Brookfield eyes energy transition opportunities in Brazil

Country is entitled to access part of the company’s $15bn fund

09/22/2022

André Flores — Foto: Silvia Zamboni/Valor

André Flores — Foto: Silvia Zamboni/Valor

Brookfield is willing to invest in projects related to energy transition and low carbon economy. Within that plan, Brazil is one of the main countries in the world with chances to receive multimillion investments in the coming years.

Brookfield’s Global Transition Fund (BGTF) recently raised $15 billion — the largest amount of private capital ever raised to support the transition to a low-carbon economy — and executives are looking to do business in Brazil.

The asset management company has always displaced the investments in power generation. Now, by demand of the investors themselves, it directs the attention also to sectors that can also contribute to the mitigation of emissions.

In an interview to Valor, Brookfield’s head of Renewable Energy and Transition, André Flores, says that the investments are conditioned to an additionality character focused on business transformation, renewable energy and sustainable solutions.

“The funds we invested in before were infrastructure funds more broadly, but investors were looking for funds exclusively dedicated to energy transition. The initial demand for this fund was higher than we expected. Our fundraising goal was $7billion and we ended up with $15 billion,” Mr. Flores says.

The money is not earmarked for any country and is released as local managers find opportunities with good rates of return. Almost half of the amount has already been allocated in large economies such as the U.S., Canada and the UK.

The executive sees no chances of Brazil being left out of this or other funds specific to the energy transition but gives signs that a way to accelerate this would be more regulation and legal security for new technologies.

Brookfield is still looking for opportunities here, but the lack of a legal framework for some segments that are beginning to emerge, such as the carbon market, batteries, and offshore wind power, for example, still hinder more aggressive investments.

“Do I see a carbon capture market in Brazil today? No. But we see some markets out there already developed. The storage market still depends on regulation and clear incentives. Obviously, they can launch a capacity market auction, but there isn’t a remuneration system outside the auction that justifies the investment”, he says.

The executive adds that the demand is also on the part of consumers with increasingly bolder portfolio decarbonization goals with long-term contracts and costs that make clean energy viable.

“In Brazil there is not a specific rule, and nothing is mandatory, such as a carbon tax for companies. So, we note that this is a voluntary movement through consumer pressure and adoption of targets.”

Mr. Flores believes that as soon as this fund is fully invested, the company will present an even larger one, as has been the case with infrastructure funds, which have already launched five. “We bet that Brazil will be the great receiver of these resources in the future.”

Of the R$159 billion in assets under management in Brazil, R$27 billion are concentrated in renewable energies, mainly in hydroelectric and wind power plants under operation by Elera Renováveis. Last year, in buying and selling assets, the amount was R$10 billion in acquisitions and R$5.5 billion in capital recycling activities.

The solar source had a strong debut in the radar of the Brooksfield, and there are already 11 parks under construction, the most important of which the Janaúba plant, the largest solar enterprise under construction, totaling 1.2 GWp of installed capacity and investments totaling R$2.3 billion — in addition to the private equity fund that bought Aldo Solar, the largest distributor of solar equipment.

It seems that the distributed generation segment should be one of the next in line to receive resources, given the growing demand for capital to make the projects viable.

“Our idea is to be builders, owners, and operators of distributed power parks. In this gold rush there are gigawatts of projects with access applications or already underway. I see our entry much more in this,” he expects.

The bottlenecks in the electrical sector are also candidates to receive an important slice of the resources. Brookfield owns Quantum and recently sold 2,420 kilometers of mature transmission lines in the Northeast and Minas Gerais for $834 million to Argo Energia, but has almost twice as much under construction, besides being present in all the auctions of the segment.

The increase in capex in Brookfield’s business, on the other hand, squeezed investors’ margins a bit, mainly due to the rise in commodities and inputs. However, the market reaction fostered a balance, and the prices of long-term contracts followed the movement.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Amazon deforestation worsened more where cattle herd grew most

Five municipalities account for one-fifth of all deforestation carried out in Amazon last year

09/22/2022

Concentration of deforestation in municipalities where cattle-raising advanced the most was already seen in previous years — Foto: Evandro Monteiro/Valor

Concentration of deforestation in municipalities where cattle-raising advanced the most was already seen in previous years — Foto: Evandro Monteiro/Valor

The five Brazilian municipalities with the largest increase in cattle herds between 2020 and 2021, all located in the so-called Legal Amazon, accounted for almost one-fifth (17%) of all deforestation carried out in the region last year.

