Alternative PEC reduces spending cap to R$70bn from R$198bn

Proposal sets date for future government to create a new sustainable fiscal regime

11/21/2022

Alessandro Vieira — Foto: Roque de Sá/Agência Senado

Alessandro Vieira — Foto: Roque de Sá/Agência Senado

The alternative proposal to the so-called Transition PEC, a proposal to amend the Constitution, filed on Saturday by Senator Alessandro Vieira (Brazilian Social Democracy Party, PSDB of Sergipe) and anticipated to Valor, reduces to R$70 billion from R$198 billion the necessary increase to the spending cap to ensure the maintenance of R$600 paid monthly by the cash-transfer program Auxílio Brasil/Bolsa Família and ensure the additional Early Childhood Benefit of R$150 per kid to families.

In addition, the new PEC sets a deadline of July 17, 2023, for the government to approve a complementary law creating a new sustainable fiscal regime, with the repeal of the spending cap, the rule that limits growth in public spending to the previous year’s inflation.

The senator points out that the elected government’s proposal is “very generic and broad”, which could put at risk the stability and fiscal credibility of the future government, besides leading to an increase in the cost of the country’s debt. This could compromise the fiscal capacity to honor its commitments and to implement public reconstruction policies that the country so desperately needs. “We understand that maintaining the credibility of the Brazilian government’s fiscal framework is essential to begin the process of reorganizing the Brazilian state,” says Mr. Vieira, to justify the presentation of an alternative text.

Growing discontent in the market and internal pressures from political allies of President-elect Luiz Inácio Lula da Silva (Worker’s Party, PT) lead to the expectation that the first names to occupy the Ministries, which was expected to be made official only in December, may begin to be defined as of this week.

In the evaluation of some allies, the delay in defining the first names has given a sign of a lack of sense of opportunity to generate positive media before the beginning of the new term. PT sources cite the importance of Mr. Lula not losing the timing for the choice of the Economy Minister, but some evaluate that this name may not be announced in the first wave precisely to mark a position that the President-elect will not be influenced by direct market demands.

The former Minister of Education Fernando Haddad, the defeated candidate of the PT for the government of São Paulo, is one of the candidates to head the economic team of the new government.

One of the few areas of the transition team that have not yet had its members confirmed, the Defense technical group, is expected to be announced as of this Monday. One of the names that emerge as a clear front-runner is that of Senator-elect Flávio Dino (Brazilian Socialist Party, PSB), who coordinates the Justice and Public Safety technical group.

Gilberto Kassab’s PSD (Social Democratic Party), which will have 42 deputies and the second-largest Senate caucus in 2023, with 11 members, will have a privileged space among the nominations. The party can occupy up to three Ministries or special secretaries of equal status in the new government.

Regional coordinator of Mr. Lula’s campaign in the Central-West region, Senator Carlos Favaro (Social Democratic Party, PSD, of Mato Grosso) is the favorite to head the Ministry of Agriculture. He was one of those responsible for overcoming resistance in the sector and opening doors in the agribusiness sector for Mr. Lula during the polarized electoral dispute.

*By Edna Simão, João Valadares, Matheus Schuch, Andrea Jubé, Vandson Lima, Renan Truffi — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Brazil resorts to Russian wheat as drought affects prices in Argentina

Record harvest of wheat and reduction in consumption reduce Brazilian imports

18/11/2022

A severe drought, followed by several frost episodes, is expected to cause Argentina’s wheat crop to finish 40% below initial estimates, with around 12 million tonnes. As Brazil is the largest consumer of Argentine grain, with purchases close to 6 million tonnes each season, experts indicate that domestic mills, especially in the Northeast region, will need to seek wheat from other sources, such as Russia and the United States.

Although prospects indicate an increase in purchases from other countries as of May 2023, some mills in the Northeast region have already moved and several sources confirm the arrival of seven ships with Russian grain to Brazil in the coming months. “The harvest loss has already made the Argentine wheat price rise at an unusual time, close to harvest. So, mills in the Northeast have been buying Russian grain, which is cheaper,” said Christian Saigh, head of São Paulo’s wheat industry union (Sindustrigo).

On Wednesday, the available Argentine wheat FOB price (without import costs) was priced at $370 a tonne on average, while the Russian cereal was $330. The French/European product was priced around $350 a tonne and the American or Canadian at $430.

The Argentine harvest begins this month and lasts until January. Usually, trade with Brazil intensifies at the beginning of the year, so Mr. Saigh believes that the product available for export from the neighboring country will run out near May. “The war in Ukraine has made other countries see Argentina as a supplier of wheat, so Brazil has more competition,” he said.

