Brazil’s Nuclear Power Plans Three Years after Fukushima

by Chris Cote
April 2014

The 2011 Fukushima accident interrupted plans to build four to eight new nuclear power plants and highlighted an internal debate over nuclear energy’s trajectory in Brazil. In anticipation of forthcoming strategy documents, this BrazilWorks Briefing Paper discusses the potential role of nuclear in Brazil’s future energy mix.

Read the entire briefing here: Brazil’s Nuclear Power Plans Three Years after Fukushima

The Petrobras Debt Challenge

The Petrobras Debt Challenge

A BrazilWorks Briefing Paper

January 2014

Paula Barbosa provides a timely analysis of Brazil’s government controlled energy company, Petrobras, and its debt and performance since the global financial crisis hit Brazil in 2008.  Her purpose is to offer a detailed understanding of the problems and challenges facing Petrobras from the perspective of its accumulating debt as well as its core business operations in oil and gas exploration and production and downstream refining and distributing. The major problematic for Barbosa is government provided financing, mostly through the Banco Nacional de Desenvolvimento, known as the BNDES.

This following summary analysis provides an English summary interpretation of Barbosa’s cogent analysis in the aftermath of the recent, first production-sharing auction for offshore, pre-salt blocks in the Libra field in which Petrobras played the central role.

Read the entire briefing here: The Petrobras Debt Challenge

Brazilian Electricity 101

Prepared by Chris Cote and Mark S. Langevin, Ph.D.

December 2013

 “Brazil needs to increase its energy supply to guarantee maximum economic progress and to set conditions to improve the population’s standard of living… At a minimum, Brazil needs to double energy consumption per capita and at the same time keep up with the 1 percent demographic growth.”

José Goldemberg

Distinguished Brazilian Energy Policy Scholar and Professor at the University of São Paulo

            Brazil’s long struggle to achieve energy security now faces a new era as the country’s policymakers and industry leaders work to meet the rising demand for electricity while lowering costs and diversifying the national energy matrix.  Since the shocking “blackouts” of 2001 that swept through the country’s most populous, developed and politicaly important Southeast region, Brazilian policymakers have intensified efforts to increase installed generation capacity, lower tariffs to industrial and residential customers, achieve greater efficiencies through “smart grid” transmission technologies, and attract greater private sector investment to a national campaign to insure that mounting consumer demand for electricity is met today and well into the future.

Following reforms in 1998, the Brazilian electricity system was undergoing partial privatization when severe droughts and inadequate resource management led to the 2001 blackouts. Upon the election of President Luis Inacio Lula da Silva in 2002, the Brazilian government embarked on an ambitious agenda of reforms and investment programs to insure supply for rising demand. In 2004, President Lula’s government introduced a complete overhaul of the national electricity system (Public Law 10.848).  The cornerstone of this system reform was the establishment of an auction-concession contract system to promote competition between both public and private enterprises responsible for generation and transmission.  Through the generation and transmission auction-concession system, the federal government would then coordinate public and private investments in generation, and transmission activities at both the national and regional levels to guarantee supply.

This BrazilWorks Briefing Paper explores and outlines the Brazilian electricity system to advance a practical understanding of this sector’s institutional architecture as well as the challenges and opportunities policymakers, industry leaders, and investors face in the coming decade as the generation, transmission, and distribution system (GTD) continues to mature in tandem with Brazil’s economic development.

Read this BrazilWorks Briefing Paper here.

Wind Energy in Brazil Grabs the Washington Post’s Attention

 

Brazil’s Wind Power 2013 Statistics

140 Wind Farms

3,39 Megawatt Capacity

2,923,572 tons per year of carbon emission reductions

(see Brazil Wind Energy Production Association-ABEeolíca here.)

Recently, the Washington Post offered up an extensive narrative on Brazil’s gains in wind energy.  Accordingly,

 “A string of wind-turbine parks is being erected in Brazil’s windiest stretches, in what planners see as the beginning of an extraordinary transformation. No one expects that wind will outpace dams as the main source of electricity here. But the goals remain audacious for a country that projects an annual increase in electricity consumption of up to 5 percent in coming years (Juan Forero of the Washington Post).”

