Brazil’s tax authority cites atypical factors, believes annual result was positive
01/24/2024
Robinson Barreirinhas — Foto: EDU ANDRADE/Ascom/MPO
Federal revenues ended 2023 virtually stable compared to 2022, with a real decrease of 0.1%, totaling R$2.3 trillion (at current prices). Brazil’s Federal Revenue Service estimates that the result was “quite positive” despite atypical factors that affected the result, such as the impact of the tax exemption on electricity and fuel that was implemented in 2022, a measure withdrawn by the Ministry of Finance last year.
The performance of tax collection this year is crucial for the government to achieve its zero-deficit target. The impact will not be felt until February, and if there is a revenue shortfall, the target could be revised in March, when the new projections are released.
The economic team cited four main factors that had a positive and negative impact on revenues: a real growth of 21.6% in the collection of individual income tax on capital income, due to the appreciation of the Selic policy rate; a real growth of 3.36% in the individual income tax on work and 5% in the Social Security contribution, due to the increase in the wage bill; a reduction in the fuel tax rates and an extraordinary collection due to the Zero Litigation Program and exports of crude oil.
Special Revenue Secretary Robinson Barreirinhas referred to a “challenging year” and recalled that after the pandemic there was a surge in revenues in some sectors, especially commodities, which “distorted” the 2022 result and made it difficult to compare.
The secretary highlighted that in 2023, the tax on industrialized products (IPI) fell sharply due to the reduction in rates in 2022, which deprived the government of R$22.8 billion in revenue. “The impact was enormous in 2023, as well as the fuel tax exemption, which had a gigantic impact of billions of reais, and we are resuming it [tax collection].”
“Even with all these challenges, the numbers are positive,” he said. He mentioned that in December there was a very strong increase in the Tax on Financial Transactions (IOF) for credit operations and the IPI for car production.
Mr. Barreirinhas also mentioned Zero Litigation, which generated revenues of R$5.6 billion. The export tax on crude oil generated R$4.4 billion. The tax was created for four months to compensate for the diesel tax exemption in 2023.
In the case of administered revenues, atypical factors had a negative impact on the collection of R$46 billion in the year. The reduction of tax rates on fuel alone resulted in a loss of R$32.7 billion for the federal treasury. Without these factors, these revenues would have ended last year at R$2.287 trillion, compared to the R$2.241 trillion recorded.
In 2023, the government managed to pass a series of measures in Congress to increase revenues, but so far the only one that has generated results in 2023 is the taxation of exclusive funds. In December, they generated revenues of R$3.9 billion.
The director of the Center for Tax and Customs Studies, Claudemir Malaquias, said that the tax authorities are still waiting to see what the real gain will be from the tax on exclusive funds and offshore companies that was passed by Congress at the end of the year.
Under criticism for resuming old practices, Brazil’s government proposes to modernize sector but lack of clarity worries
23/01/2024
President Lula, Vice President Geraldo Alckmin, and Ministers Esther Dweck and Rui Costa — Foto: Brenno Carvalho/Agência O Globo
The government’s new industrial policy, announced on Monday (22), envisages approximately R$300 billion in contributions by 2026 through financing, subsidies, and equity participation in projects. President Lula and Vice President Geraldo Alckmin stated that the amount was sufficient to modernize the industrial sector. Businesspeople present during the announcement viewed it as “a good start.”
The measures have received both criticism and praise. Economists have lauded them as a promising initial step in stimulating various sectors of the national economy. However, critics have also argued that these measures involve a repetition of old formulas that were ineffective during previous Worker’s Party administrations. Such criticisms include prioritizing national content in public purchases, potentially isolating the country from global production chains, and lacking clear targets.
Aloizio Mercadante, the president of Brazil’s Development Bank (BNDES), has denied that the government is reverting to the policy of national champions, which was prominent during the previous Lula administrations. He stated, “We’re not going to choose partners.”
The financial market responded cautiously to the announcement, with the real losing ground against the dollar and the stock market closing lower.
There is also uncertainty surrounding whether public funds will be used to subsidize a portion of the new policy, potentially raising concerns about fiscal rules. Mr. Mercadante indicated that BNDES’s portion would be financed from its own funding but did not provide explicit details. Of the planned R$300 billion, R$271 billion is allocated for financing, R$21 billion for non-reimbursable credits, and R$8 billion for direct company contributions, primarily for purchasing shares.
The plan, “Mais Produção” (More Production), is structured around four main pillars: Innovation, Exports, Productivity, and Decarbonization. The majority of the funds, approximately R$250 billion, will be provided by BNDES, while the remainder will be overseen by the Financier of Studies and Projects (FINEP) and the Brazilian Research and Innovation Company (EMBRAPII).
