Aim is to channel more external resources to finance investments for transition to a low-carbon economy
05/27/2024
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Nelson Barbosa — Foto: Leo Pinheiro/Valor
Brazil aims to leverage its rotating presidency of the G20 to channel more external resources into financing the necessary investments for transitioning to a low-carbon economy in emerging countries, including itself.
According to Brazil’s Ministry of Finance, $10 billion out of $30 billion available over the next five years is not reaching those who need it most. Development banks, whether multilateral like the World Bank, national, or subnational like the Brazilian Development Bank (BNDES), are crucial in addressing this issue.
This topic links two of Brazil’s priorities for its G20 presidency: sustainable development and the reform of multilateral governance institutions, said Ivan Oliveira, undersecretary of sustainable finance at the Ministry of Finance.
The ministry has identified four main funds: the Green Climate Fund (GCF) from 2010, the Climate Investment Funds (CIF) from 2008, the Adaptation Fund from 2010, and the Global Environment Facility (GEF) from 1994.
According to Mr. Oliveira, these four funds alone have $30 billion available over the next five years. Typically, these funds are formed from government contributions and, to a lesser extent, from companies. The goal is to pool resources from developed countries to finance the necessary investments in emerging nations, particularly the poorest.
The most vulnerable nations cannot afford the investments needed, which range from building renewable electricity generation plants to transitioning truck and bus fleets, to constructing infrastructure that makes cities more resilient to climate events like floods.
Although the amounts involved fall short of the $100 billion per year estimated as necessary at the signing of the Paris Agreement during the 2015 UN Climate Change Conference, the Ministry of Finance highlights an additional problem: the difficulty in accessing these funds. Therefore, not only are the funds insufficient, but they also fail to reach their intended targets.
Mr. Oliveira suggests that discussions within the G20 could lead to recommendations for creating “country platforms,” leaving a detailed roadmap on the reform of multilateral development banks. According to Mr. Oliveira, “this roadmap is Brazil’s major contribution,” and the aim is to complete it by the end of the year, at least in terms of the governance reform of multilateral banks.
“One of the points that will be addressed is how multilateral banks need to connect more effectively with national and subnational development banks, particularly through what we call ‘country platforms,’ or vehicles created to enable international investors and other stakeholders, such as the multilateral banks themselves, to connect projects in countries and finance them,” Mr. Oliveira said.
In Brazil, BNDES often receives resources from multilateral banks. Under the leadership of Aloizio Mercadante, who took over last year with the return of the Workers’ Party to the federal government, this type of funding has advanced. In 2023, the development bank secured $3.2 billion from multilateral institutions abroad and expects another $4.6 billion between this year and 2025, Mr. Mercadante estimated earlier this month while presenting the bank’s first-quarter financial results.
In other areas, the BNDES operates the Amazon Fund, the world’s main REDD+ instrument focused on financing the reduction of deforestation, and has used the Climate Fund since last year as an alternative to expanding its funding. The National Treasury boosted the fund with $2 billion raised in November through the first issuance of green bonds in the external debt market.
“The Climate Fund has scaled up. It used to disburse R$300 million to R$400 million and now will disburse around R$10 billion per year. This will fund various initiatives: from urban transportation to the recovery of degraded areas, from the ecological transition of efficient machines to biogas production, and renewable energy sources to biofuels. This also creates opportunities for industrial policy but with a strong environmental focus,” said Nelson Barbosa, director of planning and project structuring at the BNDES, adding that the bank has already received over R$30 billion in project requests.
According to Mr. Barbosa, one of the obstacles to be overcome in the interaction between external funds and multilateral banks, on one side, and development institutions that can act as “country platforms,” on the other, is exchange rate variation, in addition to the availability of resources (funding) and guarantees.
“Brazil is now implementing a mechanism where the Treasury will reduce the cost of currency hedges for some selected projects. Globally, and I think the 2008 crisis proved this, there isn’t much of a liquidity or funding problem. The resources exist. The problem is the currency mismatch,” Mr. Barbosa said.
The Treasury mechanism Mr. Barbosa referred to is Eco Invest Brasil, launched by the Ministry of Finance in February. The program, in partnership with the Inter-American Development Bank (IDB) and the World Bank, aims to encourage foreign capital inflows into the country for energy transition investments, offering currency hedging mechanisms at lower costs than market rates.