Forero reports,

“In Brazil, the road toward wind power began in the 1970s, when oil shortages led the government to ramp up oil production and develop the use of biofuel and hydropower. Wind’s rise came after the 2001 drought, which led to the rationing of electricity as river levels fell precipitously, hitting power generation hard.

Under President Dilma Rousseff’s center-left government, wind power has a strong backer, with the state’s big development bank providing sizable loans to the largest projects, including Renova Energia. “We are going to advance more and more, and see wind turbines spread across this country,” said Edison Lobão, the energy minister.”

As BrazilWorks reported,

In 2012 the government development bank, BNDES approved, R$ 358 million in financing for the construction of four wind farms in the state of Ceará. The projects comprise the Trairi Project, which will have a total installed capacity of 115.4 MW and will begin operations in January 2013. The wind farms, consisting of Special Purpose Companies, are controlled indirectly by Tractebel Energia S.A. and directly by Energias Eólicas do Nordeste S.A.

The BNDES’ funding for investments in wind energy has grown in recent years, which reflects the Bank’s priority in supporting renewable energy projects. In 2008, approvals for projects in the sector amounted to R$ 257 million; in 2009, they increased to R$ 1.2 billion, maintaining the same level in 2010. Last year, wind power generation projects approved by the BNDES totaled R$ 3.4 billion.

Overall, BNDES investments in power GTD sector have grown substantially in recent years, from $R 3 billion reais in 2006 to 17 billion by 2011.  This represents the bank’s investments in meeting the mounting power demand driven by industrial activity, and commercial and residential consumption.  Moreover, such a large increase in investment allows for more speculative financing for alternatives such as wind and solar; so this latest project is represented of a broader pattern of diversifying the bank’s power generation portfolio. Read more from BrazilWorks here.

Read the full Washington Post story here.

The Recent Development of Brazil’s Private Petroleum Companies


Brazil’s long crusade for energy security, crowned by the discovery of massive offshore pre-salt oil and gas reserves in 2006, and recent stretch for greater geopolitical power now pivot on its success in gradually increasing the production of transportation fuels and natural gas in the coming years and decades.

Leading this national campaign is Petrobras, the federal government-controlled, but publicly-traded energy company that will operate Brazil’s strategic oil and gas blocks in concert with an expanding list of large, private transnationals and nationally-owned petroleum companies.  Almost forgotten in the mad dash to auction off the pre-salt reserves and transform Brazil into an energy superpower are the country’s smaller, private national oil and gas production companies.  These firms must make prudent investment decisions, develop their technical and human resources, and discover the best fit in order to make more than a modest contribution to the fast growing oil and gas sector puzzle.

Certainly Brazil offers an expanding and diversified list of possibilities in this sector, but can the nation’s private national petroleum companies take full advantage before Petrobras, Statoil, Chevron, Exxon-Mobil, and PetroChina among others limit the opportunities for development and growth in the coming decade?

This BrazilWorks briefing paper explores the recent development of Brazil’s private national petroleum companies and analyzes their performance in the recent, 11th round block auctions to provide an understanding of their current role in the country’s oil and gas boom and suggest possible paths toward future development.  The paper features specific analysis of Petra Energia, S.A., Queiroz Galvão, and the controversial OGX to illustrate the recent development of Brazil’s private national companies. Read the BrazilWorks briefing paper here:  The Recent Development of Brazil’s Private Petroleum Producers

The Pre-Salt Oil Reserve Auction-October 21, 2013

 

The latest note from SECOM on the oil and gas auction….

On behalf of the Secretariat for Social Communication (SECOM) of the Presidency of Brazil, I am writing to provide you with some information on Brazil’s first “Pre-salt” oil reserve auction to be held on October 21, 2013.

As you may be aware, Brazil is home to significant oil reserves. The “Pre-salt” frontier, a series of ultra-deep oil fields that were discovered in recent years and stretch for 800 km off the coasts of the south-eastern states of Espirito Santo, Rio de Janeiro, São Paulo and Santa Catarina, could dramatically increase Brazil’s proven reserves and transform the country into a major crude exporter.