The largest allocation of funds, amounting to R$182 billion, is directed towards policies to increase industrial productivity. This package includes credit lines offered by BNDES, with interest rates starting at 5.5% annually. It also encompasses initiatives such as a broadband expansion program, and another focused on digitizing 90,000 small and medium-sized industrial companies.
The Innovation pillar will receive R$66 billion in funding, with interest rates tied to the TR (Reference Rate). According to Vice President Alckmin, this financing instrument effectively addresses the issue of funding innovation in the industrial sector. He remarked, “I would say that the funding issue for research and innovation is well balanced because it is tied to the TR, which is no more than 5% a year.”
Vice President Alckmin, who also oversees the Ministry of Development, Industry, and Foreign Trade, emphasized that the innovation axis includes a portion of FINEP’s non-reimbursable resources, meaning they don’t need to be repaid.
The government’s policy of subsidizing the productive sector, particularly through BNDES, faced scrutiny from the Federal Accounting Court (TCU) during previous Worker’s Party administrations. Nevertheless, the government continues to defend this measure, considering it essential for maintaining the industrial sector’s competitiveness, and cites similar international experiences.
Support for exports is allocated R$40 billion. The pre- and post-shipment lines provided by BNDES will be remunerated based on the TLP (Long-Term Rate), the Selic, and rates linked to the U.S. Treasury.
Mr. Mercadante also used the opportunity to request that Congress authorize the institution to resume financing services abroad, an operation that was halted after the Car Wash scandal. He stated, “We’ve lost national engineering, and if we don’t export services, we won’t be competitive globally.”
In conclusion, the decarbonization pillar will receive R$12 billion in funding from the Climate Fund, which the BNDES manages. Industrial projects falling under this category will have access to financing lines with interest rates starting at 6.15% per year. Additionally, a fund is planned for investment in critical minerals, such as lithium, used in the production of electric vehicle batteries. The BNDES is expected to have a stake in these strategic projects for the country.
Beyond loans and contributions, the government has also allocated R$3.4 billion in tax incentives to rejuvenate the industrial sector. Mr. Alckmin highlighted accelerated depreciation as one of the “most effective” measures of the new industrial policy. Under these rules, companies replacing their equipment after two years of use will benefit from reduced Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).
President Lula praised the announced measures and emphasized the importance of their implementation. He expressed dissatisfaction with the lack of clear targets and stressed that the objective over the next three years should be to achieve concrete results. He also mentioned that the R$300 billion allocation would address the financing challenges of industrial modernization, and he urged Brazilian entrepreneurs to have more faith in the country’s potential.
Leonardo de Castro, the vice-president of the National Confederation of Industry (CNI), considered the R$300 billion as “a good start” and cited larger figures made available by developed countries. He criticized what he perceived as ideological influences on Brazil’s development model, emphasizing the need for honesty and a more pragmatic approach to the country’s development in the global context.
Companies announced cuts in trips in November due to a lack of aircraft
23/01/2024
Congonhas Airport in São Paulo, one of the busiest and most profitable in the country, is expected to see a smaller reduction in the number of flights offered by airlines — Foto: Maria Isabel Oliveira/Agência O Globo
As airlines reduced the number of seats, passenger traffic slowed even more in December than it did before the pandemic. In the last month of last year, 8 million passengers were transported, down 10.1% compared to the same month in 2019, according to data published on Monday by the National Agency of Civil Aviation (ANAC).
With this result, the domestic market extended the decline reported last November. In that month, there were 7.6 million passengers, a decrease of 6.3% compared to the pre-pandemic period.
In mid-November, Brazilian airlines announced a reduction in their supply forecasts due to delays in aircraft deliveries and a lack of spare engines. The tight supply chain scenario is expected to continue until 2024. At the same time, airline Gol’s financial challenges could further shrink the market.
In 2023, Brazilian civil aviation handled 112.6 million passengers, the best annual result since 2020, although still 95% of the total handled in 2019. Compared to 2022, the result represents an overall 15.3% increase.
In the domestic market alone, there were 91.4 million passengers in 2023, 11.2% more than in 2022, while the international market totaled 21.2 million passengers, an increase of 37.5% on the same basis.
Domestic demand, measured in revenue passenger kilometers (RPKs), increased by 3.7% compared to December 2022. Meanwhile, seat supply, measured in available seats per kilometer (ASK), decreased by 1.3%. Compared to December 2019, demand and supply were reduced by 5.4% and 2.8%, respectively.
On the international market, demand increased by 17.2% compared to December 2022. Supply increased by 12.5%. The international market is also lower than before the pandemic: in December, demand fell by 1.7% while supply was cut by 2.1%.
In December 2023, domestic cargo handled 43,100 tonnes, 5.9% more than in the same month in 2022. International cargo handled 69,300 tonnes, 2.2% more than in December 2022.
