Project is installed at a substation in Registro, São Paulo, operated by the company
11/29/2022
Rui Chammas — Foto: Silvia Zamboni/Valor
Isa Cteep has put into operation the first large-scale battery power storage system in the Brazilian transmission system. The battery project is installed at a substation in Registro, São Paulo, also operated by the company.
The battery systems have 30 megawatts of power and are capable of delivering 60 megawatt-hours of energy for two hours to a region of up to 2 million people. The goal is for them to act during peak consumption periods on the Southern Coast of São Paulo during the summer, especially in the year-end holidays, ensuring additional supply.
In all, there are 10 containers with 180 racks of lithium batteries, which were imported from China, and occupy an area of nearly 5,000 square meters, equivalent to half of a soccer field. The executive director of projects, Dayron Urrego, and the company’s chief executive, Rui Chammas, said that the technology is expected to avoid interruptions in the power supply during load periods.
The system is planned to go into operation the moment Brazil’s national grid operator ONS gives the order. The company estimates that they will probably be used on average 12 times a year. The criterion for choosing the region was that studies pointed out that the southern coast of São Paulo has a power deficiency and should be supplied by a transmission line from the 2017 auction, which is not yet ready.
“During the summer, it is common to have a higher demand than the system can supply, so the batteries come in to supply the peaks of this demand, but they can also have other uses,” said Mr. Urrego. “The biggest peak is in the summer because of the use of air-conditioning, besides moments like Christmas and New Year’s Eve.”
Storage systems are considered the next technological frontier in the energy transition, because they play the role of guarantee of supply since they have characteristics – such as inertia, frequency, and voltage controllers – necessary for the operation of the system with due security and resilience.
In addition, the insertion of intermittent renewable generation, such as solar and wind, which cannot be stored in their original forms, has generated a series of operational complexities for the electric system.
This instability creates a challenge for the ONS, which orchestrates the mix of all sources to meet real-time demand, which also varies. Batteries are important because their command is in human hands and does not depend on the sun, wind, and rain.
“Energy transition brings opportunities and responsibility to make intermittent renewable energy be absorbed in the best possible way. We who invested in the first digital stations for better control of the equipment now get into batteries and think about using this technology and flow control,” said Mr. Chammas.
The amount invested approved by the Brazilian Electricity Regulatory Agency (Aneel) was R$146 million and is part of a total disbursement for reinforcement and improvement, which in the third quarter of this year reached R$471 million.
As a result, the Colombian company will have allowed annual revenues (RAP) of R$27 million. Mr. Chammas said that the regulator’s determination was that they should be put in place before the beginning of the summer – which in Brazil starts on December 21 – so that they would be entitled to the investment.
“Aneel authorized us to do the project. In one year, we did the engineering project, acquired the batteries from China, prepared the land, installed the construction, and energized it,” he said.
Because it is a disruptive technology, this topic still has no regulation at Aneel. Mr. Chammas considers it fortunate that the process fell under the rapporteurship of the agency’s director Sandoval Feitosa, who advocated the project’s approval.
The next reserve power auction is expected to be neutral regarding the technology to be adopted. Until now, these auctions were oriented toward gas-fired thermal generation. “If this is confirmed, we will have a great opportunity,” the CEO said.
Companies like CCGL want to take advantage of window to sell products to Asia’s largest economy
29/11/2022
One year after the first dairy products export to China, the Rio Grande do Sul-based cooperative CCGL received this month a visit from its Asian commercial partners. Due to market conditions — the price of the Brazilian product is not competitive now — new deals have not yet been closed. But, with an eye on the future, the contact has been constant in 2022.
It is understandable. Even though China is on the other side of the globe, and close to New Zealand — the largest exporter of dairy products in the world — the country may increase its imports of dairy products by 80% between 2021 and 2031, when purchases may reach 35.8 million tonnes in milk equivalent. The data are from the Chinese government and were gathered by InvestSP, an agency that belongs to the São Paulo government and promotes business between the two countries.
Brazilian exporters believe that Latin American countries can benefit from business windows in this decade as the Chinese demand is higher, since there is a limit for the New Zealanders to meet it.
According to José Mário Antunes, COO of InvestSP, the increase in dairy products consumption in China results not only from population growth, but also from an adjustment in nutritional recommendations that has been made by Beijing.
Caio Vianna — Foto: Divulgação
As this is a difficult market to conquer because it requires investment and patience, CCGL is committed right now. “When the market changed this year [prices in Brazil went up], we even cancelled a shipment of twenty containers to Brazil. We did this by mutual agreement, to maintain the good relationship,” said Caio Vianna, president of CCGL.
The Brazilian cooperative sent two “small” lots of powdered milk to the Chinese market a year ago. Volume and value were not informed. The milk was used by processors that manufacture dairy products, such as cheese, yogurt, and even sausage.
According to Mr. Vianna, the buyers were not yet familiar with the Brazilian product. “They really liked it,” he said. “But selling to China requires not just thinking about immediate profit.” CCGL knows it will have to invest money, time, and sometimes “even lose something.” “It takes work, but to open a market you need to invest.”
In the view of the exporters, it will be possible for Brazil and its neighbors, Argentina and Uruguay — two milk suppliers already more consolidated in the international market — to gain space in China over the course of the decade, because the rise in Chinese consumption will not be fully supplied by New Zealand.
Mr. Vianna believes that New Zealand has a limit to expand its supply, since the country depends on pasture and is not a producer of grains, used in livestock feed. Observing these features, he says, it will be difficult for farms to increase volumes by “30% or even twofold” to meet a demand much higher than the current one.
However, after New Zealand, the largest suppliers of dairy products to China are the European Union and Australia, important global suppliers of the sector that should also fight for space. The opportunities for Brazilians will happen in “windows” as the Asian demand — adding Vietnam and Indonesia — is bigger, raising international prices.
