Regulator OKs price for sale of Eletrobras despite miscalculation

Vital do Rêgo — Foto: Divulgação
Vital do Rêgo — Foto: Divulgação

The Federal Court of Accounts (TCU), a public spending watchdog, approved Tuesday the first phase of the technical studies for the privatization of Eletrobras. The trial ended with six votes in favor of approval and only one against. The approved values will now be used to help define the share price that will be considered for the company’s capitalization, a phase that will still go through the TCU’s scrutiny.

TCU member Vital do Rêgo revealed on Tuesday an underestimation of R$34 billion in the value of the concession payment that should be paid to the National Treasury in Eletrobras’ privatization. Valor had already reported that there was a methodological error in the calculation of the value added to the state-owned company’s contracts.

With the adjustments requested by Mr. do Rêgo, the amount would rise to R$57.2 billion from the current R$23.2 billion. On the other hand, transfers to the Energy Development Account, which will be used to cushion the impact on electricity bills, would increase to R$63.7 billion from R$29.8 billion.

The bulk of the difference is due to the fact that the government did not consider in the model presented the pricing of the power of the 22 hydroelectric plants of Eletrobras. Another smaller adjustment was motivated by flaws in the definition of the hydrological risk criteria for the coming years.

“In an inexplicable and illegal way, the pricing of power was not presented. An absurd, huge mistake,” the TCU member said. “I understand that this is a non-negotiable situation.”

Despite Mr. do Rêgo arguments, the other TCU members chose to approve the model and proceed with the process. “I think we still don’t have the level of development enough for the proper appropriation of the power market,” said Benjamin Zymler, who is seen as an expert in the field.

His assessment is the same as that of the government, which justified the absence of values referring to power by the lack of a market for this asset. In this sense, claims the Ministry of Mines and Energy, it would be impossible to price the power.

Still, Mr. Zymler said he shared Mr. do Rêgo’s perception and did not see the company’s privatization ripe for development. “It is not yet at an adequate level of maturity. If Eletrobras were mine, I would not privatize it with these accounts,” he said.

Mr. Zymler also considered the possibility of determining the government to commit to include a clause in the contract providing for possible compensation if a power market becomes viable in the future.

The proposal, however, ended up reversed in recommendation, under protests from Mr. do Rêgo. “We are selling Eletrobras for half the price and the private sector is celebrating,” he said.

The other TCU members considered that the conclusion of the privatization would be more beneficial than postponing the process or keeping Eletrobras under state control.

“Any perception by the market of an overestimation of the value added to contracts would scare investors away, reduce share prices and make fewer resources available for investment. What people ask for and desire is investment for the sector,” TCU member Walton Alencar said.

The uncertainties surrounding the trial led the first level of the government to reach TCU ministers individually to avoid a setback.

Ministers Paulo Guedes (Economy), Ciro Nogueira (Chief of Staff Office) and Bento Albuquerque (MME) asked TCU members not to determine any change in the economic and financial model, sources say.

The government sought the members of the public spending regulator with the aim of letting them know how important the process is. If it moves forward, this would be the first privatization during the Bolsonaro administration.

Yet, if the sale takes a long way in the TCU, which can still happen, it will hardly end this year, which will be virtually all taken by the elections.

Source: Valor International

https://valorinternational.globo.com

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Expensive power drives investments in efficiency

Marcia Massotti — Foto: Divulgação
Marcia Massotti — Foto: Divulgação

Increasingly pressured by electricity costs, companies, large power consumers and even municipalities are betting on more efficient systems, more modern equipment and even their own power generation to remain competitive.

Enel Brasil invested almost R$89 million in 2021 in several projects that are part of its power efficiency program with concrete results. Liasa, an intensive industry that produces metallic silicon, has launched a plan to upgrade its furnaces and foresees an increase in efficiency of up to 10%.

On the manufacturers’ side, companies such as WEG and Onpower are being demanded for increasingly efficient equipment. Data from the 2030 Energy Expansion Ten-Year Plan by the Energy Research Company (EPE) show that power efficiency gains will reduce approximately 6% of the industry’s electricity in 2030.

The water crisis, high tax burdens and subsidies set precedents for a power efficiency investment agenda. In 2021, Enel Brasil, through its four distributors, invested R$88.8 million in projects that are part of its power efficiency program, obtaining as main results the service of approximately 331,000 beneficiaries, saving 62,257.81 MWh throughout the year and reducing end demand by 6,629.33 kW.

“In 2021, we invested more than R$88.8 million in projects supported by the program, with initiatives that combine economic benefits and positive effects for society and the environment. One of the highlights is the Public Call for Projects, held every year and which aims to benefit society as a whole. The Public Call projects achieve this vision of bringing power gains and making the services already offered by the beneficiary institutions more efficient, be they public, private or philanthropic,” says the Enel Brasil’s head of Sustainability, Marcia Massotti.

The industrial sector is perhaps most interested in power efficiency targets. The segment consumes approximately one third of the final electricity to service its production processes. Liasa expects to have a gain in production with the repowering of the furnaces. The company is an electro-intensive industry that produces metallic silicon and began to modernize its equipment in January.

“At the moment we consume 100 average megawatts (avgMW). The idea is to increase production by reducing the amount of energy per ton of silicon metal. The repowering of the ovens is likely to bring an increase in efficiency between 5% and 10%”, says the company’s head of Energy, Ary Pinto Ribeiro Filho.

If in the past the great attraction for industries to settle in Brazil was the availability, quality and price of electricity, over time those advantages were diluted and today the industry has difficulties in being competitive. The president of the Association of Large Energy Consumers and Free Consumers (Abrace), Paulo Pedrosa, says that companies have an ESG agenda, global commitments to emissions, in addition to competitiveness in the market.

“There is a movement of great interest towards power efficiency, such as the contracting of subsided power and self-production to seek competitiveness and meet this global agenda of commitments. Companies are also preparing for a carbon market, which will be a reality”.

