Government delivers first bill to regulate tax reform

Document spans over 300 pages; Lower House speaker expects to pass new regulations before legislative recess

04/25/2024

Fernando Haddad — Foto: Marcelo Camargo/Agência Brasil

Fernando Haddad — Foto: Marcelo Camargo/Agência Brasil

Finance Minister Fernando Haddad presented the first supplementary bill to regulate the consumption tax reform to Lower House Speaker Arthur Lira and Senate President Rodrigo Pacheco on Wednesday. The Ministry of Finance estimates the average rate for the new taxes—to be set later—at 26.5%, potentially rising to 27.3%. Mr. Lira expects to pass the new rules by the start of the parliamentary recess on July 17.

Valor reviewed the 360-page, 499-article bill, which had not been officially filed in the Congress system as of Wednesday night. Among the most anticipated elements by tax experts and business sectors were the definition of a list of 15 staple foods with a zero tax rate, the six types of goods that will be subject to the new selective tax, and the rules about categories included in specific regimes.

The text follows the guidelines of the proposal to amend the Constitution (PEC) passed by Congress last year, which merges six taxes. They will be transformed into CBS (federal) and IBS (of the states and municipalities). These new taxes will have a single federal legislation, no compounding effect, and collection at the destination. Additionally, the bill provides differentiated taxation for products made outside the Manaus Free Trade Zone that compete with those manufactured in the region.

“The country has been waiting 40 years for a solution to the most tangled of Brazilian problems, which is our chaotic tax system, still unfortunately among the 10 worst in the world but will be among the 10 best in the world following the full implementation [of the reform],” Mr. Haddad said after delivering the bill to the legislators.

The regulatory proposal does not set the rates for the new system. Bernard Appy, the extraordinary secretary for tax reform at the Ministry of Finance, said that the estimates would be similar to those previously released by the ministry before the project’s submission.

“The estimate is very close to what was previously stated, with the design ranging from 25.7% to 27.3%, averaging 26.5%. The reference is the average, but the expectation is that it could be even lower,” Mr. Appy said. Regarding the selective tax, there is no information yet, and the rate will depend on future legislation.

The proposal details the rules for products and sectors taxed at a differentiated rate, a highly anticipated aspect of the regulation. The bill lists, for example, 15 items from the basic food basket, including butter, margarine, milk, rice, and soybean oil, specified according to the Mercosur Common Nomenclature—Harmonized System (MCN/HS).

Three other items also have a zero rate, located in another chapter in the text sent to Congress: horticultural products, fruits, and eggs. Thus, the foods for human consumption subjected to a zero rate would be 18.

According to the proposal, one of the guiding principles for selecting the foods to benefit from favored rates “was the prioritization of fresh or minimally processed foods and culinary ingredients, following the recommendations of healthy and nutritionally adequate eating from the Dietary Guidelines for the Brazilian Population, by the Ministry of Health.”

Another guiding principle, the text points out, “was the prioritization of foods primarily consumed by the poorest, aiming to ensure that as much of the tax benefit as possible is appropriated by low-income families.”

The text also sets 14 foods that will have their tax rates reduced by 60%. The list includes meats, fish, mate, natural honey, and pasta.

On another front, the project details the rules for the professional categories that will be subject to specific regimes, with a reduction in rates by 30%. According to the text, there will be 18 categories under this regime, including lawyers, administrators, accountants, and economists. These professionals must be “subject to oversight by a professional council,” according to the proposal.

Additionally, 27 healthcare services will have a 60% reduction in the charges of the new taxes. The list includes psychiatric, dental, physiotherapy, and laboratory services.

The rules for the new selective tax will also likely be a point of contention in the regulatory process, with sectors diverging on which areas should have the additional taxation, aimed at discouraging the consumption of goods considered “harmful to health and the environment.” According to the government’s proposal, this list will include vehicles; vessels and aircraft; tobacco products; alcoholic beverages; sugary drinks; and extracted mineral goods (iron, petroleum, and natural gas).

According to the text, the selective tax will be levied only once on the product, with no possibility of using tax credits from previous operations or generating credits for subsequent operations. The bill also says that the Federal Revenue Service will be responsible for administering and overseeing the new tax.

Another innovation of the PEC, the so-called “cashback reward,” is also detailed in the proposal. The system provides for the return of part of the taxes paid to individuals from low-income families. According to the text obtained by Valor, the tax returns will be directed to families with a per capita income of up to half a minimum wage, provided they are included in the Single Registry for Social Programs (CadÚnico)—a tool used by the Brazilian government to identify and categorize low-income families.

