The idea is to promote delivery of goods by trucks powered by liquefied natural gas
02/05/2024
Lino Cançado — Foto: Divulgação
Eneva, Scania, and Virtu GNL have entered into a partnership to decarbonize road transportation in Brazil. The idea is to promote the delivery of goods by trucks powered by liquefied natural gas (LNG). The trio has contracts with Vale and Suzano to transport products on the so-called Matopiba route, an acronym for the states of Maranhão, Tocantins, Piauí, and Bahia.
The contract provides for the delivery of 180 LNG-powered Scania trucks at a cost of around R$1 million each, for a total of R$180 million. The idea is that Eneva will be in charge of producing the gas molecule and Virtu for delivering the final product. Virtu and Eneva already work together through a joint venture, GNL Brasil, which engages in the logistics of delivering natural gas to places without pipelines, carrying out transportation, storage, and regasification.
Eneva estimates that the new market for LNG-fueled long-haul trucking could initially demand up to nine million cubic meters of natural gas per day, reducing Brazil’s emission intensity by two million tonnes of carbon dioxide per year. Compared with the traditional diesel fleet, the reduction in carbon dioxide emissions can be as much as 20%.
According to Alex Nucci, Scania’s sales director, the volume of 180 trucks is the largest purchase of LNG vehicles in Latin America. “One of the important points of this operation is the fact that it is all domestic, with engines produced in Brazil. The vehicles are 100% powered by gas, they are not adapted. The price of an LNG vehicle is not that different from a diesel vehicle. But with nationalization and economies of scale, the LNG vehicle may become more competitive.”
Initially, thirty vehicles will be used in the partnership’s first operations, which are due to begin in mid-April. The remaining 150 will be delivered throughout 2024.
GNL Brasil supplies LNG for the industrial activities of Vale and Suzano. For Suzano, which has a plant in the city of Imperatriz (Maranhão), GNL Brasil transports around 160,000 cubic meters per day over a distance of 548 kilometers. For Vale, which has a plant in São Luís, also in Maranhão, GNL Brasil transports around 250,000 cubic meters per day over a distance of 320 kilometers.
Eneva’s CEO, Lino Cançado, said the expectation is to achieve scale quickly: “We will start with these 180 trucks, but the vision is that the market is bigger than that and can be scaled up quickly.” The project does not have an exclusive contract and could meet the needs of other companies in the future.
Since 2022, Eneva has invested R$1 billion to reach the capacity to liquefy 600,000 cubic meters of gas per day. According to Mr. Cançado, Eneva has idle gas liquefaction capacity and can increase the volume according to demand. The company produced 360 million cubic meters of gas in the fourth quarter of 2023.
Virtu GNL CEO José de Moura Jr. said LNG-powered vehicles combine efficiency with decarbonization: “For long-distance transport like this, the solution is LNG. The electric vehicle has no autonomy, and the vehicle has to make many stops to refuel. Here, in this partnership, we have the molecule, the truck, and the service.” Virtu GNL has invested R$5.7 billion to promote the infrastructure of refueling stations.
This is the assessment of experts such as Renato Buranello, president of the Brazilian Institute of Agribusiness Law
02/05/2024
The changes made to the rules governing the issuance of Agribusiness Receivables Certificates (CRAs) and Agricultural Credit Bills (LCAs) could have a “negative impact” on the development of the capital market as a source of financing for agribusiness, according to Renato Buranello, a partner at the VBSO Advogados law firm and president of the Brazilian Institute of Agribusiness Law (IBDA).
According to him, any excesses in the issuance of tax-exempt bonds can be limited, but without extreme rules and with an analysis of the regulatory impact. “Agro-industrial chains are made up of small, medium, and large companies. Large companies that issue bonds in the market directly or indirectly drive the entire production chain,” he said.
The stock of these two agribusiness bonds currently exceeds half a billion reais. Consolidated figures until November 2023 show R$449.2 billion in LCAs and R$123.4 billion in CRAs.
The changes were approved at an extraordinary meeting of the National Monetary Council (CMN) on Thursday. The changes will take effect in July for the next crop year, 2024/25, and will not affect current operations.
The CMN banned the issuance of CRAs backed by debt issued by publicly-traded companies not related to the agricultural sector. According to the Central Bank, the aim is to “ensure that the instruments are backed by operations compatible with the purposes that justified their creation.”
Experts believe that the monetary authority’s intention was to prevent a “frenzy” with the issuance of CRAs by companies not linked to the sector.