Luiz Carlos Pacheco, analyst and partner at T&F Consultoria, recalled that it is difficult to know how much Argentina has available at the moment because the export quota released by the government refers to what the trading companies can buy and not to what has effectively left the country. “Of the 10 million tonnes quota, 8.5 million tonnes were traded and the taxes were already paid. This does not mean that they reached any external destination.”

Last week, the Rosario Board of Trade reduced its forecast for Argentina’s wheat crop by 1.9 million tonnes, to 11.8 million tonnes in 2022/23. The week before, the Buenos Aires Grain Exchange also reduced its estimate by 1.6 million tonnes, to 12.4 million tonnes. The initial calculation for the season was 20.5 million tonnes. In the 2021/22 cycle, the country produced 22.5 million tonnes of wheat.

Despite this scenario, two issues can make the need for Brazilian imports lower than it would be in other historical moments. The first is that Brazil will have a record harvest of wheat, with 9.5 million tonnes, according to the National Supply Company (Conab). This will allow an internal rearrangement of the grain, which is likely to migrate from Rio Grande do Sul to Paraná, where there was also a harvest loss, and São Paulo.

Another point is that the mills are expected to process a lower amount this year in comparison to 2021, due to a reduction in consumption. “Maybe inflation has scared consumers, but the expected increase in demand due to the cash-transfer program Auxílio Brasil did not occur. The market is flat,” said Alexandre Sales, CEO of Ceará-based mill Santa Lúcia.

Santa Lúcia has already imported the 50,000 tonnes it needs this year, but it does not know what 2023 will look like. “We are trying year by year to reduce this dependence on imported grain and have been successful with the incentive to plant in the Northeast region,” said Mr. Sales.

Mr. Saigh, with Sindustrigo, said that the entire industry feels this contraction in consumption after the peaks during the pandemic, in 2020 and 2021. Brazil imported 4.6 million tonnes between January and September, compared to 4.9 million tonnes in the same period in 2021.

Daniel Kummel, CEO of Moinho Arapongas and head of Paraná’s wheat industry union (Sinditrigo), recalls that Brazil has a quota of 750,000 tonnes exempt from the Common External Tariff (TEC) for purchases outside the Mercosur and is likely to use it in 2023.

But while Canadian and U.S. wheat can be imported by any region of the country, Russian grain can only be purchased by mills located on the coast. The Ministry of Agriculture restricted the entry of Russian grain a few years ago to mitigate risks with the possible entry of pests, fungi, and weeds.

Mr. Pacheco, from T&F, also recalled that some trading companies will prefer not to buy Russian grain while the war continues for fear of restrictions from Western governments. “We know that multinationals can receive payments even in reais to avoid sanctions on bank payments, but it is always risky.”

By Fernanda Pressinott — São Paulo

https://valorinternational.globo.com/
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WhatsApp starts shop search, purchase on a single chat in Brazil

Service will be expanded this Friday to all over the country, the first one to receive the feature in the world

11/18/2022

Mark Zuckerberg — Foto: Nick Wass/AP

Mark Zuckerberg — Foto: Nick Wass/AP

WhatsApp, Meta’s messaging app, has started to offer a search tool for nearby businesses on the platform in Brazil. Soon, the company will also launch in-app purchases.

The two new features were unveiled Thursday by Mark Zuckerberg, CEO of the parent company of Facebook, in a remote video participation at the company’s event in São Paulo.

“This is one of the only countries where I’ve heard of people opening bank accounts, buying cars and ordering dinner — all on WhatsApp,” Mr. Zuckerberg said in a recorded video shown during the WhatsApp Business Summit event. “And while millions of businesses in Brazil use it to chat, we haven’t made it easy to discover businesses or buy from them, so people end up having to use work-arounds.”

The new Business Guide feature started being tested last year in the city of São Paulo and, starting this Friday, will be expanded to all over the country, the first one to receive the feature in the world. “Starting today [Thursday], people will be able to search for a brand or small business directly on WhatsApp, either by browsing a list of categories or by typing in a name,” Meta’s founder said.

WhatsApp will also soon launch payments for in-app purchases in the country. Testing is in the final stages with payment partners Cielo, Fiserv, Getnet, Mercado Pago, Rede, Mastercard and Visa.

“If you run a business in Brazil, this means that people will be able to find you, contact you, and buy from you, all in one WhatsApp chat. We are working to bring this experience to more countries in the coming months as well,” Mr. Zuckerberg said. “This is the next step for business messaging, and I look forward to hearing what opportunities this unlocks for all of you,” he added.