In the bill, the government proposes a general rule of returning 20% of the CBS and IBS for poor families. In the case of cooking gas, there will be a 100% return of the CBS and 20% of the IBS. For electricity, water, and sewage, it is 50% of the CBS and 20% of the IBS. The only products exempted are those subject to the selective tax, such as cigarettes and alcoholic beverages, which will have no reward.

The proposal also foresees the possibility of creating “fiscal citizenship incentive” programs, aimed at encouraging the final consumer to request the issuance of a tax receipt. This initiative already exists in several states and aims to reduce tax evasion—which could lower the general rate. The IBS managing committee and the Federal Revenue Service may use up to 0.05% of the tax revenue to fund these programs. The proposal does not define how these resources will be used—whether with direct returns to the taxpayer, lotteries, or even advertising campaigns.

Following the delivery of the proposal, the government and Congress must race against time to pass the regulation by the end of the year. Before receiving the text, Mr. Lira indicated that he would try to pass the regulation in the Lower House by the beginning of the legislative recess on July 17. “We’ll establish a backward calendar. If you don’t set a date, everything gets pushed to next week, and things keep dragging on,” he said. After the recess, the Lower House is expected to be virtually inactive due to the municipal elections.

The project delivered on Wednesday is the first of a total of three texts to regulate the PEC passed last year. Another supplementary bill is expected to be sent after the International Workers’ Day holiday to address the managing committee of the new taxes. There is also a need for a statute law to address the compensation fund for the states and companies.

Mr. Lira said that, if the government delivered the reform on Wednesday, he would gather the party leaders to decide whether to appoint two rapporteurs directly in the plenary or create two “small” working groups, with five or six legislators each. According to him, choosing a single rapporteur without forming a working group might be problematic because “many competent people want to participate.” He did not indicate who the possible names might be.

*Por Jéssica Sant’Ana, Raphael Di Cunto, Marcelo Ribeiro, Beatriz Olivon, Guilherme Pimenta, Estevão Taiar — Brasília

Source: Valor International

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Eneva, PetroReconcavo resume talks on merger

No formal mandate yet, but companies have re-engaged following the asset merger between 3R and Enauta

04/25/2024

Eneva’s Parnaíba thermal complex in Maranhão: company is in talks to merge with PetroReconcavo — Foto: Divulgação

Eneva’s Parnaíba thermal complex in Maranhão: company is in talks to merge with PetroReconcavo — Foto: Divulgação

Eneva and PetroReconcavo have resumed discussions on a potential merger of their businesses, Valor has learned, after their ongoing negotiations with other rivals were previously unsuccessful. According to sources, Eneva’s interest in the merger lies in gaining access to gas. There is no formal mandate yet, but the companies have come closer again after 3R and Enauta formalized their asset combination.

There is still no defined structure for how the transaction might proceed. Following the progress of discussions between Enauta and 3R, companies in the energy and oil & gas sectors began initiating dialogues among themselves. In the case of Eneva, negotiations with Vibra did not progress as the fuel distributor saw no advantage in the share exchange ratio between the two companies.

When approached to comment on the potential merger, both companies declined. However, on Wednesday night, after consultations with the Securities and Exchange Commission of Brazil (CVM), both companies denied the merger talks.

Eneva’s market capitalization on B3, the Brazilian stock exchange, stands at R$19.4 billion, while PetroReconcavo’s is R$6 billion. The most likely transaction on the table would be a share exchange, sources suggest.

Other sources confirmed that Eneva and PetroReconcavo had previously started discussions in the recent past but did not move forward. Eneva has also been in talks with other potential energy sector competitors to seek partnerships.

These talks come at a time when junior oils are preparing for a sector consolidation, initiated by a memorandum of understanding signed between Enauta and 3R. Concurrently, other discussions in the sector are ongoing. For instance, Seacrest is reportedly seeking a buyer, as previously reported by Valor.

PetroReconcavo had begun preliminary talks with 3R, but the latter ended up being approached by Enauta. Enauta may have left the door open for future consolidation in the newly combined company, which could potentially include PetroReconcavo.

Eneva has shown a keen interest in growth through mergers and acquisitions, although its significant debt is a concern, sources say. The energy company is, for instance, in the process of purchasing thermal power plants from Eletrobras, a deal estimated at R$8 billion.