For Mr. Buranello, this restriction on the composition of the backing for CRAs is a “serious disincentive” to private financing for agribusiness.
The lawyer believes that the changes could cause “serious problems” for the Funds for Investments in Agribusiness Production Chains (Fiagro), which invest in CRAs. According to a technical analysis carried out by the VBSO, the funds “will have difficulties reinvesting when CRIs and CRAs currently in their portfolios are paid off, given the severe restrictions imposed by the CMN.”
The announced restrictions surprised many of the specialists working on the matter. Members of the Ministry of Agriculture’s Thematic Chamber for Credit Modernization and Agribusiness Risk Management Instruments (Modercred) spent Friday trying to understand the real scope of the measures.
The members want to understand whether the changes also apply to Rural Producer Bills (CPR), which have been used to finance a wide range of activities related to agribusiness: from production in the fields, to the purchase of inputs and machinery, to logistical operations.
The doubt arose when one of the resolutions approved by the CMN stated that the restrictions would apply to bonds and instruments with a promise of future payment, such as the CPR. The assessment of Ministry of Agriculture officials is that CPRs will be preserved. In the Ministry of Finance, there are those who think otherwise.
Justice Dias Toffoli’s order allows renegotiation of Odebrecht’s fines, opens way for similar demands by other companies
02/02/2024
Dias Toffoli — Foto: Fellipe Sampaio/SCO/STF
The suspension of the payments of fines within the leniency agreement that contractor Odebrecht—renamed Novonor—signed with the Federal Prosecution Service (MPF) in 2016 as part of the anticorruption task force Car Wash will have a domino effect on the lawsuits of other companies that signed similar protocols after being involved in corruption cases, Valor has learned.
The monocratic decision of Supreme Court Justice Dias Toffoli on Wednesday strengthens the argument of the contractors for a review of the fines signed not only with the MPF but also with other governmental bodies, such as the Federal Comptroller General’s Office (CGU), the Federal Attorney General’s Office (AGU) and antitrust regulator CADE.
Mr. Toffoli’s latest decision follows another one from September, when he also monocratically annulled the evidence from the same leniency agreement with Novonor, which in turn was the basis for a series of Car Wash prosecutions, such as the one that led to the conviction of President Lula, who spent 580 days in jail.
In his order, Mr. Toffoli stated that, given the suspicion of partiality on the part of those involved in the operation, it was important to comply with the company’s request and grant it access to all the messages exchanged between former judge Sergio Moro—now a senator, and whose election is under threat in the electoral courts—and Car Wash prosecutors (evidence that has been the basis for several court decisions in favor of authorities and companies found guilty in the past).
In suspending payments under the leniency agreement, Mr. Toffoli wrote that the contractor’s attorney should be given the opportunity “to assess, in light of the available evidence collected in Operation Spoofing [which investigates the actions of Car Wash prosecutors and judges], whether any wrongdoings were in fact committed.”
Until then, the contractor had access to about 30% of the records. For Mr. Toffoli, the information indicates “collusion between the prosecuting judge and the prosecution service,” which did not allow the parties to fully defend themselves.
Mr. Toffoli also authorized a renegotiation of the terms of the agreement with the Prosecutor General’s Office (PGR), the CGU, and the AGU. In practice, however, these negotiations began about four years ago. According to sources close to the negotiations, the government has not given in to rediscussing the amounts but may extend the cut-off dates and the form of payment, such as the payment of some installments with tax losses.
The global agreement signed by Odebrecht and its executives with the Brazilian authorities was for R$3.8 billion—R$2.7 billion owed to the CGU, the result of a second agreement signed in 2018, which included the 2016 negotiation with the MPF. Mr. Toffoli suspended the installments after this first agreement. Considering fines owed to international authorities, the amount reaches R$8.5 billion to be paid in annual installments over 23 years, adjusted by the key interest rate Selic.
The Novonor Group has not revealed the amount paid so far. Of the R$2.7 billion owed to the CGU, R$172.7 million, or 6.4% of the total, have been paid to date. These data are available on the CGU’s website.
The MPF didn’t answer the question of how much the company has paid so far and doesn’t publish this information. To Valor, the institution said that it “has not yet had official access to the decision” and that “the measures will be analyzed when this happens.” The CGU also said it would evaluate the impact of the decision. CADE did not reply to a request for comment. Novonor has been in court-supervised reorganization since 2019, with debts of R$83 billion.
