent report, Inter B. Consultoria, headed by economist Claudio Frischtak, said that Brazil still invests little in infrastructure specifically. “In recent years, less than 2% of the GDP – and we have not gone beyond 1.73% in 2021,” he said, projecting 1.71% for 2022. Inter B. sees room for more public investment in infrastructure – which is expected to decline to 0.57% of the GDP in 2022 from 0.59% of GDP in 2021, the consulting firm estimated – provided it is based on a government reform that creates fiscal space for a responsible expansion of resources, with “a new governance, with better planning, and less discretion.”

Source: Valor International

https://valorinternational.globo.com

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Public spending watchdog member sees flaws in Eletrobras’s results

Vital do Rêgo — Foto: Divulgação/TCU
Vital do Rêgo — Foto: Divulgação/TCU

Vital do Rêgo, a member of the Federal Court of Accounts (TCU) that requested more time to study the Eletrobras privatization trial, will tell the court this Wednesday to halt the analysis of the case until alleged irregularities in the company’s financial statements are corrected.

One issue is related to a R$2.7 billion debt that Eletronuclear has with Eletrobras. The liability, created by the withholding of dividends, is allegedly not recorded in Eletrobras’s results. The company replied that it will not comment on the case.

Another issue identified by the TCU member is in contingencies reported by Eletrobras for possible unfavorable decisions in courts. According to Mr. Rêgo, who requested an audit of the contingencies, the way the operation was designed could represent losses to the country.

Only in the third quarter of last year, the company increased by R$9 billion the amount of the provisions, which reached R$26 billion. If Eletrobras wins the lawsuits in court, the funds will return to the balance sheet as profit and then be partially distributed as dividends.

In this case, Mr. Rêgo said, the government could lose, since its stake in Eletrobras – and, consequently, in dividends – will be smaller after privatization. The government expects its slice to fall to 45% from 72%.

If Eletrobras is defeated in the courts, the state could also lose. This is because the company went to court to ask that the state be considered “jointly” liable. The liability arose from compulsory loans made over the years through electricity bills.

If the Superior Court of Justice (STJ) rules that the state is jointly liable, half of the R$26 billion in provisions would be transferred as a liability to the Treasury.

Despite Mr. Rêgo’s points, the plenary is expected to approve the opinion of rapporteur Aroldo Cedraz and release the privatization. In this case, the government expects to move forward with a capital increase in July that will transfer the control of the state-owned company to the private sector.

On Tuesday, unions representing Eletrobras servers filed a complaint against the company with the U.S. Securities and Exchange Commission (SEC). They say that the company is allegedly hiding from the shareholders the dimension of the financial risks of the hydroelectric plant of Santo Antonio, in Rondônia.

The unions argue that Eletrobras has been delaying the disclosure of sensitive financial details about the plant in an attempt to speed up privatization – even as this imposes losses for the company and its shareholders in the future.

Analyzed in two stages, the privatization case was passed in both cases by TCU’s technical team and has the support of most of the court’s members. This week, the new minister of Mines and Energy, Adolfo Sachsida, met with several TCU members to ensure support for the project.

If privatization is approved, a general meeting of the company’s shareholders is still planned, followed by the publication of the 20-F form, which contains information about the operation for SEC and foreign investors.

The timetable also foresees the publication of the prospectus of the stock offering, the book building and, finally, the liquidation of the operation.

Despite the warnings made by Mr. Rêgo, however, government sources heard by Valor believe that the privatization will pass this Wednesday in TCU. The subject was discussed Tuesday at a meeting held at the Ministry of Economy, attended by the minister himself, Paulo Guedes, Mr. Sachsida, the Federal Attorney General Bruno Bianco, Eletrobras CEO Rodrigo Limp and specialists from the ministries and the company. “We believe that it will be approved by the TCU, with Vital voting against it,” a government source said.

Another source from the Economy explains that “the doubts that the TCU specialists had have all been answered,” but acknowledged that the trial is also “political.”

(Lu Aiko Otta and Estevão Taiar contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Beneficência, Fleury, Bradesco join forces to create healthcare company

Carlos Marinelli, Denise Santos and Jeane Tsutsui — Foto: Ana Paula Paiva/Valor

Carlos Marinelli, Denise Santos and Jeane Tsutsui — Foto: Ana Paula Paiva/Valor

With an investment of R$678 million, BP (Beneficência Portuguesa), Fleury and Bradesco Seguros (through Atlântica Hospitais, the insurer’s the hospitals and clinics arm) have joined forces to create a company specialized in oncology. The investment, which will be made in the first five years of operation of the new project, is intended for the construction of clinics and cancer centers in the country. Each one of the partners will have a 33% stake, and the investment will be in the same proportion.

The laboratories of the Fleury group, whose main shareholder is Bradesco Seguros, and the medical clinics of Atlântica, which has 27 units in seven states, may be service providers of this new company, whose name is still being defined. Surgeries, on the other hand, will be in charge of the Beneficência Portuguesa Hospital in the case of patients in São Paulo. In other cities, the idea is that the more complex cases will be executed at the new company’s own cancer centers or accredited hospitals. This new company will operate nationwide and the service can be provided through healthcare plans or privately.

“Besides the investment in the structure, we will put our expertise, doing oncology research in this new company,” BP CEO Denise Santos said. “It is a way of expanding our knowledge of so many years in oncology in Brazil.”

With this partnership, the hospital group, the network of medical diagnosis and the health insurance company will invest at the same time in cancer treatment — one of the diseases with the highest incidence in the world, and with an estimated 66,300 new cases this year in Brazil — and a medical service model known as integrated care. In this format, which is one of the world’s main trends in the sector, health companies participate in all stages of medical care.

The verticalized operators were the first to bet on this model as a tool to reduce costs and trim the dependence on health service providers that gain in volume. At the other end of the chain, about three years ago, medical diagnosis company Dasa was the first to adopt this concept of integrated care by also investing in hospitals to participate in the entire chain.

In 2020, Fleury decided to diversify its business and is also betting on medical clinics to be present in yet another link of the chain. “Considering the aging population and the consequent increase in cancer cases, early diagnosis is essential,” Fleury CEO Jeane Tsutsui said.

According to Carlos Marinelli, general director of Atlântica Hospitais, the boarding of Bradesco Seguros in the business “is a way for the insurer to participate in the healthcare value chain.” Last year, the insurance company created a healthcare arm to invest in hospitals. According to sources, this strategy intensified after SulAmérica, its main competitor, was sold to Rede D’Or. In this scenario, there are also uncertainties about the future of UnitedHealth, owner of Amil, in Brazil and the merger between the verticalized operators Hapvida and NotreDame Intermédica, which together have more than 80 hospitals.

Mr. Marinelli, who started discussing the creation of the new oncology company before the pandemic, when he was still CEO of Fleury, explains that there are synergies between the new company and Atlântica’s network of clinics. “Patients who have finished their cancer treatment can be followed up by a doctor from our clinics,” said Mr. Marinelli.

The executive added that the service contracts of the Atlântica clinics and the accreditation of Bradesco Saúde with the new company will have the same market criteria. The creation of the new company still depends on the approval of the antitrust regulator CADE.

Source: Valor International

https://valorinternational.globo.com

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