On stage at the event, the head of WhatsApp Latin America, Guilherme Horn, tested the first payment for the purchase of a keychain through WhatsApp. According to the executive, these and other partners have already performed the technical integration necessary for the service to work.

The business version of WhatsApp was released in 2018. Currently, the platform makes 5 million business contacts per day through WhatsApp in Brazil, Mr. Horn told reporters after the event.

Asked about possible changes in the launch schedule due to the global layoffs announced a week ago by the company, the WhatsApp executive said there were no changes or delays.

Mr. Horn said that the most critical part of the payments offering, which involves the technology integration with WhatsApp partners, is solved. He did not give a specific date for the start of payments within the app.

On the opening of a new revenue generation channel to balance losses reported by Meta in the third quarter, Mr. Horn said that business messaging is one of Meta’s strategic pillars today.

He reported that the launch of in-app purchases comes from a process of maturing the platform. “The company understands that we are at a level of maturity and use of the app that allows this to become a source of revenue.”

In addition to contracts with payment platforms, the stores will pay a fee to WhatsApp for the service in the application, but the executive did not inform the percentage to be charged. “The search service is free,” he said.

“Globally, 71% of people say they want to communicate with companies via messaging in the same way they communicate with friends and family,” Mr. Horn pointed out, citing an April study by consultancy Kantar Ibope. “In Brazil, 60% of the 50 most valuable brands in the country, present in the Kantar BrandZ 2021 ranking, are already on WhatsApp,” he added.

According to the company, ads generated by clicks on websites that lead to companies’ business profiles on WhatsApp, the so-called “Click-to-WhatsApp,” grew more than 80% in the third quarter, compared to the same period in 2021, generating revenue of $1.5 billion.

WhatsApp has 2.4 billion active users worldwide and is used by 96.4% of Brazilians connected to the internet, aged 16 to 64, according to data from digital media consultancy Hootsuite.

The business version of WhatsApp was launched in 2018. This year, 85% of Brazilians said they are willing to communicate with businesses via WhatsApp and 75% to make purchases via the app, according to a Kantar study commissioned by Meta. Also according to the company, 60% of major Brazilian brands interact through the app.

Revenue generation through WhatsApp is a way to balance losses with advertising sales on Meta’s platforms, including Facebook and Instagram.

A week ago, Mr. Zuckerberg announced a global restructuring involving the cut of 11,000 employees, equivalent to 13% of the company’s workforce. According to the results released at the end of October, the company had 87,314 employees worldwide.

The cuts will affect all areas and geographic regions where the company operates. Valor found out that the cuts have already affected employees in Brazil.

The Brazilian subsidiary will also return the floors it has occupied since 2012 in Infinity Tower, a building located in the district of Itaim Bibi, in the southern zone of São Paulo, sources close to Valor said last week. According to Meta, the decision is not linked to the cuts, but to a reorganization announced in October.

Along with the announcement of the layoffs, Meta revised estimates for 2023, reducing projections for expenses – to a range between $94 billion and $100 billion from a range between $96 billion and $101 billion – and for investments, to a range between $34 billion and $37 billion from a range between $34 billion and $39 billion.

Meta does not disclose revenue for WhatsApp alone, but in conjunction with Facebook, Instagram, Messenger, and other services, which the company calls its family of apps (FoA). In the third quarter, the division’s revenue reached $27.4 billion, down 3.5 percent from a year earlier.

The company’s total revenue in the third quarter amounted to $27.7 billion, 4.5% lower than the result presented a year earlier. The net income of $4.4 billion meant a 52% drop in the same period.

*By Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Market has another tense day with fiscal uncertainties

President-elect Luiz Inácio Lula da Silva once again criticized spending cap, the rule that limits growth in public spending

11/18/2022

Luiz Inácio Lula da Silva — Foto: Peter Dejong/AP

Luiz Inácio Lula da Silva — Foto: Peter Dejong/AP

On his second day of public appearances at COP27, the UN climate conference, President-elect Luiz Inácio Lula da Silva once again criticized the spending cap, the rule that limits growth in public spending, in an event organized by civil society.

One day after sending to Congress the blueprint of a proposal to amend the Constitution (PEC) to allow higher spending in social programs, he said that all the spending cap does, in its current form, is “take money away from health, from education, from culture.” “You try to dismantle everything that is part of social and you don’t take a centavo from the financial system,” he said. “If I say that, will the stock market fall, will the dollar rise [against the real]? So be it. The dollar doesn’t rise and the stock market doesn’t fall because of the serious people, but because of the speculators who speculate every single day.” Mr. Lula was commenting on the market reaction after his first visit to the Centro Cultural Banco do Brasil (CCBB), in Brasília, where the presidential transition team works, on the 10th.