The ability to take advantage of them will depend on changes brought about by some fronts of efforts, whether individual – as has been done by CCGL –, sectorial, and governmental.
Brazil needs to increase the productive efficiency in milk – since the volumes of the farms practically supply the domestic market –, expand the investment in marketing and relationship, and strive to reduce international trade rates. The sectorial transformation that has been taking place in recent years in Brazil, with the use of technology, may help to increase the efficiency of farms.
However, Brazilian dairy products pay a 10% internationalization tax in China, as do European and U.S. products. Exporters from Australia and New Zealand have advantages in this chapter. New Zealand products, for example, are exempt from paying this tax for 300,000 tonnes, and as of 2024 the quota will be revoked. The dairy products from New Zealand will enter China without the charge. This type of barrier will only be overcome through bilateral agreements.
As for the cost of exports, due to the distance from Brazil, it is not a problem. “Negotiating with the Chinese showed that, differently from what I thought, freight is not a factor that affects our competitiveness,” says the executive.
Considering the scenario of challenges, maybe milk will be the last, among all the agriculture products, to gain exportation status, says Mr. Vianna. Despite that, he believes it is possible not only to become an exporter to China, but also a supplier. “A decade ago, Brazil didn’t export a kilo of beef to the Chinese. Today, that country is the biggest destination for meatpackers,” he says.
Meat and milk are segments with distinct features, but there is a behavioral factor in China that draws similar possibilities in the view of the president of CCGL. He recalled that China has at least 200 million people with high purchasing power in urban areas. It is the equivalent to the size of the Brazilian population among a total of 1.5 billion Chinese.
“There is a Brazil inside China with purchasing power to consume meat and dairy products. If these people taste a cheese made from cow’s milk, there is no way they will go back to tofu,” he said.
Subsidy is expected to reach R$30.3bn in 2023, and economists advocate gradual abandonment of the model
11/29/2022
With a drop in direct job generation in recent years, the departure of large companies from the region, and an increase in the tax cost to the federal government, the Manaus Free Trade Zone is going through one of the most sensitive moments since its creation in 1967. In recent years, the effectiveness of the free trade area has been placed at the center of the debate on a reform of tax laws.
Economists critical of the model say the Free Trade Zone is responsible for Brazil’s largest tax waiver, is ineffective, and has not fulfilled its role. They advocate a gradual migration towards the end of subsidies.
The Secretariat of Federal Revenue estimates that, by 2023, the tax waiver with the Free Trade Zone will be R$30.3 billion, a figure that has been growing in recent years. This year, the Federal Court of Accounts (TCU) said that the region will represent the largest tax waiver of the federal government next year – 16.1% of total tax expenditure.
Representatives of the local industry, academics, and members of the federal government in charge of supervising the region evaluate that despite the drop in job generation, Manaus Trade Zone is still key for the development of the Amazonas state and the consequent preservation of the forest.
With 41,773 registered companies — 18,054 of them only in the Amazonas state — today benefited from tax breaks, such as the Import Tax (II), Export Tax (IE), and Industrialized Products Tax (IPI), as well as social taxes PIS and Cofins breaks, the industrial hub, which represents 2.4% of the country’s industrial GDP, has been reporting a drop in the number of jobs in the last decades.
In 2012, for example, the benefited companies employed 120,000 people, according to the statistics agency IBGE, which represented 6.5% of the formal activity in the region. By the end of 2021, the number fell to 103,000, taking the index down to 4.59%. Since 2020, more than 80 companies departed from the region.
Business leaders of the region fear that a possible tax overhaul in the coming years that fails to preserve the free trade zone will result in the withdrawal of more companies. According to the Superintendence of the Manaus Free Trade Zone (Suframa), an agency linked to the Special Secretariat for Productivity and Competitiveness (Sepec) of the Ministry of Economy, more than 50% of the entire population of Manaus, or 2.25 million people, depends on the Free Trade Zone.
“The per capita income would be half of what it is today if there was no program,” said Márcio Holland, a professor at Fundação Getulio Vargas (FGV), coordinator of research on the region’s impacts, effectiveness, and opportunities.
According to Mr. Holland, a former Secretary of Economic Policy at the Ministry of Finance (2011-2014), the biggest challenge of the Manaus Free Trade Zone is how to sustain the attraction of investments to the region with less dependence on tax breaks.
“As an unfolding of this challenge, Brazil needs to promote a broad and deep tax overhaul that includes the adoption of VAT [value-added tax] in consumption taxation. A good VAT, however, because it is calculated at the destination, which overturns the structure of tax incentives that bring investments to the state of Amazonas,” he said. “How to conduct the necessary reform of the Brazilian tax system and preserve the existing investments in the region is a great challenge.”
Augusto Cesar Rocha — Foto: Fabiola Abess/Divulgação
On the other hand, academics say that it is possible to replace the high cost of the region. “The attempt to induce the industrialization of the Manaus region assumed that a few years of subsidy would be enough to create a new hub, with population growth and strong relations with the rest of the national economy and abroad. This did not happen,” said economist Marcos Mendes, an associate researcher at the business school Insper. “What we have is an enclave that depends on high subsidies to survive. The Free Trade Zone cannot be extinguished overnight, but a new model can replace it over the course of a decade.”
One who agrees is economic consultant Zeina Latif, a former Secretary of Economic Development in São Paulo. “It is important to discuss a transition of the program,” she said. “The ideal would be a discussion about how to help each region exploit its comparative advantages, which is not the case with the Free Trade Zone. Trying to develop artificially proves to be not very effective.”
This year, although the tax overhaul did not move forward, there was apprehension among companies in the region from the edition of decrees that reduced the IPI rates for products that were also manufactured in the Manaus Free Trade Zone. After an appeal to the Supreme Court, Justice Alexandre de Moraes suspended portions of the decrees, because the new rules could hinder the region.