The cattle herds of Marabá, Altamira, São Félix do Xingu, and Novo Repartimento (Pará) and Porto Velho (Rondônia) gained 591,700 new heads last year, according to data from the Municipal Cattle Survey released Thursday by Brazil’s statistics agency IBGE. The country had a total of 224 million head of cattle last year, 6 million more than in 2020.

Those same municipalities reported deforestation of 2.2 million hectares in 2021, according to the most recent data from Prodes, of the National Space Research Institute (Inpe). This accounted for 17% of the entire deforested area in the Legal Amazon, which exceeded 13 million hectares this year.

In Marabá, where the cattle herd grew most last year, 73,600 hectares were deforested. In Altamira, the second municipality where the number of animals increased the most, deforestation extended to over 765,500 hectares.

São Félix do Xingu, which was for years the leader in cattle herd, was the third municipality with the biggest increase, with a hike of 106,000 animals in 2021. Also last year, deforestation in the municipality reached 577,000 hectares.

Another highlight was Porto Velho, the capital of Rondônia, where the herd grew by 86,000 animals and 619,300 hectares were deforested. Novo Repartimento was the fifth municipality that saw its herd grow the most last year, with an increase of 82,600 heads, and where 190,500 hectares were deforested.

This concentration of deforestation rates in municipalities where cattle-raising advanced the most was already seen in previous years.

In 2020, the five municipalities where the number of animals in the country grew the most also accounted for 14% of the deforestation in the Legal Amazon in the period. In that year, the municipalities where the number of animals increased the most were Novo Repartimento, Pacajá, Marabá, and São Félix do Xingu — all in the state of Pará.

“In the [municipalities] champions of deforestation, cattle are side by side with land expansion. They need to increase the herd to establish land tenure. So, the expansion [of the herd] is not necessarily something that indicates an increase in the economic relevance of cattle ranching in Brazil. Many times, it is more linked to a process of land grabbing than meat production,” said Raoni Rajão, a professor at the Minas Gerais Federal University and a researcher at the Washington-based Wilson Center.

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CSN ordered to reduce stake in Usiminas

Antitrust watchdog’s decision forces company to sell securities, but did not set deadline

09/22/2022

Usiminas: CSN started building a position in the competitor in 2011 and now holds 15% of common shares — Foto: Divulgação

Usiminas: CSN started building a position in the competitor in 2011 and now holds 15% of common shares — Foto: Divulgação

CSN needs to reduce its stake in Usiminas to up to 5%, but has no deadline to conclude the sale. This was the decision of the Administrative Council for Economic Defense (CADE) on Wednesday. There was the possibility of a 17% stake being allowed.

The solution adopted follows a 2014 decision. At the time, CADE’s court vetoed CSN’s nearly 17% stake in Usiminas, acquired in 2010. The decision required CSN to sell part of the shares it held in the competitor, which Benjamin Steinbruch’s company was unable to do in five years.

Even after three extra years, the sale was not completed either, and now CADE’s General Superintendence no longer sees a problem in the percentage that had been vetoed by the court of the antitrust agency. So the case went back to the court and an intermediate solution was adopted.

The assessment of people close to the negotiation is that the decision was positive for Usiminas compared to the possibility of a total reversal of the 2014 decision. However, it is not ruled out the possibility of litigation, according to a source, to restrict the purchase of shares by CSN.

The possibility of reversing the 2014 decision emerged last week, when CADE’s General Superintendence issued an opinion changing the regulator’s previous decision and allowing CSN to acquire more than 5% of Usiminas shares, provided it does not exercise voting rights.

If this new decision was adopted, CSN could keep nearly 15% of the common shares, which would make it CSN’s largest single stockholder outside the controlling group.

Usiminas asked the regulator on Wednesday to comply with its 2014 decision that limits CSN’s stake in the company and define an independent third party to try and carry out the sale of the shares. The superintendence’s order ended up not prevailing in the session.

CADE’s head Alexandre Cordeiro said that this is not a deal review. His vote maintains the obligation to sell the shares, but changes the fixed term of the sale to an indefinite term. Usiminas declined to comment. CSN did not reply to a request for comment.

*By Beatriz Olivon

Source: Valor International

https://valorinternational.globo.com/
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Brazil closes deal with EU on agricultural quotas

With the exit of the United Kingdom — the Brexit — the chess table of exports changes for several products

09/22/2022

Warehouse with sugar in the port of Santos — Foto: Julio Bittencourt/Valor

Warehouse with sugar in the port of Santos — Foto: Julio Bittencourt/Valor

Brazil and the European Union (EU) have concluded a bilateral agreement on quotas for several agricultural products to adjust them after the United Kingdom’s exit from the European bloc, which has shrunk to 27 members from 28.