On the occasion, he said that the social policy should be put ahead of issues of interest to the market – which caused the benchmark stock index Ibovespa to fall 2.58% that day. “What is the spending cap? If it was to discuss that we are not going to pay the amount of interest to the financial system that we pay every year, but keep the benefits, that would be fine,” said Mr. Lula, who arrived accompanied by the former mayor of São Paulo, Fernando Haddad, the future first lady, Rosângela da Silva, and the former foreign minister Antônio Patriota, who currently leads Brazil’s diplomatic mission in Egypt.

The markets Thursday again went south, not only because of the president-elect’s remarks, but also because of the blueprint of the so-called Transition PEC intended by Mr. Lula’s team, which definitely excludes from the spending cap the social program Brazil Aid. The blueprint excludes almost R$200 billion from the constitutional limit for public spending in 2023. In the interest market, the interbank rate (DI) for January 2024 reached 14.155%. The foreign exchange rate rose 0.37% and the Ibovespa fell 0.89%.

The president-elect’s new remarks also triggered reactions from economists linked to the Brazilian Social Democracy Party (PSDB). Former Central Bank President Armínio Fraga, former Brazilian Development Bank President Edmar Bacha, and former Finance Minister Pedro Malan signed a letter published in the newspaper Folha de S.Paulo supporting the spending cap. All three had declared their support for Mr. Lula in the runoff vote.

Hours later, Mr. Lula canceled a highly-anticipated press conference to end his two-day stay at the conference. According to the president-elect’s aides, the change of plan occurred after his other agendas were delayed. Besides a meeting with indigenous leaders in the early afternoon, Mr. Lula had meetings with UN Secretary-General António Guterres, Norwegian Climate Minister Espen Barth Eide, and German Foreign Minister Annalena Baerbock.

The meeting with Norway unlocked the immediate restructuring of the Amazon Fund. The idea is to set up teams that will do what is necessary so that the Amazon Fund can be launched in the first days of the Lula administration. The Amazon Fund is the most structured global compensation mechanism for efforts to contain deforestation and support projects in the Amazon region.

Brazilian and foreign journalists lined up outside the conference room. When the cancellation was confirmed, several of them were sitting on the floor.

Mr. Lula now heads to Portugal, where he is to meet with President Marcelo Rebelo de Sousa and Prime Minister António Costa. Mr. Lula will stay overnight in Lisbon and is scheduled to meet with supporters on Saturday.

The negative reactions to Mr. Lula’s remarks caused Vice President-elect Geraldo Alckmin to call journalists to talk in Brasília. He called the market’s reaction to the Transition PEC and Mr. Lula’s remarks “momentary.” He also said that a new fiscal framework will be discussed throughout his term in office, but that the priority is to ensure the payment of R$600 a month through social program Bolsa Família, plus R$150 per child up to six years old, as cited in the PEC – which implies R$175 billion in extra costs excluded from the spending cap.

Mr. Alckmin said he sees no reason for so much “stress.” “This will be clarified and overcome. President Lula has already been president of the Republic for eight years, two terms. He had absolute fiscal responsibility,” he said. “It is good to make it clear that the Lula administration is committed to fiscal responsibility. This cannot be an argument not to attend to social issues.” When talking about the new fiscal framework to be implemented in place of the spending cap, Mr. Alckmin said that the priority now is to approve the proposal to amend the Constitution.

“We have 30 days to approve a PEC, one thing at a time. Right now, [we will work on] urgent things, which is PEC and LOA [annual budget law]. The election ended 15 days ago,” he said. “A new fiscal framework will be discussed. But one thing at a time. We have an emergency thing to solve.”

Mr. Alckmin also said that fiscal responsibility and social spending are not “incompatible.” “Things are not incompatible. The current administration spent R$800 billion excluded from the cap.” According to the vice-president-elect, the 2023 budget is “unworkable.” “You don’t have the money to pay Bolsa Família. How do you do with [housing program] Green Yellow House,My Home My LIfe? You have R$30 million in the budget [for that program].”

Mr. Alckmin said that growth, spending cuts and tax reform will be priorities in the Lula administration’s economic management in order to improve the country’s fiscal situation. “The government will act on the expenditure side, cutting expenses that can be cut. For example, contracts. There has to be a review of all contracts. We will go through it with a fine-tooth comb. There may be a huge margin,” said Mr. Alckmin.