“[The new rule] shows itself equally capable of impacting the regional development model that the Federal Constitution decided to maintain, whether in its economic aspect, by compromising the ‘unequalization’ of the region as a form of compensation for the higher costs arising from the challenges faced by the local industry,” Mr. Moraes wrote at the time.
Business leaders from the Free Trade Zone link the drop in jobs in recent years to legal tax insecurity in the region. “You can’t change the rule of the game after the game starts. We need to establish the rules and keep them. This is what afflicts the business activity in the Manaus Free Trade Zone,” said Luiz Augusto Rocha, head of the board of the Industrial Center of the State of Amazonas (CIEAM).
With the expectation that the Lula administration will proceed with a tax overhaul, the business leaders of the region are doing the math and negotiating with Congress a way to mitigate the impacts and preserve the activity in Amazonas. Today, the biggest concern is with the proposal to amend the constitution (PEC) 45, of the Chamber of Deputies, which is based on the assumption that there should be no tax breaks. “It would be the death of the Manaus Free Trade Zone,” said Mr. Rocha.
Senate PEC 110, on the other hand, has its own chapter for the Manaus Free Trade Zone. This text, according to the region’s businesspeople, is more favorable, but still needs improvements: the main fear in this proposal, for the region, is the regulation, by supplementary law, of the period for maintaining tax breaks in the region — currently guaranteed by the Constitution until 2073.
“A tax reform has to consider the region. There are 25 million inhabitants in the whole Amazon, and we need to think about it strategically,” said General Algacir Antonio Polsin, current head of Suframa, appointed to the position by President Jair Bolsonaro – and an advocate of the model. During his term in office, Suframa has sought to get closer to research institutes and universities in an attempt to boost the region. Today, there are three universities and 131 research institutes in the region.
Mr. Polsin evaluates that, besides the tax issues, there are two other main challenges for the future of the region: attracting investment and the maintenance of the labor force due to the advance of technology in the industry and the change in consumption standards. “We have to take advantage of what makes us stand out, which are the products of the land. We can’t depend on the sale of commodities,” he said.
As the Ministry of Economy may be split in Lula’s administration, it is expected that Suframa (in charge of inspecting companies in the region and stimulating development) will be linked again to the Ministry of Industry. This change could broaden the dialogue of the companies with the government, the general said.
Besides the tax issues, which are directly related to economic development and the maintenance of employment, there is still the logistical challenge because of the difficulty of local industry to transport products by other means, given the dependence on the river. In the view of Augusto Rocha, a professor at the Federal University of Amazonas (Ufam), the complexity of the issue involves building infrastructures that respect and protect the environment and the people of the region, “inducing economic activities that have the magnitude to justify such investments and, simultaneously, do not cause devastating effects.”
“The industrial hub of Manaus has a set of products. The best infrastructure will be the one suitable to the set of products produced there. It will not be railroads or trains, because these alternatives are suitable for mining or agriculture. It will not be waterways, for the same reason. Thus, for motorcycles — which will be distributed throughout the country — the most appropriate alternative would be the road,” said the professor.
The main demand from the infrastructure standpoint for the region is the completion of the BR 319 highway which, in the past, made possible the connection between Manaus and Porto Velho — today, this connection is entirely made by boat, which raises the cost for the industry. This is because today the so-called “middle stretch” of the road, about 400 kilometers long, is the most critical and is not paved, which prevents the transport of goods by land. According to government data, R$1.3 billion would be needed to complete the reconstruction of the highway.
Environmentalists, on the other hand, defend that, if the road is reactivated, it would favor and consequently facilitate the deforestation of the Amazon Forest. “The environmentalists’ argument is correct, and we need them to face the issue, so we can build a sustainable model for this highway,” the professor pointed out. “If we don’t, the forest will be destroyed to the guts.”
Despite that, result propped up by services and employment is considered positive
11/28/2022
Brazil’s third-quarter GDP growth is expected to slow down to half the rate of the previous three-month period, considering the projections collected by Valor and data released by the statistics agency IBGE so far.
This deceleration was already expected by economists due to external turbulences and Brazil’s very contractionary monetary policy. Even so, analysts believe that the third-quarter GDP growth might have been better than anticipated, as the services sector shows greater resilience and the labor market is still heated.
The median of 75 projections from financial and consulting firms indicates a 0.6% GDP growth in the third quarter compared to the second, when it climbed 1.2%. IBGE’s official data for the third quarter will be released on Thursday, as well as potential revisions to previous quarters.
In the year-over-year comparison, there may even be a slight acceleration in the GDP, to 3.6% in the third quarter from 3.2% in the second quarter, according to the median of 71 analysts.
Since the last quarter of last year, there has been an average GDP growth of 1% in quarterly comparisons, which reflects the favorable picture of the global economy driven by high commodity prices, the reopening of the Brazilian economy after the Covid-19 pandemic eased, and fiscal stimuli, such as the authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts and the early payment of the 13th salary, a year-end bonus, to retirees, said Felipe Salles, the chief economist of C6 Bank.
In his view, the scenario has already started to change in the second half of this year: the world is growing at a slower pace, the United States is raising interest rates, Europe faces energy shocks and the risk of recession, and China is undergoing a strong deceleration impacted by its “zero-Covid” policy. Commodity prices are also starting to fall, with repercussions for the Brazilian economy, said Mr. Salles.
Here in Brazil, the effect of the reopening of the economy, which benefited the services industry in the first half of the year, is beginning to lose steam, according to the economist, and a clearer effect of the tight monetary policy is expected. Mr. Salles projects a 0.4% GDP growth in the third quarter compared to the second. “These external and domestic headwinds are already affecting confidence indexes,” he said, adding that this is expected to cool down the sector.
Luis Otavio Leal — Foto: Divulgação
Still, on the supply side, activity is expected to be sustained in the third quarter by services (up 0.8% compared to the second quarter, according to the median obtained by Valor) and by agriculture (2%), the latter benefited by the good performance of the second yearly crop of corn, said Luis Otavio Leal, the chief economist of Banco Alfa.