The crisis of Gol, which is mulling over a court-supervised reorganization in the United States to resolve its high debt, could complicate life for consumers. This is because the airline, once the leader, is now the second largest in the domestic market—it has a share of around 30%, behind Latam. A possible legally-backed debt restructuring could lead to an even greater reduction in the company’s supply.
Bank BTG analysts have already signaled that a worsening of Gol’s crisis would be an opportunity for Azul to grow in the market. This is because the overlap of routes with Latam today is mainly in busy hubs such as Congonhas and Guarulhos in São Paulo, Santos Dumont in Rio, and Brasília. These more profitable routes are expected to see a smaller reduction in supply.
Claims by lawmakers echo Ban The Batistas movement, whose supporters are not known
23/01/2024
U.S. senators claim that JBS listing would put shareholders in the country at risk — Foto: Divulgação
After British lawmakers have requested that the U.S. Securities and Exchange Commission (SEC) block the proposed listing of JBS on the New York Stock Exchange, now American senators are trying to stop the Brazilian meatpacker from going public in the country.
In a letter sent to SEC Chair Gary Gensler on January 11th, the senators claimed that JBS listing would put shareholders in the U.S. at risk. They cite a history of “corruption, human rights abuse, monopolization of the meatpacking market, and environmental risks” by the company.
In the senators’ view, JBS listing might also strengthen its market position in the U.S., which they say could harm competitiveness and the country’s farmers and ranchers.
They ask that the SEC evaluate JBS’s draft filing to ensure that the company provided all information required on such sensitive topics. “Should JBS fail to cure any such disclosure deficiencies, we would ask that the SEC decline to declare the company’s registration effective,” they wrote.
The letter cites that, in 2020, JBS holding company J&F Investimentos pleaded guilty in cases of bribery in Brazil and the U.S., including in the acquisition of Pilgrim’s Pride, in 2009. The lawmakers also cited cases of deforestation in the Amazon linked to the sale of cattle to the company.
When contacted, JBS argued that the dual listing would increase scrutiny on the company’s processes, which would have to comply with the standards of the SEC and the New York Stock Exchange. “Stakeholders truly interested in the development and growth of the company and its entire value network support JBS shares listing in New York,” the company wrote in a statement.
U.S. senators’ arguments echo the manifesto by the Ban The Batistas movement, which promises to fight to “protect U.S. farmers, ranchers, consumers, and investors from the risks of an IPO by JBS.” The group also mentions an alleged “unchecked power grab by its majority shareholders, brothers Joesley and Wesley Batista,” who would take advantage of the listing to increase their position in the company to 90%.
According to the Politico website, which specializes in covering U.S. politics, the movement had hired consultancy firm Actum to try and block the IPO. However, it is hard to connect the U.S. lawmakers’ letter to the group—contacted by Valor, the Ban The Batistas movement declined to inform on which organizations, companies, or individuals are supporting and backing the group.
Igor Guedes, a commodities analyst at Genial Investimentos, said that JBS expected to complete the offering in 2023, but the process proved to be more complex than expected. “They are now avoiding giving a new date and frustrating the market, but the chief investor relations officer says it is a matter of time,” the analyst says.
According to him, JBS listing in New York would increase the company’s liquidity in the U.S. market, where investors currently have access to the company’s shares through American Depositary Receipts. “JBS is traded at a value below its U.S. peers, like Tyson, while we think it should be the other way around,” he argues.
Mr. Guedes believes the possible listing may be upsetting members of the U.S. meatpacking industry, as the Brazilian company’s diversified portfolio would give it an advantage over companies that only operate with beef in the U.S. “The capital that filled the gap [in JBS’s market capitalization] in relation to its peers would probably come from those same peers,” he said.
With the sale of non-strategic assets, Gerdau will define the allocation of new investments
19/01/2024
Gustavo Werneck — Foto: Carol Carquejeiro/Valor
In a move to focus on strategic assets, particularly in Brazil, the U.S., Mexico and Canada, Gerdau announced on Wednesday (16) the sale of its stake in the Diaco and Gerdau Metaldom joint ventures to Inicia, a group that was already a partner in these two companies, for $325 million.
“We want to be in relevant countries for the long term. Gerdau has been in 13 countries and is now in seven,” said Gustavo Werneck, Gerdau’s chairman. With operations in Colombia, the Dominican Republic, Panama, and Costa Rica, the divested companies have long steel production units with production capacities of 360,000 tonnes in the melt shop and 1,250,000 tonnes in the rolling mill, a business considered of little relevance to the company’s overall results.
“The funds [from the sale] will be used for the company to look for other investment alternatives. In our opinion, these funds should be better invested in Brazil, Mexico, the United States and Canada,” the executive said.