What Mr. Pedrosa says is present in the Brazilian reality. A survey carried out in 2020 by the Instituto Clima e Sociedade (iCS) initiative coordinator, Kamyla Borges, with the ten companies with the highest scores in the Corporate Sustainability Index (ISE B3) showed that power efficiency is considered to meet environmental goals.

“Although most claim to implement efficiency measures, few [companies] were those that set specific goals to reduce electricity consumption or power intensity,” says the researcher.

In this high demand, manufacturers are surfing the good times. WEG has demands for performance improvement services, operation automation and equipment preventive maintenance. At Onpower, the demand is for more efficient generator sets. In 2021, the company had the biggest growing curve in sales since 2013. According to sales manager Fernando Lemos, the year was the best in history, with a growth of 92% compared to the previous year.

“We see a greater demand for natural gas and biogas machines, which is another mix. What we noticed is the lack of conductors and semiconductors in the market, an important input in the production chain”.

With an eye on efficiency gains, several cities are betting on partnerships with concessionaires for public lighting services. More than 50 business groups were interested in the sector. There are currently 56 Brazilian municipalities with public lighting service concession contracts for the private sector, with estimated investments of around R$18.3 billion.

According to the Brazilian Association of Private Public Lighting Concessionaires (ABCIP), 12% of the Brazilian public lighting park is being updated by private companies under public-private partnerships (PPP) regime. More than 400 projects are underway in the country, including about 220 municipalities that intend to form consortia.

“The modernization of public illumination parks with LED luminaires has generated savings of up to 70% in electricity consumption,” says Pedro Iacovino, president of ABCIP. “When the park is equipped with telemanagement resources, savings can exceed 80%”.

Source: Valor International

https://valorinternational.globo.com

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Joint auction of airports is opportunity for Rio

Rio de Janeiro: Aeroporto Galeão ou Santos Dumont?

The joint bidding of Santos Dumont and Galeão airports in the second half of next year is positive not only for Rio de Janeiro state, but for the civil aviation system in Brazil as well. There is enough time to design a model for the auction of both assets in 2023. This is the view of experts consulted by Valor, according to whom the auction is possible next year even with a possible shift of government. According to them, the merger of the two airports into a single block will create a system capable of strengthening the city as a hub of internal distribution, without running the risk of increasing fares.

The decision to auction the two airports in a single block in 2023 was announced on Thursday evening by Infrastructure Minister Tarcísio Freitas after the RioGaleão concessionaire, whose controller is Singapore’s Changi, confirmed it had requested the re-bidding of the airport.

For Delmo Pinho, former Secretary of Transportation of Rio de Janeiro and representative of the commerce federation Fecomércio-RJ in the working group that discussed with the federal government the model for the Santos Dumont tender, “it is very bad for the country when a major international operator leaves” a concession. However, Mr. Pinho says that the departure of Changi from Galeão has created a more favorable scenario for Rio to become a relevant hub once again in national civil aviation.

“The new owner of the concession will not shoot himself in the foot, and the result of this can be excellent for Rio and for Brazil. We will have a major competitor in a very important market, which is Rio, and working in a cooperative way”, he says.

According to Mr. Pinho, it is possible to bid the two airports together in the second half of next year even considering the election of a new president. “Nobody will change a modeling that is consensual and well accomplished,” he says, adding that a barrier clause is needed to prevent the participation of concessionaires of assets such as Guarulhos, Viracopos and Brasília in the auction. “We have to impose barrier clauses to avoid a private monopoly.”

Lawyer Luiz Felipe Graziano, partner at Giamundo Neto Advogados, says that the bidding next year is “totally feasible”, even with the dependence on further steps to be taken, such as public hearings and the analysis of the public spending watchdog TCU. “The fuel for making this bid feasible is the convergence of interests,” he says.

Mr. Graziano reminds that the airport assets concession initiative started to be modeled and carried out still in the administration of former president Dilma Rousseff, went on through the Michel Temer term and continued in the Jair Bolsonaro government. “As this went through three administrations with very different profiles, it is possible that the project will survive a change in the presidency.”

Maurício Menezes, partner of the Moreira Menezes Martins law firm, says that uniting the airports will be “a solution in the end,” but ponders that there is a need for a “very broad” dialogue with the private initiative. “It is an opportunity to reflect on the best way [to do the modeling] not only from the public sector’s perspective, but mainly from the private point of view.”

Source: Valor International

https://valorinternational.globo.com

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Despite pressure for clean energy, Brazil extends use of coal by 2040

Renewables surpass coal in US energy generation for first time in 130 years | Grist

The transition to cleaner energy sources to reduce carbon emissions and limit the impacts of climate change puts more pressure on highly polluting coal-fired power plants. Despite the commitment made by 21 countries since the Paris Agreement in 2015 to gradually eliminate the use of this energy source by 2030, there are actions that go in the opposite direction. In Brazil, President Jair Bolsonaro sanctioned, in January, a law that extends until 2040 the contracts of coal-fired thermoelectric plants in Santa Catarina, a decision criticized by industry experts.

Santa Catarina and Rio Grande do Sul concentrate 99.97% of the national coal reserves. The region’s deposits are sufficient to generate 18,600 megawatts (MW) for 100 years, but there is pressure on the plants operated by the two largest generation companies in the country: Eletrobras and Engie Brasil Energia (EBE), the national arm of the French group.

Sanctioned by Bolsonaro on January 5, Law 14.299 creates the Fair Energy Transition Program (TEJ), whose goal is to prepare the coal region of Santa Catarina for the “probable” end, by 2040, of the national coal-fired thermoelectric generation activity. By law, the TEJ seeks to promote a “fair” energy transition for the coal region of this state, observing the “environmental, economic and social impacts and the valorization of energy and mineral resources in line with the carbon neutrality to be achieved under the targets set by the federal government”.

The law benefits the Jorge Lacerda thermoelectric complex, in Capivari de Baixo (state of Santa Catarina), via electrical energy contracting. The complex was sold, in 2021, by EBE to the asset management company FRAM Capital. EBE is also in the process of selling the Pampa Sul plant (state of Rio Grande do Sul), closing the fossil generation portfolio in the country. The project in Santa Catarina has 857 MW of capacity and is formed by three plants, the first one operating since 1965, and the last one since 1997, all with supply contracts until 2028. This is the date agreed with the Brazilian Electricity Regulatory Agency (Aneel) for the end of the contract. But with the sanction of the new law, the Jorge Lacerda complex can produce energy at least until 2040.