Positive surprises in both sectors even made Santander revise its projection for third-quarter GDP to growth to 0.9% from 0.6%. “This updated forecast highlights a [new] forecast of stronger GDP, bringing a strong result of four gains in a row,” said economist Lucas Maynard.
Industry, on the other hand, probably saw a weak performance, but still positive (0.3%), driven by the transformation and utilities, said Itaú Unibanco, which also adjusted its projection for the third-quarter GDP to 0.6% from 0.4% because of services.
“There will probably be some deceleration in industrial GDP, both in the manufacturing and extractive industries. But the services part is still quite strong and resilient, especially transport services, which weigh a lot in the model,” said Danilo Passos, an economist at Wealth High Governance (WHG).
Laura Moraes, an economist at Neo Investimentos, said she does not foresee a rise that big in services, which puts Neo on the more cautious end of GDP projections, at 0.2%. “In fact, services have been surprising throughout the year, but we are not capturing all of this they see. Still, it’s a good number and I wouldn’t be surprised if the result came in higher,” said the economist.
On the demand side, growth is sustained by household consumption (0.6%) thanks to the effect of vote-getting measures put in place by the federal government – such as the increase in the cash-transfer program Auxílio Brasil to R$600 a month and a slower inflation as a result of a reduction in fuel prices. The labor market plays a role as well, as it has been recovering fast and intensely.
The Gross Fixed Capital Formation, a measure for investments in the GDP, probably increased by 1.3%, according to the median collected, “mainly due to the higher domestic absorption of capital goods, notably machinery and equipment, also related to the agricultural sector,” said Mr. Maynard, with Santander.
“We will probably see some contribution from government consumption, which was flat,” said Mr. Leal. Valor’s median indicates an increase of 0.6%.
As a result, the economists’ assessment is that domestic demand – the sum of household and government consumption, investments, and inventory changes – will be strong. Safra, which expects GDP growth of 0.4% in the third quarter compared to the second quarter, says that this growth “benefited from fiscal stimuli in the recent period, which is likely to translate into an one-percentage-point growth in domestic demand met by falling inventories and strong imports.”
The median expectation for the external sector in the third quarter is an increase of 3% in exports and 3.7% in imports.
Although Alfa is on a more optimistic end of the projections for third-quarter GDP growth, at 0.9%, Mr. Leal said that the scenario expected for the period is unlikely to differ much among consultancies and financial firms in terms of the factors that supported growth. “Maybe we are expecting a greater impact from the slowdown in inflation and the measures put in place in view of the election.”
For Mr. Passos, with WHG, who also expects a 0.9% rise for GDP in the third quarter, a weaker third quarter than the second – even if the difference is not so great by his projection – “means that the economy is losing a little momentum,” he said.
For the fourth quarter of 2022, the median expectation from the projections of 67 analysts is of a stagnant economy. “This 0% projection has the risk of being more negative, especially if credit comes in lower. We see default growing, new concessions adjusted for inflation cooling down and entering a trajectory that is consistent with monetary policy,” said Mr. Moraes, with Neo.
For Alfa, which expects a decrease of 0.5% compared to the previous three months, the period is likely to be affected by a slower labor market at the same time in which the impact of interest rates, which was somewhat hidden in the third quarter by government stimuli, will become clearer, said Mr. Leal. And investments should also feel the rise in interest rates more strongly, said Mr. Salles, with C6, who projects that fourth-quarter GDP will drop 0.3%.
There are, however, some unknowns. Among them, the effect yet to be verified of the atypical sequence of FIFA World Cup, Black Friday, and year-end holidays. “We do not know the impact of this shopping days, something that our models do not reach,” said Mr. Leal.
Mr. Passos, with WHG, says he does not see, with the information available so far, a negative GDP in the fourth quarter – he projects 0.3% growth. “Especially if the service sector comes in very well in the third quarter, which generates a positive statistical carryover,” he said.
The median projection of 83 analysts indicates GDP growth of 2.8% this year, before slowing down to 0.7% in 2023.
Brazil’s securities market authority also needs new public hiring test, according to current and previous directors
11/28/2022
In the 20 years between the Lula administration back in 2003 and his third term in office starting in 2023, Brazil’s capital market has evolved as never. But despite several IPOs, a record number of investors, and the emergence of new products, the Securities and Exchange Commission of Brazil (CVM), the country’s market regulator, has shrunk in size. There has not been a single public hiring test since 2010, and the financial independence provided by law has never happened in practice.
The prevailing assessment is that the financing of the agency is a delicate matter because of the discussions about public spending in the new administration. On the other hand, people close to President-elect Luiz Inácio Lula da Silva’s team have signaled that a public hiring test would be feasible.
The Brazilian capital market began to take off in the 2000s, during Mr. Lula’s first term in office. Novo Mercado was created at the time and established stricter corporate governance rules and greater transparency for the market. In the following years, in 2006 and 2007, the country experienced the first IPO boom, which consolidated the new phase. A new record occurred between 2020 and 2021, with 73 offerings.
Currently, there are nearly 700 listed companies on the CVM, which represent a fraction of the 78,162 entities regulated by the capital market authority. They include investment funds, brokerage firms, administrators, analysts, consultants, investment advisors, distributors, credit rating agencies, and securitization companies, among others. CVM operates with a surplus. Annually, it collects about R$800 million from inspection fees, a counterpart for the regulator’s service. The regular budget totals nearly R$260 million and discretionary spending is historically around R$25 million.
Law 10.303, of 2001, provided that funds from the collection of the inspection fee can be used to fund the activities of the agency, but this financial autonomy does not exist in fact: the funds go to the single account of the National Treasury. CVM has to prepare its budget proposal and send it to the Ministry of Economy, which can change it. The general budget is forwarded to Congress, which can also change the amounts. In 2022, the agency’s budget was under threat – it was almost cut by more than 50%, but, at the end, managed to keep it in full.