The quotas allow exporters to sell to the EU a certain volume paying a lower tariff. Under the agreement, the bloc will reduce quotas, but, in return, the UK will open others proportionally, thus preserving export opportunities for both markets.

Brazil has several specific quotas in the EU, including for sugar, chicken, beef, and turkey. The exporter gains more by using this space for its sales, with lower tax rates.

Valor has learned that a quota specifically intended for Brazilian sugar, currently at 388,120 tonnes, will be reduced to 341,550 tonnes, with the rest to be offered in another quota by the UK.

The EU has accepted to continue to comply with the reduction of the tariff to 11 euros per tonne in the first year, and to 11 euros/tonne and 54 euros/tonne in the second year for certain volumes of this Brazilian-only quota, as per commitments undertaken at the time of Croatia’s entry into the EU block.

In turn, a quota Brazil competes for with other sugar exporters will increase to 341,460 tonnes from 371,880 tonnes.

As for chicken meat (salted, processed, frozen), several specific quotas for Brazil will decline to 244,270 tonnes, down 27.9%. With this decrease in the EU, the quota in the UK will be much higher, reflecting more Brazilian sales of chicken in that market in recent years.

Also, the Brazilian quota for boneless beef, of 10,000 tonnes, will fall to 8,950 tonnes. The quota for frozen beef for all exporters, and not only Brazil, falls to 19,700 tonnes from 63,700 tonnes currently. With this sharp decrease, the EU has committed to compensate by reducing the tariff within this quota to 15% from 20%.

In turn, the quota for frozen turkey meat for Brazil falls to 2,860 tonnes from 3,110 tonnes. For prepared turkey meat, the quota also for Brazil alone, decreases slightly to 91,800 tonnes from 92,300 tonnes.

In other agricultural quotas, in which Brazil competes with other exporters, the division between the EU and the UK is also defined.

For corn, the overall EU quota goes to 276,400 tonnes from 278,000 tonnes. That is, almost the entire volume with a lower rate will remain with the community block.

In the case of plywood, the EU quota drops to 448,500 tonnes from 650,000 tonnes.

The quota for the entry of table grapes with a lower rate in the EU decreases to 885 tonnes from 1,500 tonnes.

As for the orange juice quota of 1,500 tonnes, it remains entirely for the EU. The other one, for fruit juices in general, decreases in the EU market to 6,550 tonnes from 7,040 tonnes.

In the negotiation, Brazil obtained a guarantee from the EU about the maintenance of exporters’ certificate of origin, so that the Brazilian government will be able to monitor who has access to the quotas and avoid irregularities in their use.

Having concluded the negotiations between Brazil and the EU, the Europeans now need internal authorization to sign the agreement, which can take months. In addition, its implementation should also take place with the implementation of quota agreements with the UK, so that there is no mismatch between the two and no harm to the exporter.

The negotiations between Brazil and the UK are well advanced on the volumes of agricultural quotas that London will open. It remains, however, to resolve issues such as the administration of quotas, for example. A new negotiation will take place on October 5.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Court decrees bankruptcy of Itapemirim

The decision took even creditors by surprise amid new recovery plan

09/22/2022

Aircraft belonging to ITA Transportes Aéreos — Foto: Divulgação

Aircraft belonging to ITA Transportes Aéreos — Foto: Divulgação

After a huge quandary with creditors, the road and air passenger transport group Itapemirim had its judicial reorganization converted into bankruptcy by the judge of the 1st Court of Bankruptcy and Judicial Recovery of the São Paulo Court of Justice, João de Oliveira Rodrigues Filho. The decision was published on Wednesday. The judge also ordered that the assets of Sidnei Piva, the group’s CEO, be frozen.

The decision, however, took even creditors by surprise, according to sources. This is because a few months ago the replacement of the board was approved and the presentation of a new recovery plan by the new leaders was expected. However, bankruptcy came first.

The bankruptcy was filed by the group’s custodian, EXM Partners, in July. The administrator was fighting a battle with the former board of directors over the misuse of funds for purposes other than paying creditors — such as the creation of ITA Transportes Aéreos, which began flying in June last year but stopped in December, leaving angry customers without seats during the holidays.