The sale of Pampa Sul, with 345 MW, is still under negotiation. With an investment of more than R$2 billion, the project, in Candiota (state of Rio Grande do Sul), on the border with Uruguay, started operating in 2019 and is considered the largest of the South region. The plant’s supply contract runs until 2050. Located in the city of Pampa Sul, Candiota III, of 350 MW, is operated by CGT Eletrosul, a subsidiary of Eletrobras. The plant has been in operation since 2011 but also received investments between 2018 and 2019.

According to the CGT Eletrosul, the plant has “fundamental importance” for Brazil and Uruguay, as it helps control the voltage of the transmission system between the countries. The Candiota Pole was the subject of controversy in the past, due to complaints from Uruguayan communities about the incidence of alleged “acid rain,” a phenomenon caused by air polluted by sulfur and nitrogen emissions.

Environmental concerns have led investors to divest coal-fired power plants, accelerating the growth of renewable sources in Brazil. By 2021, centralized solar power, generated in plants, will surpass coal-fired thermal plants in capacity.

Since 2013, CGT Eletrosul has deactivated three coal-fired thermal plants in Rio Grande do Sul state: São Jerônimo, Nova Usina Termelétrica Porto Alegre, and Presidente Médici plants. Together, they had more than 600 MW of capacity, but face criticism for their environmental impacts. This month the Federal Court annulled the environmental licensing process of the Guaíba Mine (state of Rio Grande do Sul), after a lawsuit by indigenous and environmental defense associations.

The federal government recognizes that new large projects in the sector should no longer arise. The EPE forecast is that the coal source will not receive investments in new projects until 2031, according to the ten-year expansion plan put out for public consultation last month. With this, the installed capacity of this source will fall by almost half over the decade.

For the professor at the Federal University of Rio de Janeiro (UFRJ) and former president of the EPE, Maurício Tolmasquim, it makes no sense to extend the contracts of coal-fired thermal plants. He says that, despite not having such a big impact on Brazilian emissions, the end of the use of coal for energy generation in Brazil could bring significant image gains for the country.

“Any initiative to contract or expand contracts for coal-fired power plants goes against what the rest of the world is doing. Brazil can be one of the first countries to decarbonize the power generation mix. At a moment in which we are being so badly evaluated for environmental issues, making the mix liquid in carbon would send a positive signal to the world and would bring geopolitical gains to the country,” he affirmed.

In Brazil, coal has marginal participation in electricity generation and emissions. By the end of 2021, coal-fired plants had an installed capacity of 3 gigawatts (GW), representing less than 2% of the Brazilian power generation mix, compared to an 80% participation of renewable sources, such as hydroelectric, solar, and wind power, according to the Energy Research Company (EPE).

The scenario is different from other countries. In China, coal accounts for more than 60% of electricity generation, a percentage that reaches almost 70% in India. In U.S. case, the source’s share in the power generation mix fell by almost half between 2010 and 2020, according to the U.S. Energy Information Administration, but still represented almost 20% at the end of the last decade.

According to the International Energy Agency (IEA), a group of large countries, including Brazil, have plans to zero emissions, but not eliminate coal. Also, part of this group is China, Japan, South Korea, South Africa, and the United States. The list of 21 countries with commitments to ban coal by 2030 includes European nations as well as Canada, Chile, Israel, and New Zealand.

Interest in coal-fired generation projects is waning since ESG (environmental, social, and governance) criteria have become more prominent in the choice of investments. The commitment to reduce the use of fossil fuels was reinforced last year in the final agreement of the Climate Conference (COP 26), signed by 196 countries, including Brazil.

“Brazil needs to build a transition plan for a low carbon economy. The issue is increasingly complex and influences more tied to the direction of capital in the world. It is becoming more expensive for capital to finance fossil projects and there is a tendency to price products that are more carbon intensive,” says Márcio Pereira, partner of the environmental and climate change area of law firm BMA Advogados.

An eventual end to the operations of coal-fired power plants would affect, however, the supply of electricity in the South, which would depend more on receiving energy from other regions, say specialists. This would require new investments in electric transmission.

The president of the Brazilian Association of Mineral Coal, Fernando Zancan, believes that coal can still have space in a decarbonized world, with the evolution of technology to compensate and capture carbon emissions. “Brazil is going to grow, demand more energy per capita, and for this, the country needs reliable and safe sources. The cheapest thermal plants are coal-fired, and if you shut them down, there will be an increase in cost,” he says. He believes that there is geopolitical interest in keeping part of the generation tied to coal, more stable in terms of prices, which is produced domestically in several countries.

Despite the environmental issues, there are still investments in coal projects in Brazil. This is the case of Copel, which in 2021 signed contracts to modernize the Figueira thermal plant (PR), with investments of R$37.3 million to expand the plant’s capacity without having to increase coal consumption. Eneva has stakes in the coal-fired plants Itaqui (state of Maranhão) and Pecém II (state of Ceará).

Source: Valor International

https://valorinternational.globo.com

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Retailers prepare attacks against foreign online marketplaces

Why Some Retailers Are Thriving Amid Disruption

There is a movement organized by the main Brazilian retailers that is likely to lead to a series of actions against online marketplaces that, in their view, sell counterfeit items and or without the proper collection of taxes. The focus is on foreign companies that bring products from Asia, through cross-border online commerce, or across platform borders, Valor has learned. Those companies rebut criticism and already have lines of defense to react to this move.

The meetings on the issue have been led by the Retail Development Institute (IDV), which represents 75 retailers, such as Americanas, Casas Bahia, Magazine Luiza, Renner and Riachuelo. Last week, there was a virtual meeting with at least 50 associates to address the tax impact of evasion and discuss aspects in which “judicial and administrative proposals” against the platforms are viable, according to IDV material presented at the meeting.