Joao Pedro Nascimento — Foto: Leo Pinheiro/Valor
CVM has been warning in recent years about the increased level of risk related to the lack of personnel. A number of employees was moved from the Brazilian Development Bank (BNDES) and other state-owned companies to CVM, but it is insufficient in view of the growth of the market. CVM President João Pedro Nascimento speaks of funding and personnel problems even before taking office, as predecessors like Marcelo Barbosa and Leonardo Pereira did before him.
“CVM has reached a limit situation. We badly need a public hiring test in order to be prepared to serve a market that grows in size and complexity,” said Mr. Nascimento. This year, preparations were started for a hiring test to be held in 2023. And now, for it to materialize, the approval of the Lula administration will be necessary. The matter is a priority to be dealt with by the presidential transition team.
On the financing side, the current president of the CVM intends to create a capital market improvement fund, with part of the funds from the fees, which also depends on Brasília. “It is important to be able to predict that a certain amount will be allocated to CVM. In other words, predictability. Then we can organize ourselves to make the best use of those funds.”
In response to the special secretariat of treasury and budget, CVM has indicated representatives who will work to meet the demands of the presidential transition team, including the agency’s chief.
Those who led CVM know the difficulties. Economist Maria Helena Santana held the position between 2007 and 2012, when the market was a fraction of its current size. “[Back then], we didn’t manage to keep part of the money with CVM, and proportionally, today, the amount that stays in the hands of the agency is even smaller,” she said. The agency needs to have a minimum of predictability to make long-term plans, she said.
Under Marcelo Trindade, Ms. Santana’s predecessor, CVM had its funding most assured. The lawyer took over in 2004, replacing Luiz Leonardo Cantidiano. After facing difficulties in his relationship with the Ministry of Finance, Mr. Cantidiano resigned. “Because it generated this serious consequence, the government came to its senses and ensured the conditions for the functioning of the agency, from the standpoint of autonomy and financing,” said Mr. Trindade.
After the episode with Mr. Cantidiano, there are no more reports of government interference in CVM, which continues its work independently. “I hope the good times will come back, and I wish the new administration remembers its successful experience so that things work well,” said Mr. Trindade.
Another historical problem faced by CVM is the slowness in defining new board members, who have fixed terms. In the Bolsonaro administration, for example, the board spent most of 2020 with only four members and 2021 with only three, out of a total of five. Mr. Nascimento was an exception, as he took office immediately after the departure of Mr. Barbosa, his predecessor.
Maintaining the current composition, the next vacancy in the board should open at the end of 2023, as the term of director Flávia Perlingeiro will come to an end. Regarding CVM’s work, lawyers and former directors of the agency told Valor there is independence to establish a liberal regulatory agenda and make decisions. “The profile of the new minister will make all the difference in the nominations and projects for CVM. João Pedro [Nascimento] will work hard to build a good relationship,” a former director says.
Sets will be completed in Piracicaba with batteries imported from Germany
11/25/2022
Marcelo Rezende — Foto: Divulgação
Keeping up with the electrification of vehicles without losing money or going out of business has become one of the biggest challenges for many auto parts makers. The large ones have been able to adapt by buying up other companies. At the beginning of the year, the U.S.-based BorgWarner, a well-known player in components for combustion engines, acquired the German battery maker Akasol, which already had three plants – two in Germany and one in the United States. The fourth one – the first since the acquisition – will be inaugurated in the first quarter of 2023 in Piracicaba, São Paulo, and already has a client: the Brazilian subsidiary of Mercedes-Benz.
After posting a global turnover of $14.8 billion in 2021, BorgWarner has set the goal of generating 45% of its revenues from electrification systems by 2030, said Marcelo Rezende, the company’s managing director for batteries in Brazil. This year alone, the company won $2.9 billion in new businesses in the electric vehicles market, compared with a target of $2.5 billion originally projected to be reached by 2025, he said.
Mr. Rezende is a trained mechanical engineer who came from Delphi, a company acquired by BorgWarner two years ago. The deal included Delphi’s plant in Piracicaba, the same that has just been revamped to receive Akasol’s new line, a brand that will remain in the market. The battery systems will be produced in a previously rented facility.
The systems will be made from imported components, which will be complemented with items produced in Piracicaba. The lithium-ion batteries will arrive from Germany through the Port of Santos. It is a large component (1.8 x 0.7 meters) that weighs 500 kilos. The management and charging modules will be added in Brazil, as well as one that interconnects the others. Each bus will have, on average, four sets of batteries, distributed on the roof and rear of the vehicle.
According to Mr. Rezende, the local sourcing of part of the systems will guarantee the bus buyer access to Finame, a special credit line for commercial vehicles offered by the Brazilian Development Bank (BNDES), which has been adapted to include electric vehicles. Mercedes’s bus also marks the German company’s debut in electromobility in Brazil – the automaker is the first customer of BorgWarner’s new operation as well.
Mr. Rezende believes, however, in the expansion of electrification not only in the city bus segment, but also in the truck and delivery van segments. He says the company has been talking to other automakers. “Brazil is the fourth-largest commercial vehicle market in the world and the demand for electric vehicles is expected to grow 400% in the next five years,” he said.
Although at the beginning of the operation the pace will be slower, the new plant will have the capacity to produce 4,000 battery systems per year. According to Mr. Rezende, when it reaches this volume, the amount of power produced will be enough to power 200 homes for a year.
BorgWarner’s management team does not reveal data such as investment in the new plant, number of employees or sales in Brazil, where the company has been operating for almost 50 years. But the company cites sales growth percentages in several divisions. According to BorgWarner, in the year to date, the Brazilian plants have produced 13.4% more than in 2021, including supply to automakers, aftermarket, and exports.