According to the trustee, R$45.3 million was withdrawn from the cash flow by the former management of Itapemirim. The noncompliance with the judicial recovery plan amounts to R$99 million.

Last May, after the decision of the Itapemirim group creditors to remove the current board of directors, including chair Sidnei Piva, the consulting firm Transconsult was appointed by the creditors as the new judicial manager of the company.

Since June last year, the creditors had been trying to remove Mr. Piva. He was removed in the meeting with 99% of the votes. The new judicial manager would be responsible for making an overview of the group’s scenario and creating a new recovery plan to be exposed to the creditors.

“The disorganization of the management, added to the use of resources for objectives other than the fulfillment of the plan, caused the business operations to collapse,” wrote judge João de Oliveira Rodrigues Filho. Both Itapemirim and Kaissara (the group’s bus companies) operations were compromised by a decision of the National Agency of Land Transportation (ANTT).

By May 2022, the group had debts of R$106 million. There is also a tax liability of at least R$2.387 billion reported until October 2021.

The group would also be in default with labor duties from December 2021 to June 2022. Several workers who were laid off between March and May this year have not received their severance pay.

Itapemirim and Piva were sought but were not available for comment.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Pressure on coffee market grows amid low supply in Brazil

Conab reduces estimate for this year’s season to 50.4 million from 53.4 million bags

09/21/2022

Adverse weather in the 2021/22 season, with prolonged periods of drought and frost in some regions, continues to impact part of Brazil’s coffee crop in this 2022/23 cycle and increase fears about the effects of the shortfall in global supply.

On Monday, the National Supply Company (Conab) again reduced its estimates for the average yield and harvest for the season, and analysts believe that the pressure in the market, especially for arabica coffee, may still increase.

“Not even the resumption of rainfall at a good level in the first months of 2022 was enough to avoid the decrease in output potential,” said Conab in a report. The average yield is now estimated at 27.4 bags per hectare, compared to 29 bags per hectare forecast in May. Each bag weighs 60 kilos. The number is only 3.7% higher than in 2021/22, a negative year in the coffee’s biennial cycle, that is, a crop with lower productivity, and 22.2% lower than the average in 2020/21, in a positive biennial cycle, like the current one.

Thus, the production projection was reduced to 50.4 million bags from 53.4 million bags in May. Compared to the previous season, the volume represents an increase of 5.6%. “This increase between crops is due to a discrete expansion of 1.7% in the producing area and the better productivity achieved by conilon coffee,” Conab said in the text.

Arabica coffee production is now estimated at 32.4 million bags, 3.1% more than the last cycle but 9.4% less than estimated in the previous report. “The number is below expectations, since unfavorable weather conditions between June and September 2021, with drought and frost, in addition to excessive rainfall in Minas Gerais, between December 2021 and February 2022, were determinant for a decrease in expected production.”

Rabobank reiterated in a new report on the crop that August was a dry month and if the weather continues like this in the coming weeks, it could impact the yield of the next crop. “Lower-than-expected yields have been reported in the current crop, especially in the Cerrado Mineiro region,” says the report, mentioning the area of Brazilian savanna in the state of Minas Gerais. Rabobank has reduced its 2022/23 (current) arabica crop forecast to 40.1 million bags. The previous projection was 41.4 million bags, according to a report signed by analyst Guilherme Morya.

The global Arabica coffee market, of which Brazil is the top supplier, is already going through a delicate moment since the “fundamentals indicate a difficult picture for the global supply,” said Eduardo Carvalhaes, with coffee brokers Escritório Carvalhaes. According to him, the shortfall is greater than initially projected by agronomists, producers, and cooperatives.

Even so, he reiterates, since there is a lack of verifiable data, especially in relation to Brazilian stocks, the analysis is based more on “feelings rather than numbers.” Mr. Carvalhaes, who is in constant contact with coffee producers and buyers, said that there is a slow movement of new crop coffee arriving at the warehouses, which is unprecedented for this time of year, the end of harvest.

This week, Carlos Augusto Rodrigues de Melo, head of Cooxupé, the largest Arabica cooperative in the world, said it will receive about 15% less coffee from its members than what was projected at the beginning of the harvest, which should total about 4 million bags.

As for the country’s stocks, Conab’s latest data, from March, indicated 13.1 million bags – 11.4 million of arabica coffee and 1.7 million of the conilon variety, which is similar to the robusta variety. “The work of surveying private stocks, as a process of information gathering for knowledge generation and decision-making, needs continuous improvement,” Conab told Valor.