“There is a discussion that the IMF and the World Bank, more than providing liquidity or funding, should create a global hedge mechanism. It’s like creating a currency hedge fund for selected projects, where the interested party can obtain funding and hedge more cheaply through the IMF than in the market,” added Mr. Barbosa.
Rémy Rioux, president of the French Development Agency (AFD), believes that Eco Invest Brazil could serve as an example for other countries. He was in Rio this week for a meeting, hosted by the BNDES, of the Finance in Common (FiCS) network, of which he is the chairman.
“We launched the FiCS Financial Innovation Lab in Rio, with the support of the IDB and the Climate Policy Initiative (CPI), which is ready to receive new ideas and help develop and disseminate them,” Mr. Rioux said in a written interview.
“Based on the Brazilian example, public development banks could be asked to develop tailor-made financial arrangements to unlock green and resilient investments, addressing the main existing financial constraints identified at the national level, such as exchange rate instability, cost of capital, lack of international financing, rating limits, etc.”
*Por Vinicius Neder, O Globo — Rio de Janeiro
Source: Valor International
Capital injections provide relief to publicly traded companies; disbursements total R$22bn in 12 months
05/25/2024
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Luciano Lindemann — Foto: Ana Paula Paiva/Valor
Facing significant financial pressure, a group of publicly traded companies is turning to their controlling shareholders for capital injections to alleviate their balance sheets amid a prolonged period of high interest rates and crises in sectors like retail and healthcare. Disbursements have totaled nearly R$22 billion over 12 months, Valor’s analysis shows.
The largest capital injection, amounting to R$12 billion, will be led by Jorge Paulo Lemann, Beto Sicupira, and Marcel Telles for retail chain Americanas, mandated by the company’s creditors following the discovery of accounting fraud. In the healthcare sector, the Bueno family had to infuse capital into Dasa on two occasions due to the company’s high leverage. In the most recent injection announced this month, the family will provide R$1.5 billion to ensure the company does not breach its maximum debt covenants, through a capital injection. Concurrently, Dasa will also be selling assets.
Another healthcare company, Oncoclínicas, also initiated a capital increase of R$1.5 billion, with R$1 billion from Master Bank, which will finance the remaining amount to be provided by the company’s founder, Bruno Ferrari. This capital will help reduce the company’s leverage.
According to a survey by FTI Consulting for Valor, there have been about 30 capital injections since November, with 80% aimed at financial stabilization. Of these, 10 companies were burning cash (negative EBITDA) and 15 had leverage ratios above five times. “Many companies waited, hoping for better economic conditions to raise funds, but ultimately couldn’t wait any longer. Those with the option of capital injections are resorting to this measure,” said Luciano Lindemann of FTI. He notes a higher concentration of such companies in the retail, infrastructure, and construction sectors.
Mr. Lindemann said that companies must address the root causes of their increased leverage despite the capital injections. “Simply injecting liquidity and reducing leverage won’t solve the problem alone,” he said.
The current economic context has also contributed to this trend. “This movement is part of the current landscape in Brazil, with closed windows for initial public offerings [IPOs] and few secondary offerings,” said Eduardo Terra, a retail company advisor and president of the Brazilian Society of Retail and Consumption. “In some cases, controlling shareholders see more advantage in capitalizing the company to avoid future losses, especially if they have already profited significantly from the business and see the potential for medium to long-term returns. In other cases, however, they may choose to exit.”
With the uncertain macroeconomic environment, more companies may need additional resources to balance their books. Daniel Calori of Íntegra Associados said that corporate debt continues to grow, meaning more companies will likely undergo restructurings, possibly including capital injections from controlling shareholders. He said that beyond ensuring solvency, major shareholders may see the depreciated share prices as an entry opportunity, anticipating future appreciation.
Mr. Calori emphasizes that companies need to tackle the underlying issues alongside capital increases, or the injected capital will quickly deplete. Creditor banks negotiating extended terms often require a capital injection as a condition.
Companies without a controlling shareholder, or with controlling shareholders unwilling to inject more funds, will likely undergo more formal restructuring processes, as seen with Casas Bahia, which entered into extrajudicial restructuring after agreements with major creditors, said Mr. Calori. According to Mr. Lindemann of FTI, these companies may seek alternative solutions, potentially turning to investors accustomed to distressed assets, such as special situation managers.
The challenging capital market has also required greater involvement from majority shareholders to ensure capital injections when needed. For instance, last year, the Pinheiro family had to contribute to the health insurance operator Hapvida in a secondary offering to address the company’s balance sheet. Similarly, in a secondary offering for Ambipar, controlling shareholder Tércio Borlenghi Junior had to inject capital due to difficult market conditions for share offerings.