A source linked to the shareholders mentioned that the company could call for a capital increase, supported by two major partners—BTG and BW, with the Moreira Salles’s family office providing the funds.

For Eneva, it makes sense to merge its assets with another company focused on natural gas, according to sources.

The energy companies are also experiencing a strong wave of consolidation, with several mergers and acquisitions underway this year. Valor reported this week that there are at least R$30 billion in ongoing purchases and sales of sector assets.

*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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IG4 shows interest in acquiring control of Unigel

Investment in the distressed company would be linked to equity dilution of Slezynger family

04/24/2024

Asset manager IG4 has made a bid to take over Unigel, Valor has learned. The negotiations hinge on the willingness of the Slezynger family to relinquish control of the chemical company and accept equity dilution, sources indicate.

Talks began three months ago and have progressed in recent weeks, people familiar with the matter say.

With debts amounting to R$3.9 billion, the company finalized an agreement with creditors on the final details of an out-of-court reorganization plan ratified in February. It has until May 20 to secure the simple majority support of the creditors involved in the restructuring and ensure the plan’s execution.

According to a source, even if the agreement is concluded, Unigel’s restructuring merely postpones the company’s debt issues without addressing the core problem. A significant equity injection and relinquishment of control by the family would be necessary for a comprehensive restructuring of the group. IG4 is reportedly ready to participate in the business restructuring.

When approached, Unigel said that it is not negotiating the sale of the control. “The family has owned Unigel for about 60 years and has no intention of leaving the business,” the company said. IG4 declined to comment on the matter.

The family has enlisted the expertise of businessman Pedro Wongtschowski, a minority shareholder and former chairman of energy giant Ultrapar, to lead the company’s restructuring amid financial challenges.

Mr. Wongtschowski could advise the group from the board—a position he held at Unigel about a decade ago during a period of substantial debt due to expansion investments and acquisitions in Brazil and Mexico, as the company was navigating another severe financial crisis.

Mr. Wongtschowski’s role will be that of an adviser, though it is not yet clear if he will actually take a position on the company’s board. The businessman was also being considered for the CEO position, but consensus has not yet been reached. Mr. Wongtschowski’s entire career is linked to the Ultra group—he was a close aide to the late Paulo Cunha, the group’s leader for 25 years.

Henri Slezynger, the group’s founder, continues to lead the board of directors while one of his sons, Marc, serves as deputy chairman. Currently, two of the five board seats are vacant.

From January to September of last year, the company posted a net loss of R$1 billion. Net revenue totaled R$4.11 billion, a 45% decrease compared to the previous year, and the adjusted operating result (EBITDA) was negative at R$276 million, compared to a positive R$1.65 billion a year earlier. The company has yet to release its fourth-quarter financial statement, which was scheduled for early April.

*Por Taís Hirata, Mônica Scaramuzzo — São Paulo

Source: Valor International

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Majority of Brazilian microentrepreneurs employed elsewhere

Research exposes program flaws, calls for labor cost cuts to combat informality

04/24/2024

Bruna Mirelle Alvarez — Foto: Gabriel Reis/Valor

Bruna Mirelle Alvarez — Foto: Gabriel Reis/Valor

More than half of the so-called individual microentrepreneurs (MEIs) in Brazil work as salaried employees for other companies, research shows. The study indicates that the so-called “pejotização”—hiring of workers as firms rather than individuals—could be reduced with measures such as cutting labor costs on the payroll.

The survey conducted by Bruna Mirelle Alvarez, a researcher at the São Paulo School of Economics of the Getulio Vargas Foundation (FGV EESP), reveals that 53% of MEIs—part of a government program initiated in 2008 to empower millions of small businesses—are not genuine entrepreneurs. This highlights flaws in the program’s structure, leading to unintended consequences such as informal employment and significant losses, particularly for Social Security.

The study analyzed data from 2008 to 2019, a period during which over 9 million MEIs were established, comprising nearly 70% of all registered businesses in Brazil. To arrive at these findings, the researcher initially investigated the competitive dynamics between MEIs and formal employment contracts for companies’ recruitment preferences. This analysis involved examining how the proximity to 3G antennas influenced the establishment of MEIs between 2008 and 2011, a time when online registration became available.

“Having access to the internet is essential for microentrepreneurs. They need it to register the company, issue the Document of Tax Collection paid every month, and also the tax receipts for each service,” said the economist.

The findings also establish a connection between the accessibility of opening an MEI and firms’ hiring practices. Companies situated in areas farther from the antennas tended to employ more workers under the formal regime compared to those in closer proximity to the equipment.

