Analysis: War shuffles moves of central banks in Brazil, abroad

Supreme Court upholds statute giving autonomy to Brazil's Central Bank - The Rio Times

Russia’s invasion of Ukraine further exacerbates global inflationary pressure, but central banks are not all likely to respond in the same way. In Brazil, the most likely prescription is more interest to tackle rising prices, without much room to look at economic activity.

Over the last few weeks, the foreign exchange rate had been having an unusual behavior in Brazil, falling to R$5 to the dollar on Wednesday. This positive view in the exchange market overshadowed the latent tensions in the interest market, where the geopolitical risk was more strongly expressed.

Economists who did the math concluded that even with a stronger real, commodity prices in reais were on the rise, especially grain and energy. Russia’s invasion of Ukraine made these prices jump again and, at least in this first moment, the exchange rate also responded upwards.

Even before the crisis worsened, some economic analysts suspected that the appreciation of the real was temporary. There are, however, many good people in the market who argue that the real was undervalued, and the exchange rate would eventually fall. But the controversy was somewhat less about inflation and how the Central Bank should react.

The February inflation forecast was higher than expected, and the index, qualitatively speaking, was not good. The Central Bank itself had already been highlighting surprises in services inflation, the most dangerous of all because it is the most resistant to falling.

The invasion of Ukraine means the prolongation and intensification of the price shock caused by the pandemic, from which we had not yet rid ourselves. The risks of further contaminating the long-term trend of inflation increase, and the Central Bank has less room to lower its guard and be flexible in taking care of the economic activity.

In developed economies, the equation is different, and the risks of monetary policy error are huge. The long-term yield curve in the United States, which is not so steep, reflects a lot of these uncertainties.

When the U.S. Federal Reserve Chair Jerome Powell signaled that all possibilities were on the table to combat inflationary pressures, the market began to adjust the yield curve.

The shorter vertices rose more, but still without pricing in a rate hike above the neutral level, currently estimated at 2.5% per year. Many thought this was not enough, given the immense challenges for the Fed, with inflation at 7.5% a year in the U.S., a labor market at full capacity and strong wage growth.

There was also the stubbornness of longer-term interest rates, which, at most, remained around 2% per year. There were several theses in the market to explain this. A popular one was that the Fed would overshoot to counter a temporary price shock before being forced to back off.

After the invasion of Ukraine, the interest rate on ten-year U.S. Treasury bonds fell below 1.9%. Two stories can be told. One is that this is a typical risk-aversion move, when everyone goes to the U.S. bond and the interest rate falls. Other is that, in the end, this new shock will slow down the global economy and take care of inflation.

The shock can hit economic activity through several channels. Rising fuel prices erode disposable income and therefore hold down prices. Falling stock markets have an impact called “wealth effect” – that is, the wealth of consumers falls and they spend less. Risk aversion itself slows down the economy.

None of this prevents gasoline from rising at the pump. But the shock originating in Ukraine could be an additional force to cool the economy in a year in which the U.S. fiscal policy is contractionary. If this movement restrains wage inflation, monetary policy may be less required.

None of this, however, changes the fact that very high inflation in the United States gets a new boost, prolonging the period of high prices. In Brazil, this usually causes great damage to inflation expectations, but for the Fed this is still a question mark. If the Fed looks at activity, it will certainly be taking more risks on the inflation side.

Source: Valor International

https://valorinternational.globo.com

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Brazil’s inflation, growth may be pressured by Ukraine conflict

Rafaela Vitória — Foto: Divulgação
Rafaela Vitória — Foto: Divulgação

The war between Russia and Ukraine may put even more pressure on Brazilian inflation in the short time this year, experts say. In practice, the conflict, close to oil and grain-producing regions, will raise commodity prices and Brazil will be somewhat impacted. Analysts say oil giant Petrobras could raise gasoline and diesel prices and warn about more expensive products, especially those made of grains like wheat and oats, in the wholesale and retail markets.