At retailer Lojas Marisa, undergoing financial restructuring in recent years, the Goldfarb family plans to contribute about R$550 million, according to sources. This year, the Trajano family arranged a R$1.25 billion capital increase for retailer Magazine Luiza, with BTG possibly subscribing to R$250 million.
In a market communication, Oncoclínicas announced a goal to achieve a financial leverage ratio of two times net debt to annualized fourth-quarter EBITDA. Ambipar and Marisa declined to comment.
Hapvida said in a statement that its last capital injection in April 2023 was aimed at strengthening cash flow and optimizing the company’s capital structure. Since then, the company has been reducing leverage through robust operational cash generation and has no ongoing capital injection plans.
Magazine Luiza stated that the capital injection in January reflects the controlling shareholders’ confidence in the company and its business model. “The operation saw record participation from minority shareholders at 75%. The funds are being used to accelerate technology investments and improve capital structure.”
Dasa said that the transaction is part of operational and strategic initiatives aimed at reducing leverage, establishing a solid financial position, and enhancing investment capacity. The R$1.5 billion injection underscores the controlling shareholders’ long-term commitment.
*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo
Source: Valor International
Codeshare does not require antitrust regulator’s approval; experts say operation tends to attract attention
05/27/2024
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Partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs — Foto: Leo Pinheiro/Valor
The cooperation agreement between Azul and Gol announced on Thursday (23) agitated the market, as experts saw the approach as the start of a consolidation process between the companies. On Friday (24), Gol rose 11.9% to R$1.41 on the B3, while Azul soared 5.18% to R$10.36—the biggest appreciation of companies in the benchmark stock index Ibovespa on that day.
The partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs. Customers purchasing airline tickets included in the codeshare can choose to which program they wish to allocate the points they are entitled to. Azul and Gol carry out around 1,500 flights daily. The agreement will create more than 2,700 travel opportunities with just one connection.
The market says the deal resembles a partnership signed by Latam and Azul in 2020. The agreement was abruptly terminated a year later due to Azul’s attempt to take over Latam after the latter filed for a court-supervised reorganization under Chapter 11 in the United States.
Behind the scenes, Azul is said to be in advanced talks with Gol for a merger. At the first moment, Azul was reportedly willing to acquire Gol. Now, the prevailing view in the market is that the airlines could join forces to create a new firm that would also include Abra—the holding company controlling Gol and Colombia-based Avianca—as a shareholder. It remains unclear who would be the controlling shareholder. Azul is currently controlled by businessman David Neeleman.
The codeshare does not require approval by the Administrative Council for Economic Defense (CADE), as it is regarded as a commercial agreement. However, experts point out that it tends to be handled as a different operation and attract the antitrust regulator’s attention.
Furthermore, the deal has a relevant background, which is the behind-the-scenes’ moves by Gol and Azul toward a possible consolidation. If the agreement is regarded as preparation for a future merger, it could raise a flag at CADE. Azul and Gol declined to comment.
When Latam entered into a codeshare with Azul in the past, Gol asked CADE to apply some type of penalty against the two companies for a practice that could harm consumers. However, the request did not advance as the industry was struggling with the effects of the COVID-19 pandemic.
Experts point out that CADE has the power to request an analysis of the operation although its history shows it did not require prior notification in previous codeshare cases.
The airline industry is under heavy public scrutiny due to the increase in ticket prices and has been in constant attrition with the Brazilian Congress. On May 14, during a hearing before being reappointed as the CADE’s general superintendent, Alexandre Barreto said the antitrust regulator is preparing “a broad investigation” into ticket prices.
In a report, Bradesco BBI analysts pointed out that the current agreement seems to be more robust than the one signed between Azul and Latam in August 2020. The previous agreement did not involve frequent-flyer programs and was limited to 64 domestic flights. The bank also emphasizes that the partnership appears to be the first step to a possible merger.
Itaú BBA expects the deal will benefit Azul as it gives the company access to a larger network connected to its regional operations.
*Por Cristian Favaro — São Paulo
Source: Valor International
Recent assessments rank Porto Alegre among cities in Rio Grande do Sul with a “very high” capability to manage hydrological disasters
27/05/2024
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Pelotas on May 26: city impacted by floods in Brazil’s southern state is among those with “very high” capacity to manage hydrological disasters — Foto: Eduardo Rodrigues/Agência Pixel Press/Folhapress
Nearly a month after being devastated by floods, cities like Porto Alegre, Rio Grande, and Pelotas are classified as having a “very high” capacity to manage hydrological disasters, including floods, flash floods, and inundations, according to “Adapta Brasil.” This mapping, orchestrated by the Ministry of Science and Technology, assesses the readiness of regions to confront the impacts of climate change.