In the case of conilon coffee, Conab raised production estimates from 17.7 million bags to a record 18 million bags.

*By Fernanda Pressinott, Érica Polo — São Paulo

Source: Valor International

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FGV sees stronger growth this year, slower inflation in 2023

Concerns about fiscal policy going against monetary policy, however, remain in place and cast doubt on Central Bank’s ability to tame inflation

09/21/2022

Silvia Matos — Foto: Leo Pinheiro/Valor

Silvia Matos — Foto: Leo Pinheiro/Valor

Better-than-expected signs in July and August led to a significant revision of the economic projections by Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre). In the September edition of the Macro Bulletin, forecasts for activity in 2022 were revised upward, while inflation projections for this year and next were revised downward. Concerns about fiscal policy going against monetary policy, however, remain in place and cast doubt on the Central Bank’s ability to converge to the inflation target ahead.

The latest edition of the Macro bulletin points out that after the release of GDP data for the second quarter and the last two months, activity is still expected to slow down, but in a less intense way.

“In July, high-frequency indicators showed stability on the industry side, with positive momentum from services, and a drop in the retail sector. However, within the retail sector, the sale of fuels and lubricants stood out positively,” said economists Silvia Matos, Marina Garrido, and Mayara Santiago.

They point out that the services sector surprised to the upside, with a highlight for the transportation sector, which is today 20.2% above the pre-pandemic level. Based on high-frequency indicators for July, the manufacturing industry grew 0.4%, and remained flat in the year-over-year comparison. In the case of services, the expectation of growth of 5.5% year-over-year was overshadowed by the year-over-year increase of 6.3% and the monthly increase of 1.1%.

With the recent data and the perspective that services will continue to contribute positively to growth in the second half, FGV/Ibre now expects GDP growth of 0.4% in the third quarter, compared to the second quarter. The economists added that some measures passed by Congress are likely to drive growth in the third quarter. As a result, they revised the projection for GDP growth in 2022 to 2.5% from 1.7%.

Besides GDP projection, FGV revised upwards the 2022 forecasts for household consumption (to 3.5% from 2.4%), investment (to -0.4% from -3.5%), industry (to 1.7% from 0.5%), and transformation industry (to 0.2% from -1.3%). The numbers for electricity and others were also revised upwards (to 7.9% from 4.5%), as were construction (to 6.1% from 4.9%), and services (to 3.3% from 2.6%).

Forecasts for government consumption, exports and imports, agriculture, and extractive industry were revised downwards. So was the forecast for the GDP in 2023, now expected to contract 0.4%, compared with 0.3% before. This is explained by the delayed effects of the monetary policy, plus the need for less public spending and the decline in household consumption next year.

Silvia Matos, coordinator of the Macro Bulletin, points out that, besides the surprise in the transportation sector, which has been growing for 10 months, public services, energy, and agricultural production are expected to perform well this quarter.

“We foresee good growth in agriculture, which in the same quarter last year fell 9% because of the drought,” she said. “Public services should have a more relevant contribution in the quarter and may grow 2%. It would be a later normalization of this sector, which has a relevant impact on the GDP. Besides this, although energy has contracted, we are talking about a year-over-year variation of 10% after the thermal plants were turned on last year.”

The economist also argued that services provided to households, which did not grow that much in July, are 5.7% below the pre-pandemic level, which indicates some room for growth this quarter.

FGV/Ibre also revised its projections for inflation this year and next. In August, it expected inflation of 6.5% for 2022 and 5.1% for 2023. Now it expects 5.6% for this year and 4.7% for 2023. In the latest Focus, Central Bank’s survey with analysts, from Monday, the market’s outlook for inflation fell again, but is still less optimistic than that of the FGV/Ibre – it went to 6% from 6.4% in 2022 and to 5% from 5.1% in 2023.

In the bulletin’s inflation section, André Braz said that, whether due to the ICMS reduction or the risk of global recession, the prices of energy and important raw materials should remain lower for the next few months.

“And, in the same way energy products contributed to a broad-based inflation, their current behavior tends to contribute to price stability. Since energy and fuel are important costs for industrial activity and services, their current trajectory tends to reduce the need for transfers along the production chains,” Mr. Braz argued.

However, Ibre/FGV warned that the battle against inflation is not yet won and that a new cycle of monetary tightening could still be necessary.

Ms. Matos and Armando Castelar Pinheiro said that the scenario is of deceleration throughout this semester and next year in Brazil and in the rest of the world. Here, they said, the picture is more concerning because the fiscal policy has been very expansionary, which would be unsustainable from the standpoint of public debt and the fight against inflation.