“It is indeed something that will affect inflation, not only in Brazil but on a global scale,” said Étore Sanchez, chief economist at Ativa Investimentos, on the beginning of the Russian invasion of Ukrainian territory. He warned that, in the case of gasoline, which has a great weight in the formation of Brazil’s benchmark inflation index IPCA, calculated by the Brazilian Institute of Geography and Statistics (IBGE), this product already operates with a price that has “a 20% lag” in relation to the international price, according to his calculations. This was before the conflict in Ukraine, which started at dawn on Thursday.

The conflict may contaminate Brazil through two channels, said Alessandra Ribeiro, a partner and head of macroeconomics and sector analysis at Tendências Consultoria. One is the financial one, due to capital flight from emerging economies to less risky assets. The other is the “real economy,” with the increase in commodity prices reducing consumption in global terms.

According to calculations by Rafaela Vitória, chief economist at Banco Inter, the gasoline price lag has been between 10% and 12% — and has been “admirably” controlled by Petrobras. But the specialist admitted that the situation has changed completely with the entry of Russian troops into Ukraine. This is because the situation leads to an escalation in the price of the Brent-type oil barrel, she noted. “We may have imminent readjustment of fuels [in Brazil],” she admitted.

André Braz, an economist at Fundação Getulio Vargas (FGV) and responsible for inflation calculations in the General Price Indexes (IGPs) family, agrees. “With this situation, oil has already reached the $100/barrel threshold,” he warned. “It’s a situation that could get worse as this conflict evolves and perhaps compromise oil production, oil extraction. This will still involve other countries and it is just beginning,” he warned.

Mr. Braz commented that oil was already rising before the conflict, but the recent appreciation of the real against the dollar helped to offset the impact, in Brazil, of the rising prices of dollarized commodities. “Brazil is being visited by a large speculative volume, the smart money,” he pointed out, explaining that, with more dollar inflows into the country, the foreign exchange rate dropped: “It is a volatile money, but it helps to reduce the impact of dollarized commodities. So, if we had not accumulated a positive variation of the real, it would be a harder impact,” he said.

The FGV expert noted, however, that although a recent appreciation of around 10% of the real against the dollar softens some impacts, it “softens but does not prevent” the inflationary impact of high commodity prices in Brazil. For the specialist, it is possible that there will be news of fuel hikes in the coming days, such as gasoline and diesel.

Besides oil, another warning from the specialist is the probable increase in the price of grains and their products in Brazil. He recalled that Russia is a strong producer of wheat, and Brazil is not self-sufficient, which is important both in the calculation of wholesale and retail inflation, he noted. “If wheat flour goes up, it contaminates a long chain [in retail] that goes to wheat flour, pasta, bread, crackers, noodles, a series of component items of the basic food basket,” he listed. “We don’t reap anything positive from a war, and the effects of it will certainly get to inflation,” he said.

Rodolfo Margato, an economist at XP, also sees “an upward pressure bias” on oil products and grains produced in conflict areas, such as wheat, rye and oats. But he pointed out that it is impossible to project impacts in percentage points in inflationary indicators at the beginning of the conflict in the region.

But, in the case of commodities, he said that before the war between Russia and Ukraine the world was already facing reduced stocks of commodities and, in the case of Brazil, domestic inflation in 12 months already was in double-digit levels. This week, before the Russian invasion of the neighboring country, the IPCA-15 for February, a preview of the IPCA, the official inflation indicator, already saw a 12-month increase of 10.76%. “The scenario is of higher global uncertainty, especially commodity prices rising,” he acknowledged, adding that, in general, the conflict in Ukraine makes it more difficult to fight inflation in Brazil.

(Anaïs Fernandes, Marina Falcão and Marta Watanabe contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Chinese company becomes leader in solar panels in Brazil

Álvaro García-Maltrás — Foto: Divulgação
Álvaro García-Maltrás — Foto: Divulgação

A Chinese company that arrived in Brazil in 2016 managed to become, in five years, the largest seller of photovoltaic panels for the solar power generation market in the country. Trina Solar imported to Brazil enough solar panels to generate about 1,500 megawatts at peak last year alone, according to data from consulting firm Greener.