The production of starter motors and alternators to serve the automakers in Brazil grew 110%. The increased demand for cars with turbocharged engines is also benefiting BorgWarner, which is expanding its production of turbochargers in Itatiba, São Paulo.
According to the company, turbochargers exclusively for bi-fuel engines (which run both on gasoline and ethanol) will be in 30% of the light vehicles sold in the country this year. This share is expected to increase to 37% in 2023, 45% in 2025, and 54% in 2030.
This explains why, despite the strategy for electrification systems, the company is not neglecting the combustion vehicle market. “We believe Brazil is still going to benefit greatly from the technological path of its biofuels in the light vehicle segment,” said Wilson Lentini, BorgWarner’s general manager for emissions, thermal, and turbo systems in Brazil.
The advance of electrification in other parts of the world is also beginning to open up opportunities for plants in Brazil, which are taking over the supply of components that are no longer being produced in regions that are more advanced in electrification, such as Europe.
According to Mr. Rezende, the company will start next year exporting these products to Argentina, Uzbekistan, and South Korea, meeting global needs of a customer.
In 2022, 4% of BorgWarner’s sales of starter motors and alternators were injected in expanding the capacity of the production lines for these components at the Brusque plant, in Santa Catarina. The plan is for these investments to reach the equivalent of 6.5% of sales in 2023 and to set up a third production shift at the plant. Besides Brusque, the group’s other plant, in Itatiba, São Paulo, also operates in three shifts.
For Mr. Rezende, in the age of electrification, local production continues to be a priority whenever possible. “The decision for the fourth battery system factory in Brazil was a strategic one, so the company will be able to serve customers in the region.”
Tax experts question efforts like the ones that angered farmers in Paraná and Goiás
11/25/2022
After confusion in the Goiás Assembly on Tuesday, discussion about fund fed by agriculture production had to be postponed — Foto: Denise Xavier/Alego
Two proposals aiming to tax agriculture production and commercialization in Goiás and Paraná caused turmoil this week and, as a consequence, the cell phones of tax experts used to advise businesspeople in the sector rang more frequently in the last days.
Similarly, the two bills suggest the creation of funds fed by percentages collected from the production and commercialization of agribusiness chains. In Goiás, the proposal for the creation of the State Infrastructure Fund (Fundeinfra) came from Governor Ronaldo Caiado. In Paraná, it was suggested by Governor Ratinho Junior.
The governors, both supporters of President Jair Bolsonaro, faced strong resistance from the sector, which led to a riot in a legislative session in Goiás. The sector is a stronghold of Bolsonarism and felt “betrayed.”
Goiás’s Fundeinfra was approved last Wednesday and will collect up to 1.65% of the agricultural and mineral production, which is expected to yield R$1 billion a year. The money will be used for infrastructure and will not go through the state treasury. According to the secretary general of Goiás, Adriano da Rocha Lima, the money will go to the agency responsible for public works.
The funds will be managed by a council formed by representatives of the government and the agribusiness sector, he said. After the approval of the fund by the state deputies, the next step is the preparation of the decree that will regulate the collection in each segment. Goiás will tax soy, corn, and sugarcane.
“A dialogue will be opened to adjust the collection in the most assertive way possible,” Mr. Lima told Valor. According to him, the collection will compensate the impact on the state cash flow of sales tax ICMS reduction in some segments, such as fuels.
“It is a way for the sector to contribute with something that, in the end, will return to the producer himself. If the roads improve, there are logistical benefits and costs fall,” he said.
The formation of funds that tax the sector to increase the cash flow of states is not a recent strategy. It has existed since 1999 when Mato Grosso do Sul created the Road System Development Fund (Fundersul). Then, in 2000, another state, Mato Grosso, created the State Fund for Transportation and Housing (Fethab). This fund regulates the contribution collected in the country’s largest agricultural state and has served as a reference for others that were created afterward.
Among them are Maranhão’s State Fund for Industrial Development, approved in 2005, and Tocantins’s State Fund for Transportation, in 2019. For the most part, the money collected is earmarked for infrastructure, construction works, and logistics projects.
Besides the levy on agricultural products, these funds have other points in common, such as the definition that contributions are not compulsory but tied to the concession of tax benefits in the states. Tax experts question this aspect.
Another common point in those funds is money management. In general, they are managed by boards of directors that may include the participation of private entities.
Tax attorney Marcelo Guaritá, partner at the Peluso, Stupp e Guaritá law firm, explains that the contributions are required in exchange for some incentive, benefit, tax calculation regime, or tax deferral.
As a result, there is a consensus among tax specialists about the creation of a kind of “disguised tax.” The problem with funds that tax agriculture production, critics say, is not the search for revenue for public policies, but the way this search is being carried out.
“These funds are a legal fiction. They are not treated as taxes, so they are not under tax or budget legislation,” said Mr. Guaritá. According to the lawyer, who has been a member of São Paulo Municipal Tax Council, it is like “signing a blank check” and handing it into the hands of the governors.
Mr. Guaritá and other tax lawyers consulted by Valor said that the tool was designed by the states as a way to collect taxes “outside the box” of the tax rules to avoid constraints.
Mr. Guaritá reiterates that several constitutional principles guide tax collection in the country. “Taxes need to be shared with municipalities, for example. In Mato Grosso, part of the funds goes to the Judiciary branch, to the Legislative branch, and even to private associations. If it were a tax, it wouldn’t work like this,” he said.
Even the terms fee, tax, and contribution could not be used in these collections. Each one of them has a different meaning in the tax system and is subject to different rules, said Henrique Erbolato, a tax lawyer and partner at Santos Neto Advogados.
In Mato Grosso, where Fethab is in force and collected more than R$2.7 billion in 2021, the collection of the contribution varies between 0.03% and 11.5% of the Standard Fiscal Unit of Mato Grosso (UPF), depending on the product. In Mato Grosso, the sector’s contribution is collected from soy, corn, cotton, beans, wood, and cattle. The gross production value of the agribusiness sector in the state is around R$200 billion per year.