In that sense, the steelmaker’s board of directors has asked the management team to define the future allocation of Gerdau’s investments. “The question is: where is the best place to invest? Brazil or Mexico, which is growing very fast and is part of the nearshoring movement? I think Brazil is missing that opportunity.”
With Chinese steel imports, Brazil has also lost competitiveness in the steel sector, and this scenario has worried the chain, according to the executive. “Investors looking at the sector have questioned what the country’s growth path will be.”
The sector has been highly critical of the Brazilian government for not erecting barriers to protect domestic steel. “Brazil used to be a major aluminum producer, but that important segment of the industry has been destroyed. Will Brazil destroy its steel industry as well?”
With operations in Argentina, the Brazilian steelmaker doesn’t intend to leave the neighboring country despite its economic instability. “There are countries, like Argentina and Peru itself, that have experienced great political difficulties in recent years that are very relevant to us.”
On his first visit to the World Economic Forum in Davos, the executive offered a positive assessment of the event for the company’s networking, but shares the opinion of businesspeople attending the forum that the Brazilian delegation fell short this year due to the lack of representatives from the country’s economic team.
“I think we missed an important opportunity. Brazil is the largest delegation in South America, it has the largest number of companies, so it’s contradictory to be the largest delegation and not have the largest representation. The Argentine government attended the event with its economic team.”
For the executive, the country was praised in the environmental field. “Minister Marina Silva is a global reference in sustainability.”
Mr. Werneck believes that the energy transition, a banner that Brazil is defending, is an important issue, but it is still necessary to understand how to finance the investments planned for this new industrial movement.
Brazilian retailers, industrial companies go to the Supreme Court to denounce tax inequality
19/01/2024
Data obtained by Valor show that from August to December 2023, after the start of the Remessa Conforme program—Portuguese for “compliant shipments,” which established new import rules for orders up to $50—tax revenues reached R$700.5 million, an increase of about 122% over the same period last year.
The issue of tax collection is gaining momentum at a time when one of the most important aspects of the program—the tax relief of international online marketplaces that participate in the program—is before the Federal Supreme Court (STF). Brazilian retailers and industrial companies are challenging the lack of tax equality between local and foreign companies.
Remessa Conforme was defined in a decree issued by the Ministry of Finance and has been in effect since August 1. It grants tax and customs benefits to foreign online platforms, such as exemption from the 60% import tax, as long as they source their shipments in Brazil. However, a sales tax, the ICMS, is still levied at 17%.
The data is part of a survey by Brazil’s Federal Revenue and shows that despite the tax break, there has been an increase in revenue due to an increase in the number of statements for shipments over $50 that are taxed—one of the goals of the tax authorities with the change.
Valor has also learned that the increase in revenue may reflect an improvement in the inspection of products entering Brazil. The tax authorities have been working on this in recent months. However, shopkeepers can still try to circumvent the rules by making statements of more expensive products as if they cost less than $50 (to obtain the exemption). However, the Federal Revenue detects the wrongdoing in these cases and charges a 60% tax.
Remessa Conforme involves voluntary compliance by businesses, so shopkeepers who do not comply will not get advanced customs clearance on sales up to $50. And they still have to pay 60% tax, plus 17% ICMS—which also increases the tax revenue. Currently, AliExpress, Shein, Shopee, and Mercado Libre have joined the model (Amazon is still implementing it).
According to the data obtained, from August to December 2022, only 2.4% of all postal shipments were reported, and in 2023, the percentage increased to just over 60%. Of this 60%, 44% were statements registered through the Remessa Conforme mechanism. The Ministry of Finance declined to comment on these figures.
From August to December, ICMS collection reached R$120 million, 10 times more than the previous year. Import taxes amounted to R$580 million, an increase of 92%.
With the new rules and early local sourcing of shipments, the Federal Revenue is increasing controls and trying to reduce fraud—the main reason for the change in rules.
There is a perception in the government that shopkeepers hosted on the platforms are falsifying data about the sender of orders to fall into the only category that was exempt from tax until August —that of person-to-person sales. Since August, the exemption also applies to shipments from foreign companies.
Local retailers, Brazilian industrial companies, and foreign online platforms have already spoken out in favor of the program, saying it tackles the problem of fraud and creates workable rules for imports. Since 2021, a series of meetings have been held with economic institutions and the tax authorities to draft the program.
The disagreements between the parties were therefore never about Remessa Conforme but about the idea of linking the model to an import tax break—something that was not discussed before the changes were announced.
This aspect of tax collection is becoming more important today, because among the alternatives for increasing tax revenue that the government is analyzing in the search for a balanced budget this year is the inclusion of this revenue from imports.