Trina was founded in China in 1997 and today supplies more than 100 countries with modules and other equipment for photovoltaic generation, as well as smart grid and power systems and a cloud power operating platform. The company has been listed on the Shanghai Stock Exchange since 2020, when it achieved global operating revenues of $4.5 billion.

Brazil now accounts for almost 10% of the company’s sales worldwide, said Álvaro García-Maltrás, Trina’s vice president for Latin America and the Caribbean. “This is very significant, especially considering how fast we have grown in Brazil. It is very rewarding to see that when we arrived in the country, the market was relatively small, and now it is one of the main markets in the world,” he said.

Trina offers solutions for both centralized generation, which are the large power plants, and for distributed generation, which includes projects in which the consumer himself generates power through panels on the roof, for example. Mr. García-Maltrás says that operating on both fronts has contributed to the company’s rapid expansion in Brazil, because both segments have seen great growth in the country in recent years. Between 2016 and February 2022, the solar source went from 93 MW of installed power in Brazil to 13,520 MW, according to data from the Brazilian Photovoltaic Solar Energy Association (Absolar).

For this year, the source is expected to see a new leap in Brazil, especially in the segment of distributed generation. New rules for projects in this segment were signed into law by President Jair Bolsonaro in January, with the forecast that the projects that request connection to the electrical system until the beginning of 2023 will remain exempt from paying grid usage fees. The scenario has generated a rush for new projects.

“The stable legal framework will allow the distributed generation segment in Brazil to grow even more. Last year, the growth was already strong, but I believe that by 2022 it can be up to 50% bigger,” Mr. García-Maltrás said.

To meet the growth, the group intends to expand the team in the country this year. Despite the upbeat perspectives, the executive said that the market suffered with the pandemic and that logistical restrictions in the delivery of equipment that comes from China will probably still be felt in the first half of this year, with a return to normal expected for the second half of 2022. “This is limiting our ability to get the equipment here, in some cases. The goods are typically manufactured in China and brought to Brazil, so the distance is great,” he said.

Another point of attention, in the specific case of Brazil, is the volatility of the currency and the impacts of this on the final costs of the projects. Data from Greener show that the prices of the photovoltaic system for the final customer in January 2022 saw an average year-over-year increase of 8% and reached the highest levels in the last two years.

According to Mr. García-Maltrás, however, price variations have not limited the growth of the source in the country. There are also no major changes expected in the trends for the sector after this year’s presidential elections. “Solar technology is among the most competitive. I believe success and growth is guaranteed. Governments can make it faster or slower, but growth will materialize,” he said.

Among the technological bets for the next few years, the company foresees the growth of distributed generation projects with storage solutions, such as batteries, which help guarantee the autonomy of power supply when there is no sunlight, such as at night. In the segment of centralized generation, one bet is on green hydrogen solutions associated with solar power. “This will be one of the technological solutions that will lead to market growth. We already see this very advanced in Chile, for example. Several centralized generation projects in Chile are already being designed with these systems,” he said.

Source: Valor International

https://valorinternational.globo.com

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Brazil reacts against agricultural subsidies at WTO

Brazil gave a clear warning to India and several other developing countries this Wednesday at the World Trade Organization (WTO): there will be no blank check for granting agricultural subsidies at the expense of Brazilian exports.

With this position, Brazil reacts to a double attempt to close agricultural markets in negotiations at the conference that will bring together ministers of Agriculture from the 164 member countries of the organization — and which will probably be in the week that begins on June 13, in Geneva.

The first is the demand from a group of developing countries led by India for a permanent solution that allows the formation of public stockholding for food security purposes (PSH).