The first area to be auctioned is the prospect of the Libra oil field, deep in the Atlantic Ocean, off the coast of the Rio de Janeiro state. The expected recoverable volume is 8 to 12 billion barrels of oil.

Accessing the “Pre-salt” oil fields, which were named because they are located under a layer of salt beneath the Atlantic Ocean, is a technical challenge. But once reached, Libra is expected to produce 1 million barrels of oil equivalent a day – about 50 percent of Brazil’s present production.

The first “Pre-salt” bidding round on October 21 will be the first time Brazil uses a production sharing agreement (PSA). In the PSA model approved by Congress in 2010, oil companies pay a fixed signing bonus (for Libra, it is R$ 15 billion, or about US$ 7 billion), bear drilling and production expenses and use revenue from oil sales to recover costs. The remaining oil – known as ‘profit oil’ – is shared between the company or consortium and the Brazilian government.

The winner of the auction will be the company or consortium that pledges the highest share of profit oil to the government. The Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) has fixed a minimum of 41 percent of profit oil share for the Government during the 30-year contract but it estimates that the Brazilian government will receive a much higher percentage in the Libra oil field auction.

Another stipulation of the oil auction is that state-controlled Petrobras be the mandatory operator of each PSA and have a minimum 30 percent stake in all “Pre-salt” projects. The remaining 70 percent stake may be split among up to five other companies.

The winning bidder will also agree to comply with Brazil’s environmental regulations. Earlier this year in May, the 11th Bidding Round for Oil and Gas Exploration Blocks showed tremendous international interest with 39 companies from 12 countries participating in the auctions.

The benefits of the sustainable exploration of the “Pre-salt” reserves will be shared by all Brazilians, with the promise of increased social inclusion and energy security.

For more information, please visit the ANP’s Oil & Gas Bidding Rounds website, available at this link:http://www.brasil-rounds.gov.br/index_e.asp

Infrastructure Investment in Northeastern Brazil

Infrastructure Investment in Northeastern Brazil

Challenges and Opportunities in a Developing Region

A BrazilWorks Briefing Paper

Prepared by Chris Cote and Mark S. Langevin, Ph.D.

Summary

  • The Northeast region is growing faster than the national average due to a high performing service sector, retail sales, and tourism.
  • Brazil’s current infrastructure deficit is the result of several decades of declining public and private investment.
  • To lessen this deficit, the Brazilian Federal Government has launched two national Growth Acceleration Programs (PACS 1 and 2) since 2007 to remedy insufficient physical infrastructure, especially in the energy and transportation sectors. 
  • Transportation investments focus primarily on road and rail improvements, but the new port concession law should attract increased private sector investment to an expanding list of ports.
  • Public investments in airport expansion are needed to confront the immediate challenge of the 2014 FIFA World Cup and the long-term growth in passengers and the tourism industry.
  • Energy investments in the region are concentrated in oil refineries, thermoelectric plants, wind energy farms, and expansion of the transmission system.
  • The private sector must take a greater role in expanding and improving transportation and energy infrastructure throughout the region to guarantee sustained economic growth.
Read the entire briefing paper here: 

O Setor energético e as Relações Brasil- Estados Unidos

Qual é a situação da cooperação energética entre esses dois países e quais oportunidades existem para o aprofundamento de tal cooperação, no futuro, por meio do diálogo estratégico? Se a energia é, agora, central para as relações Brasil-Estados Unidos, como essa importante área pode moldar a evolução das relações bilaterais nos anos vindouros?

Veja o novo artigo do Dr. Mark S. Langevin, Diretor de BrazilWorks.

Presalt Oil Discoveries and the Long-Term Development of Brazil

Pablo Fajnzylber, Daniel Lederman, and Julia Oliver of the World Bank recently published, “Presalt Oil Discoveries and the Long-Term Development of Brazil,” a World Bank Economic Premise publication.  Fajnzylber and his colleagues provide a concise overview of the growing importance of oil and gas exploration and production in Brazil and provide several key recommendations that are at the heart of policy discussions in Brasília. Accordingly they conclude,

“Brazil has an opportunity to leverage oil-related innovation as a means to push forward a pro-diversification policy agenda. Growth in Brazilian oil production and exports will likely lead to Dutch disease effects, including an increased concentration of the country’s exports and heightened macroeconomic volatility. To minimize these impacts, the government could improve the conditions for other tradable industries by accelerating the accumulation of human capital and facilitating investments in science and technology. It could address current infrastructure bottlenecks and other legal and regulatory hurdles that limit the competitiveness of Brazilian industries, notably the manufacturing industry.