However, Ms. Alvarez said that the effect of the reduction in the number of formal contracts and the increase of MEIs could also suggest a rise in entrepreneurship, aligning with the original intent of the program. “It’s important to note that solely based on this analysis, we cannot determine if these individuals were shifted towards informal employment,” she said.

To ascertain which paths individuals pursued, the researcher constructed a general equilibrium model wherein individuals decide between becoming salaried employees, informal workers, microentrepreneurs, or employees of formal sector companies. This model was fed with data from the National Registry of Legal Entities and the 2010 Census. By simulating how this model adjusts to real economic data, including the distribution of workers in firms over time, it revealed that 53% of those opting for the MEI route choose informality, while 47% evolve into “genuine” microentrepreneurs.

“Based on the results, I believe that the cost of the formal work contract is an important factor. Reducing these costs would be a good measure to help reduce these illegalities related to the labor market,” she said.

Other recent studies also point to problems in the design of the MEI, created in 2008 intending to formalize people who work as freelancers or in small businesses. It allows them to contribute to Social Security and access benefits such as retirement—limited to one minimum wage—, sickness benefits, and death pension.

A recent study by researchers at the Brazilian Institute of Economics (FGV Ibre) showed that the MEI accounts for almost all the growth in the number of business taxpayers numbers in Brazil, to 3.9 million in 2023 from 750,200 in 2009. Looking only at 2021, a year in which there was a peak in the creation of MEIs—they showed that 63% of them had been laid off from a formal job. Within this group, only 22.6% of the layoffs were at the worker’s request.

Another Ibre study, from 2022, showed that 31.3% of MEIs had completed higher education, a proportion much higher than the national average of 15.7%. Meanwhile, those with no education or incomplete elementary education—the program’s target audience—were only 13.4%. At the same time, looking at income, researchers found that 56.4% of MEIs earned more than two times the minimum wage in the third quarter of 2022, a percentage higher than that of employees with a formal job (32.1%).

“This explosion in the creation of MEIs may seem like a leap in entrepreneurship, but in reality, it is just a different form of insertion into the labor market, cheaper and more attractive. And with the aggravating factor that it contains a large subsidy to Social Security, which one day will have to be paid,” said Fernando de Holanda Barbosa, an Ibre researcher.

Due to its focus on the vulnerable population, the program has high government subsidy. In the case of contributions to social security, it is limited to 5% of the minimum wage for MEIs (R$70.60 in 2024). Whereas the salaried worker earning the minimum wage for Social Security contributes up to 34% of the salary, shared between employee (7.5% to 14%) and employer (20%).

The significant gap between contributions puts pressure on the Social Security system. Rogério Nagamine Constanzi, an expert in the field, estimates that the actuarial deficit of the MEIs could reach R$1.4 trillion in the future. According to his calculations, although MEIs represent approximately 10% of contributors to the Social Security Regime, their contribution to revenue is only 1%.

“It is worth remembering that a contribution of around 30% is precisely what makes Social Security actuarially sustainable over time. If there were a total migration to the MEI, it would not be solvent,” said Mr. Barbosa, with Ibre. “Because it is a relatively new modality, it has not yet affected pension payments. But this cost will come.”

Ms. Alvarez’s study conducted simulations of four hypothetical scenarios aimed at reducing the phenomenon known as “pejotização”: terminating the MEI program, eradicating informality, enhancing oversight, and cutting labor costs. All these scenarios led to an improvement in overall welfare, defined here as the combined sum of profits, wages, and taxes paid. However, the most effective measure proved to be a 20% reduction in payroll taxes. Despite this, it resulted in only a slight decrease in the total number of MEIs in the economy, to 60.9% from 61.5%. Additionally, while the percentage of informal workers in the labor market would drop to 32.4% from 33%, their proportion within the MEI community would increase to 54% from 53%.

Unlike the other scenarios, there is also an increase in the salary of both formal workers (2.4%) and informal workers (4.9%).

“As the tax on payroll is reduced, this increases demand for these workers and, thus, their salaries. With this, part of the MEIs who were previously entrepreneurs or informal workers move to salaried employment,” said Ms. Alvarez. “With fewer informal workers in the economy, the salary offered to them increases, and this balances the proportion of MEIs choosing to be informally employed.”