Last year, Mr. Toffoli took a similar decision concerning the investment holding company J&F, suspending a fine of R$10.3 billion on the grounds that, by signing the agreement with the MPF, the latter had imposed “patrimonial obligations on the group, which justifies the suspension of payments for the time being.” Mr. Toffoli’s wife, lawyer Roberta Rangel, is defending J&F in a dispute with Paper Excellence.
In the new request, which was accepted by the STF, Odebrecht claimed that there were similarities between its cases and those of J&F, so it should receive the same benefit. The company complains of the “abrupt fall in demand in the construction, infrastructure, transport, and mobility sectors, as well as the restriction or almost total closure of access to sources of financing from public and private financial institutions” after Car Wash, and also mentions the “new debt acquired as a result of the agreement’s payment schedule.”
When Mr. Toffoli annulled the evidence in Odebrecht’s leniency agreement with Car Wash last year, the then attorney general Mario Sarrubbo, who will now hold a position in the Ministry of Justice with the newly appointed minister Ricardo Lewandowski, filed an appeal with the Supreme Court to try and reverse the decision. However, the appeal has not yet been analyzed by the Supreme Court.
There are other states that, in the wake of Car Wash, have also signed leniency agreements directly with companies, another point that will also have to be decided by the courts shortly. This is the case in Minas Gerais: three companies—the same Odebrecht, OAS, now Coesa, and Andrade Gutierrez—admitted wrongdoings in the construction of the state government headquarters, signed a leniency agreement with the state (total value R$374 million) and vowed to cooperate with the investigations.
Agreements have also been signed abroad, in the United States and Switzerland, with Odebrecht, but these are outside the scope of the Brazilian judicial decision.
These decisions by Mr. Toffoli are expected to be used by other companies as an argument to obtain the same benefits, lawyers say. “Just as Novonor took advantage of the J&F decision, other companies operating in the same environment and dealing with the same authorities could certainly use the decision to try and suspend payments or renegotiate agreements that they claim were made under pressure or with defect of consent,” said Esther Flesch, a partner at law firm Miguel Neto Advogados who has worked on leniency agreements in Brazil and the United States.
To do this, it is necessary to prove a similarity to the Odebrecht and J&F cases, said lawyer João Fábio Azevedo e Azeredo, a partner at Moraes Pitombo Advogados law firm. “This is already the second decision based on the same premise. Companies that can prove a similar situation can get an injunction,” he said. “It depends on how they prove that similarity.” He said, however, that Mr. Toffoli’s decision still has to be confirmed by the other Supreme Court justices.
Experts are divided as to whether the decisions jeopardize the use of leniency agreements. For Esther Flesch, they do not: “What has happened is a maturing of the practice, because the agreements were made at the time of Car Wash without enough maturity and experience to make them ‘bulletproof’.”
Mr. Azeredo believes that the decisions create legal uncertainty. “The idea of the instrument is to give the company security to do business. And this comings and goings about the legitimacy of the agreement, which is a new instrument, whether we like it or not, creates uncertainty because something that could be settled has the possibility of being annulled by the courts,” he said.
According to lawyer Valdir Simão, a partner at law firm Warde Advogados and former CGU member, there needs to be a comprehensive review of the clauses in the agreements. “We need to check if they have abusive clauses or undue reimbursement headings, for example, whether due to a change in the law or interpretation.” Among the legal changes to be considered, he said, is the non-cumulation of fines under the Administrative Impropriety Act and the Anti-Corruption Act.
The review of all leniency agreements is being discussed in the Supreme Court, reported by Justice André Mendonça, who was head of the AGU in the Bolsonaro administration. The case discusses the “unconstitutional situation” in which the Car Wash negotiations took place.
*Por Marcela Villar, Lucas Ferraz, Isadora Peron — São Paulo, Brasília
Destruction of native forest in the biome harms traditional communities, who depend on these resources to survive
02/02/2024
Lucely Pio — Foto: Katarina Silva /WWF-Brasil
Some of the medicinal plant species used by the Xakriabá indigenous people, from the north of Minas Gerais, no longer exist. They have disappeared as a result of the advance of deforestation in the Cerrado biome, regarded as the savanna with the greatest biodiversity in the world.
“We have been struggling with [species such as] desenrola, tiborna, velame. They are becoming scarce, since they are plants from the forest, and we can no longer see them here in our territory; they are now very hard to find. When we see it, it’s just a little plant here, another there,” says indigenous leader Belo Xakriabá.