They cited recent analysis from associate researcher Samuel Pessôa, published in FGV/Ibre’s blog, in which he argued that without fiscal adjustment it will be very difficult to get close to the inflation target.

Brazil’s president in the next four years, to be elected next month, will look at 2023 and see an economy at full employment with inflation well above the target. “The political cycle will speak louder in terms of spending,” Mr. Pessôa said. “We will have fiscal contraction in 2023. Otherwise, it will be very difficult for the Central Bank to deliver inflation on target in 2024.”

In this sense, Ms. Matos argues that if fiscal policy does not do its part, we may have higher interest rates or even more inflation. In her view, there is a “conflict” with tight monetary policy on one side and fiscal policy with continuous expansion of spending.

As for monetary policy, Ibre/FGV warned about a potential new cycle of interest rate hikes by the Central Bank, mainly because of the possibility of approval of a temporary suspension of fiscal rules to enable public spending that was not included in the federal budget for 2023.

“Depending on the fiscal policy choices next year, there is a risk that [this] will not help the Central Bank,” Ms. Matos said. “If expectations for 2023 and 2024 start to deteriorate, the Central Bank will have to raise interest rates more. And it will only lower interest rates if there is a clearer scenario from the fiscal policy standpoint. We depend on interest rates abroad and fiscal policy here. These two components are key to see how much real interest rates we are going to have.”

*By Marsílea Gombata — São Paulo

Source: Valor International

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Norwegian fund’s climate plan increases pressure on Brazilian companies

It invests in 174 businesses, totaling $4.5bn; Vale, Eletrobras have been excluded from portfolio

09/21/2022

Norway’s sovereign wealth fund — the world’s largest, with $1.2 trillion in assets — announced on Tuesday a new action plan for all companies in which it invests to achieve net-zero greenhouse gas emissions by 2050, in line with the Paris Agreement.

The plan will have an impact in Brazil, where the Norwegian fund invests in 174 companies, totaling $4.5 billion, or 0.3% of all its assets. It has stakes in companies like Petrobras (1%), Suzano (2.1%), Cosan (2.2%), and Aliansce Sonae Shopping Centers (3.6%). In total, its investments in Brazil in 2021 reached about $6 billion, including fixed-income securities, equivalent to 0.4% of all its investments, compared to 0.9% in 2019. But the number of companies it invests in the country increased to 174 last year from 139 in 2019.

As Valor reported in March, last year Norges Bank, which manages the sovereign wealth fund, excluded 12 companies globally from the portfolio and placed three others under observation. One of these three is Brazil’s Marfrig Global Foods, which was set aside due to environmental issues. The fund had only $2 million invested in the company (0.08% of the shares).

The fund at the time also started talks with 11 companies that are among the biggest contributors to the equity portfolio’s carbon footprint, to understand their plans to reduce their greenhouse gas emissions. One is Petrobras.

In 2019, the fund had already excluded from the portfolio two Brazilian companies among 15 globally: Vale, for “severe environmental damage,” in the collapse of dams which have caused hundreds of deaths; and Eletrobras for “human rights violations” involving certain hydroelectric projects, such as the Belo Monte dam.

Globally, the fund invests in more than 9,000 companies in 70 countries. With the new plan, it wants to accelerate the decarbonization of its portfolio to avoid financial risks arising from delays in the environmental transition. “We will ask companies to undertake appropriate short-term actions to help mitigate global warming and reduce exposure to climate risk,” the fund says. “For selected industries, this might include significantly reducing methane emissions or eliminating deforestation impacts from their business activities and/or value chains.”

For the Norwegian fund, climate change is one of the biggest challenges of the century. “In addition to serious consequences for the world’s climate and living conditions for human beings, the changes will result in considerable risk for the global economy,” it says in a statement.

Analyses by the fund indicate that a delay in the climate transition is what constitutes the greatest financial risk to its investments. “Our goal is to be the world’s leading investor in terms of how climate risk is managed. Our long-term return will depend on how the companies in our portfolio manage the transition to a zero emissions society,” said Nicolai Tangen, CEO of Norges Bank Investment Management, in the statement.

The fund has been working on the climate issue for more than 15 years. But it says it will now do more. It will charge companies to develop transition plans, define their timelines and milestones, and report on their progress annually. Net emissions will be examined, meaning that any additional carbon emissions need to be fully offset by emissions taken out of the atmosphere, for example.