This could be further strengthened with the definition of a rate and the end of the exemption in 2024. The Ministry of Finance has discussed a rate between 17% and 20%, which could be as high as 28% on packages sent. The issue is under discussion at the ministry. There is a possibility of a staggered increase over the year, sources say.
The problem is that since there has been no definition of a rate so far—the public debate on the subject began in April 2023—the Confederations of Commerce and Industry (CNC and CNI) filed a direct action of unconstitutionality with the STF on Wednesday night, alleging a lack of tax equality.
The local chains claim to pay more than 100% tax on the production chain and the sale of goods. The Ministry of Finance was aware of this move by the CNC and CNI before the announcement, as Valor reported on Thursday.
The federal government has yet to define its line of defense in the lawsuit, but the initial reading is that Remessa Conforme already tackles the main problems identified by the sectors.
In the government’s view, Valor found out, with Remessa Conforme, the Federal Revenue already has control over small shipments entering Brazil. Therefore, it would already limit any wrongdoings, and the platforms that have joined are fulfilling the requirements to be within the new rules.
The companies argue in their petition that acts numbered 1,804/80 and 8,032/90 establish an exemption only for individuals for non-commercial international shipments. Therefore, they do not apply to shipments by companies as defined in the Ministry of Finance’s regulation. According to the companies, this definition is contrary to the law.
However, a source calls into question this point made by the associations. He said that wrongdoings existed before the program, with businesses posing as individuals to send packages into the country without paying taxes. He also claims that the zero tax rate was a decision by a minister who had the power to set it.
The Federal Attorney General’s Office (AGU) is still waiting to be asked to act in the case, based on the line of defense to be drawn with the rest of the government. The case was sent to STF’s Justice Cármen Lúcia on Thursday.
In the past few months, the discussion about the definition of a zero import tax has been growing among national retailers because of the risks that it could bring to the business, in the opinion of national companies. They claim that the entry of goods, especially from Asia, under these conditions poses a risk to local job creation and may not comply with Brazilian health monitoring standards.
The issue was the focus of a presentation by retailers at the last meeting of the Council for Sustainable Economic and Social Development (CDESS) with President Lula in December.
*Por Adriana Mattos, Jéssica Sant’Ana, Guilherme Pimenta — São Paulo, Brasília
Power company seeks to raise funds for expansion by placing shares in Brazil and abroad
19/01/2024
Energisa, the company that controls power distributors in 11 Brazilian states, is preparing a new stock offering, as reported Thursday by Valor’s business website Pipeline. The operation, announced the day after Inter Bank raised $161.9 million in the United States, aims to attract around R$2 billion to invest in business expansion.
The company said that it is still working on the documentation “with a view to possibly conducting a public offering for the primary distribution of common and preferred shares.” The plan is to conduct the offering in Brazil, but also to seek international placements. The preliminary schedule foresees a launch after the close of trading on Friday.
Energisa has appointed as coordinators the banks Itaú BBA, leader of the operation, Bank of America (BofA), Bradesco BBI, BTG Pactual, Citi, J.P. Morgan, and Scotiabank Brasil, which are carrying out “preparatory work” to define the viability and terms of the offer.
According to the company, if the operation goes ahead, the controlling shareholder Gipar should accompany the capital increase in proportion to its stake of approximately 27.7%.
The company points out that the effective completion of the offer “is subject, among other factors beyond the company’s control, to market conditions, obtaining the necessary approvals, including the respective applicable corporate approvals, procedures with financial institutions inherent to this type of operation at the stage it is at, and the effective interest of investors.”
On Wednesday, Inter surprised the market with the announcement of the first follow-on share offering of the year by a Brazilian company. The bank raised $161.9 million after pricing the shares at $4.4, a discount of 3.08% from the day’s close.
According to sources familiar with the matter, the aim of Inter’s offering was to attract international funds to its shareholder base. When Inter moved to Nasdaq from B3 in June 2022, it didn’t do an IPO in the U.S., so its shareholder base remained essentially local funds. After a year and a half and with the bank’s results improving, a “tactical” offer could help attract other classes of investors and improve the liquidity of the stock.
Given the size of Inter’s offering, with average checks of around $15 million, the bank aimed to attract up to 10 new funds to its base. The idea, sources say, was to bring in a mix of U.S. and European funds, some long only, some focused on the technology sector, and some on emerging markets. With more liquidity and different classes of investors, Inter should see less volatility in its stock, making it more attractive to other classes of investors.
*Por Maria Luíza Filgueiras, Mariana Ribeiro, Álvaro Campos — São Paulo
Earlier this year, Ibama suspended foliar application of fipronil in the country after reports increased
01/17/2024
Marcelo Ribeiro — Foto: Arquivo Pessoal
The loss of nearly 400 hives in one fell swoop last January was the trigger for beekeeper Marcelo Francisco Ribeiro of Jacuí, in the south of Minas Gerais, to file the first complaint with his region’s environmental authorities about a problem he has been facing for at least five years.