According to the Ministry of the Environment’s estimates, the biome has more than 12,800 plant species, of which 36.8% are under threat of extinction. Last year alone, the rate of destruction of native vegetation in the biome reached 43%, with the loss of 7,828 square kilometers. In total, 2,137 species have been recorded, more than 220 of which are for medicinal use.
“It’s a biome that has lost more than 50% of its coverage. And, as destruction advances, there is an intrinsic threat to its integrity and its ability to stand, from an ecological point of view,” notes forest engineer Pedro Bruzzi, a coordinator at Rede Cerrado.
He also highlights the impact on traditional communities in the Cerrado, which, in addition to indigenous peoples and quilombolas includes communities that make common use of areas of native vegetation to raise cattle freely in fields without fences, as well as evergreen pickers, among others.
“When we look at statistics and then identify in the field those who are really on the front line, we can be sure that in most cases we have original peoples and communities being expelled from their territories,” the activist says.
That’s what happened to Lucely Pio’s great-great-grandfather, the founder of the Cedro quilombola community in Mineiros, in the state of Goiás, in 1830. “His farm had 30,000 bushels, covering virtually the entire city of Mineiros and its surrounding region. There is also a river, the Rio Verde, which is full of diamonds. That was when the diggers came. They started to take land from my grandfather,” she said.
Managing medicinal plants since the age of five, when she started learning the secrets of the Cerrado’s native vegetation with her grandmother, Ms. Pio is now an activist with the Pacari network, a group that works to protect the biome and the traditional uses of its vegetation. She notes there has been shortage of species such as the jatobá, which grows slowly, at about 0.5 centimeter per year, and can take centuries to reach its maximum height, of up to 25 meters.
“Those who took over the land are the same people who cut down the forest. The community is named Cedro [Portuguese for ‘cedar’] because we used to have a lot of cedar here; today we have just a small amount. The same as with jatobá. At that time, people came with sawmills, cut them down and took them away. Alone, he [her great-great-grandfather] could not fight against it,” she said.
As a consequence, Ms. Pio says, today she relies on neighboring farms, which are dozens of kilometers away, to collect the herbs she uses in rituals and infusions. “That is a legacy that we have lost,” she notes.
According to the World Health Organization (WHO), 80% of the world’s population depends on medicinal plants for primary health care. In a survey carried out by researchers from the State University of Goiás (UEG) in 2018, with 40 residents of the city of Goiás, also known as Goiás Velho, that number is 92.5%. In total, according to the survey, local residents used 140 plant species.
According to pharmacist Debborah Gonçalves Bezerra, PhD in the Cerrado’s natural resources, and one of the researchers in charge of the study, the reduction in the availability of such herbs has direct impacts on the economy and health of the local population, who, in addition to using the plants for self-care, also sell natural medicines, the so-called “garrafadas”—hand-prepared infusions intended for various treatments.
“Furthermore, in the absence of such natural resources, the population struggles to alleviate minor symptoms that could be quickly solved, being forced to seek the Unified Health System to obtain a prescription in order to receive treatment,” she points out.
According to her, many of the herbs could also be used by the pharmaceutical industry, resulting in substantial losses, from a biological point of view. “As the availability of these plants decreases, knowledge about natural resources is also lost. We may lose species whose benefits we haven’t even been able to learn,” the researcher warns.
The measure also covers agribusiness bonds and other real estate securities; the decision was made at a special meeting
02/02/2024
Finance Minister Fernando Haddad is a member of CMN — Foto: Marcelo Camargo/Agência Brasil
The National Monetary Council (CMN) announced Thursday (1), after a special meeting, a series of limitations on the issuance of tax-exempt bonds. Taken in the context of reducing tax loopholes and increasing tax collection, the measures restrict the types of backing that can be used in real estate receivables certificates (CRI), agribusiness receivables certificates (CRA), and real estate credit bills (LCI). It is also now forbidden to use funds raised through agribusiness credit bills (LCA) to grant rural credit that benefits from federal economic subsidies.
The changes, effective as of July, come after strong growth in the use of these instruments, including in operations not directly related to the sectors being incentivized. These securities all offer exemption from income tax for investors. The stock of tax-exempt bonds already exceeds R$1 trillion.
The Ministry of Finance has managed to approve taxation on offshore companies and closed-end funds. According to a government source heard by Valor, the CMN is now seeking to tighten the rules for issuing tax-exempt bonds, ensuring the funds raised are strictly directed towards financing agribusiness and the real estate sector. We’re closing loopholes; 2024 is the year when the rich get into income tax,” said the source.