“We will examine the robustness of these plans, including governance structures, capital allocation frameworks, carbon price assumptions, and use of carbon offsets and their quality,” the institution says.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Pulp, paper industry ignores crisis and invests over R$63bn

Suzano, Klabin, CMPC and Arauco are sector’s heavyweights in investments

09/21/2022

Aires Galhardo — Foto: Silvia Costanti/Valor

Aires Galhardo — Foto: Silvia Costanti/Valor

Brazil’s pulp and paper industry continues to ride out global economic turbulence and increase investments. In addition to the R$60.4 billion already announced for expansion projects and new mills until 2028, including wood panels, Valor has learned that there are at least more R$3 billion planned for the current growth cycle, consolidating the sector among the largest private-sector investors today.

Among a dozen projects announced or under execution are heavyweights of the global industry, such as Suzano, Klabin, CMPC and Arauco. The largest of them is Suzano’s Cerrado, with a total capital expenditure of R$19.3 billion — of which R$14.7 billion on the industrial front.

In Ribas do Rio Pardo, Mato Grosso do Sul, the company is building the largest single pulp line in the world, with an output capacity of 2.55 million tonnes per year and economic and social development throughout the region.

“It is a transformational project, with wealth generation that goes beyond pulp production,” said Aires Galhardo, Suzano’s head of pulp operations, engineering, and energy. Located about 100 kilometers away from Campo Grande, the municipality has 25,000 inhabitants. When operational, the plant will employ about 3,000 workers, including third-party employees.

One investment not yet reflected in the official estimate of the Brazilian Tree Industry (Ibá) is the installation of four tissue paper machines supplied by Asian company RGE (Royal Golden Eagle) in the country. Bracell, the group’s pulp production arm, confirms the plans but does not reveal the size of the investment.

“In Brazil, the company will have four Andritz tissue machines, with an output capacity of 240,000 tonnes per year. This operation is expected to start as of the second quarter of 2024,” he said, in a note to Valor. According to a source from the sector, a tissue line of 60,000 tonnes per year should demand investments of more than $100 million.

RGE is also building two tissue projects in China. In all of them, it will use pulp produced in its plants in Brazil and Asia as raw materials.

Ibema’s likely investment in a new pulp (BCTMP) mill in Turvo, Paraná, was not incorporated into the official projection as well, since the paperboard manufacturer is still conducting feasibility studies. “Those projects are expected to get off the drawing board,” says an industry source.

Availability of area, short cycle for wood cutting, and favorable soil and weather conditions are among the factors that sustain the country’s inclination toward the forest-based industry. Although Brazil is naturally benefited by those conditions and by a large territory favorable to the activity, the sector also has its own merits, said Marcelo Schmid, managing partner of Index.

“We were able to improve tree genetics and productivity, the performance of operations throughout the production chain, and the management of the activity, with cost reduction, state-of-the-art technology, and respect for the most demanding sustainability standards. These factors together make Brazilian pulp the most competitive in the market and explain the sector’s great attractiveness,” says the specialist.

With operations scheduled to start in the second half of 2024, Suzano’s new mill will be self-sufficient in energy, from a renewable source, and export about 180 average megawatts to the power grid, enough to supply a city of 2.3 million inhabitants for a month.

According to Mr. Galhardo, the construction works of the Cerrado project is already 25% completed. Every day, 50 new workers are hired at the site, and 10,000 will be involved at its peak.

For 2022, Suzano projects disbursements of R$7.3 billion for the project. So far, according to the executive, there is no expectation of a revision of the budget (capex), despite the rise in commodity prices and the advance of inflation. “We managed to close the negotiation in euros. Some commodities became more expensive and had an impact. But, at the same time, the euro depreciated,” he said.

To ensure that logistical hurdles do not affect the on-time delivery of the contracted equipment, the company has a permanent team in China and another on the way to Europe. “The biggest fear was with the logistics issue, but we are managing to ship the equipment,” he added.

According to the executive, projects of this magnitude need to go beyond the plant to be successful: besides the counterparts agreed with the authorities, it is necessary to ensure everything from accommodation and food to health care and education, both during the construction period and after the start of operation.

On this front, for example, Suzano will build a new hospital in the region, which will be transferred to a private-sector operator. In addition, the company is already in talks with private schools to set up a new education center.

