Brazilian’s Minister of State of Mines and Energy goes in Depth about Brazil’s Resilience through the Pandemic
Brazil has proven to be a durable country despite the peculiar situation faced globally. As Latin America’s largest country, Brazil has secured $78.2 billion in investments this year while making significant improvements to drive its sustained success. The recent changes have resulted in the country becoming a global hub for innovation and economics.
Global Trade Magazine had the opportunity to speak with Minister Bento Albuquerque, Brazilian Minister of State of Mines and Energy, through an exclusive opportunity, Albuquerque expanded on Brazil’s resilience throughout the global pandemic, notable investment opportunities, and how unique factors have affected the business of Brazil’s energy sectors.
What is the current state of the energy sector in Brazil and what are the goals for the next year?
The energy sector in Brazil is flourishing with undergoing reforms and opportunities that are being created in this context.
The national council made important decisions regarding the energy (CNPE) policy in 2019, before the pandemic. The decisions made several reforms possible and increased the number of auctions that were scheduled in advance to support investors’ decisions.
Two comprehensive and sectoral reforms are being implemented as we speak. First, the new gas law, which was sanctioned by President Jair Bolsonaro on April 8th, 2021. The new legal framework will make room for a more open, dynamic, and competitive gas market with increased opportunities for new agents. Aligned with the new gas market policy, many companies are already announcing important investments in the Brazilian Natural Gas Sector.
Secondly, in ten years our power load will increase about 27 GW on average. Brazil must enable investments in the expansion of its power system. We are fully committed to the modernization of our power sector by expanding methods and abiding by a modern, robust set of regulations. We are working towards opening our energy market to the all-out consumer, promoting efficient cost and risk allocation, making sure the power supply continues to be safe and reliable and promoting rules and regulations that incorporate all new technologies.
Finally, part of the modernization regulatory package was approved by our national congress under Law No.14.120.21. The Federal Government declared it one of its top priorities. 2022 will focus on the concretization of projects and opportunities and the upcoming auctions are the gateway to turn these projects into reality, as we count on foreign and national investors to help us push these initiatives forwards.
What are the competitive advantages Brazil’s energy sector offers business?
When discussing the oil and gas sector beyond opening up and unbundling the natural gas market, we are promoting a strong divestment program in oil refining- a new era for our downstream. Petrobras recently approved a sale of RLAM (Landulpho Alves Refinery- 14% of Brazil’s total oil refining capacity) to a Mubadala capital for the US $1.65 billion. Moreover, the E&P expertise, the improvement of our regulatory agenda and the quality of our oil improve competitiveness in the Brazilian offshore basins, turning Brazil into a world leader in this segment.
Brazil is the world’s largest producer of sugarcane ethanol and the second-largest producer of biodiesel, which is based mainly on soy oilseed and animal fat. Our goal is to increase international cooperation in biofuels, by the transfer of technology and expertise to other countries.
The Brazilian population will grow at 6% until 2030 reaching 225.4 million inhabitants. The expectation is there will be around 83 million permanent private households in 2030, an increase of 13 million. The way our power sector is today, we have 186 thousand MW of installed compacity; 162.7 thousand KM of transmission lines; 70 million consumer units. With the increase of modernization, there will be plenty of room to expand with the incorporation of new technologies. Guaranteeing reliability in supply, suitable risk, and costs of allocation. Our region has the challenge of keeping our power matrix as clean and renewable as possible, while expanding its capacity and promoting energy security.
How is the energy sector contributing to foreign direct investment in Brazil?
Between 2019 and 2020, about USD 32 billion was invested in the energy and mining sectors in Brazil. Last year, 26% of the total foreign direct investment was directed to the energy and mining sectors alone. We are convinced that business environment improvement and agent’s confidence recovery help consolidate the pace of economic growth.
We annually update and publish our 10-year expansion plan. According to its predictions, as much as USD 44 billion is expected to be invested in the energy, oil, natural gas, and biofuels sector in the next 10 years. (E&P about the US $337 billion, supply $4.1 billion, natural gas $17.9 billion, and biofuels $12.8 billion)
For the same period, the total investment expected for centralized generation, distributed generation and transmission systems will be about USD 68 billion.