The Central Bank has denied that the changes are aimed at reducing the volume of issuance of tax-exempt instruments. However, its experts told journalists that a drop in issuance could occur.
“The aim is to ensure that issuances serve as a source of funds for public policies, but a reduction in the volume of LIG (Real Estate Secured Bills) and LCI is expected,” said Felipe Derzi, deputy head of the Central Bank’s Financial System Regulation Department. “The market will have to find other business models to support what is not linked to public policy.”
The CMN changed the rules and terms of the LCA, LCI, and LIG. In the case of the LCA, the funds can only be used to contract rural credit “at rates freely agreed under market conditions.”
The collegiate body also prohibited the use of advances on foreign exchange transactions, export credits, receivables certificates, and debentures as LCA backing. The minimum maturity of the LCA was also extended from 90 days to nine months. Another change to the LCA no longer allows the “possible overlapping of tax benefits.” The aim is to gradually restrict the use of rural credit operations with controlled resources in the composition of LCA backing by July 1, 2025.
The changes to the LCI extend the minimum maturity from 90 days to 12 months and specify the types of real estate credit accepted as backing. The amendment removes the possibility of using operations with no connection to the real estate market, even if they are backed by real estate.
With regard to the LIG, the CMN decided to apply the same rules as for the LCI on the backing of real estate credits already used to meet the mandatory targeting of savings deposits. The Central Bank explained that the credit balance of LIGs with these characteristics will be deducted in full from the balances of the real estate credits that serve as reference. The Central Bank said that the change seeks to “avoid a double tax benefit without the corresponding origination of new real estate credit operations.” Only LCI and LGI issuances that take place after the decision will be impacted by the measures.
The CMN has barred the issuance of CRAs and CRIs backed by debt securities issued by public companies not related to the agribusiness or real estate sectors. According to the Central Bank, the measures aim to “ensure that the instruments are backed by operations compatible with the purposes that justified their creation.”
The CMN also prohibited the issuance of rights backed by credits originating from transactions between related parties or from financial transactions “whose resources are used to reimburse expenses.” The measures do not affect CRAs and CRIs that have already been distributed or that have public offers registered with the Securities and Exchange Commission of Brazil (CVM).
The possibility of the government restricting the backing of CRIs and CRAs is something that has worried issuers since December, when rumors about a change in the rules grew. In recent weeks, some companies have decided to shorten the timetable to secure issuances that still comply with the old rules, according to lawyers. At least four issuances that were due to go ahead in the next few weeks have already been paused.
“The measure was much worse than we could have imagined and significantly limited CRI and CRA operations,” said Daniel Laudisio, a partner in the capital markets area at Cescon Barrieu. “As it will greatly restrict those who can raise funds with these securities, the tendency is for the cost of funding to rise.”
Ricardo Stuber, a partner at TozziniFreire, believes that the most significant impact will be the ban on transactions in which the debtor is a publicly traded company or a related party of a publicly traded company and which are not in the real estate or agribusiness sectors. “Another important point is that the use of funds for reimbursement, which was very popular in the market and permitted by the CVM, will now be prohibited.”
The change affects the plans of companies that issue so-called “rental CRI,” whose resources are used to pay past and future rents. This possibility is relatively recent and came into existence thanks to the CVM’s relaxation of the rules. Rede D’Or was the first to issue CRIs for this purpose in May 2022. At the time, the hospital chain raised R$1.14 billion.
Back then, the permission was celebrated, as it would significantly increase the list of companies that could access the market. After Rede D’Or, retailers, pharmacy chains, and banks followed. On the agribusiness side, issuances by companies such as restaurant chains with no connection to the sector but which bought inputs from rural producers became common. Vendors from the areas of transportation, logistics, or vehicle leasing also used this relationship with the “agribusiness chain” as backing.
*Por Gabriel Shinohara, Jéssica Sant’Ana, Rita Azevedo, Adriana Cotias — São Paulo and Brasília
Antitrust watchdog CADE says acquisition of assets is not simple, requires more time for analysis
02/01/2024
The approval—or not—of the acquisition of Marfrig’s beef assets by Minerva Foods should take longer than the companies had previously expected. The companies submitted the deal to the Administrative Council for Economic Defense (CADE) on September 27, 2023, when an obstacle to approval was the incomplete composition of the tribunal. But even after the appointment and installation of four new members, the antitrust regulator’s General Superintendence (SG) considered the operation was not simple and, therefore, required more time study it.
The deal includes the acquisition of part of Marfrig Global Foods and Marfrig Chile’s beef and sheep business, encompassing slaughtering and deboning plants, plus a distribution center. The assets are located in Brazil, Argentina, and Chile.