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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China’s Oppo lowers smartphone price to debut in Brazil

Company, one of the largest manufacturers in the world, will launch three other models by the end of the year

09/20/2022

Jim Zhang — Foto: Silvia Zamboni/Valor

Jim Zhang — Foto: Silvia Zamboni/Valor

The Chinese cell phone maker Oppo, one of the largest in the world, is coming to Brazil with a model that will cost R$2,999 ($580). The original price of the Reno 7 model – the device chosen for the debut – was R$3,799, but the company decided to review the strategy and reduce the value to draw more consumers. The company will launch three other models by the end of the year, of the A series, which are cheaper than Reno, said Jim Zhang, CEO of Oppo in Brazil.

Sales are scheduled to start next week. Oppo’s devices will be sold online by Amazon and Telefônica’s Vivo in brick-and-mortar stores. At first, the products will be available in 10 Vivo stores in São Paulo.

Oppo’s arrival will be followed by several sales campaigns to arouse the public’s interest. A temporary store will be opened on Paulista Avenue, in São Paulo, so that the consumer can get to know the brand’s design and handle the device. The first buyers will be entitled to a five-year warranty period, free of charge.

Investing in Brazil is a natural step in Oppo’s globalization strategy, said Mr. Zhang. He was tasked with the mission in late 2020. “We have businesses on five continents, and Latin America was the last region we entered.” The effort began in Mexico in 2019. Since then, the company has moved into Colombia, Chile, Peru, and Guatemala. Brazil – the fifth-largest cell phone market in the world and the largest in Latin America – was an inevitable destination, the executive said. The company declined to reveal how much it invested to launch the Brazilian operation.

Oppo realized that the brand had been arousing the curiosity of Brazilians, who bought their handsets on transnational e-commerce websites, mainly Chinese. The number of sales in these stores reached 10,000 units annually, said Mr. Zhang, which provided the company with another reason to invest in the country: an advantageous initial user base.

Oppo is the fourth-largest cell phone maker in the world, according to several international rankings. The company accounted for 10% of global shipments in the second quarter, behind Samsung (21%), Apple (17%), and Xiaomi (14%), consultancy Canalys says. In China, the position is even more relevant. According to Counterpoint, Oppo held an 18% share of the Chinese market in the second quarter, behind Honor (once owned by Huawei) and Vivo (which is not related to the Brazilian phone carrier), and ahead of Xiaomi and Apple.

In Brazil, Oppo’s arrival takes place as the market shrinks. Sales in the country are expected to fall below 40 million units this year, down 12.7% from last year’s total of 45.8 million phones, according to consulting firm IDC. In 2021, sales had already been 6.1% lower in volume, although they have grown 9.5% in revenue – an indicator of increased sales of more expensive handsets.

Photography features are among the main attractions of Reno 7, Mr. Zhang said. The line was launched in 2019 and has sold more than 60 million units worldwide. The model arriving in Brazil has a 32MP front camera and 64MP rear camera. The screen is 6.43 inches and the RAM memory (used to store quick access files and run applications in the background) has 6 gigabytes. The device is compatible with 3G and 4G networks only, although the company already sells 5G phones in the same line abroad.

At first, all Oppo devices available in Brazil will be imported from China. The company has nine factories abroad, including countries like India, Indonesia, Turkey, and Pakistan. “Having local production in Brazil is our dream. We have thought about it since the day we decided to start an operation. But we need to better understand the rules of the game. The country has its own complexity, and we are still doing studies,” Mr. Zhang said. “It is a long-term goal.”

Import tariffs for cell phones, among other products such as notebooks, used to range from zero to 16% in Brazil but were reduced by the federal government this year to up to 14.4%. By reducing the tax burden, local production could reduce costs by up to 25%, Mr. Zhang said. The problem is the supply chain. The so-called Basic Productive Process (PPB) defines that companies must buy specific shares of components from local suppliers to ensure tax exemption, and many Oppo suppliers do not have local production, the CEO said.

Oppo was founded in Dongguan, China, in 2001, to produce Blu-ray players, amplifiers, and headsets. The brand’s first cell phone was launched in 2008. The company is part of BBK Electronics, a group founded by businessman Duan Yongping. In addition to Oppo, BBK controls other brands such as OnePlus, Realme, IQOO, and Vivo.

Despite being Oppo’s leader in Brazil, Jim Zhang is getting used to the country, where he will spend most of his time. “I like the general environment and the people. Brazilians are tolerant, cheerful, and kind,” he said. “In China, the concept of happiness is very complex. Here it is simpler. Brazilians feel happy for no specific reason.”

*By João Luiz Rosa — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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