Prompted by the calamity in Rio Grande do Sul, the federal government is expediting the development of a robust strategy for both mitigation and adaptation to extreme weather events. This initiative, spearheaded by the Department of Climate Change of the Ministry of the Environment, is expected to be unveiled in the coming weeks, potentially introducing a new dedicated agency, although its ministerial affiliation remains undecided.
The findings from Adapta Brasil underscore the critical need for this policy. Even areas deemed highly capable of adaptation have experienced prolonged flooding, signaling dire consequences for regions classified with lower adaptive capacities. The North and Northeast of Brazil, along with the states of Mato Grosso, Goiás, and Minas Gerais, are labeled as having “low” adaptive capacity. Particularly concerning are Maranhão, Piauí, and Paraíba, each marked with a “very low” index.
In contrast, the Southern states, along with São Paulo and Mato Grosso do Sul, hold a “medium” adaptive index, while Rio de Janeiro and Espírito Santo enjoy a “high” rating. Brasília stands out with a “very high” level, with the study considering factors such as the capacity for municipal public investment and income, governance, disaster risk management, and municipal capabilities in citizenship and sectoral policies.
The municipal data from Adapta Brasil shows “very high” adaptive capacity indices in Porto Alegre and the principal cities surrounding Lagoa dos Patos, with the capital of Rio Grande do Sul achieving the highest score on the adaptive capacity index, which ranges from 0 to 1.
Suely Araújo, former president of the Brazilian Environmental Protection Agency (IBAMA) and a specialist in public policies at the Climate Observatory, emphasizes the challenges and expenses involved in preparing Brazilian municipalities for adverse climatic events. She highlights the financial constraints faced by two-thirds of Brazilian municipalities, each with populations under 20,000, which struggle to fund the necessary infrastructure to respond to disasters.
“Adaptation involves significant funding,” Ms. Araújo explains. “While some measures like restoring native vegetation or enhancing urban drainage are straightforward, implementing them becomes challenging without financial resources.” Ms. Araújo advocates for “a robust federal role in supporting states and municipalities through non-repayable funds,” pointing out that “municipalities that frequently experience flooding each year lack the capacity to incur more debt.”
Additionally, despite the severe impacts observed in Rio Grande do Sul, Guilherme Syrkis, the executive director of the Brazil Climate Center, indicates that the situation could have been even more catastrophic in Santa Catarina. He notes that due to its geography and urban layout, Santa Catarina’s cities are far more vulnerable to such disasters than those in Rio Grande do Sul.
According to Mr. Syrkis, developing a comprehensive adaptation plan requires analyzing local vulnerabilities and identifying key risks. Engaging civil society, businesses, and local populations is crucial to tailor strategies effectively to each area’s needs.
In addition to flooding, Mr. Syrkis emphasizes the increasing threat posed by heatwaves, which need greater attention due to their severe but often overlooked impact. “Heatwaves are particularly deadly, causing silent deaths, such as heat-induced heart attacks,” he notes. Mr. Syrkis suggests that regions like the Northeast and Rio de Janeiro should implement early warning systems to alert the public about impending heat waves.
While acknowledging the constraints imposed by budgetary concerns, Mr. Syrkis points out that some adaptive measures can be both cost-effective and impactful. He references a government initiative from India, where houses are painted white to reduce heat absorption—a strategy that could be beneficial if applied in economically disadvantaged communities across Brazil. “Implementing such a simple measure could significantly mitigate the effects of high temperatures in Brazil’s poorer areas,” he explains.
Recently, Environment Minister Marina Silva confirmed plans to establish a dedicated authority to oversee adaptation policies, though she did not specify if this would be part of the previously announced but unrealized federal climate authority.
Suely Araújo advocates for this new structure to be integrated within the Ministry of the Environment and stresses the necessity for a dedicated budget, not only for this new body but also for other ministries involved in specific adaptation projects.
“Adaptation involves assessing risks and vulnerabilities and implementing measures such as reinforcing dykes and embracing the ‘sponge cities’ concept, which absorbs and reuses rainwater,” explains Mr. Syrkis. “It also means leveraging nature-based solutions and rethinking infrastructure design.” He emphasizes the need for public officials to adopt a climate resilience perspective in their planning. “Construction secretaries, for instance, must no longer design bridges at heights susceptible to flooding.”