As the Brazilian government makes new, oil-financed investments, it should ensure that they are of high quality. Of particular importance are improving procedures for selecting, appraising, and evaluating investment projects. The government could also improve its monitoring and evaluation (M&E) systems, which are key to ensuring successful execution and implementation of all public investment projects.

Finally, the government could pace the exploitation of the new oil reserves. While the presalt discoveries could place Brazil on strong footing in the 21st century, maximizing those opportunities may call for moderating the pace at which the new wealth is extracted. Gradualism in the exploitation of the oil reserves can help ensure the quality of oil-financed public expenditures by allowing all levels of government to develop appropriate plans and M&E mechanisms. Slower ex- traction can also buy time for the nonoil industrial sector to absorb positive externalities from related public investments. Lastly, gradualism can help reduce pressures to prevent real exchange rate appreciation.”

These recommendations shed some light into the frustration surrounding the recent stock performance of Petrobras, as it ramps up investment in the pre-salt fields, but disappoints investors seeking quick returns.  As a state controlled company, Petrobras is in the unique, and challenging position of delivering dividends to stockholders who finance investment and public policy that aims to gradually exploit these gigantic reserves to insure broad based economic development.  The pace of exploitation has to eventually achieve some political equilibrium between private investors, policy makers, and Petrobras management.  If Petrobras and its partners show substantial gains in production over the coming years, as well as earnings, then everyone will be happy, but if predictable obstacles and the inherent uncertainly of drilling for ultra deep oil and gas frustrate production, then expect that the politics of petroleum might lead to substantial changes in both policy and Petrobras management.

Brazil and Transatlantic Relations

Earlier this month, Mark S. Langevin, Ph.D., Director of BrazilWorks published “Brazil, Energy and the Atlantic Basin Opportunity” in the pages of Altantic-Community.org, an open think tank.  The piece was part of a larger effort to develop a series of recommendations on Brazil and the Atlantic basin.  Below you will find a synthesis of all the contributions, but do not reflect the precise conclusions drawn by each contributing author.

Taken together, the recommendations imply that Europe and North America must come to grips with Brazil’s growing role in global affairs, especially in the are of energy.  Accordingly, the recommendations direct attention to the need to institutionalize and expand upon dialogues involving Brazil and other transatlantic partners with respect to both the pursuit of national interests as well as collective efforts to confront global challenges.

Please consider these recommendations and respond.
POLICY RECOMMENDATIONS

  1. Institutionalize existing dialogue between the transatlantic partners and Brazil.

The transatlantic partners must recognize the success of Brazil’s initiatives in combating problems in the developing world by working more closely with Brazil to extend these initiatives

1.1 Establish an EU-Brazil Center focused on tackling global development issues.

The European Union should build on the strategic partnership it established with Brazil in 2007. The combined experience of these two “civilian powers” in international development has the potential to make a real difference in developing countries. Existing dialogue should be institutionalized through the creation of an EU-Brazil Center, that brings together important think tanks and government officials from Brazil and the EU to share knowledge and develop policies related to sustainable development, climate change, and the fight against global epidemics, such as hunger and AIDS (Fraundorfer).

  1. Greater cooperation on global energy policy.

Brazil has both great prospects as a future petroleum exporter and as a leader in renewable energy technology. The transatlantic community must work with Brazil to ensure that the country’s expertise and potential is developed in such a way that it benefits both Brazil and the international community.

2.1 Work with Brazil to create an Atlantic Basin biofuels market.

Brazil can take a leadership role in creating an Atlantic Basin biofuels market which could decrease carbon emissions and increase global energy security, while directing greater investment, innovation, and technology toward developing countries. The US and Europe must support Brazil by building on the 2007 Brazil-US bilateral biofuels cooperation accord. They should aim to liberalize trade in biofuels; collaborate on the development and commercial standardization of second generation biofuels; and create opportunities for rural development and energy security for the poorest of the Atlantic basin nations (Langevin).