For the researcher, the results also raise the question of whether “pejotização” does not represent a new structure in the labor market, albeit illegal. “It’s bad in terms of labor rights but, perhaps even more so after the pandemic, people may be more willing to accept this type of arrangement, which brings more freedom in terms of working hours, and less bureaucracy in dealing with the company.”

*Por Marcelo Osakabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CBMM invests to expand use of niobium

Company owned by the Moreira Salles family plans to develop more applications for the metal

04/24/2024

CBMM, the world’s largest niobium producer, is expanding investments to develop new applications for the metal. After disbursing R$230 million for this purpose in 2023, the company controlled by the Moreira Salles family set aside another R$270 million in 2024.

“The company’s biggest focus is on research and development. This guarantees the market’s capacity to grow,” Rafael Mesquita, CBMM’s chief technology officer, told Valor.

The use of niobium in steelmaking still represents the most important share of sales. However, the battery and nanomaterials segments advanced faster than the steel industry in the use of metal last year. In total, sales of the company’s niobium products rose 5%, to 92,000 tonnes, of which 95% were exported.

With a production capacity of 150,000 tonnes of ferroniobium per year, CBMM chose to “stay ahead of the market”—which is currently 124,000 tonnes per year—precisely to support the innovation front.

According to Mr. Mesquita, 2023 was a year of “good growth” for the market, mainly reflecting the successful development of new battery applications. “In this case, growth came in associated with investments in technology and open innovation, with development together with customers and research institutions,” he said.

For 2024, the company plans to maintain investments in the battery materials and technology division at around R$80 million, repeating the size of last year’s investment.

Rodrigo Amado, head of CBMM’s battery division, explained that 2022 was the first year of significant sales for use in batteries, with 400 tonnes. In 2023, there were 600 tonnes. This year, sales are expected to exceed 1,000 tonnes.

According to the executive, there are currently three major applications for niobium products in batteries, the largest being material coatings—accounting for 70% of the company’s sales in this segment. Batteries are CBMM’s fifth-largest business segment but are expected to rank second in two years.

In partnership with Toshiba Corporation and Volkswagen, the company plans to present this year the first electric bus in the world with mixed niobium and titanium oxide technology in lithium batteries, enabling fast charging with greater durability and safety.

Still, there are also horizons of innovation in steel, some of which are rapidly growing and are better known, such as the use of niobium to obtain lighter structures in construction, said Mr. Mesquita. Other promising areas are superalloys for medical applications and nanotechnology.

In partnership with WEG, the company is working on applying a nanocrystalline material, which contains niobium, in electric motors, with important gains in performance in experimental validation tests. There is also the possibility of using it in non-toxic pesticides with better performance than the typical ones.

Last year, CBMM saw its net revenue grow by 3.6% to R$11.4 billion, while earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to R$7.9 billion and net profit reached R$4.9 billion, compared to R$4.5 billion in 2022.

*Por Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil imposes quota, increases tax on imported steel

Purchases from abroad gained importance last year with an increase in imports from China

04/24/2024

In recent months, Brazil’s steel imports, especially from China, have surged, highlighting a conflict between two significant sectors of the national industry — Foto: Divulgação/ArcelorMittal

In recent months, Brazil’s steel imports, especially from China, have surged, highlighting a conflict between two significant sectors of the national industry — Foto: Divulgação/ArcelorMittal

On Tuesday (23), Brazil’s Chamber of Foreign Trade (CAMEX) approved two measures targeting imports of 11 steel products: the establishment of quotas and a new import tax rate. A 25% tax rate will be applied only to quantities exceeding the average import volume of these products by 30% from 2020 to 2022. This update was announced by the Ministry of Development, Industry, Trade and Services (MDIC) following a meeting of the Executive Management Committee (GECEX) of CAMEX. Prior to this decision, the import tax rates were 10.8% or 12.6%, varying by product.

The ministry indicated that these changes are expected to take effect in about 30 days, pending review by other Mercosur countries. According to an MDIC statement, “the process also involves adjustments with the Federal Revenue Service and the publication of an ordinance to regulate the quotas.”

If approved, the measure will be in place for 12 months. Moreover, the CAMEX is still evaluating the status of four additional steel products, which may eventually receive similar treatment.

In recent months, Brazil’s steel imports, especially from China, have surged, highlighting a conflict between two significant sectors of the national industry. Brazilian producers argue that these imports are detrimental to their business, while manufacturers in the automotive, machinery, electronics, and equipment sectors contend that higher import taxes would increase the prices of their products.