Within this agenda, he said, is tax reform. Mr. Alckmin signaled that the government can take advantage of one of the two proposals that moving forward in Congress. “It is a very good situation, because there are two very similar PECs. Both seek to simplify by replacing taxes with VAT [value-added tax], which the whole world has in place,” he said.

Another way to stimulate economic growth is a greater presence of Brazil in foreign trade. He said it will be necessary to “insert Brazil in the world economy” through international agreements.

Mr. Alckmin also said Brazil can take advantage of the high liquidity of international funds to carry out infrastructure and logistics projects.

The leader of the Workers’ Party (PT) in the Chamber of Deputies, Reginaldo Lopes, was picked by the presidential transition team to explain the details of the PEC to financial market representatives on Thursday in São Paulo. He met in São Paulo with representatives of at least 10 investment funds to justify the proposal.

By Ana Rosa Alves, Daniela Chiaretti, Fabio Murakawa, Andrea Jubé — Sharm El Sheikh, Brasília

https://valorinternational.globo.com/
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Analysis: Costs, interest still weigh on balance sheets

Retailers suffered both from inflation and interest on debts

11/17/2022

Companies in this sample reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion — Foto: Divulgação/B3

Companies in this sample reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion — Foto: Divulgação/B3

On the last day of the third-quarter earnings season, it is already possible to glimpse the state of public non-financial companies.

Taking the benchmark stock index Ibovespa as a base and excluding banks, insurance companies, and holding companies – and also heavyweights Petrobras and Vale, so as not to distort the numbers –, there are about 70 companies that can tell the story of the quarter. It would not be necessary to do so, but it should be noted that this is a tiny sample of the Brazilian business world and about 20% of the total number of publicly traded companies.

They are the most traded stocks and, for this reason, are part of Ibovespa. They reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion, considering Monday’s prices.

Costs, again

Once again, costs weighed considerably on the result. The situation has improved in relation to cost inflation, and the rise in raw material prices, especially after the start of the war in Ukraine. There has been a cooldown, but the levels are still high compared to last year.

The numbers tell this story. This group of companies increased their sales revenues by 10% in the quarter and 15% in the nine months (for reference, official inflation is 6.47% in the 12 months through October). Costs, however, are up 17% in the quarter and 20% in the nine months. Excluding administrative expenses, sales, marketing, fees, and so on, the calculator is unforgiving. The operating profit was down 30% in the quarter – and 15% lower through September. It is a still profitable sample, but with a downward trend. Of the companies selected, 15 reported a loss (about 20%), compared to 11 in the third quarter last year (15%).

Interest rates

Going down the earnings reports, one comes to the dreaded financial line items, usually scary in times of exchange rate instability. This is not the case now. One difference with previous quarters was that this time companies complained a lot more about interest rates, whose effects hit their cash flows.

Retail suffered both from inflation on the sales line and interest on debts, the remedy against inflation that increased financial expenses. In the report that accompanies the financial statements, Americanas summarized the operating situation: “Between July and September, a combination of factors in the macroeconomic scenario challenged retailing as a whole in the country. The industry raised prices sharply, reflecting inflationary pressure and high interest rates, and Brazilian households, in debt and with reduced purchasing power, stopped buying more expensive items.”

Besides scaring consumers, the high interest rates have taken a toll on the companies’ finances. Cash-and-carry chain Assaí reported a net financial expense of R$440 million, up 168%, which accounted for 3.2% of sales. According to the company, this result continues “being impacted by the high interest rate, with an increase of about three times the [interbank deposit rate] CDI in the period, and the higher volume of gross debt given the backdrop of high investments in expansion, in particular, the project of hypermarket conversions.”

It was not only retail, of course. Positivo Tecnologia faced problems with cost and interest rates as well. The manufacturer of computers and electronic voting machines increased sales by almost 30%, but costs advanced further and ate into the gross margin. Financial expenses took another chunk of the profit because of interest on higher debt, according to the company. In the Simpar group, which owns logistics and car-rental companies, the financial result was negative by R$1.25 billion, four times higher. The figure surprised the market and the effect was immediate: the shares closed down 8%.

By Nelson Niero — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Mosaic buys wind power from Casa dos Ventos

Fertilizer producer becomes first in Brazil to invest in self-production aiming to supply 30% of its energy needs

11/17/2022

Brazilian power company Casa dos Ventos and Mosaic Fertilizantes have signed a commercial agreement to supply 30 average megawatts (aMW) of wind power for 14 years from the Umari wind complex in Rio Grande do Norte state, starting in 2026. The value of the contract was not disclosed.