Sources say that there is a long-standing discomfort of the chains with the operation of groups such as Aliexpress and Alibaba (based in China), Shopee (part of Singapore’s Sea Group), Wish and Shein (based in the U.S.), Mercado Libre (based in Argentina), and OLX Brasil, with 50% of the business in the hands of South African Naspers. The decision to harden the tone came from the growth of the activity of these companies in the country, say sources.

The material, prepared with the support of McKinsey consultancy and Mattos Filho law firm — and obtained by Valor — mentions, as main areas of action, competition, tax, criminal, consumer relations and the Civil Rights Framework for the Internet.

Regarding the competition aspect, the IDV is considering filing, in the coming weeks, representation at antitrust regulator CADE, alleging violation of the economic order by foreign platforms. This topic is controversial and former CADE advisers are divided on the hypothesis of success in the strategy.

A meeting with the National Council for Combating Piracy (CNCP), of the National Consumer Secretariat (Senacon), linked to the Ministry of Justice, must still be requested this month. The idea is to present the institute’s study to the CNCP. “There have already been contacts with high levels of the government, informally, and with state leaders to see if there is room to work on changes in state legislation, on tax collection by marketplaces. We’ll start with CADE and then strike harder to change the law,” says the head of one chain.

“Only 5% of shipments were inspected by customs in 2020 and 7% of shipments are effectively stated. In other words, there is a flood of products that enter the country without any analysis, and this increased even more after the pandemic,” says a source close to IDV.

“As the purchase of up to $50 is exempt from import tax, informal shopkeepers or individuals buy from other informal stores, up to this limit of $49.99 per package to avoid inspection”, says the source. “Thousands of packages arrive up to this limit, further favored by the free shipping offer offered by these platforms”.

A proposal being analyzed by the retail chains is the issuance of tax receipts, by the Individual Micro-Entrepreneurs (MEIs), in the sale to individuals. This is only mandatory when selling to companies. But a change would have to involve the general law on micro and small companies.

Another path for IDV is to work with state lawmakers to pass a law that assigns to marketplaces joint liability for tax disputes of their sellers regarding the payment of sales tax ICMS. Some states already make them responsible through specific legislation, but the idea is rejected by platforms outside Brazil because they consider they are only intermediaries in the sale.

The text being discussed still mentions acting on the change in article 19 of the Civil Rights Framework for the Internet, which deals with freedom of expression. According to the article, an internet provider can only be held civilly liable for damages resulting from content from shopkeepers if, after a court order, it fails to take action.

For the IDV, the text is being used in a distorted way to exempt the online marketplaces from responsibility, and the platforms, in turn, say that it is about freedom of expression (of publishing content).

As it is an election year, retail chains linked to the IDV told Valor that they do not believe there is room to put the entire agenda on the table of the federal and state governments today, so the path followed now would be to toughen the demand for greater customs controls, and in greater pressure on states and on regulatory agencies, such as telecom regulator Anatel, which can fine companies. A source close to the Ministry of Justice says that these inspections have grown since the pandemic, as well as the approximation between some websites and agencies, in the search for greater cooperation.

The IDV document calculates a tax evasion of R$19 billion to R$20 billion in the sale of international retailers in 2020 — 80% to 90% of them are from Asia. In the Brazilian chains, this evasion ranges from R$4 billion to R$ 5 billion. There were 47 million orders from Brazilians to international stores, brokered by online marketplaces in 2020, says the document. It is as if one in five Brazilians had placed an order in the year.

For the foreign platforms, the issue is commercial. “They [Brazilians] are saying that because they are losing sales and, in a more difficult consumer environment, they do not have access to the competitive sellers base that others have. Because there are sellers that sell cheap items and within the law, as they have a lower cost structure abroad than in Brazil,” says the head of market relations at a Chinese website. “We are bringing to Brazilians thousands of stores that work correctly. Are there illegal products that pass through controls? Yes, but there is work to improve that.”.

Goldman Sachs estimated, in a recent report, that Shopee is expected to reach a 20% share of the Brazilian online market by 2025. Other analyst reports have highlighted Mercado Libre as the biggest competitor today for Magalu, Americanas and Via.

A point highlighted by three lawyers heard by Valor, focused on antitrust legislation, is the possible legal strategy of Brazilian retail chains. “If they claim unfair competition, this is a subject covered by the 1996 Intellectual Property Law, that is, it is something in the civil or even criminal sphere, and not in CADE,” says a former counselor at the antitrust watchdog.

“You can say that it is a violation of the economic order within a broader idea, as defined in article 36 of the law that structures the Brazilian competition defense system. And claim that tax evasion generates an asymmetry of competitive conditions and market imbalance. But CADE has already made clear, on several occasions, that it does not assess tax matters, even though it is necessary to analyze violations of the economic order,” says a lawyer with 23 years of experience in the area. Sought by Valor, CADE did not return requests for comment.

Local retailers and foreign platforms have had a series of differences for years, which became explicit in 2019, when the sector discussed a self-regulation guide, with Senacon’s direct intermediation. In this debate, foreign companies objected to holding platforms responsible for advertising counterfeit products, claiming freedom of expression. Shopee, Aliexpress, OLX, Wish, Shein did not adhere to the guide. Mercado Livre joined in 2021

In the end, the guide assigns responsibility for enforcing property rights only to the companies that own the products and brands. The IDV was in favor of co-responsibility, and the divergence resulted in tense meetings between the parties in 2019. On February 23 there will be a meeting at the CNCP, and the idea is to tell companies that those who do not act according to the guide’s recommendations or meet suggestions will have to leave it.

Sought by Valor, Mercado Libre says it supports actions to inhibit the entry of pirate and counterfeit products, and that invested $100 million in machine learning technology, which helps in the analysis of data and identification of wrongdoings. It also states that only 5% of the sellers in its base are not formal companies. “We’ve formalized 135,000 new small entrepreneurs since the pandemic, and that’s more [than the total number of member stores] in the IDV. So we generate income and jobs,” says Ricardo Lagreca, head of the legal department of Mercado Libre in Brazil.