“I arrived at the first box and was shocked to see the pile of dead bees. I went to the second, to the third, around the whole apiary, and there was only one hive with live bees,” he recalls. The results of the analysis carried out at the Biological Institute of São Paulo showed the presence of 35 different pesticide active ingredients, the main ones being fipronil, thiamethoxam, and propanil.
Although there are no organized statistics on honeybee deaths in the country, the perception of defense agencies and the government itself is that they have increased in recent years, especially since 2012. “This is not an isolated case in one state. There are reports in São Paulo, Bahia, Minas Gerais, Mato Grosso do Sul, Santa Catarina, northern Minas Gerais, there are cases of mass death in most of the main states of the country,” said the president of the NGO Bee or not to be, Daniel Gonçalves.
The mass death of bees is not necessarily a novelty in beekeeping. “It has always happened, but never in such large numbers. We used to lose one hive per apiary, two at the most, but it’s increased too much in the last five years,” said the beekeeper. Across the country, the increase has been linked to the popularization of fipronil, an insecticide registered in Brazil since 1994 but whose patent expired in 2008, paving the way for new formulations.
In Minas Gerais alone, about a thousand hives have been lost in one year, according to Rosangela Muniz, deputy director of Ibama’s Environmental Quality Department. Earlier this year, the agency suspended foliar application of fipronil across the state as a precautionary measure. “In several cases of bee deaths that have been analyzed, fipronil is the active ingredient that appears most often. We don’t have that percentage, but we do have several reports and studies,” he notes.
Although all reports collected by the state agricultural defense services are sent to the Ministry of Agriculture, the ministry claims to have no statistics on the problem. Between 2013 and 2015, the NGO Bee or Not to Be collected self-reported data from producers who lost hives due to mass bee deaths. In a year and a half, there were 300 incidents, more than 80% of which linked to pesticide contamination.
“Of course, we weren’t able to analyze all these cases, but it was undoubtedly a very important first survey,” said Mr. Gonçalves.
In São Paulo, work carried out by the manager of the State Bee Health Program (PESAB) of the State Agricultural Defense Coordination, Renata Taveira, analyzed the results of laboratory tests of the 62 reports of bee mortality received by the agency between 2020 and 2022, and found that of this total, 49 were related to pesticide poisoning, with fipronil being the active ingredient most frequently found: 63% of the cases.
“Notifications are increasing, and we know that in reality the mortality rate is much higher,” said Ms. Taveira. In 2023, it is estimated that the state will have recorded around 50 reports of bee mortality—in 2022, there were 39 reports.
In addition to the problem itself, greater awareness among beekeepers is cited as one of the factors behind the increase in reports. In Mato Grosso, according to the Agricultural Defense Institute (Indea), there were 45 notifications in 2023, of which 13 were for poisoning. In 2022, there were five reports.
“What’s significant is that, due to other notifiable diseases, we started several campaigns to get producers to come to Indea, and this may have affected this number of cases,” said the agency’s Animal Health Defense Coordinator, João Marcelo Brandini Néspoli.
Given the evidence of damage to beekeeping, Ibama has initiated a process to re-evaluate fipronil in 2022. “It is already understood that when the pollinator [bee] is affected in this way, there is a greater ecological risk associated with the use of this active ingredient. If you kill the bee in this way, you are certainly affecting other organisms in the fauna,” said Rosangela Muniz.
Following a precautionary suspension of foliar use of fipronil in Brazil, Ibama is not ruling out the possibility of more stringent restrictions on the active ingredient in the future, when the re-evaluation period for the substance comes to an end. “The re-evaluation process started a year ago and this was a precautionary measure. We thought it would be good to suspend foliar use of fipronil, but in the end Ibama usually restricts uses and crops even more,” said Ms. Muniz.
The Chinese company, which generated revenues of $61.7 billion in 2023, launched its first model as a sedan
01/17/2024
Chinese company BYD’s assembly line in Hefei: the company had produced 6 million vehicles by last year — Foto: Costfoto/NurPhoto via Getty Images
A visit to BYD’s headquarters in Shenzhen, China, often begins unconventionally. Just beyond the entrance to a vast showroom, encased by glass walls, are two machines, each holding a battery. These machines ignite the batteries, demonstrating their durability. The employee explains that the battery that withstands the flames is used in BYD vehicles, which, in 2023, became the world’s largest electric car manufacturer. The other battery, quickly consumed by fire, is said to be typical of other brands.