Por Murillo Camarotto — Brasília
Source: Valor International
Measure is one of the main agendas of the Brazilian presidency in the G20
05/24/2024
One of the key agendas of the Brazilian presidency in the G20, the taxation of the super-rich at a global level, will only be feasible through international cooperation, said Felipe Antunes, coordinator of the International Financial Architecture Working Group, on Thursday. Before him, Finance Minister Fernando Haddad said that Brazil’s proposal “has gained traction” within the group.
Minister Haddad participated in the G20 International Taxation Symposium in Brasília. The event brought together representatives from various countries to discuss improvements in tax collection and the allocation of these resources. Another Brazilian initiative is for taxation to help combat social inequality and climate change.
Felipe Antunes noted that the wealthiest 0.1% of the world pays less tax proportionally and that “correcting this distortion is a challenge even for rich countries.”
The coordinator explained that only effective international cooperation, with the exchange of information between countries, will allow more effective control over transactions made to evade taxation. He also noted that the super-rich are “very mobile,” meaning they can efficiently move resources between countries.
The need for more equitable taxation on this demographic is one of the points of consensus among G20 members, both at the governmental level and within civil society. The challenge, however, will be finding a convergence point on how to operationalize higher tax collection.
Mr. Antunes also noted that tax autonomy is an important attribute of national sovereignty and that any changes require extensive debate. “It’s difficult to advance, hence the importance of international cooperation,” the coordinator emphasized.
Another Brazilian initiative during its presidency of the group, the reform of multilateral organizations, was addressed by Mr. Haddad. “We will need to rethink institutions, multilateral organizations, and multilateral banks, as well as international relations,” he said. “From there, we will rethink the financing of this equation, which is difficult,” the minister added.
Brazil, the minister said, needs to contribute “because inequality is a hallmark of our history.” “To this day, we face the challenge of reducing inequality. At times, we have managed to make some progress with great effort, but the results have been modest so far. There is still much to be done,” he argued.
The topic of global taxation will be discussed again in person at the G20 Finance Ministers’ meeting, scheduled for July in Rio.
*Por Murillo Camarotto, Guilherme Pimenta — Brasília
Source: Valor International
Meeting could risk members elected by unbundled vote; board elected Magda Chambriard as new CEO
05/24/2024
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Investors’ move is motivated by concerns around the oil giant’s future following the dismissal of CEO Jean Paul Prates — Foto: Leo Pinheiro/Valor
Foreign shareholders are joining forces to gather 1% of Petrobras’s capital stock to ask the state-owned company’s general secretariat to call an extraordinary general meeting. By the end of the afternoon on Thursday (23), the required percentage of the capital had not been reached. The move is motivated by concerns around the oil giant’s future following the dismissal of CEO Jean Paul Prates and threats to the company’s governance due to internal changes in the composition of advisory committees to the board of directors, largely occupied by members linked to Minister of Mines and Energy Alexandre Silveira.
The Petrobras board met on Friday (24) and elected Magda Chambriard as a director and the company’s new CEO.
Holding a shareholders’ meeting in the short term would put at risk the terms of all board members elected by the unbundled voting system in the April 25 election, including all those representing the majority shareholder—the federal government—including Ms. Chambriard.
The Brazilian Corporation Act (6404/76) provides that a meeting may be called by shareholders representing at least 5% of a company’s capital stock. However, in 2020, the Securities and Exchange Commission of Brazil (CVM) made the quorum more flexible. In the case of companies as large as Petrobras, it reduced the minimum percentage to 1% of capital stock, facilitating minority shareholders’ moves. This rule is set under CVM’s resolution 70.
In practice, if shareholders comply with the legal requirement, the company cannot prevent the meeting from taking place. If it attempts to do so, the CVM could order that a meeting be called, a person familiar with the matter said.
The possibility of names appointed by the federal government being vetoed in a new election was opened by a recent decision by the Federal Supreme Court (STF) confirming the constitutionality of the State-Owned Companies Act. According to the law, some of the members appointed by the federal government could be barred due to a conflict of interest as they hold concurrent positions in ministries and at Petrobras.