According to him, the group has digitalized the control structure to identify “as much as possible” sellers and products. “About 95% of the write-offs we make are already automated.” Mercado Libre has been reinforcing, behind the scenes, sources say, that it cannot be compared to platforms without a local distribution structure and that do not generate employment or tax payments. And they don’t see themselves as a foreign operation.

According to Mr. Lagreca, R$1.2 billion in taxes were collected by the group in 2020, and this year it will be “almost twice as much”. The platform had R$48 billion in transacted value in Brazil. The company said last year that from January 2020 to July 2021 an internal brand protection program allowed the deletion of about 30 million irregular ads — there are 360 million ads in the database.

Shopee says it has “proactive screening measures” to identify violations and “provides procedures” for brand owners to request removal of infringing listings. It says that “it is committed to helping small and medium-sized companies grow and prosper online”. Shopee states that more than 85% of its sales are from local sellers, and that selling counterfeit or intellectual property infringing items is prohibited and requires sellers to follow local laws. “Our team in Brazil serves more than 1 million registered local sellers,” it said in a statement.

Shein says it “operates and will continue to operate in compliance with all local laws within its business operations.” Wish did not return requests for comment. OLX states it helps in the development of the country and provides a space to users “always respecting the terms and conditions of use”, with direct negotiation between seller and buyer. According to the company, there are free advertisements and its revenue comes from optional spaces to highlight the offers.

OLX also informs “it welcomes initiatives that promote a healthy environment of competition and any measure that helps in the fight against illicit practices,” and understands that there are always improvements that can be implemented in the sector and in the legislative environment. It acknowledges that the “IDV plays an important role in the discussion of improvement measures and says it is available for a conversation with the institute”.

Sought by Valor, IDV confirms that there is an internal study on the subject, but does not comment on actions in progress.

Source: Valor International

https://valorinternational.globo.com

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ArcelorMittal Brasil announces investments package of R$7.6bn

ArcelorMittal vê lucro apesar das dificuldades de vendas - FabrikTec Conceito de Força em trituração de resíduos gerais

ArcelorMittal, the global steel giant commanded by the Indian businessman Lakshmi Mittal and his son Aditya Mittal (CEO of the company), has decided to bet high on the Brazilian market. In 12 months, the group, based in Luxembourg and headquartered in London, has approved investments of R$7.6 billion (almost $1.5 billion) in four projects to expand supply in the country.

The last of them was announced on Thursday, with investments of R$1.3 billion ($250 million), for expansion and adding value to products from the Barra Mansa mill, in Rio de Janeiro state. This facility was acquired from Votorantim group in 2018 and is strategic for being in the middle of the largest steel consumer market in the country – the Rio-São Paulo corridor – and availability of ferrous scrap, the raw material of the plant.

“Our investment is the largest announced from a steel company in the country and this shows our confidence in Brazil and the market growth in the coming years,” said Jefferson De Paula, president of ArcelorMittal Brasil and CEO of the group for LATAM Long Steels and Brazil Mining, in an interview with Valor. The investment package covers the flat and long steel and iron mining segments, in operations located in SC, MG, and RJ.

“It will not stop there,” said Mr. De Paula, who has been in charge of AMB since the beginning of November. He justifies this confidence with the expected demand from various sectors – civil construction, infrastructure, sanitation, renewable energy (wind and solar), oil and gas, and agricultural implements, machinery, and trucks, all goods in great demand by agribusiness.

After an atypical growth in 2021 – more than 20% compared to the previous year –, the apparent consumption of steel in Brazil should return in 2022 to normal levels, from 3% to 5%, said the CEO. For him, it will consolidate in an average increase of 4% per year as of 2023. Last year, the company saw its sales rise more than 24%. In total, it sold 11.7 million tonnes, being 7 million of flat steel and 4.7 million of long steel.

“With these investments, which will be made over three years [from mid-2021 to mid-2024], we seek to consolidate our position as a leader in the Brazilian market in the long steel segment”, adds Mr. De Paula. Around 80% is for servicing local customers and 20% for exports. The company is the largest steel producer in the country, ahead of Gerdau, CSN, Usiminas, and Simec.

According to the executive, ArcelorMittal Brasil was responsible last year for 21% of the operational result (by EBITDA criteria) of the group’s total, with $4.15 billion. “With these investments, just in long steel, we will add 1.5 million tones (1 million in the Monlevade-MG mill and 500,000 in Barra Mansa),” says Mr. De Paula. As for flat steel, the Vega mill (in São Francisco do Sul, state of Santa Catarina) will produce more than 700 thousand tonnes of rolled material for application in the automotive, white line, and civil construction sectors.

In the Barra Mansa plant, the investment will contemplate a new rolling mill for bars, of many sizes, of 400,000 tones, the expansion of the capacity of the current one, from 300,000 to 380,000 tonnes, improvements in the manufacturing processes to offer material of high added value, especially for the automotive and oil markets. In addition, the company will start producing medium profiles, a product with strong demand in metallic construction. For example, warehouses and silos.

“We are a world leader in medium profile manufacturing and now we are entering here,” said Mr. De Paula. With the investment, the mill “will be very modern in terms of long steel technology, operating with two steel units (melt shop). And its capacity for rolled products will be increased by 500,000 tonnes, reaching 800,000 tonnes. The project is to be concluded in the first quarter of 2024, generating 200 direct jobs, 120 indirect jobs, and 1,200 on the construction site.

The estimate is that the expansion, with its new line of long products, will add EBITDA of $70 million per year when the mill is fully operational.

ArcelorMittal, the global steel giant commanded by the Indian businessman Lakshmi Mittal and his son Aditya Mittal (CEO of the company), has decided to bet high on the Brazilian market. In 12 months, the group, based in Luxembourg and headquartered in London, has approved investments of R$7.6 billion (almost $1.5 billion) in four projects to expand supply in the country.