Government sources have recently noted that there has been “very high” pressure from both sides to address their concerns. Similar issues have affected economies in other countries, including the U.S., due to rising Chinese steel exports.

Last year, Brazil imported steel products worth $1.6 billion, which are now subject to quotas, with China accounting for 83% of those sales.

In September, the CAMEX had increased the tax on 12 foreign steel products by 10%, reversing a cut made in 2022. At that time, the MDIC justified the increase as a “response to the concerns of the domestic steel industry, given the substantial rise in imports at prices often subject to unfair practices in recent years.”

At a press conference following the CAMEX’s recent decision, Vice-President and Minister of Development, Industry, Trade, and Services Geraldo Alckmin expressed the government’s expectation that “a large part” of the imports of the 11 products would fall “within the quota.” He supported the changes approved by the CAMEX, noting that steel companies had initially requested a rate increase for 31 products, an even more significant number. “Some industries [steel mills] are operating with more than 40% idle capacity,” he remarked.

*Por Estevão Taiar — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Brazil seeks ways to expand gas supply

Idea is to review regulation to enable a 25% reduction in cost to industry, minister of Energy says

04/23/2024

Alexandre Silveira — Foto: Fabio Rodrigues-Pozzebom/Agência Brasil

Alexandre Silveira — Foto: Fabio Rodrigues-Pozzebom/Agência Brasil

The Ministry of Mines and Energy carried out a study aimed at identifying opportunities to expand the supply of natural gas in Brazil and found that it’s possible to deliver more than 150 million cubic meters per day (m3/day) in the coming years. The study’s general ideas were unveiled to investors in the sector on Thursday (18) by Minister Alexandre Silveira at the 2024 Gas Week event.

In addition to expanding the product’s supply, the government plans to adopt regulatory measures aiming at flow and processing activities that could reduce the end price by 25%, especially for the industry.

The increase in natural gas volumes delivered to the domestic market would come from ongoing projects and initiatives under study. According to the minister, the acquisition of Argentine gas from the Vaca Muerta region could increase supply by 3 million m3/day. He estimates another 14 million m3 in the Brazilian market with Equinor’s Raia Project. Rota 3, Petrobras’s processing unit in Rio de Janeiro, will contribute another 18 million m3/day. The same volume should be made available with the Sergipe Águas Profundas Project (SEAP).

To deliver a substantial volume of gas, the government will have to implement plans to develop the biomethane market, with a potential supply of 60 million m3/day—the minister compared it with Brazil’s pre-salt oil wealth. Another challenge would be to break resistance to unconventional gas exploration, which uses the controversial fracking process to extract oil and gas from porous rocks underground. In this case, the increase in supply would be 32 million m3/day.

Regarding the 25% price cut, the minister of Mines and Energy argued that the high cost of transportation through maritime gas pipelines that take the product from wells to the coast, as well as treatment in processing units (UPGNs), must be addressed.

Mr. Silveira said the gas comes out of the wellhead, where it is produced, at a cost of $2.86 per million BTU (British thermal units). However, transport stages through maritime gas pipelines and treatment in UPGNs add up to $9.22 (or 46% of the end price). “When it arrives on land, this gas costs the domestic industry $12.08. In other words, it arrives on the Brazilian coast at prices well above the international average,” Mr. Silveira argued.

To that value, according to the minister, there is an additional cost of $2.04 for the onshore transportation gas pipeline and $1.28 for the local piped gas service, reaching the end price of $20.14 per million BTU. “Gas in Brazil has an absurd price. We have identified it, and now we have to discuss how to work towards an updated, safe regulation in the gas flow pipeline. We cannot fail to be transparent in that,” he said.

The government found that gas producers choose to inject gas back into the well as the end price makes commercialization unfeasible. “Today, our production is just over 140 million m3/day, while reinjection exceeds 73 million m3/day,” the minister said. He pointed out that the global industry reinjects, on average, 28% of the gas produced.

“Our gas has to reach the chemical, steel, metallurgy, ceramics, energy industries, and others. It has to reach those who produce wealth and generate opportunities in Brazil,” Mr. Silveira claimed at the event opening.

The minister advocated for a “supply shock” in the sector. “We are going to promote a real gas supply shock, with access to flow and processing infrastructure, thus reducing costs,” he said.

Following the example of the electricity sector, Mr. Silveira said the gas market should have a “monitoring committee,” bringing together authorities from key agencies to hold regular meetings to discuss supply conditions and prices for the product.