2.2 Ensure the safe and environmentally sustainable exploration and production of the ultra-deepwaterpre-sal” oil and gas reserves.

It is in the interest of the US and the EU to ensure that Brazil’s vast fossil fuel resources are exploited safely and sustainably (McFarland; Trebat). It is therefore important that international partners, both public and private, work with Brazil to ensure this (Langevin). Moreover, Brazil should be encouraged to adopt a carbon tax to finance sustainable oil and gas production, to invest in climate adaptation strategies, and to mitigate carbon emissions and other greenhouses gases.

2.3 Encourage initiatives aimed at preserving the Amazon rainforest.

Brazil has the potential to play a leading role in the global campaign against deforestation. As deforestation has global implications, it should be a priority of the transatlantic partners to support Brazil’s efforts. This should include allowing industrial polluters to purchase carbon-offsets generated by rainforest preservation (Catarrasa); and working with Brazil to put in place a formal agreement to mitigate carbon emissions caused by the activities of the Brazilian government and corporations in the Amazon (McFarland).

  1. Encourage Brazil to take on more of a leadership role in international institutions.

It is to the benefit of Western powers to encourage Brazil to take on greater responsibility in international institutions as it would strengthen the legitimacy, and thus the influence, of these institutions and their policies in Latin America and the Caribbean, as well as in the broader Global South (Sanchez).

3.1 Appreciate and strengthen Brazil’s role in the UN and its subdivisions.
If the UN Security Council is reformed to include more permanent members, the transatlantic community should unequivocally support Brazil as the natural candidate to represent Latin America and the Caribbean (SanchezTrebat). As such reform seems unlikely at present, the transatlantic community should work to better appreciate and strengthen Brazil’s role in the UN in other ways. First, it should create a UN forum for the exchange of ideas on peacekeeping and crisis response, utilizing Brazil’s expertise in urban conflict and social welfare programs (Trebat). Second, Brazil, along with other countries vying for UNSC membership, should be encouraged to work more closely with the UN Department of Economic and Social Affairs to promote poverty-fighting initiatives. In particular, UNSC aspirants should take a leading role in following up on the Rio+20 conference, with the responsibility of ensuring that the recommendations, ideas, and pledges made at Rio+20 are not forgotten (Sanchez).

3.2 Work with Brazil to achieve progress on the long-stalled Doha Round.
In an effort to make progress toward concluding the Doha Round, the transatlantic community should solicit Brazil’s support in bridging the long-standing differences between the North and South on issues of trade liberalization, such as market access and agricultural trade. To help with this, they should demonstrate their support for Robert Azevedo, Brazil’s current Ambassador to the World Trade Organization (WTO), to take over as next Director-General of the WTO (Trebat).

3.3 Extend OECD membership to Brazil.

Brazil’s recent economic progress and its role as a force for good in the global South warrant recognition. The transatlantic partners should recognize Brazil’s growing global role by extending Organization for Economic Cooperation and Development (OECD) membership status to Brazil (Labarre).

Laura Catarrasa is a Master’s student at the University of Catania, Italy.

Markus Fraundorfer is a PhD candidate at the GIGA German Institute of Global and Area Studies in Hamburg.

Georgi Ivanov has a master’s degree in political science from Carleton University in Ottawa, Canada.

Frederic Labarre is an independent Strategic and Defense Analyst.

Professor Mark S. Langevin is the Director of Brazil-Works.

David Lowenstein is studying International Relations at the University of Southern California.

Leah McFarland is a former Foreign Service Officer assigned to Sao Paulo.

Wilder A. Sanchez is a Research Fellow at the Council on Hemispheric Affairs.

Gabrielle Trebat is a Director at McLarty Associates.

Atlantic Memos showcase the best ideas and arguments from debates in the Open Think Tank on www.atlantic-community.org. Please take the next step and help us spread the word. You can download a PDF copy of this Atlantic Memo to distribute to your local or national decision-makers. The recommendations expressed above come from your Atlantic Community.