The last of them was announced on Thursday, with investments of R$1.3 billion ($250 million), for expansion and adding value to products from the Barra Mansa mill, in Rio de Janeiro state. This facility was acquired from Votorantim group in 2018 and is strategic for being in the middle of the largest steel consumer market in the country – the Rio-São Paulo corridor – and availability of ferrous scrap, the raw material of the plant.

“Our investment is the largest announced from a steel company in the country and this shows our confidence in Brazil and the market growth in the coming years,” said Jefferson De Paula, president of ArcelorMittal Brasil and CEO of the group for LATAM Long Steels and Brazil Mining, in an interview with Valor. The investment package covers the flat and long steel and iron mining segments, in operations located in SC, MG, and RJ.

“It will not stop there,” said Mr. De Paula, who has been in charge of AMB since the beginning of November. He justifies this confidence with the expected demand from various sectors – civil construction, infrastructure, sanitation, renewable energy (wind and solar), oil and gas, and agricultural implements, machinery, and trucks, all goods in great demand by agribusiness.

After an atypical growth in 2021 – more than 20% compared to the previous year –, the apparent consumption of steel in Brazil should return in 2022 to normal levels, from 3% to 5%, said the CEO. For him, it will consolidate in an average increase of 4% per year as of 2023. Last year, the company saw its sales rise more than 24%. In total, it sold 11.7 million tonnes, being 7 million of flat steel and 4.7 million of long steel.

“With these investments, which will be made over three years [from mid-2021 to mid-2024], we seek to consolidate our position as a leader in the Brazilian market in the long steel segment”, adds Mr. De Paula. Around 80% is for servicing local customers and 20% for exports. The company is the largest steel producer in the country, ahead of Gerdau, CSN, Usiminas, and Simec.

According to the executive, ArcelorMittal Brasil was responsible last year for 21% of the operational result (by EBITDA criteria) of the group’s total, with $4.15 billion. “With these investments, just in long steel, we will add 1.5 million tones (1 million in the Monlevade-MG mill and 500,000 in Barra Mansa),” says Mr. De Paula. As for flat steel, the Vega mill (in São Francisco do Sul, state of Santa Catarina) will produce more than 700 thousand tonnes of rolled material for application in the automotive, white line, and civil construction sectors.

In the Barra Mansa plant, the investment will contemplate a new rolling mill for bars, of many sizes, of 400,000 tones, the expansion of the capacity of the current one, from 300,000 to 380,000 tonnes, improvements in the manufacturing processes to offer material of high added value, especially for the automotive and oil markets. In addition, the company will start producing medium profiles, a product with strong demand in metallic construction. For example, warehouses and silos.

“We are a world leader in medium profile manufacturing and now we are entering here,” said Mr. De Paula. With the investment, the mill “will be very modern in terms of long steel technology, operating with two steel units (melt shop). And its capacity for rolled products will be increased by 500,000 tonnes, reaching 800,000 tonnes. The project is to be concluded in the first quarter of 2024, generating 200 direct jobs, 120 indirect jobs, and 1,200 on the construction site.

The estimate is that the expansion, with its new line of long products, will add EBITDA of $70 million per year when the mill is fully operational.

Source: Valor International

https://valorinternational.globo.com

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External capital increase totals $4.2 bn in a weak start to the year

What is external financing | Capital.com

Brazilian companies raised only $4.2 billion abroad in the first weeks of 2022 through the issuance of debt securities. Seven operations went to market. This is the worst begining to the start of the year since 2020, when $6.9 billion were raised in ten offers. Last year, there were 13 bond offerings on the international market, resulting in a total volume of S$7.5 billion in new debt.

The first funding season of 2022 is over this week, with the end of the deadline for companies to present to investors the financial statements for the third quarter of 2021 to access the market.

This drop is a direct consequence of the rise in long-term interest rates in the United States, given the prospect that the Federal Reserve will start raising interest rates from March. The more volatile market makes investors more selective and limits their willingness to be exposed to emerging countries, such as Brazil, which also represent greater risk for political and fiscal reasons. Investment banks estimated that 15 companies planned to raise funds abroad at the beginning of the year. Less than half, therefore, completed the operation.

Now, according to Rodrigo Fittipaldi, head of the Debts Capital Market area at Credit Suisse, there are at least six operations in the pipeline for the next window, which opens at the end of March – right after the 2021 earnings season. These are well-rated companies, including some newcomers.

However, the environment should remain unstable, which means that operations will require caution and patience on the part of companies. “You can’t be anxious. We won´t go back to the dynamic of 12, 18 months. I don’t tell anyone to stop going to the market, but to adjust the strategy, since shorter-term operations have less execution risk,” she says.

Mr. Fittipaldi explains that the market’s complexity comes from the fact that there are many uncertainties about how far the interest rate hike will go in developed economies, especially in the United States, and what impact this could have. Furthermore, the world economy still faces chain supply problems, and it is not clear when this will be back to normal. There is also the worsening geopolitical risks with the Ukraine issue.

Although the local market has been going through a positive period, with the stock market rising and currency appreciation, Mr. Fittipaldi believes that the uncertainty about the direction of the election, especially with regard to the fiscal debate, also exacerbates this situation. “This improvement in the stock market was a short-term move,” he says. “There is nothing resolved on the political issue. The election will bring more concern about the fiscal issue because there will be no convergence on issues dear to the market.”

For André Cury, head of Citi’s Commercial Bank, the business environment has become, in fact, more complex and less risk-averse. However, there are companies waiting for an opportunity to access the market, following the strategy they have already implemented of diversifying sources of funds. “Increasingly, we have seen more professional companies in this sense, diversifying their pockets, that is, raising funds on several fronts,” he says.

This means that, for some companies, it is strategic to maintain operations in order to have a yield curve abroad – that is, to have issues in several maturities, forming a benchmark for rates.

The companies that raised external funds at the beginning of the year were Banco do Brasil, Globo, Açu Petróleo, Bradesco, JBS, CSN and Coruripe. With the exception of JBS, which raised $1.5 billion through two bonds offerings, one with a seven-year term and the other with a 30-year term, the other operations were between US$ 300 million and US$ 500 million and had a term of five years old.