New Delhi wants the creation of a definitive rule for the adoption of new programs with administered prices and with the granting of unlimited and unrestricted subsidies for a wide variety of commodities — including sugar — that cannot be challenged in the Dispute Settlement Body of the WTO.

The second attempt by this group of developing countries, which includes several Asian and African nations, contemplates the application of special safeguard measures – which is reflected in tariff increases on agricultural products when there are abrupt price declines or sudden increases in imports.

On both fronts, agricultural discussions at the WTO, instead of gradually moving in the direction of liberalization, could go in the opposite direction, with more obstacles for exports to India, Indonesia and several other major markets.

Not only Brazil and other Latin American countries would be affected. The U.S. would also be hit at some point, according to an observer on the trade scene.

For exporters, India wants to give additional subsidies without showing any transparency — that is, without saying how much it gives to farmers, how much it has in stock and what is being diverted to the international market or not.

The Indians allege difficulties in this, which leads some partners to ask how it is possible for New Delhi to have a nuclear program if it cannot say how much it spends in support of its sugar producers, for example.

On the other hand, special safeguard measures are a mechanism normally used in balance with an opening of the market, and not as the proponents intend to do now, just to keep the doors closed.

India has become the largest rice exporting country in the world, and the third largest for sugar, boosted by an agreement made at the 2013 WTO conference in Bali (Indonesia), when it obtained a temporary solution to be able to grant more subsidies to build up public stockholding.

On Wednesday, however, Brazil sought to stop the attempt to establish permanent rules for even more unlimited subsidies. The country warned that the mandates on public stockholding could be reviewed, as the consensus that created them no longer exists.

The Brazilian position is that PSH, as it is currently presented, actually causes food insecurity. For Brazil, food security requires a reduction in the volume of hundreds of billions of dollars in agricultural subsidies, not the other way around.

Moreover, the country argues that malnutrition is not a problem of lack of food, but of access to food. Open trade ensures that food can arrive faster and at cheaper prices, even to poorer countries with an agricultural sector that cannot compete with those that heavily subsidize their producers.

In other words, the $60 billion in subsidies offered by India affect farmers in Bangladesh, Vietnam, Vanuatu, among many others.

The message was that Brazil is not against anyone, and that preserving Brazilian exports is part of the solution, not the problem. The country is willing to negotiate a more modern understanding of food security, in order to react to the real causes of the problem. But what Brazil will not accept is giving a blank check to India and other countries for granting subsidies.

Source: Valor International

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Ban on deforestation products will protect Cerrado, EU says

Soy crop in Mato Grosso: the Cerrado is the second largest biome in the country — Foto: Ruy Baron/Valor
Soy crop in Mato Grosso: the Cerrado is the second largest biome in the country — Foto: Ruy Baron/Valor

The European Union believes its proposal to ban the import of beef, soy, coffee and other products from deforestation and forest degradation will protect much of the Brazilian savanna, the biome called Cerrado, where 75% of the country’s agribusiness is located.

In a meeting this week with agriculture ministers from the 27 EU member countries, the Environment Commissioner, Virginijus Sinkevicius, highlighted the importance of implementing “zero deforestation” in imports and signaled that more ecosystems could be covered by the initiative in the future.

“As an example, we estimate that the proposal should contribute to the protection of about two-thirds of the area of native vegetation remaining in the Cerrado biome, a vast tropical savanna ecoregion in Brazil,” he told ministers.

To Valor, Mr. Sinkevicius’ team said that “area remaining of native Cerrado vegetation” means the area of this biome that has not yet been transformed into pasture, agriculture, infrastructure, etc., before 2020.

The European official said that the EU does not yet have the same kind of detailed data for the Amazon. “We studied the precise case of the Cerrado because it is mostly a savanna,”, he explained. “In any case, since the Amazon is essentially a tropical forest, it is clear that the (European) Regulation will protect most of its surface.”