The contribution is not mandatory, but in Mato Grosso, it is tied to sales tax ICMS exemption. If a soy exporter chooses not to contribute to the fund, he will have to pay ICMS earlier to the state, and it will be refunded only after the international shipment is made.
Due to the possibility of refunding, the Federal Supreme Court (STF) understood that there is no compulsoriness. The court analyzed the functioning of the collection that allocates money to Fethab in direct action for the declaration of unconstitutionality (ADI). “In the end, it’s a matter of cash flow,” said Mr. Lima, from the government of Goiás.
Critics say this is not so simple. “It turns out that this [how the fund works] leads a taxpayer to prefer to deliver a little bit to the fund rather than having to face a whole bureaucratic process to get back a money that before [the emergence of the fund] he wouldn’t need to disburse [ICMS on exports],” said Henrique Erbolato, a tax lawyer and a partner at Santos Neto Advogados law firm.
João Reis, a partner at Machado Meyer Advogados, added that the charge ends up causing distortions in the chain that affect the competitiveness of Brazilian products abroad. “There are other ways to compensate for revenue losses in the states, such as in Goiás. There are legislative bills that offer alternative solutions and can be discussed in Congress, because they involve the Brazilian state.”
The debate in the Supreme Court is not over. The emphasis is on the constitutionality of the funds. “The Federal Constitution has a provision that says that it is not up to any state to restrict the hypotheses of tax immunity,” stated Mr. Erbolato.
The issue was analyzed by tax specialist Heleno Torres, a professor at the Law School of the University of São Paulo (USP). Mr. Torres’s opinion says that Fethab legislation cannot condition the tax benefit to a collection: “In other words, the threat of revoking the non-taxation of export operations runs up against the prohibition of this taxation.”
“It is flagrantly unconstitutional,” continues the text. Besides paying ICMS, exporters are also exempted by the Constitution from federal tax IPI, social taxes PIS and Cofins, sales tax ICMS and municipal tax ISS.
Among the authors of at least three ADIs waiting in the Supreme Court queue are Abiec, an association that represents meatpackers, and Aprosoja, a soybean growers association. Two of them are waiting to be evaluated by Justice Gilmar Mendes.
If the Supreme Court decides in the future that the collection of Fethab was undue, for example, there is no guarantee that the money will be returned to taxpayers. Issues involving the return of large sums are subject to the invocation, by the states, of the argument of financial loss to the cash flow.
“Even if in a few years they rule that the collection could not have occurred, they [states] invoke this to get the collection to be valid after the judgment,” says the partner of Santos Neto.
Even as the decision of an ADI is valid for everyone, lawyers have been advising clients to go to court individually. “The taxpayer who just waited for the ADI’s decision can get rid of the payment [only] from then on, while those who went to court individually beforehand have their right guaranteed. This is how the Supreme Court has understood it,” explained the tax specialist of Santos Neto firm.
This may be a favorable step for the interests of law firms, but the professionals themselves recognize that it is not good for legal security in the country. Given the legal scenario, political pressure moves forced by the sector at this moment would be a more efficient alternative to stop a possible wave of new funds of this nature, according to legal experts.
Specialist says that U.S. industry will have to import fruits very soon
11/23/2022
The moment when the U.S. orange juice industry will operate only with imported fruit is near. In 21 years, the production in the state of Florida, which concentrates the largest citrus grove in the country, fell to 28 million from 230 million boxes, according to the U.S. Department of Agriculture (USDA). With the damage caused by the hurricane Ian, the volume may shrink to about 14 million boxes.
“To run a juice plant you need to have a good volume of fruit, otherwise the cost per tonne gets too high. So, the discussion at this moment is whether it is viable to continue producing oranges or import 100% of the raw material”, said Andrés Padilla, industry specialist of Rabobank Brazil to Valor. In his opinion, the situation is irreversible. “When you think that production has already fallen almost 90%, the chance of going to zero is great.”
Mr. Padilla affirms that U.S. farmers made a mistake in their strategy to combat citrus greening, a phytosanitary problem. Unlike Brazilian producers of the citrus belt that spreads over São Paulo and Minas Gerais, who uprooted the infected trees and planted new ones, the U.S. citrus producers tried to control it. “Today, all the plantations in Florida have the disease”, he commented.
In addition to the hurricanes and the greening, Florida’s production has suffered due to the rising cost of land and labor. “Of the four big plants that are left, one or two at the most will run at the next harvest. It’s not worth opening shifts because the losses are for sure,” said the analyst.
The drop in the supply of oranges in the U.S. will open space for a greater volume of exports from Brazil, whose production is recovering after two years of problems caused by La Niña. According to the Rabobank specialist, the country is likely to reach 314 million boxes, a 20% increase. But he considers that, in the short term, the low Brazilian stocks of the beverage will limit the increase in shipments.
But the juice demand of today, and the future, is a big question mark in the U.S. and in the world. According to Mr. Padilla, consumption has declined dramatically over the past decade. From the 2016/2017 harvest to the current cycle of 2022/23 the projection is for a 13% global retreat, to 1.56 million tonnes of the beverage equivalent to concentrated and frozen product (FCOJ).
“Not so long ago, a negative image of the product was created – due to the calories – from data that were not the most correct from the scientific point of view. Several nutritionists started to tell people to opt for the consumption of the fruit in natura”, he explained.
To the Rabobank expert, the industry – including the Brazilian industry – also failed to advance in emerging markets, such as China: “The Chinese demand grew a little, but not enough to counteract the fall in consumption in Europe, the biggest import market.”
In the medium term, the orange high may sustain the orange juice contracts in the New York Stock Exchange. However, at a time of global economic recession, the high price may accelerate the reduction in consumption.