A common point for all companies is that demand this season has been more modest than at other times. Therefore, the volume raised in all operations was close to the minimum planned by the companies, a strategy aimed at avoiding additional pressure from the yield paid for the paper. And this dynamic is likely to continue throughout this year.

“Investors didn’t jump right in, they made smaller offers and put up a price barrier,” says Mr. Fittipaldi, from Credit. He explains investors began to demand a higher rate of return in relation to the price negotiated in the secondary market, which, in market jargon, is called a concession. “During strong market moments, the concession is close to zero, or even slightly negative. Now the investor demands a bigger concession,” he explains.

Market volatility began to grow in September last year, when the idea of monetary policy normalization by the Fed and other central banks around the world gained traction. Since then, the average yield on 10-year bonds from major Brazilian issuers has risen about 100 basis points on the secondary market, according to Mr. Fittippaldi. In the same period, the interest on the 10-year T-note, the benchmark for setting prices in this market, rose from 1.30% to 1.90%. In other words, the spread over Treasury rose almost 50 points.

The instability of the markets was exacerbated at the beginning of the year by two events, according to Caio de Luca Simões, head of the DCM area at Bank of America. First, by the minutes of the Federal Open Market Committee (FOMC) of the Federal Reserve, signaling to the market that there may be five interest rate hikes this year starting from the March meeting (the market talks about seven); and the result of the payroll for January, showing the creation of 467,000 new jobs, much higher than expected. As a result, notes Mr. Simões, the interest on the 10-year T-note jumped from 1.51% at the beginning of the year to 1.92%.

The issuer therefore needs to monitor the evolution of interest rates to decide whether or not to access the market. “January was marked by the need to keep a close eye on the U.S. interest rate, we provide updates on how the market is doing every day,” says Mr. Simões. And that should be the dynamic going forward. “There will be new operations, but with a higher premium.”

A survey by Bank of America with global investors showed that, in January, rising interest rates in the U.S. came to be considered the biggest risk for Latin American countries, even above local political issues, seen as the biggest source of concern for the region in December. For Mr. Simões, throughout the year, it is likely that the issue of election will have greater weight. “I believe that we will continue in the same vein, with a careful eye on the U.S. interest rates, but the election tends to have more influence from now on.”

Source: Valor International

https://valorinternational.globo.com

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Galeão, Santos Dumont airports to be auctioned together in 2023

Como ir do Galeão ao Aeroporto Santos Dumont. | S2RIO

The airports of Galeão and Santos Dumont, in Rio de Janeiro, will be auctioned to a single concessionaire in 2023, informed Thursday the Minister of Infrastructure, Tarcísio de Freitas. The announcement was made after the decision of RioGaleão, operator of Tom Jobim International Airport, to return the terminal concession to the federal government. The concessionaire released a note confirming that it submitted a request to the federal authorities for a re-bidding of the airport concession, as provided for in law 13.448, of June 5th, 2017.

The reason for the request, Valor found out, was the refusal of the National Civil Aviation Agency (Anac) regarding the request for the economic-financial rebalancing of the concession contract. The information was anticipated Thursday by “Capital” column of O Globo newspaper.

RioGaleão asked for a “complete” contract rebalancing, citing all the effects of the pandemic. The 25 years Galeão’s concession began in 2014 and extends until 2039. The operation is controlled by Singapore’s Changi, with 51%, and Infraero has the remaining 49%.

Changi took control of Galeão in 2017, when Odebrecht, implicated in Lava-Jato, left the venture. Initially, the Singaporeans had a minority stake in the control block led by the contractor at Galeão.

According to sources close to the discussions, Anac has been rebalancing the contracts annually, which, in RioGaleão’s view, does not provide stability to maintain the long-term operation. The return of the concession began to be analyzed after the negative of the technical area of Anac, in October 2021, about the rebalancing requested by the company.

At that moment, it became evident that RioGaleão would have to choose between litigation, which is costly and time-consuming, and a safer path from the legal point of view, which involves the request for a re-bidding. It is expected that the process of returning the concession will take two to three years to be concluded. RioGaleão will continue to be responsible for the operation until the re-bidding takes place, sources said.

The understanding of technicians is that RioGaleão cannot participate in the re-bidding process for the airport.

After the concessionaire released a statement confirming the request for re-bidding, Mr. Freitas called a press conference in Brasília, in which he stated that the preparation of studies to bid Santos Dumont airport separately “no longer makes sense”. “Devolution is an instrument applied to poorly modeled concessions, with contract problems. With the devolution, it no longer makes sense to conduct studies of Santos Dumont separately,” he said.

The minister said that for the second half of 2023, the eighth round of airport concessions will be structured, which should encompass Galeão and Santos Dumont. “This resolves a series of issues that were being raised by the productive sector in Rio,” said the minister. According to him, the bid for Galeão will follow the path of the airports of São Gonçalo do Amarante (state of Rio Grande do Norte) and Viracopos (São Paulo). He also said that RioGaleão will be reimbursed for unamortized investments.

Since taking over the airport in 2014, RioGaleão has invested R$2.6 billion in expansion works. These funds are part of a settlement of accounts that will need to be made between the concessionaire and the federal government since the concession was for 25 years, but only eight years have passed, an insufficient period to amortize all the investments made in the airport.

In 2023, RioGaleão has to pay R$1 billion to the federal government as fixed concession fees. In 2017, the company brought forward two and a half years of fixed concession payments to the federal government and rescheduled another two and a half years.

On Twitter, Rio´s governor, Cláudio Castro, said that with the decision of RioGaleão, the state and Brazil have the opportunity to make a re-bidding of Galeão in line with the Santos Dumont concession. He said that the workgroup that deals with the issue at the Ministry of Infrastructure will build the “best model” to ensure that Changi’s decision is an instrument for the recovery of Rio’s airport system.

The state government and the city hall had been opposing the concession model designed by the federal government for Santos Dumont, on the grounds that it emptied the Galeão.