“Monitoring supply and demand in the sector will be constant. We will create a monitoring committee to check the progress of works and the entry into operation of relevant projects to ensure national supply,” Mr. Silveira said.

“Brazil will no longer have one of the most expensive natural gas on the planet,” he added.

* Por Rafael Bitencourt — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Lombard Odier to grow in Brazil without acquisitions

Swiss group shapes organic expansion strategy to maintain boutique service

04/23/2024

Frédéric Rochat — Foto: Gabriel Reis/Valor

Frédéric Rochat — Foto: Gabriel Reis/Valor

With $351 billion in wealth management globally, Swiss private banking firm Lombard Odier wants to grow in Brazil with no acquisitions. All foreign groups that achieved a relevant share in this segment took shortcuts through acquisitions. That was the case with Credit Suisse, now owned by UBS, and Julius Baer Family Office.

Frédéric Rochat, a partner and executive at the bank since 2012, explained that the current group is the outcome of the 2000 merger between two centuries-old family-held financial institutions: Lombard Odier and Darier Hentsch. No other consolidation movement has been taken since then and the group has grown organically. The same logic will prevail in Brazil, where the private banking firm opened its office in 2020, during the COVID-19 pandemic.

“[Organic growth] is at the heart of Lombard Odier’s model. We are not listed [on the stock exchange], we are a privately held firm structured as a partnership. That is the best quality growth we want to achieve, always organically,” said Mr. Rochat, who spoke with Valor at the firm’s local office during a recent visit to Brazil. “Critics will say it is too slow, that it would be better to make acquisitions. We say yes, it is slower, you need to be patient, but it allows us to build lasting quality in the way we develop the customer base and the team. We can handpick our customers, and new team members, and integrate them into our culture.”

According to Mr. Rochat, the wealth management industry, not only in Brazil but also in Europe and worldwide, is going through ramifications. “We see wealth management players becoming bigger and bigger, going through strong consolidation. We take a different approach. We like to keep it human size.”

The executive points out that $351 billion in investor funds is a small amount compared to the size of large financial groups—UBS and CS combined total some $4 trillion. But Lombard’s size, according to Mr. Rochat, allows the firm to get to know every customer “individually and personally.” Financial conglomerates tend towards standardization, he says, which is why the plan is to continue as a privately-held boutique.

“Going public would be good for acquisitions, to increase equity. But that could bring natural tension, with short-term pressures to report the best results for shareholders versus the long-term interest of customers,” Mr. Rochat explains. “Due to these pressures, many large banks view the wealth management business as a product distribution channel. We don’t perceive ourselves as product sellers. We offer the best possible long-term advice, we are trusted advisors. Customers are smart, they know what type of model they prefer.”

The executive points out that, although the firm is physically new to Brazil, relations with the country span almost eight decades serving Brazilian businesspeople and their families from its base in Geneva. “Opening an office in São Paulo was a natural step considering our strong commitment to get closer and provide investors with greater convenience,” Mr. Rochat said. “We are very pleased with the customer base we are developing in São Paulo, we are on target. Brazil is a strategically important market. We respect its economic performance and admire the country’s entrepreneurial fabrics.”

The executive did not disclose specific goals for the local operation. However, a fair slice would be 1% to 2% of the volume the group has under its umbrella globally, according to Marc Braendlin, Lombard Odier’s head in Latin America.

The goal, according to Mr. Rochat, is not to go head-to-head with the large private banking groups operating in the local market, but rather to complement the offer with alternatives in a strong foreign currency, including assets with a focus on sustainability.

He is aware that competing with Brazilian interest rates and unmatched returns above inflation is not trivial for a foreign wealth management firm. But he believes there is a willingness for diversification among businesspeople who already have exposition to risk in Brazil, whether in illiquid alternatives, linked to the real economy abroad, or in liquid options, as international bonds now offer more attractive rates. “Many businesspeople want to increase their exposure to private assets. And the biggest markets are still the U.S. and Europe.”

Mr. Rochat understands the sustainable approach as the asset manager’s ability to map the paths of climate transition and identify which companies will emerge stronger to be included in the portfolio while removing the ones that will lose ground. “Entire economic systems or sectors will be turned upside down. Some companies will emerge stronger, others will have their business models seriously challenged.”

Behind that is the belief that responsible practices tend to be a driver of financial performance. However, having a great environmental, social, and governance (ESG) score is not enough.