With the partnership, Mosaic becomes the first fertilizer company in Brazil to invest in the acquisition of wind power with the possibility of becoming a self-producer with the capacity to supply 30% of the contracted energy needs in the period from 2026 to 2039, besides providing stability in the supply.

For Casa dos Ventos, the model of partnerships for self-production with large companies strengthens the generation branch, which accumulates 1.7 GW of assets under construction and in operation dedicated to the free market. This attracts electro-intensive partners in search of long-term contracts to escape market oscillations. In parallel, the company maintains a project development area almost exclusively for the joint venture with TotalEnergies.

The Umari wind complex construction began in 2021 and will have 45 wind turbines from Vestas with a total capacity of 202.5 MW. It is smaller than the mega-projects that Casa do Ventos has been implementing but it is capable of avoiding the annual emission of about 405,000 tonnes of CO2 equivalent into the atmosphere.

The park will be ready in 2024, but it is expected to sell energy in small contracts until it starts supplying energy to Mosaic in 2026. Lucas Araripe, head of new businesses at Casa dos Ventos, said that the expected production of the park is about 100 aMW of physical guarantee. There is still 70% of the park’s available energy left, which is being negotiated with other interested companies.

“The total investment in Umari is R$1.3 billion. We imagine that approximately 30% will be with company’s own resources and the rest in long-term financing. We have the option of three financing lines: the Brazilian Development Bank (BNDES), Banco do Nordeste (BNB) and tax-exempt bonds that we can issue to the market”, says the executive.

Felipe Klemperer, vice president of Transformation and Procurement at Mosaic Fertilizantes, stresses that the company had been concerned about diversifying the portfolio to reduce dependence on hydroelectric power and diesel, besides having long-term protection for an industrial consumer. He foresees energy cost reductions that can vary between 10% and 15%.

“We have a demand for 130 aMW. Within our operations we have cogeneration and in the sulfuric acid production process we also produce energy internally, about 30 MW. For the other 100 MW we go to the market. As of 2026, 30 MW will be supplied by this new investment,” he explains.

A fundamental input to guarantee food security, fertilizers are essential, especially for Brazil, a country with a vocation for agribusiness and one of the largest food producers in the world. However, an important point for the reduction of emissions in the food chain is nitrogen fertilizer, a key factor in the direct and indirect emission of greenhouse gases.

Globally, Mosaic Company has announced goals of zero net emissions of greenhouse gases by 2040, and the deadline includes operations in Brazil. One of the ways to accelerate the decarbonization process without having to resort to the more comfortable model of compensation via carbon credits is the investment in renewable sources of non-hydro origin.

The executive says that he will be able to reduce by 30% the so-called “scope 2” emissions (indirect, from the electrical energy acquired for use). “We are working to increase the cogeneration potential with a repowering of our generators,” says Mr. Klemperer.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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BNDES, Petrobras earmark R$44m for mangroves

Matchfunding was launched at COP26 last year and is expected to raise R$686m

11/17/2022

Bruno Aranha — Foto: Leo Pinheiro/Valor

Bruno Aranha — Foto: Leo Pinheiro/Valor

Brazilian development bank BNDES and Petrobras announce on Thursday, at COP27, in Egypt, the first call for proposals of the Floresta Viva (Forest Alive) program, a collective financing program for the restoration of Brazilian forests and biomes. The initial selection, of R$44.4 million, will invest in up to nine projects in the area of mangrove and sandbanks restoration on the coast of the country.

The match funding led by the BNDES was launched at COP26 last year and is expected to raise R$686.27 million through the adhesion of 15 companies and the bank’s own contribution of R$250 million. Each company participated with a slice and only Petrobras, the main partner, committed to injecting R$50 million over five years. Besides the oil company, mining company Vale and transnational companies such as Heineken and Nestlé, whose adhesion was announced at COP27, are also participating, said Bruno Aranha, the bank’s head of environment credit.

The project’s first call for proposals is aimed at non-profit civil associations, private foundations, and cooperatives. In this first phase, the proposals must contemplate the restoration of at least 200 hectares of area, a total of 1,800 hectares of mangroves and sandbanks located in the three macro-regions defined in the National Action Plan for the Conservation of Threatened Species and Socio-Economic Importance of the Mangrove Ecosystem (PAN Mangrove), prepared by the Chico Mendes Institute for Biodiversity Conservation (ICMBio). They are the so-called North Coast, as well as the area from the Northeast to Espírito Santo and the South and Southeast.