To boost economic recovery and improve the business environment we have updated our legal and regulatory frameworks, strengthened legal certainty, reinforced the governance in our institutions, introduced more predictability and transparency, and designed our projects bearing in mind OECD standards of environmental, social, and governance impact.
How do you think Brazil’s resilience during the pandemic affected the business environment and energy sectors in Brazil?
Brazil managed to look through the pandemic with good governance and method. The federal government created a committee to monitor the Covid-19 impact on the economy. At the ministry of mines and energy side, we established three sectorial committees. Three of the outcomes are the uninterrupted power supply, the guaranteed supply of fuels, and the preservation of mining activities. Several decisions were made in order to minimize the impact on consumers and preserve the attractiveness on the supply side.
As far as the power supply is concerned, 10 million households that use less than 220 KWh a month were exempted from chargers. We created a “Covid Account” in order to minimize the impact on consumers, causing tariffs to plummet from 12% to 3%. Hydrological risk -which was a concern for hydropower plants- was duly tackled by the parliament. In 2021, Energy consumption increased by 19.2% in comparison to 2020.
The whole chain of production has been monitored as of day one. Consumption of gasoline and ethanol fell significantly but resumed by the fourth quarter of last year. The LPG, the ministry of mines, and energy made awareness campaigns to put a halt on panic buying LPG and the rate was around +2.6% last May. The mandatory blending of biofuels was revised so that targets could be met under current circumstances.
Exports of crude oil and iron represented 21.1% of the total exports in 2020, reaching around USD 45.4 billion in our trade balance.
As a timely measure taken at the beginning of the pandemic, we managed to declare mining as an essential service for the economy, taking into account that mineral goods are the basis of the Brazilian industry. We made arrangements to extend administrative timeframes in a reasonable manner, and donations by the private sector to tackle the pandemic played an important role in our collective effort., By caring for the health of our sectors, our actions focus on the health of our citizens.
How do you predict Brazil’s business environment post pandemic?
Economic measures led to growth in 2020, focusing on the most vulnerable population. After a server downfall in April 2020, which affected primarily income, jobs, and family habits, industry, trades, and services in Brazil have made a V-shaped trajectory of recovery. Stabilization was evident in the fourth quarter of 2020. This was the result of a concerted and temporary effort involving government, associations, and the private sector.
The pension reform, the tax reform, and the administrative reform will allow the Brazilian government to save almost USD 375 billion in ten years. A more productive economy leads to higher demand for employment. Some scenarios foresee an injection of up to 370 thousand job opportunities in the labor market. Additionally, to the reforms passing at our house representatives, outstanding programs contributed to the Brazilian economic rebound.
When it comes to government expenses, it is important to stress that we do differ emergency measures from structural ones. Emergency measures are temporary. Otherwise, structural reforms are aimed at fiscal consolidation and increase productivity. Brazil believes that mass vaccination, fiscal consolidation, and structural reforms are the way to long-term sustainable economic growth.
How did Brazil’s resilience differ from other countries during the pandemic?
I wouldn’t like to judge other country’s domestic decisions, but Brazil does attribute positive results. We can showcase today in terms of the functioning of our mines and energy sectors to the robust governance that has focused on the people’s and sector’s health.
Crosscutting decisions taken back in 2019 made it possible for us to promote sectoral reforms that are meant to dramatically change the way these sectors work. We developed robust governance and evidence-based information to support policymakers in the pandemic. Finally, we designed policy and recommendations focused on the preservation of structural arrangements, with attention to the customers and competitiveness on the supply agenda.
As demand increases, we will need a more robust energy infrastructure. Brazil is a developing country and energy is the basis for development. Furthermore, Brazil is extremely well-positioned to take advantage of the ongoing energy transition. We believe in international collaboration, partnerships, and investments to make our projects a reality in the coming years.