Some names that could be barred in a possible new election include chairman Pietro Mendes, Renato Galuppo, Bruno Moretti, Rafael Dubeaux, and Vitor Saback, in addition to two minority directors, Marcelo Gasparino and Juca Abdalla. It is also uncertain whether Ms. Chambriard would pass the scrutiny of the law. Soon after Mr. Prates was dismissed by President Lula, last week, Petrobras hastened to say that the executive’s resignation as a board member would not require calling an extraordinary general meeting. It would likely wait until the next shareholders meeting, possibly the April 2025 Ordinary General Meeting. The decision was interpreted at the time as a maneuver by the government to avert questioning of its candidates.
A financial market analyst pointed out that the request if confirmed, could create concerns in the government, as its members could be barred from being re-elected under the State-Owned Companies Act. A possible new election would allow for a change of conflicting board members, which could improve the state-owned company’s governance and reveal the strength of minority shareholders, the source said.
“In the event of a new meeting, the Supreme Court rule applies,” says a lawyer familiar with Petrobras-related matters. “With a new election, there is no reason to protect the rights of those who the Supreme Court said is incorrect. There is no doubt that the State-Owned Companies Act must apply,” he adds.
The Petrobras case is an opportunity to assess the practical effects arising from the Supreme Court’s decision, said Leonardo Ugatti Peres, a lawyer at Azeredo Santos & Ugatti Peres Advogados. While there will be arguments that the law will apply in the case of a new election, on the other, it may be questioned whether, in the case of re-election, the changes made by the STF should prevail. These adaptations ensured that the rules would not apply in cases where positions were previously occupied. “The issue will be debated. Those who are in office will claim they should stay.”
Lawyer Maurício Moreira Menezes, partner at Moreira Menezes, Martins Advogados, emphasizes that the law establishes that minority shareholders must have at least 5% of the capital to request a meeting, while CVM resolution 70 reduced this share to 1% for large companies, such as Petrobras: “These shareholders can request a meeting with duly substantiated reasons and, if the management fails to call it, due to inaction or refusal, shareholders can call it on their own,” Mr. Moreira explains. He says there is no penalty provided for managers if they fail to call the meeting following a request from minority shareholders.
Regarding the specific Petrobras case, Mr. Menezes says members appointed by the federal government who may be in a conflict of interest will no longer be protected by the preliminary injunction issued by then Justice Ricardo Lewandovski suspending sections of the State-Owned Companies Act. A recent decision by the Supreme Court overturned this protection. “In the event of a new election, the federal government will have to appoint names that comply with the legal requirements,” the lawyer said.
Alexandre Calmon, partner and co-leader of the energy sector at Campos Mello Advogados, points out that, in theory, a new extraordinary general meeting would not be required to re-elect the entire board, just Ms. Chambriard, as she succeeds Mr. Prates in a seat that represents the government as controlling shareholder. “I don’t see a violation of the unbundled vote,” Mr. Calmon says. As for the call intended by the shareholders, if Petrobras refuses to call an extraordinary general meeting, the shareholders could go to court.
*Por Maria Cristina Fernandes, Juliana Schincariol, Rafael Rosas, Fábio Couto, Kariny Leal — São Paulo and Rio de Janeiro
Source: Valor International
Chambriard was inaugurated as CEO of Brazil’s state-owned oil company and member of the board of directors this Friday
24/05/2024
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Magda Chambriard — Foto: Tânia Rêgo/Agência Brasil
Petrobras announced this Friday (24) that its board of directors has approved the appointment of Magda Chambriard as a board member and has elected her as the new CEO of the company.
Ms. Chambriard assumed both positions this Friday and joined the board immediately, without the need to convene a shareholders’ meeting, the state-owned company said.
The new CEO of Petrobras is an engineer who has built her career within the company. She served as the director-general of the National Agency of Petroleum, Natural Gas and Biofuels (ANP) from 2012 to 2016.
The executive takes over the position vacated by Jean Paul Prates, who was dismissed by President Lula on May 14 after a series of disagreements regarding the management of the company.
*Por Felipe Laurence — São Paulo
Source: Valor International
Proposal backed by Lower House speaker is being discussed under new policy for automotive industry
05/23/2024
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Presidente Lula — Foto: Brenno Carvalho/Agência O Globo
President Lula said on Wednesday (22) he would veto the end of the import tax exemption on international purchases of up to $50 if it is approved within the Green Mobility and Innovation Bill, known as Mover, Congressman José Guimarães, leader of the government in the Lower House, told Valor. Lower House Speaker Arthur Lira insists on passing the legislation and has postponed the vote. A new attempt to vote on the matter should take place on Thursday (23).