The amount of almost R$50 million will be divided equally between BNDES and Petrobras. According to the social responsibility management of the oil company, the contracts are expected to be signed in the first quarter of next year. Those interested have until January 31 to submit proposals. Institutions that have been legally constituted for at least two years and have proven experience in executing ecological restoration projects are eligible to participate.

“The projects can be certified for the emission of carbon credits and the intention is that they will be distributed among the partners in proportion to their donations. In this sense, the fund allows a great laboratory for national and international companies about the certification process of projects for carbon credit emission”, explains Mr. Aranha.

According to the general manager for social responsibility at Petrobras, Rafaela Guedes, it was in this context that the commitment between the oil company and the development bank was made. She highlights the importance of mangroves, a transitional ecosystem between the terrestrial and marine environments, with great potential for carbon storage. The vegetation — which is also a source of income for local communities — suffers from intense degradation due to the intense economic and real estate exploitation of the Brazilian coast.

To select the projects and monitor the application of resources, Petrobras and the BNDES selected the Brazilian Fund for Biodiversity (Funbio) as the professional manager of the project through a public call concluded in April. The contract is for seven years, a term that can be extended with new partners are added.

*By Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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CLI is still hitting the gas in port segment

With new partner, and after acquisition of terminal at the port of Santos, company seeks to unlock expansion in Itaqui

11/16/2022

Helcio Tokeshi — Foto: Ana Paula Paiva/Valor

Helcio Tokeshi — Foto: Ana Paula Paiva/Valor

CLI, the logistics and infrastructure company controlled by IG4 Capital and Australia’s Macquarie Asset Management, is preparing to play in the big leagues in 2023 after buying two port terminal concessions in Santos from Rumo. The company has also seen recently better operational numbers in Itaqui – it is a partner in Maranhão Grain Terminal (Tegram).

The deal with Rumo was concluded on Monday. Supported by a R$500 million capital increase fully subscribed by Macquarie Infrastructure Partners V (MIP V), a transaction that marked the entry of the Australian company as a partner, CLI took over 80% of terminals T16 and T19 for R$1.4 billion. Rumo kept the remaining 20% stake. The terminals, which are operationally seen as a combined facility, can handle 16 million tonnes per year divided equally between grain and sugar.

With the capital increase, Macquarie, one of the largest global investors in infrastructure, with a portfolio of nearly $800 billion, took over 50% of CLI. In the Port of Santos, 7.5 million tonnes of sugar and 4.2 million tonnes of grains (soy and corn) are expected to be handled in 2022, and in Itaqui, the volume is projected at 4 million tonnes of grains, up from 2.8 million tonnes last year, when exports were hampered by a harvest loss – in Itaqui as a whole, grain exports are expected to reach 13 million tonnes this year.

“With the prospect of record soybean and corn harvests in this 2022/23 crop, the scenario for operations in Santos and Itaqui next year is very favorable,” said Helcio Tokeshi, director and partner at IG4. “It is proof of the positive results that can be generated by our business model.” In this model, the company works with all interested trading companies, and what determines the success of the partnership are the services offered and the efficiency of the operation.

In Itaqui, contracts with trading companies were recently renewed for periods between two and three years, and if there are no harvest losses, the company expects a strong increase in exports of soybeans and corn, said Marcos Pepe Bertoni, CLI’s chief operating officer. That is why the company and its partners in Tegram – Glencore, Terminal Corredor Norte (linked to the trading company NovaAgri) and ALZ Terminais Portuários (controlled by Amaggi, Louis Dreyfus Company and Zen-Noh Grain) – continue planning to start the “phase 3” of the terminal expansion, to increase static storage capacity to 900,000 tonnes from 500,000 tonnes.

For this third phase, said Mr. Pepe, investments are expected to range between R$500 million and R$ 600 million. From CLI’s standpoint, there is financial leeway to pay its part of the foreseen investments, since the investment made in Santos provided the entrance of a large asset in the structure, without debt, which reduced the company’s leverage.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Road auction wave likely to continue in 2023

Companies does not expect drastic changes, but highlight challenges

11/15/2022

Marco Aurélio Barcelos — Foto: Roque de Sá/Agência Senado

Marco Aurélio Barcelos — Foto: Roque de Sá/Agência Senado

The toll road industry foresees that the wave of concessions will continue after 2023 with the newly elected governments — both federal and state. In the view of companies and specialists, the challenges will be different: the first one is to attract new investors, in order to execute the huge volume of projects — the initiatives being structured across the country add up to at least R$90 billion. Another obstacle will be resolving the several still open regulatory liabilities.

“The concessions policy is the least of our concerns. We have the prospect of continuity not only of the portfolio but also of the regulatory improvements implemented,” said Marco Aurélio Barcelos, head of the Brazilian Association of Highway Concessionaires.