The Cerrado is the second largest biome in the country in terms of area, only surpassed by the Amazon rainforest. It is responsible for 24% of the country’s greenhouse gas emissions. Between 1985 and 2019, the area of agriculture grew more than tree times in the biome, today reduced to half of the original vegetation: there are 25 million hectares of crops and 61 million hectares of pastures, according to MapBiomas.

When the European proposal for “zero deforestation” in the import of six commodities – beef, soy, coffee, cocoa, wood and palm oil – was presented in November 2021, the Environment Commissioner told the European Parliament that, in the text, “deforestation” means the conversion of the forest into agricultural use, whether or not induced by man; and “forest’” means land of more than 0.5 hectares with trees of more than 5 meters and canopy cover of more than 10%, or trees capable of reaching these limits, excluding agricultural plantations and lands predominantly under agricultural or urban use.

The interpretation of certain experts is that the Pantanal has not yet entered this definition. But in the case of the Cerrado, one part fits and another one does not, depending on the 10% level, and this has an impact on exporters. Thus, for products from Cerrado areas which may be included in the definition of forest, it will be necessary to segregate products from other areas according to the geolocation of production. Companies will need to show that these commodities are not linked to deforestation for the bloc of 450 million consumers.

In an impact assessment document released in November, the EU underlined that stricter rules aimed at protecting the Amazon rainforest have already been shown to accelerate the conversion of Cerrado savannas and wetlands to agricultural production.

Brussels warned that it planned to work in partnership and give support to producer countries on aspects related to “root causes of deforestation”, such as governance, law enforcement and fighting corruption. It also wants to strengthen international cooperation with the main consuming countries to promote the adoption of similar measures to prevent products from supply chains linked to deforestation and forest degradation from being placed on the market.

In the EU’s assessment, the main drivers of deforestation vary geographically. The expansion of agricultural land dedicated to palm oil plantations is one of the main causes of deforestation in Southeast Asia, for example, while the clearing of forests for cattle pasture and for soy plantations and land speculation (land grabbing, often associated with the forced displacement of local communities) are the main drivers in South America. The expansion of cocoa plantations has had a significant impact on deforestation in Central and West Africa.

Source: Valor International

https://valorinternational.globo.com

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German ambassador appeals to Brazil to condemn Russia

Heiko Thoms — Foto: Wenderson Araujo/Valor

The German ambassador to Brazil, Heiko Thoms, made an appeal to the Brazilian government to condemn Russia’s attacks against Ukraine. According to him, as a member of the UN Security Council, Brazil has signed a commitment to act against violations of international law.

“Brazil is one of the largest countries in the world, it is a country that has great weight in the international arena and whose voice is heard. And as it has a seat on the UN Security Council, it is important that it raises its voice in defense of the basic principles of international law,” he told Valor on Wednesday.

According to the German ambassador’s evaluation, Russia’s gesture of recognizing the independence of the self-proclaimed separatist republics in eastern Ukraine is “clearly” an affront to the established peace treaties. The announcement regarding Donetsk and Lugansk was made by Russian President Vladimir Putin himself on Monday.

“We are extremely concerned about Russia’s behavior. Ukraine’s sovereignty cannot be violated, and this is what has happened. In fact, it is a heavy blow against all the diplomatic efforts of the last days, weeks and years,” he said.

He argued that the international community needs to come together now to prevent the conflict in Eastern Europe from escalating. “I believe that great established democracies have to stand together, side by side, they have to support each other.”

The Brazilian government has avoided criticizing Russia. Last week, President Jair Bolsonaro paid a visit to Moscow and said that Brazil was “in solidarity” with that country, a gesture that was harshly criticized by the United States. In a statement on Tuesday, the Ministry of Foreign Affairs defended “a negotiated solution”, based on the Minsk Agreements and respecting the principles of the United Nations Charter”.

When asked about the agenda of the head of the Brazilian government, Mr. Thoms said he would not comment on the “chartered course” of the President.

The ambassador, however, praised the sanctions imposed on Russia by the European Union and Germany itself, which decided to suspend the certification of the Nord Stream 2 gas pipeline. According to him, the adoption of further measures is not ruled out.