In recent weeks, the inclusion of the topic in the Mover Bill divided the groups in the Parliament and led the vote to being postponed on multiple occasions. Members of President Lula’s Workers’ Party (PT), understand that the end of the tax exemption could generate reactions in the party’s electoral base and hurt the Lula administration if approved. The Liberal Party, former President Jair Bolsonaro’s party, is also against it and proposed the approval of an amendment that would exempt from tax all domestic sales of up to $50. The proposal is considered a “fiscal time bomb” by government supporters and even oppositionists.
In a text message sent on the WhatsApp group of government leaders in the Lower House, Mr. Guimarães said that President Lula is in favor of the approval of the Mover Bill—the country’s new policy for the automotive sector—but is against eliminating tax exemption on international purchases up to $50. Mr. Guimarães confirmed his statement to Valor: “He [President Lula] will veto it [if it is approved].”
Mr. Lira insists on taxation and has received support from prominent Brazilian businesspeople in recent weeks. Fábio Faccio, the CEO of Renner, was in Brasília to meet with Mr. Lira and other Lower House members and present some reasons to support the taxation. “We are not asking for commercial barriers. We’re asking for fair competition. If we also had tax exemption, our products would be sold at half the price and with better quality,” he argued.
In previous weeks, executives from retailers Petz, Leroy Merlin, Riachuelo, and Mercado Libre also engaged in this effort to raise awareness among legislators and the government. “These e-commerce platforms claim that they are helping those with less purchasing power, but they are actually taking away these people’s jobs and the money for social policies by not paying taxes,” Mr. Faccio said.
Valor found that retailers linked to IDV, the main retail association in the country, are hoping that, despite a possible veto by Mr. Lula, it will be possible to bring the import tax back through a debate with the president.
“We have to move step by step, dealing first with the approval of the bill in the Lower House. Then, if the Executive branch resists, we can prove that the tax exemption is harmful to companies and jobs,” said a person familiar with the matter. “One battle at a time.”
President Lula’s opposition to the idea of returning the import tax is not new to retail and industry members and the possibility of a presidential veto did not surprise those who were in Brasília on Wednesday (22) following the matter. The companies had been increasing pressure on Congress and seeking support from the government.
This week, the CEOs of retailers such as Renner, Petz, Marisa, and Caedu sent video and text messages to Lower House members asking for support to eliminate the tax exemption, Valor found.
International marketplaces claim that the exemption for purchases of up to $50 is a global practice that has allowed low-income people to have access to the same benefits as richer people who make purchases on international trips and has generated thousands of jobs in the logistics sector in Brazil.
Furthermore, they argue that the impact on the domestic retail and industry is not as big as the companies say. “The share of international e-commerce platforms would not reach more than 0.5% of national retail,” trade associations Proteste, Free Market Institute, and the Brazilian Association of Transportation Companies wrote in an open letter.
If the exemption is eliminated, the taxation would be a 60% import tax on the products, in addition to the 17% Tax on Circulation of Goods and Services (ICMS) under the Federal Revenue’s Remessa Conforme program. International companies claim that would create a global tax of 90%, making the cross-border market unfeasible.
As an alternative, the Mover Bill rapporteur, Congressman Átila Lira, suggested changing the text to set an import tax of 25% or creating a schedule for levying the tax. However, the idea received no support from the Lula administration. “I’m hoping that it will be voted on Thursday [23] as I don’t want to harm the bill,” the rapporteur said. He pointed out that the government has requested the postponement fearing that an amendment by Congresswoman Adriana Ventura suggesting the extension of tax exemption to the domestic industry could be approved by the House floor.
To legislators, Finance Minister Fernando Haddad advocated for a “joint solution” involving the three branches of government to determine how the taxation of imports below $50 would be carried out.
“The retail and industry segments’ concerns are legitimate but we need to have an understanding between the three branches of government on this issue,” he said at a public hearing in a committee by the Lower House.
Mr. Haddad praised governors Tarcísio de Freitas (São Paulo) and Romeu Zema (Minas Gerais) for the agreement reached in the National Council of Finance Policy (Confaz) to levy ICMS on these imports.
At the end of the hearing, Mr. Haddad told reporters he does see the topic being decided under the Mover Bill.