Country, which accounts for 40% of results and has the company’s best margin, has consolidated as a gate to mature markets
11/23/2022
Rodrigo Davoli — Foto: Silvia Zamboni/Valor
Sylvamo, an independent company since the spin-off of the printing and writing paper assets of International Paper (IP) worldwide, found a new strength in the Brazilian operation a year after listing it shares on the New York Stock Exchange (NYSE).
Brazil, which accounts for 40% of results and has the company’s best margin, has consolidated as a platform for mature markets with a developed paper industry, including the United States and Europe, thanks to the competitiveness of the papers produced in the local mills.
The competitive advantage starts with eucalyptus forests, which are more productive and have shorter cycle, and is sustained with the integrated production of pulp and paper, said Rodrigo Davoli, Sylvamo’s CEO in Brazil and vice-president for Latin America.
“Brazil has great relevance in the business and remains extremely strategic,” said the executive. In the third quarter, net sales in Latin America, served by the Mogi Guaçu (São Paulo), Luiz Antônio (São Paulo), and Três Lagoas (Mato Grosso do Sul) mills – the only one that does not have integrated pulp production – totaled $270 million, 35% higher than a year earlier. The adjusted EBITDA margin was 27%, compared with 18% in Europe and 20% in North America.
In 12 months through September, the Brazilian operation reported revenues of more than $1 billion and produced a little more than 1 million tonnes of paper. About half of this volume was absorbed by the domestic market, while the other half was exported mainly to Latin America, maintaining the mix seen a few years ago.
Under Sylvamo’s structure, looking at Brazil as a viable exporter could help make viable an old plan to build a second paper machine in Três Lagoas. Asked about the project, Mr. Davoli said the company is always studying opportunities. “Thinking of Brazil as an export platform, it may be that at some point [the company] has to talk about capacity expansion. Brazil is the place if it has to make an expansion decision.”
The Latin American market for printing and writing papers was one of the most affected by the pandemic and demand fell as much as 30% in the first year. There has already been a recovery and Brazil is close to returning to pre-Covid levels. From January to September, according to the Brazilian Industry of Trees (Ibá), the national production fell 4.1% year-over-year, to 1.65 million tonnes. Domestic sales were stable at 1 million tonnes and exports grew 6.1% to 683,000 tonnes.
Sylvamo grew above average in the Brazilian market, according to Mr. Davoli, as well as in the other regions where it is present. “The third quarter was quite similar to the second quarter. We had an important shutdown [for maintenance] in the Mogi Guaçu plant that impacted the results, but the paper business is extremely resilient,” he said.
At this moment, the Brazilian operation sees opportunities in cost reduction projects with high return, including marginal expansion of production capacity. There are also possibilities in automation and modernization, in line with the financial discipline strategy. Together, these projects total about $10 million in investments. The company is the market leader in cut-size paper, with a 53% share. It used to be 50%.
In general, faster inflation has been the main concern of the paper industry and one of the most relevant pressures came from logistics and freight prices, particularly for foreign trade, the executive said. “International logistics was a complex theme and weighed too much on margins. We see signs of improvement, but still not much for Latin America,” he said.
On the demand side, there is recovery in different areas, especially education, which accounts for 30% of the consumption of printing and writing paper in Latin America. There is also expansion in other applications, such as e-commerce labels or thermal papers, whose base is offset paper.
Looking ahead to 2023, the company adopts a cautious tone. Although the perception is of solid demand in Brazil, it is unclear how the dynamics outside the country will be. Proper cost management will remain a priority at Sylvamo, whose strategy has been to try to pass on as much costs as possible in this line.
Globally, Sylvamo reported net sales of $2.7 billion up to September. In October, it concluded the sale of a unit in Russia for $420 million – the decision to sell was made because of the invasion of Ukraine – and announced the purchase of an uncoated paper mill in Nymolla, Sweden, from Stora Enso, for $150 million.
Class associations accuse U.S.-based aircraft company of threatening national sovereignty
11/23/2022
Boeing’s offensive to recruit engineers from the elite of Brazil’s aerospace and defense industry has ended up in court. Two trade associations have filed a lawsuit to try and stop the U.S.-based plane maker from hiring “highly-skilled engineers” that are currently working in strategic companies of the country’s Defense Industrial Base (BID).
In one year, Boeing has taken more than 200 engineers from other companies to its center, in the most acute movement of brain drain that this industry has ever experienced, according to estimates by representatives of the Brazilian Association of Defense and Security Materials Industries (Abimde) and the Aerospace Industries Association of Brazil (Aiab).
In the suit filed Tuesday in the 3rd Federal Court of São José dos Campos, the trade groups warn that the U.S.-based company’s move puts the survival of companies in the sector at risk and threatens national sovereignty. The goal of the suit is to stop the “systematic hiring that leaves a trail of predatory actions in the companies of the BID, until alternatives are discussed that can guarantee the preservation of national sovereignty.”
With the move, the intention is also to bring the American company to the center of the debate, as well as the Ministry of Defense and the Federal Attorney General’s Office (AGU). “These are hundreds of engineers, but the core of the issue is not quantitative. It is qualitative. That is the difference with other brain drain processes,” said Aiab head Julio Shidara.
“Aiab defends free competition and the free market. But such principles are not absolute. They must be subject to constitutional imperatives such as national sovereignty,” he added.
So far, 10 of the most important companies in the defense sector have had engineers “co-opted” by Boeing, and some have lost about 70% of their staff in specific areas essential to the business, according to the associations.
In Embraer’s case, the situation would be more worrisome given the access that Boeing had to “proprietary information” during the negotiation period for the purchase of the Brazilian manufacturer’s commercial aircraft, which did not move forward. Embraer and Boeing have taken the conflict to arbitration and there is no outcome yet.
In the associations’ view, Boeing’s move unbalances the market and represents a threat because the companies that make up the BID “aim to constantly update the Navy, Air Force, and Army technologies.” “The companies that are being harassed are the ones that provide technology that maintains the defense capability of the Armed Forces,” they said.
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