Despite the uncertainties surrounding President-elect Luiz Inácio Lula da Silva’s picks for the infrastructure sector, private-sector companies believe that the highway segment will hardly face drastic changes since it is more consolidated.

Historically, the projects made during the Workers’ Party administrations gave priority to the reduction of fares, so there could be a change in this aspect, said Lucas Sant’Anna, a partner at Machado Meyer.

On the other hand, there is a view that the lessons learned will be incorporated. In addition, governments, in general, will have to make an effort to draw interested parties, given the proliferation of projects around the country. In this context, analysts say that concessions with structural problems or regulatory risks will struggle.

“There should be intense competition between federal and state assets,” said Claudio Frischtak, a partner at the consulting firm Inter.B.

At the federal level, factors such as the improvement in environmental policy and relations with countries like China and those of the European Union are likely to have a great positive weight in attracting new investors, according to Mr. Frischtak. On the other hand, it will be important to control macroeconomic turbulence. Besides, joining the Organization for Economic Cooperation and Development would be a great incentive, he said.

As far as the states are concerned, Mr. Frischtak evaluates that there are two essential factors: the strengthening of regulatory security and the formation of a broad concessions program. “The company will not enter a region to operate a single asset. It will seek a logic of economy of scale.”

The attraction of new players to the highway market last year has been a concern. Some newcomers, however, have already emerged in auctions, such as the Italian INC, Monte Rodovias, the consortium formed by Equipav and Perfin, and some associations between medium-sized construction companies. In addition, analysts say there are several other groups — including financial, foreign, and companies from other segments — mulling over entering the Brazilian market.

Besides the auctions, the next governments will have to face another challenge – regulatory liabilities.

For Marcos Ganut, a partner at Alvarez e Marsal, a source of concern is the problematic concessions started in the Rousseff administration, which reach the end of one more administration without a solution.

The path of friendly devolution — which has already many cases of adhesions — is the target of doubts. Changes in the rules previously agreed upon may generate even more insecurity in the model, according to him. In addition, the pioneering case of the sale of Odebrecht’s Rota do Oeste to the Mato Grosso government could open a new chapter in the discussion, says Mr. Ganut. “Today there is no signaling [from Lula’s team] on the subject, but it is a point of attention.”

Besides the older problems, there are all the regulatory liabilities left by the pandemic, points out Mr. Barcelos.

“The current federal government was right to give a strong response to the fall in demand during the crisis. Now, in a second moment, there are all the effects of Covid on the price of inputs. If this issue is not resolved in this administration, the next one will have to answer the questions.”

In the São Paulo government, Mr. Barcelos notes that the pending issues are more extensive. “There were important advances in this government, which solved old problems. Now, what remains are all the pandemic issues. It is necessary to start discussions about Covid. In the federal agency, rebalances for the drop in demand are already being implemented, but they have not even begun to be discussed in São Paulo. It’s time to have an answer, both for the demand issue and for the inflation of inputs,” he said.

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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It’s too early to celebrate slower inflation, Central Bank president says

Persistence is needed to reach targets, according to Roberto Campos Neto

11/15/2022

Roberto Campos Neto — Foto: Tânia Rego/Agência Brasil

Roberto Campos Neto — Foto: Tânia Rego/Agência Brasil

Central Bank President Roberto Campos Neto said Tuesday that although much of the recent improvement in inflation is the result of government measures, “leading indicators show a qualitative improvement.”

“It is early to celebrate. We need to persist in fighting inflation. We need to persist in reaching the targets because this is the best way to contribute to sustainable growth,” he said at the Lide Brazil Conference, in New York.

Mr. Campos Neto stressed that “probably the external backdrop will help” Brazilian inflation, with global deceleration and monetary tightening.

The head of the monetary authority said that the Central Bank identified “relatively quickly” the persistent nature of inflation and was the first to raise interest rates.

“We have had better growth in recent years, especially in 2022. It is worth a warning that part of what was done in terms of interest rates will take effect in 2023. The global economy will slow down, so we expect growth in 2023 to be a little lower,” he said.

Mr. Campos Neto also stressed that Brazil can benefit from the new global reality. “We have a large labor market with a huge consumer market, and we are one of the few countries in the Americas with the capacity to produce renewable energy in large quantities,” he said.

“We should avoid an unbalanced tax increase and remember that overtaxing capital contributes to decreased productivity. It’s a problem we see globally,” he added.

*By Larissa Garcia — Brasília

Source: Valor International

https://valorinternational.globo.com/
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