“It is very important to give a warning for Russia to stop. That, apparently, has not worked in the last few days. So, of course, there will be other steps if Russia does not back down,” he said.

Mr. Thoms also said that although diplomatic efforts in recent days have not had the desired effect, the international community will continue to act to prevent a war.

“We will not be intimidated, and we will continue our diplomatic efforts. Regardless of how this conflict unfolds, in the end there will always be a diplomatic solution,” he said.

Source: Valor International

https://valorinternational.globo.com

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Petrobras reports record net income

Oil company proposed another dividend distribution, amounting to R$37.3 billion — Foto: Geraldo Falcão/Agência Petrobras
Oil company proposed another dividend distribution, amounting to R$37.3 billion — Foto: Geraldo Falcão/Agência Petrobras

Petrobras reported record annual net income of R$106.7 billion relative to 2021. The result, 15 times higher than the 2020 earnings, came above the R$100 billion projected by analysts.

After a new solid earnings report, that of the fourth quarter, the company proposed another dividend distribution, amounting to R$37.3 billion, to be paid in May. In the end, the remuneration to shareholders for the results achieved last year will total R$101.4 billion, the oil company’s highest ever. The federal government, which controls the company, will receive about a third of this.

Benefiting from the appreciation of oil, the company earned R$31.5 billion in profits in the fourth quarter, down 47.4% year over year. At the time, the state-owned company’s results were strongly inflated by the reversal of impairments. When compared to the third quarter of 2021, there was an increase of 1.2% in the result.

In the year of 2021, the record profit was linked to the 77% increase in the price of Brent oil, in reais, in the period. Two other factors boosted the result: the higher sales volumes in the domestic market and better diesel and gasoline margins – which offset the drop in oil exports, the increase in liquefied natural gas (LNG) acquisition costs due to the water crisis and a revision in health insurance plans.

Petrobras’s net revenues totaled R$134.19 billion in the fourth quarter, up 79% year over year. In 2021, revenues totaled R$452.7 billion, 66.4% more than the previous year. The EBITDA, on the other hand, grew 33.8% in the fourth quarter, to R$62.9 billion, in comparison with the months from October to December 2020; and 64.1% in the year, to R$234.6 billion.

Source: Valor International

https://valorinternational.globo.com

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Rede D’Or buys SulAmérica Seguros in share swap deal

Rede D'Or - YouTube

Rede D’Or closed an association agreement with SulAmérica, an insurance company with 4.4 million users of health and dental plans. The transaction exclusively involves shares swaps.

With the transaction, Rede D’Or, the largest hospital group in the country, enters the health insurance segment. Until then, D’Or’s role in this market was to be the largest shareholder of Qualicorp, administrator of health insurance plans by membership.

According to the statement, SulAmérica assumed an obligation of exclusivity in trading with Rede D’Or, valid for 12 months, subject to the payment of a fine of R$5 billion in the event of non-compliance. SulAmérica, on the other hand, established an exclusivity obligation for 18 months, subject to a non-compensatory fine of R$2 billion.

SulAmérica shareholders will receive common shares from Rede D’Or after the transition. The hospital network will continue as a publicly traded company listed on B3’s Novo Mercado.

The share exchange ratio is 0.2561 new common share of Rede D’Or for each common share of SulAmérica, or 0.7630 common share for each unit of SulAmérica.

The reference values will be the closing prices on February 18, and the SulAmérica units will have an increase of 49.3% as a premium.

SulAmérica shareholders exercising the appraisal right will receive R$6.77 per share or R$20.31 per unit.

The transaction will be submitted to the shareholders at the general meetings of both companies.

In 2019, D’Or bought Hospital Santa Cruz, in the state of Paraná, which also had a health plan operator. In 2020, the hospital group sold this operator to SulAmérica.