This dramatic demonstration is part of BYD’s narrative, a company with a history stretching back almost 28 years and revenues of $61.7 billion in the previous year. Founded in 1995, BYD initially produced batteries for cell phones, a venture initiated by Wang Chuanfu, a chemist with a specialization in battery technology. At 29, Mr. Chuanfu capitalized on the burgeoning cell phone trend, establishing a battery factory in Shenzhen’s Kuichong industrial subdistrict, an epicenter of innovation.
Like a museum, the showroom chronicles the journey of BYD and its reserved founder through photographs and informative displays. BYD’s breakthrough came in 2000 when it began supplying lithium batteries to Motorola, later expanding to serve Nokia, Ericsson, and Samsung.
In 2002, BYD, standing for “Build Your Dreams,” went public on the Hong Kong Stock Exchange. The following year, Mr. Chuanfu, now chairman, realized his ambition to venture into vehicle production, with a sedan as the company’s inaugural model.
In 2008, a significant development occurred as American billionaire Warren Buffett invested $232 million to acquire shares in BYD, priced at $1 each at the time. Fourteen years later, when Mr. Buffett’s holding company Berkshire Hathaway started selling these shares, their value had surged to $35 each.
BYD entered the bus segment in 2009, producing its first electric bus in the subsequent year. In 2012, the company established a bus manufacturing facility in Campinas, in the Brazilian state of São Paulo. In 2016, it ventured into monorail production in China, a technology soon to become familiar to residents of São Paulo. By the close of 2024, BYD aims to deliver the first vehicles for use on the 17-Ouro line in São Paulo.
Alongside its automotive pursuits, BYD maintains a battery production presence, with a Manaus facility supplying the bus line in Campinas. The company also produces solar panels, emphasizing that it extends beyond the scope of a vehicle manufacturer.
The year 2023 marked BYD’s establishment in Bahia. The former Ford factory in Camaçari will transition to producing electric cars and plug-in hybrids, including a hybrid pickup truck fueled by ethanol. Plans to expand and modernize the Brazilian factory are set to start in February. BYD’s director, Marcelo Schneider, announced an expansion of the initial labor force recruitment from 5,000 to 10,000 workers. The first stage of investment is projected to amount to R$3 billion.
In Shenzhen, BYD employees take pride in their contribution to the fight against COVID-19. Throughout the pandemic, the production of protective masks against the coronavirus not only saved lives but also secured the salaries of BYD employees in China, where the majority of the company’s 750,000-strong workforce resides.
When the global population was compelled into social isolation, BYD swiftly mobilized its engineering team to develop masks, a scarce commodity at the time. Remarkably, the project was completed in just three days. BYD emerged as a major mask producer, with ongoing sales, including in Brazil.
With 90,000 engineers on board, BYD anticipates reaching 100,000 by year-end, a testament to its commitment to innovation. Rows of patents acquired by BYD adorn a vast wall in the showroom at its Shenzhen headquarters, attesting to the company’s dedication to research and development, with 11,000 daily patent applications.
BYD’s achievements are colossal in every dimension. In vehicle manufacturing, it took 13 years to produce its first million units. A mere year and a half later, that number surged to three million, followed by an additional million within nine months. By 2023, the company had surpassed the milestone of six million vehicles produced.
The showroom’s car display area showcases compact models featuring whimsical animal-inspired names like the Dolphin. Notably, the Dolphin Mini, set to launch in Brazil in February, is called the Seagle in China.
Outside, it’s time to witness a car that offers a unique driving experience. Introduced to the Chinese market in September, the Yangwang U8 model, a sizable SUV, can rotate a full 360 degrees on its own axis.
However, BYD’s management is most eager to gauge the reaction of Brazilian visitors to the Dolphin Mini. Jolin Zhang, the director of the American sales division, joins in to generate excitement, stating, “This car is compact but exceptionally roomy inside. It’s ideally suited for Brazil.”
Shift to free market and incentives for specific segments, such as distributed generation, pose threats to payment capacity
01/17/2024
Luiz Eduardo Barata — Foto: Leo Pinheiro/Valor
In Brazil, the total subsidies on electricity bills have doubled over the past five years. From 2018 to 2023, the annual cumulative amount surged from R$18.8 billion to R$37.4 billion, according to data from the “subsidiômetro,” a National Electricity Agency (ANEEL) tracking tool. Such increase in subsidies, primarily levied through the Electricity Development Account (CDE), has been a concern for industry experts.
Recent warnings highlight the potential collapse of the payment system. Key among the sectoral charges, which are designed to subsidize electricity bill discounts, the CDE encompasses various initiatives, including the social tariff (a special discounted rate designed to make essential services more affordable for low-income households), universalization programs (initiatives aimed at ensuring that all citizens have access to basic services, regardless of their location or economic status), and the procurement of diesel or fuel oil for power plants not connected to the national grid. In 2023, the CDE’s budget sanctioned by Aneel was R$34.99 billion. The budget for the current year is yet to be approved, but an estimated figure of R$37.17 billion has been proposed.