Source: Valor International

https://valorinternational.globo.com

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Credit, debit, prepaid cards grew 33.1% last year

Credit card association expects a surge in transactions for 2022 — Foto: Pixabay
Credit card association expects a surge in transactions for 2022 — Foto: Pixabay

The volume transacted with credit, debit and prepaid cards totaled R$2.65 trillion in 2021, an increase of 33.1% over the previous year, according to figures released Thursday by the Brazilian Association of Credit Card and Services Companies (Abecs). This year, the forecast is that the industry will advance 21%, a smaller growth but still robust when considering the macroeconomic scenario.

Of the total transacted last year, R$1.6 trillion refer to credit cards, up 36.6% over 2020. Debit totaled R$916.3 billion, an increase of 20.2%, and prepaid services, R$117.1 billion, a growth of 158.5%. There were 31.1 billion transactions in the year, 33.4% more than in 2020.

In the fourth quarter alone, card payments totaled R$796.5 billion, an increase of 30.7% year over year. According to the association, the sector has been sustaining the level of growth, stimulated by the digitalization of the economy and the recovery of consumption of goods and, mainly, services.

Payment-by-approximation was a highlight in the 2021 earnings reports. This payment method transacted R$198.9 billion, an amount 384.6% higher than in the previous year. Of this total, R$111.1 billion was spent using credit cards, an annual growth even higher of 489.1%. According to Abecs, one in four face-to-face transactions with credit cards is already done by approximation. And the expectation is that this level will continue to rise, reaching 50% by the end of the year.

In addition, remote purchases by card totaled R$569.7 billion, up 30.8% over 2020. Of the total, R$550.1 billion were credit operations, a modality in which there was an increase of 41.7%. Debit transactions totaled R$13.5 billion, a fall of 69.3%. According to the president of Abecs, Pedro Coutinho, this decline can be explained by factors such as the lower purchasing power of families and the effect of the Pix on the modality.

“With the advance of digital transformation, online purchases are gaining even more relevance, and the card is responsible for enabling a huge market of sales and services through e-commerce and applications. Currently, non-face-to-face payments represent 35% of all spending with credit cards,” says Abecs in a statement.

The sector believes in robust growth of the card industry, in the double digits, until 2025, said Coutinho. In 2022, Abecs says that the credit concessions on cards will remain at high levels, favored by low default rates and the economic recovery itself.

For the executive, the credit card delinquency rate will grow this year, but is not expected to reach the levels of the past, around 8%. Today, it is close to 5% “due to better assessment of credit and risk management,” he says. “The industry today has a very good capacity for granting credit.”

The slowdown in growth in 2022 is likely to come in the wake of many challenges, such as inflation, increases in the basic interest rate, which may impact credit concessions and retail sales, the low level of economic growth, and the electoral scenario. Despite this, the outlook for the sector is positive, adds Coutinho.

Among the factors that benefit the card industry, the association cites the consolidation of the habit of Brazilians “to make a relevant part of their transactions in a non-presential way” and the expectation of persistent growth of the payment by proximity throughout the year. There is also the recovery of services and household consumption.

Abecs sees a 20.5% increase in the values transacted via credit card this year, to R$3.2 trillion. It also projects an increase of 11.5% in debit and 100% in prepaid.

Source: Valor International

https://valorinternational.globo.com

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Demand for photovoltaic modules doubled in 2021

The Brazilian solar energy market is responsible for 5.6% of the entire global demand for photovoltaic modules in 2021. This was one of the conclusions of a survey conducted by consultancy Greener with 3,767 companies in the sector between December 2021 and January 2022, to which Valor had exclusive access.

One of the reasons why Brazil is one of the main consumers of equipment on the planet is due to the segment’s boom last year. The necessary volume of photovoltaic modules to supply the Brazilian market surpassed 9.7 gigawatts (GW), a growth of more than 100% in relation to 2020.

Greener CFO and coordinator of the study, Marcio Takata, assesses that Brazil has had a strong expansion in recent years since in 2017 the Brazilian share in relation to the global market represented only 0.9%.

“Between 2019 and 2020, Brazil had a limited growth in demand for equipment. But in 2021, the country resumed growth and the volume of equipment doubled in comparison with the previous year and represented 5.6% of global demand.”

The executive lists some factors that help understand the importance of Brazil in this context, such as the rise in energy tariffs, the competitive market, and the entry into effect of Law 14,300/22, which establishes the legal framework for self-generation of energy – which is likely to attract investments of around R$35 billion to Brazil.

“With the acceleration in the volume of modules in the last quarter and the entry of equipment in Brazil, we notice a greater market appetite for 2022. Another important indicator is the regulatory change, which for some business models means an acceleration of investments,” predicts Mr. Takata.

Due to the international dynamics, last year the price of equipment had an 8% increase pulled by the cost of freight, due to the lack of containers, ports bottleneck, and pandemic isolation measures. The rise in commodity prices, high demand for components, and exchange rates have culminated in worldwide equipment supply problems.

Given the challenging scenario, Mr. Takata says that some projects were delayed or adjusted to suit the market dynamics and rising prices. However, he points out that the service chain and the volume of companies operating in the segment brought a lot of competitiveness in the Brazilian market, which absorbed part of the rise in prices.

“Even pressured by costs, the segment continues to be competitive. We had a rise in energy tariffs throughout 2021 and in 2022 we will still have the reflexes of the water crisis and the pandemic. This brings a new dynamic and the investment in solar energy continues to be attractive to the consumer,” he analyzes.

The distributed solar generation is present in a little more than 1% of the consumer units in Brazil, according to data from the National Agency for Electrical Energy (Aneel), and is used mostly in homes and businesses as an aid in reducing the electricity bill (900,000 consumer units against 86 million consumer units).

The rise in Brazil’s benchmark interest rate Selic is reflected in the cost of financing, yet solar financing has expanded, supporting 57% of sales made in 2021, being a fundamental means of leverage for the expansion of access to photovoltaic generation.

Despite all the obstacles that entrepreneurs will face, the survey found that 92% of integrators are optimistic about the volume of business in 2022 – a 6% increase in positive expectations compared to 2020.

Source: Valor International

https://valorinternational.globo.com

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