This transaction comes against the backdrop of recent moves in the sector. First, Bradesco Saúde created a hospital arm and will start operating on both sides of the market. More recently, there was market information that UnitedHealth Group (UHG) was studying the sale of its Brazilian operation, formed by Amil and the Américas hospitals network.

Today, the main trend in the sector is the presence of players throughout the health chain to better control medical costs, whose readjustments are generally three times above inflation. These groups have realized that if the medical cost continues to follow this pace, private health care will be unaffordable. In addition, they have seen the exponential growth of the verticalized operators Hapvida and NotreDame Intermédica, which recently merged to create a mega company.

Rede D’Or does not want to become a verticalized group like Hapvida and Intermédica because its current source of income comes from insurance companies and operators such as Bradesco Saúde, which will not give up D’Or hospitals even though it also has hospitals. Rede D’Or has about 300 operators that have their hospitals in the accredited network. There is a demand from users of insurance companies and operators that demand high-ranked hospitals.

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EU wants to demand sustainability in whole supply chain

Andre Hoffmann — Foto: Reprodução/Youtube
Andre Hoffmann — Foto: Reprodução/Youtube

The European Commission, the EU’s executive arm, will present on Wednesday a proposal to hold companies accountable for environmental damage and human rights violations in their supply chains globally. It will also crack down on activities in third countries, including Brazil.

Europe has been aligning measures to increase vigilance in the relationship between trade and environmental and social sustainability. And it will be able to impact other countries in terms of ESG if they want to trade with the European market, one of the largest in the world.

Last year, the EU outlined the carbon tax on the border and the proposal to ban the entry of several commodities if produced in deforested areas. Now it will launch a “Directive on Corporate Sustainable Due Diligence,” setting out environmental and human rights obligations for companies. France wants to go further with the introduction of reciprocal standards in EU trade agreements.

In the proposal to be released on Wednesday, the trade impact part is not yet clear, unlike the proposal on deforestation, which establishes a ban on importing products that are not “deforestation-free.” As for the investments of European companies in other markets, the assessment is that the new proposal will tend to have an impact because of the precautions that companies will have to take to avoid breaking the rules in some markets that may be considered risky, for example, due to local environmental policies.

Overall, the due diligence proposal by companies to be released on Wednesday may raise less concern in Brazil than the one on zero deforestation. There was pressure for the mechanism to be modeled on the U.S. legislation, which bases itself on a list of countries that Washington considers as violators. In the European case, responsibility will be placed on European companies or companies operating in Europe.

According to the draft, which was leaked in Brussels, the 27 member states will need to adopt or adapt their own due diligence legislation and, this way, compel companies to identify, prevent and mitigate human rights abuses and violations of environmental standards in their value chains. But the estimate is that this measure will only reach 13,000 companies. Small and medium-sized firms, which represent 99% of all companies in the European common market, will be excluded from due diligence, according to leaked information.

Therefore, only companies with more than 500 employees and global net sales of €150 million or more will be subject to the new rules. It will also include companies with more than 250 employees and net sales of more than €40 million, if at least half of those sales come from sectors considered high-risk, such as agriculture, mining, and textiles.

The proposal will also target companies from third countries if they have net sales of at least €150 million or €40 million in the EU market, depending on the sector in which they operate.

Today, multinationals operate with few obstacles, some experts say. Complex corporate and supplier structures make it difficult to hold the parent company accountable for human rights violations and negative environmental and social impacts in its global operations.

The European proposal would provide for sanctions and civil liability. In other words, it will make companies liable for damage caused by their subsidiaries and their value chains. It means that people whose rights are violated by companies will be able to sue the parent company in the justice system of their home country for compensation or reparation. A community in Brazil’s Northeast region that considers that a multinational has caused environmental damage locally can therefore with less difficulty take legal action against the company in its home country.

The expectation is that climate obligations will lead companies to adopt greenhouse gas emission reduction plans, in accordance with the Paris Agreement, with concrete short, medium and long-term goals.