The escalating subsidies are challenging the financial stability of the captive market, which primarily consists of traditional distributors, that is, consumers who do not have the option to choose their electricity supplier and are therefore “captive” to a single local utility provider. Luiz Eduardo Barata, president of the National Front for the Defense of Electricity Consumers, warns, “If comprehensive measures are not implemented soon, we could face a severe crisis by 2026 or 2027.”
In 2023, the highest subsidy allocation was for mitigating the operational costs of thermal power plants in isolated systems, amounting to R$10.3 billion. This was followed by expenditures for incentivized sources (R$10 billion), distributed generation (R$7.1 billion), and discounts for low-income households under the Social Tariff program (R$5.2 billion).
Experts are concerned about the imbalance in expenditure distribution within the sector and question the validity of maintaining certain benefits. They attribute many adverse effects to outdated regulations, recent market changes, and technical decisions made by Congress.
The same experts caution that the situation could deteriorate further with the introduction of new subsidies. Proposals for extending economic incentives for sector groups, potentially adding nearly R$30 billion annually to electricity bills, were included in the draft legal framework for offshore wind generation at the year’s end.
Mr. Barata, a former director-general of the Operator of the National Electricity System (ONS) and president of the Electricity Trading Chamber (CCEE), notes the trend of consumers shifting from distributor contracts to electricity traders in the free market, which allows them to choose their supplier. Due to legislative loopholes, this shift exempts consumers from paying certain obligatory charges in the captive market, some of which ensure supply quality.
Mr. Barata notes that in 2024, “almost everyone could choose the free market,” except for residential consumers. He warns that if a crisis arises, the government’s response must extend beyond localized actions, in contrast to the approach taken during the 2001 electricity rationing. That period was marked by strategic adjustments aimed at attracting investments to improve regional interconnections and expand thermal power plant contracts, vital for ensuring the reliability of the power supply. Mr. Barata now anticipates that the current perceived imbalances might necessitate broader restructuring, echoing the reforms of 1992. “The companies were on the brink of bankruptcy, and billions of dollars had to be injected into the sector, which led to the creation of the Eliseu Resende Act.”
In 2023, despite Congress making headway in discussions on modernizing the sector through Bill 414/21, the Minister of Mines and Energy, Alexandre Silveira, has committed to proposing a comprehensive sector reform through a provisional presidential decree. Economist Elena Landau, known for her role in privatizations during the Fernando Henrique Cardoso administration, argues for passing Bill 414 and deferring further improvements. She suggests the government should convene a sector-wide debate, resisting the urge to draft a new legal framework single-handedly “inside the cabinet.” Ms. Landau believes her suggested approach could protect the new law from becoming a “zombie project,” a term she uses for parliamentary amendments that attempt to establish substantial subsidies for financing gas pipelines through electricity bills.
Jerson Kelman, a former director of ANEEL and the National Water Agency (ANA), recently discussed the potential for a “bubble burst” in Brazil’s electricity market in an article on the Energia Brasil portal. He explains that this can happen in a “poorly regulated” sector that induces market players into a “euphoria of immediate gains.” Mr. Kelman points specifically to the advantageous position of DG (Distributed Generation) consumers, who generate part of their electricity, benefiting from reduced distributor consumption and a discount for contributing the excess to the power grid. He estimates that the subsidy for DG is, on average, 14 times higher than that for a family on the Social Tariff. Generally, DG is adopted by middle-class consumers or companies able to invest in solar panel systems.
In a statement to Valor, Mr. Kelman, who previously led Light and Sabesp, reaffirmed his stance. He draws parallels between Brazil’s electricity sector situation and the American mortgage bond market scenario that led to the 2008 financial crisis, where certain groups favored short-term gains at the expense of medium and long-term systemic consequences.
Marcos Madureira, president of the Brazilian Association of Electricity Distributors (ABRADEE), identifies at least two factors contributing to higher tariffs in the regulated market. One is the surplus power bought in long-term contracts, some lasting until 2050, which raises costs and encourages migration to the free market. The other is the increasing adoption of distributed generation under special conditions, without sharing the expenses for maintaining the distribution network.
“Distributors are burdened with more expensive electricity, which they cannot reallocate in the market. This results in higher electricity prices for the remaining consumers. It’s what we call a death spiral, as the increased cost is borne by an ever-decreasing group of consumers,” Mr. Madureira cautioned.
In response to inquiries, the Ministry of Mines and Energy stated that the “issue of subsidies is a critical one for the ministry, which is actively working to limit the growth of these costs for consumers.”
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