The deal doesn’t mean Marfrig’s exit from the animal slaughtering segment, as the company will maintain other plants. Both companies told CADE that, for Marfrig, the deal is in line with the strategy of focusing on the production of branded meat and high value-added products. As for Minerva, the acquisition is “a strategic opportunity to complement its operations,” with a focus on savings through scale and efficiency gains.
When the companies announced the R$7.5 billion deal to the antitrust watchdog, they described it as a summarized concentration act, a format intended for operations that are considered to be simple, whose deadline in this case is 30 days. As the General Superintendence turned it into an ordinary act, the process can take up to 240 days. In addition, the new deadline considers January 22nd as the starting date, when the General Superintendence asked the companies for new information regarding the operation.
The 240-day period is set out in the legislation. When contacted, CADE explained that the General Superintendence usually works within a 90-day deadline, a shorter period it tries to meet. Still, it is much longer than what Minerva and Marfrig expected when they submitted the deal.
In an order released in December, the General Superintendence said, given that in at least one of the markets involved in the operation (cattle slaughter in Rondônia), the deal could give Minerva a dominant position (with a market share exceeding 20%), it’s not possible to classify it as a summarized procedure.
Additional evidence was also requested. Only after that will the superintendence release an opinion on the case.
Based on the decision, if the deal is approved without restrictions, there will be a 15-day period for third parties or members to question the opinion and then move the deal to CADE’s tribunal. If the superintendence rejects or approves it with restrictions, the case will necessarily be submitted to the tribunal. If the superintendence approves it and there are no manifestations within 15 days, the deal will receive final approval.
The Brazilian Agriculture Confederation (CNA) requested to participate as a third party interested in the process. The entity says it intends to ensure that ranchers established in the areas of meatpacking plants will not be harmed from market power in the future.
CNA said it sent the antitrust watchdog a technical note in which describing the impacts of market concentration in recent years in the sector. According to CNA, the acquisition of Marfrig’s meatpacking operations by Minerva could increase market concentration in some states.
Last week, more than 100 letters were sent by CADE to members of markets that could be affected by the deal. The markets in question involve the sale of fresh beef and lamb in the domestic market; cattle slaughter and its by-products in the domestic market, rawhide in the domestic market; and beef processing activities.
Rio de Janeiro state accounts for 70% of Brazil’s gas production; only 24% of it reaches consumer market
02/01/2024
There is shortage of natural gas in Brazil to meet growing demand. That is the conclusion of the “Prospects for Gas in Rio,” a study by the Rio de Janeiro Federation of Industries (Firjan) to be released this Tuesday (30). “There is a consumer market interested in a greater supply of gas in the country; what is missing in order to meet such potential is greater availability on a competitive basis of price and accessibility,” the study states.
According to Firjan’s survey, the state of Rio de Janeiro accounts for 70% of the Brazilian gas production, but only 24% of it is made available to the consumer market. Among the reasons for that situation, according to Firjan, is the high cost of production, due to the location of producing areas and the existence of contaminants. The volume of gas reinjected by oil companies into wells to streamline production has also increased, the report says.
Natural gas is seen as a key element for energy transition, according to the study. Therefore, companies’ demand for the product has increased, following the trend of seeking a position in a “greener” market. “Gas is a transition energy source given its lower greenhouse elements emissions,” Luiz Césio Caetano, vice-president of Firjan, notes. “We need to make natural gas more competitive.”
According to Firjan, the fact that natural gas is mostly associated with oil production should be regarded as a differentiator in the global market. Brazilian oil, especially that extracted from the pre-salt layer, is one of the most competitive in the world given its low operating costs and low greenhouse gas emissions. “Our production has proven to be resilient to adverse scenarios in recent years, including the effects of the COVID-19 pandemic and the war in Eastern Europe, which had strong impact on the global energy scenario, especially on oil and natural gas.”
“Strategies to streamline the production process, such as adapting existing and idle infrastructure in the Santos basin, must be considered and evaluated as alternatives to reducing investment in natural gas.”
Rota 3 gas pipeline intended to connect pre-salt fields in the Santos Basin to the Gaslub hub for 355 kilometers is expected to enter into operation in the second half of this year. It is expected to ease pressure on supply, according to Mr. Caetano. The pipeline’s capacity is approximately 18 million cubic meters of gas per day. Another project also awaited by the industry in the longer term is the BM-C-33. Scheduled for 2028, the project includes an area operated by Equinor in partnership with Repsol Sinopec Brasil and Petrobras and is expected to flow 16 million cubic meters of gas per day.