Much of the European proposal draws inspiration from France’s duty of care legislation, adopted in 2017. The French acted in the wake of the April 24, 2013 disaster at a textile mill in Bangladesh, which collapsed killing more than 1,100 employees. Labels of major European or French brands were found on what remained of the mill. After that, the French law started requiring companies to establish a prevention plan with surveillance measures to identify risks and prevent damage to human rights, health, environment and people’s safety.

Due diligence obligations on human rights and the environment can create a sustainable future, wrote Andre Hoffman, vice-chairman of the Swiss Roche Group, on the website of the World Economic Forum.

The proposal to be presented by the European Commission will then be debated in the European Parliament and by member states in the European Council. And several proposals of amendments will be inevitable. The expectation is that the legislation will be adopted in 2024.

Source: Valor International

https://valorinternational.globo.com

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Shareholders approve privatization of Eletrobras

Acionistas aprovam privatização da Eletrobras em assembleia - 22/02/2022 - Mercado - Folha

Eletrobras’s shareholders approved Tuesday, in an online extraordinary general meeting, the terms of the privatization of Brazil’s main power utility, sources say. With the approval, the company overcomes one more step in the obstacle course to make possible its capitalization process within the expected term, in the second quarter.

Valor found out that there were questions from minority shareholders, in the figure of the former board member of the state-owned company, João Antônio Lian, and from the Association of Employees of Eletrobras (AEEL), through a legal representative.

The digital voting was interrupted a few times, so that the company’s management could prepare explanations for each questioning. In the end, the items were all voted on with a wide margin of acceptance by the minority shareholders. The federal government abstained.

After more than five hours of voting, the shareholders greenlighted the privatization of Eletrobras. The item, the last one on the meeting’s long agenda, was approved by holders of 202 million of the company’s common shares, while shareholders representing 9,749 shares were opposed. The abstentions in this discussion totaled 884 million votes.

The capitalization of Eletrobras will take place via capital increase. The company will issue new shares through a primary offering and the federal government will waive its subscription rights. The objective is that the government’s stake (direct and indirect) in the state-owned company be diluted from the current 72.33% of the voting capital to 45% or less. If the primary offering is not enough to reach the desired limit, a secondary offering of the common shares held by the government will be made.

The last major pending issue to be overcome before launching the offering of Eletrobras shares will be the final approval from public spending watchdog TCU, whose members greenlighted, last week, the technical studies for the company’s privatization, but will still be working on the last details of the operation, such as the price of the shares. The expectation in the government is that this process will be concluded by the beginning of April.

From then on, it will be up to the board of the state-run company to define the best moment for the operation. One item on the agenda approved at Tuesday’s meeting was precisely the authorization for the board to establish details of the capitalization as the schedule, structure and prices of the issuance of new shares for the company’s capital increase.

Before the meeting, the Furnas Employees Association (Asef) tried to obtain an injunction in court to suspend the meeting. The request was presented at 7:40 am and before the start of the meeting, around 2 pm, the Court decision that denied the request circulated behind the scenes.

At least four other fronts, headed by, among other actors, Workers’ Party (PT) deputies and the Association of Eletrobras Employees (Aeel), tried to suspend the meeting, through challenges in Court and the Securities and Exchange Commission of Brazil (CVM), but none went ahead.

In all, the shareholders decided, on 12 items contained in the agenda. All of them had to be approved, without exception, for the others to be effective.

The meeting began with the approval of the transfer of control of Eletronuclear and Eletrobras’s stake in Itaipu to Empresa Brasileira de Participações em Energia Nuclear e Binacional (ENBPar).

This new state-owned company was created to keep the federal government’s control over these two assets, which will no longer be controlled by Eletrobras after it is privatized. Under the Constitution, the federal government has monopoly on the operation of nuclear plants in the country. The Itaipu Treaty, signed between Brazil and Paraguay for the construction of the binational plant, also provides for state participation in the hydroelectric plant.

Source: Valor International

https://valorinternational.globo.com

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