In this field, Brazil could act as an attractor of foreign capital, a type of exposure that Lombard Odier could have through international private equity managers listed on the stock exchange to fund local projects. “For Brazil, one of its priorities in the coming years will likely be creating the right economic environment to increasingly attract direct investments,” said Mr. Rochat.

That is not an easy market for foreign capital, Mr. Braendlin adds, although he sees potential in sectors such as energy, infrastructure, and logistics. “It is not enough, there are many other countries that lack investments.”

A curious note, according to Mr. Rochat, is that the first contact between Lombard Odier and Brazil dates back to 1870 when the firm engaged in underwriting a public offering to back the first oil and gas company in Rio de Janeiro. At the time, the crown granted concessions for oil and mineral exploration for 90 years.

*Por Adriana Cotias — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Lula mobilizes ministers to quell political crisis

Key aides met leaders of the governing coalition in the Lower House to address the Executive branch’s legislative agenda

23/04/2024

Arthur Lira — Foto: Zeca Ribeiro/Câmara dos Deputados

Arthur Lira — Foto: Zeca Ribeiro/Câmara dos Deputados

President Lula’s ministers stepped in to defuse a growing crisis between the Planalto Palace and Congress. Following the president’s meeting with Lower House Speaker Arthur Lira, key aides such as Institutional Relations Minister Alexandre Padilha and Chief of Staff Rui Costa, responsible for political coordination, convened with leaders of the governing coalition in the Lower House on Monday to address the Executive branch’s legislative agenda.

The meeting was set at the residence of Congressman Emanuel Pinheiro Neto, a member of the governing coalition. The group of deputy leaders includes representatives from several parties, not just President Lula’s Workers’ Party (PT). By Monday night, the outcome of the discussions remained unclear.

The initiative came from José Guimarães, the government’s leader in the Lower House, amidst an ongoing spat between Messrs. Lira and Padilha. The purpose was to gather pro-government lawmakers for a broader discussion “on politics,” as the administration has been facing recurring difficulties in its relations with Congress.

“This would mark the start of political meetings, to discuss politics beyond the usual legislative debates, amendments, and appointments,” said a source in the presidential palace. Mr. Guimarães, who arranged the dinner, conceded last Friday that the relationship between Mr. Lira and the presidential palace’s political coordination team needed “minor repairs here and there.”

The friction prompted Mr. Lula to demand more dedication to political coordination from his ministers on Monday. Speaking at an event in the palace, he highlighted the disproportion of the Workers’ Party representation in Congress—70 out of 513 deputies and nine out of 81 senators—and emphasized the need for more proactive engagement: “[Vice President Geraldo] Alckmin needs to be more dynamic and engage more. [Finance Minister Fernando] Haddad should spend less time reading and more time discussing issues in the Senate and the Chamber, along with Wellington [Dias, minister of Social Development] and Rui Costa engaging in conversations with various parliamentary caucuses. It’s tough but we can’t complain because that’s politics. Either you do it, or you don’t get involved in politics at all.” Mr. Haddad later quipped that he does nothing but that.

Behind the scenes, there is internal pressure within the government for Mr. Lula himself to become more actively involved in political maneuvers. In his previous terms, Mr. Lula frequently engaged directly with allied lawmakers, hosted events at the presidential residence in Brasília, and invited members of Congress to join his delegations on national and international trips—an approach that has been absent this term, which insiders argue has negatively affected interactions with Congress.

A rare exception occurred with Mr. Lula’s recent meeting with Mr. Lira on Sunday, as confirmed by sources to Valor. Originally scheduled for later in the week, the meeting was expedited to Sunday by advisors close to both parties. The meeting was not officially documented in their schedules. Mr. Lira did not respond to requests for comment.

Mr. Lula’s meeting with the congressman was part of an effort to mitigate the conflict between the Lower House speaker and the government’s political coordination team, led by Mr. Padilha.

The political crisis was fueled by the government’s decision to dismiss Mr. Lira’s cousin from the leadership of the National Institute of Land Reform and Colonization (INCRA) in Alagoas. Following the dismissal, Mr. Costa approached Mr. Lira to deny Mr. Padilha’s involvement in the incident. Sources say that Mr. Costa even offered to show his message exchanges with Mr. Padilha on the matter as proof of his account, but Mr. Lira deemed it unnecessary.

(Guilherme Pimenta and Jéssica Sant’Ana contributed reporting.)

*Por Renan Truffi, Estevão Taiar, Mariana Assis, Raphael Di Cunto, Marcelo Ribeiro — Brasília

Source: Valor International

https://valorinternational.globo.com/
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