Still, Prio, which participates in the Firjan study, argues that the two projects, Rota 3 and BM-C-33, will not be enough. According to the independent oil company, improvements to the country’s infrastructure are required to transport production: “If that [infrastructure construction] is not done, the operation growth will be limited. Rota 3 (2024) and BM-C-33 (2028) are under construction to expand capacity, but they will probably not be enough to supply the entire sector.”
Central Bank Committee projects ongoing cuts of 50 basis points “in the upcoming meetings”
02/01/2024
Central Bank’s Copom suggested similar reductions “in the next few meetings” should economic conditions unfold as projected — Foto: Beto Nociti/BCB
The Brazilian Central Bank’s Monetary Policy Committee (Copom) has once again lowered the Selic (Brazil’s benchmark interest rate) rate, this time to 11.25% per annum, marking the fifth consecutive decrease at a meeting on Wednesday. The committee suggested it might continue with similar reductions “in the next few meetings” should economic conditions unfold as projected. This unanimous decision aligns with market expectations and mirrors the stance of the previous meeting.
Without specifying an endpoint for the current cycle of monetary easing, the Central Bank reiterated its commitment to a contractionary policy aimed at reining in inflation and restoring inflation expectations to target levels.
It also highlighted that future rate cuts would depend on the trajectory of inflationary pressures, including those prices most responsive to monetary policy and economic activity, long-term market inflation expectations, their own inflation forecasts, economic slack, and external and fiscal risks that might skew inflation away from its predicted path.
A survey by Valor Data, conducted before the decision, revealed that out of 142 financial institutions and consultancies polled, 141 anticipated a 50-basis points reduction in the Selic rate. Only one financial analyst projected a 0.75-BP cutoff. The mid-point expectations are centering on a 9% rate by the end of 2024.
Copom noted the current phase of disinflation is “unfolding more gradually” than initially experienced, due in part to the diminishing impact of lower commodity and industrial goods prices. The committee states inflation expectations have “only partially” realigned with the government’s 3% target, with the market projecting a 3.5% inflation rate over the long term. According to the Central Bank, the global scenario remains “challenging.”
Regarding the international scene, Copom acknowledged ongoing volatility spurred by discussions on the commencement of monetary easing in major economies and “persistent high core inflation rates across numerous countries,” which are falling. In the previous press release, Copom still saw “incipient” signs of the falling core rates. Compared to December, the committee has adjusted its previous assessment of a “less adverse” external environment, citing the recent “moderation of longer-term interest rates in the United States.”
The committee underscored that central banks in major economies are steadfast in their aim to steer inflation towards their targets, notwithstanding labor market pressures.
Domestically, Copom observed that consumer inflation continues on a disinflationary path “as expected,” with recent data showing underlying inflation measures “nearing the target.”
Copom’s inflation forecasts suggest Brazil’s benchmark inflation index IPCA will decline from 4.62% in 2023 to 3.5% in 2024 and 3.2% in 2025, assuming the Selic rate ends in 2024 at 9% per annum. These projections remain consistent with those outlined in December, which used a Selic of 9.2% at the end of 2024.
The projections for monitored prices were 4.2% in 2024 and 3.8% in 2025. The previous projection was pegged at 4.5% for 2024 and 3.6% in 2025. The committee also stressed that its relevant horizon is now 2024, with the focus now extending more significantly to 2025.
The risk factors for inflation remain consistent with its December decision, which saw the Selic rate decrease from 12.25% to 11.75% annually. The committee identified two primary upside risks: the enduring nature of global inflationary pressures and an unexpected resilience in services inflation, attributed to “a tighter output gap [a measure of the economy’s idleness].”
Copom also pointed out two significant downside risks: the potential for a more acute slowdown in global economic activity than anticipated and a more pronounced disinflationary effect resulting from coordinated monetary tightening across economies. “The Committee believes that the economic environment, particularly due to the international scenario, remains uncertain and calls for caution in the conduct of monetary policy,” it stated.
Furthermore, Copom underscored the critical importance of “achieving the fiscal objectives that have been established.” Highlighting the government’s ambition to eliminate the public sector’s primary deficit this year, following a deficit equivalent to 1.3% of the GDP in 2024, the committee stressed the relevance of this goal for anchoring inflation expectations and guiding monetary policy. “The committee reaffirms the importance of firmly pursuing these targets,” the statement said.