*Por Marcelo Ribeiro, Raphael Di Cunto, Gabriela Pereira, Estevão Taiar, Adriana Mattos — Brasília and São Paulo
Source: Valor International
Deficit projection climbs from R$9.3bn to R$14.5bn; Ministry of Finance remains satisfied with financial performance through April
05/23/2024
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Rogério Ceron — Foto: Geraldo Magela/Agência Senado
The Lula administration has revised its primary deficit forecast for 2024 upwards, as revealed in the latest figures from the Ministry of Planning and Budget. The deficit projection has increased from R$9.3 billion to R$14.5 billion due to an escalation in primary expenditures, which do not include interest expenses, according to the bimonthly revenue and expenditure evaluation report.
Despite this year’s primary result target being set at zero, the new fiscal framework permits the government a deficit margin of up to R$28.8 billion, approximately 0.25% of the Gross Domestic Product (GDP). This provides the government with considerable fiscal flexibility to achieve its target by year-end.
The first four months of this year saw a significant rise in federal revenues, allowing the government to authorize additional credit of R$15.8 billion. This increase in the spending ceiling will enable the government to release R$2.9 billion that was previously restricted in March and to address new obligatory expenditures, details of which are pending. Despite these adjustments, a budgetary shortfall of R$2.5 billion remains under the new credit framework.
However, this fiscal room does not equate to surplus funds, cautioned Federal Budget Secretary Paulo Bijos. “We must stay vigilant [regarding spending],” he emphasized. Dario Durigan, the executive secretary of the Ministry of Finance, reassured that the additional credit would not compromise the government’s commitment to meeting the zero-deficit target for the year. “The activation of the framework is harmless in terms of our projections,” Mr. Durigan stated.
Despite the deteriorated primary deficit forecast, the deputy head of the Ministry of Finance expressed satisfaction with the financial outcomes of the early months of the year. “The foundation of the national fiscal policy is being reconstructed,” he stated. “What we are witnessing in the first four months aligns with our projections and the objectives we set forth in 2023,” he further explained, noting that the primary revenue projection had increased by R$16 billion.
This revision in revenue estimates includes a heightened projection for dividend receipts, spurred by the government’s strategy to count on distributing 50% of Petrobras’s retained profits from 2023.
At Petrobras’s shareholder meeting at the end of April, the decision was made to distribute 50% of these extraordinary dividends, which amounted to R$21.9 billion. Of this, the federal government received R$6.4 billion, while the remaining half was retained in the company’s remuneration reserve account.
Treasury Secretary Rogério Ceron commented that the oil company’s announcement in April is considered sufficient assurance by the economic team that the second installment of dividends will be distributed within the year. He refuted any suggestions that the government had exerted pressure to secure these funds, which are crucial to achieving a zero-deficit target.
“There’s no element of pressure involved; we’ve proceeded with caution,” emphasized Secretary Ceron. He noted that any changes in the economic landscape would be reflected in subsequent bimonthly budget evaluation reports.
This year, the government’s projection for dividends and shareholdings increased significantly, from R$43.7 billion to R$57.9 billion. This rise includes almost R$13 billion in extraordinary dividends from Petrobras, R$400 million from the Brazilian Development Bank (BNDES), and additional funds from other state-owned enterprises.
On the expenditure front, projected spending has increased by R$24.4 billion, bringing the total to R$2.209 trillion. This includes a R$20.1 billion rise in mandatory expenditures and an additional R$4.3 billion in discretionary spending, which covers investments and operational costs of the public sector. Fortunately, this increase in spending has been offset by an additional R$15.8 billion in credit, which has expanded the spending limit within the framework of the new fiscal rules for this year. As a result, there was no need to impose any budgetary restrictions.
The bimonthly report also detailed a consolidated assessment of the primary financial impact of government interventions addressing the public calamity in Rio Grande do Sul. To date, these measures have resulted in a primary financial impact of R$12.9 billion. Notably, this figure is exempt from the calculations of both the primary result target and the constraints set by the new fiscal framework.
Included in these calculations is an overlooked impact of R$1.1 billion stemming from the Reconstruction Aid—a grant of R$5,100 allocated to families affected by the calamity. Executive Secretary Gustavo Guimarães of the Ministry of Planning and Budget assured that federal support to Rio Grande do Sul would “be provided without restraint” but with a “diligent regard for public finances,” which are “crucial for the economic growth of both Brazil and Rio Grande do Sul in particular.”
Secretary Guimarães further clarified that while federal aid does not factor into the calculations of primary and fiscal framework limits, the ministry is committed to full transparency regarding these expenditures, ensuring they are publicized and open to public scrutiny.
*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília
Source: Valor International