The January meeting’s decision to further reduce the Selic rate by 50 BP continues the trend initiated in August 2023, when the benchmark rate stood at 13.75%. This latest adjustment marks the fifth consecutive cut of identical magnitude.
Prior to this easing cycle, the Selic rate was maintained at 13.75% for 12 months starting from August 2022, capping a bullish cycle that commenced in March 2021 and concluded in August 2022.
Throughout this period, Copom escalated interest rates to 13.75% from 2% annually, executing a substantial 11.75-percentage-point hike as part of the Central Bank’s strategy to curb inflation in the wake of the pandemic.
Copom has scheduled its next meeting for March 19 and 20.
*Por Gabriel Shinohara, Alex Ribeiro — Brasília, São Paulo
One day after the airline filed for court-supervised reorganization, Santiago-based group reportedly sent letters to lessors eying up to 25 aircraft
01/31/2024
Gol shares plunged again on Tuesday (30) trading session — Foto: Fabiano Rocha/Agência O Globo
Gol is studying measures against LATAM after the competitor attempted to take 20 to 25 of its 737 planes. Gol’s lawyers told the New York judge responsible for the case, in documents seen by Valor, that LATAM sent letters to the lessors on Friday (26) to try to take the aircrafts one day after Gol filed for bankruptcy protection.
Gol shares plunged again on Tuesday (30) trading session, marking a 26.97% drop. The company ended the day with a market capitalization of R$1.2 billion, a 55.4% loss when compared to Thursday (25), when it filed for court-supervised reorganization, according to Valor Data.
LATAM does not operate the 737 model and, according to Gol’s lawyers, the Santiago-based group is trying to illegally interfere in its rival’s restructuring. Andrew LeBlanc, a lawyer at the Milbank law firm, told Judge Martin Glenn that “several” articles in the legislation prevent the Chilean company from taking such approach.
Mr. LeBlanc told the judge that Gol is studying which measures to take against LATAM. The lawyer also argued that it is necessary to ensure that Gol will be able to negotiate with lessors without the “interference” of parties acting “inappropriately.”
The 737 model is crucial for Gol’s single fleet strategy. LATAM, in turn, has a fleet of 256 Airbus models, used on short-haul flights. The Boeing family (58 units in total) is used mainly in long-haul flights—through the 787, 777, and 767 models.
The lawyer said the letter starts by alluding to “recent events” in the industry, an obvious reference to Gol’s bankruptcy filing.
He notes that LATAM also underwent Chapter 11 in New York court in a two-year process, which means, according to him, that it knows the limits of the Bankruptcy Code.
The judge asked if it was confirmed that the letter was real and, according to the lawyer, it even had letterhead. The lawyer said he believes it is real and that the airline will investigate over the next few days whether it is having an effect.
The letter to lessors comes at a time when Gol struggles to negotiate contracts. Amid issues in the production chain, the market currently operates with a tight demand for aircraft. The scenario is different from what it was at the time LATAM and Colombian Avianca filed for Chapter 11.
In a statement, LATAM neither confirmed nor denied the existence of the letter. According to the statement, the company is in “permanent contact with all relevant stakeholders in the fleet [equipment and maintenance lessors and suppliers] as part of its business.” The airline said it has been active “in the market for several months with the aim of securing the necessary capacity to meet ongoing and long-term needs in the context of global supply chain challenges and aircraft/engine shortages.” When contacted, Gol declined to comment.
The rivalry between the airlines has been quite intense. No one is hoping for a large company’s bankruptcy, which could destabilize the entire transportation industry, but everyone wants to increase market share in the face of the weakness of a competitor who, before the pandemic, was the leader. In the past, Gol had around 38% market share. Last December, it was close to 33%, when it was outperformed by LATAM, with 38.7%.
At the time of Azul’s debt restructuring with lessors, which was concluded last year, sources pointed out that LATAM had made the same attempt to take Airbus aircraft from its competitor in conversations with lessors.
When LATAM filed for court-supervised reorganization in the U.S.—between 2020 and 2022—Azul tried to negotiate with Chilean creditors the acquisition of LATAM Brasil, as reported by Valor.
But Azul’s attempt does not come out of the blue. The company tried to purchase the assets of Avianca Brasil (OceanAir) before it went bankrupt. Gol and LATAM, however, launched a harsh campaign against it, preventing the deal. As a response, Azul decided to leave the Brazilian Association of Airlines (ABEAR), which now includes both Gol and LATAM, among other smaller airlines.
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