Brazil’s political and economic scenario and O&G sectorial trends
Ricardo Sennes PRESENTING PROSPECTIVA 2/20
MIAMI
AREAS OF OPERATION • Strategic consulting for public policies • Intelligence & Analysis • Market-oriented institutional actions RIO DE JANEIRO 38 Experienced Professionals on our team 3/20
Political & Economic Context 4/20 FRAGMENTED POLITICAL SYSTEM
• Weak party programs and identity Senate • Incentives for creating new parties 18 Parties
• Complex governability PT PSB 10 6 PP • Hard to build a majority PSDB 7 PR 12 4 PSD 4 DEM Outros (8) 4PDT House of Representatives 3 PMDB PCdoB 1 PTB 3 25 Parties PROS 7 19 PPS 1 PSOL 6 PRB 1 REDE 4 PSC 2 PTdoB 3 PTC 1 PEN 3 PV 1 PSL 2 REDE 1 S/Partido 1 PMB 2 PSC 7 PMDB PPS 8 67 PCdoB 11 PHS 7 PTN 13 PV 6 SD 14 PT PTB 18 Outros (55) 58 PDT 19 PRB PSDB 22 PSB 50 32 DEM PP 27 PSD PR 47 35 42 5/20 THREE FACTORS HAVE CONTRIBUTED TO THE DEEPENING OF THE CRISIS
FISCAL AND BURSTING OF TWO INFRASTRUCTURE AND INVESTMENT CRISIS BUBBLES OIL CRISIS
Public Sector Indicators (%GDP) Automobile Oil 44 42,1 6 40,5 45 Production: Layoffs: 39,1 reduction of 22.8% between 2014 260 thousand since 2014 5 36,4 36,8 40 35,3 33,9 and 2015 Royalties: 35 4 3,11 Work stations: reduction of 25% in the 2,7 30 3 2,39 reduction of 10.2% in the same collection from 2014 to 2015 2 1,88 25 period 2 Source: Petronotícias Source: Anfavea 20 1 15 0 10 2009 2010 2011 2012 2013 2014 2015 2016 -1 -0,63 -0,73 5 Housing Construction -1,32 -2 0 Primary result Net dbt Financed units: Layoffs: 417 thousand 538 thousand in 2014 (2015) 319 thousand in 2015
Source: Focus (07/mar) Source: Abecip Source: Valor Econômico 6/20
TEMER HAS GOOD POLITICAL SKILLS GOVERNMENT • Temer and Rousseff: similar allied coalitions • Better governability
LEFT-WING RIGHT-WING
SUPPORT IN NUMBERS • 79% of members of the house came out in favor of the OPPOSITION government for at least 75% of votes Source: Basômetro; second mandate 7/20 TEMER’S MINISTERIAL APPOINTMENTS ACROSS PARTY LINES COVERS 70% OF ALL PARTIES IN CONGRESS 24 MINISTRIES
Parties Ministers Represent. Senators PMDB 7 67 18 MA (1) PSDB 3 51 11 PA PP 2 47 7 (1) TO PE (4) PSD 2 34 4 AL (2) MT (1) BA DEM 1 29 4 (1) (1) PR 1 40 4 PTB 1 19 3 PPS 2 9 1 RJ (5) PRB 1 22 1 PR (1) SP (7) PSB 1 31 7 RS (5) PV 1 7 1 11 States 11 parties 356 (69%) 61 (75%)
Simple majority 257 41 PEC (3/5) 308 49 8/20 COHESIVE ECONOMIC TEAM REVAMPS THE ECONOMIC TRIPOD
ILAN GOLDFAJN DYOGO OLIVEIRA President of the Central Bank Minister of Planning (acting)
HENRIQUE MEIRELLES PEDRO PARENTE Minister of Finance JORGE RACHID President of Petrobrás Secretary of Federal Revenue
MARIA SILVIA BASTOS MARQUES MANSUETO DE ALMEIDA President of BNDES Secretary of Economic Monitoring/MF 9/20
Temer’s two main agendas
Adjustments Positive agenda
• Administrative • Labor • Fiscal / Social • Tributary • Industrial • Business Environment • Social Security • Infrastructure + O&G • Foreign Commerce 10/20
ADJUSTMENT AGENDA DEPENDANT ON CONGRESS
TYPE MEASURES LEGISLATIVE PROCESS PERSPECTIVE
Reduction of ministries from • HOUSE OF REP. symbolic vote. 31 to 24 • SENATE 44 x 6 Administrative
End stability of careers for • Will be sent to the Congress public servants • Strikes
• 2016 approved: BRL170 billion Reduction of goal • 2017 approved: BRL139 billion Roof for expenditure • House of Rep. approved Fiscal / Social increase • Senate: November-December
Unbundling government • HOUSE OF REP. 340 x 96 revenue (DRU) • SENATE 54 x 15
• Depends exclusively on the End subsidies government ! Industrial Raise taxes • End of 2017 !
• Will be sent by the end of November Social Security Social Security reform • House of Rep. 6 months; Senate 3 months
approved/easy to approve medium difficulty for approval/resistance hard to approve/highly controversial 11/20
POSITIVE AGENDA IS EASIER TO IMPLEMENT
TYPE MEASURES LEGISLATIVE PROCESS PERSPECTIVE Prevalence of negotiations • 2017’s second semester Workers over legislation rights Regulation of outsourcing • 2016’s second semester ! Tax simplification with ICMS • 2017’s first semester reform Taxes • 2017’s first semester Pis/Cofins • Proposals: 2017
Autonomy of regulatory • Senate: approved by special Committee agencies • House of Rep. has to vote on the issue Business Public Companies • Signed into law environment Responsibility Law
Central Bank autonomy • 2017’s first semester
Expansion of concession • Depends exclusively on the government opportunities Infrastructure O&G • End of 2016 “New Pre-Salt Law” • HOUSE OF REP. 292 x 101 • SENATE 40 x 26 • Easier to implement Opening of new markets • Argentina, Colombia, Chile, Mexico, USA, Foreign trade Europe, China • Complex negotiations. Support from Change in Mercosur model Argentina ! 12/20
RECOVERY OF ENTREPRENEURIAL CONFIDENCE
CONFIDENCE OF THE INDUSTRIAL ENTREPRENEUR
55,70 60,50 45,50 53,50 44,10 42,00 42,40 47,10 44,30 45,20 31,50 28,60 38,60 21,00 29,80 19,30 19,30
2009 2010 2011 2012 2013 2014 2015 2016
Source: ICEI/CNI CONFIDENCE OF THE CONSUMER
119,3 115,3 113,2 113,4 114,6 117,0 114,1 113,9 112,0 97,9 105,2 103,1 116,0 106,3 100,0 96,3
2010 2011 2012 2013 2014 2015 2016 Source: INEC/CNI 13/20
EXPECTATION OF RECOVERY IN 2017 GDP GROWTH (%)
7,5 5,8 6,1 5,1 4,4 4,0 3,9 3,1 3,2 3,0 3,0 3,0 3,0 1,9 1,4 1,1 1,00 0,1
-0,1
-3,8 -3,4
2000 2001
2016 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 2019 2020
Source: IBGE Focus (Set) Bradesco (Set) 2015 • Lower family consumption rate inflation, unemployment, high interest rates • Lower government expenditure, but even lower revenue
2016 • Increase in government’s expenditures (short-term) acquire political support 14/20
UNEMPLOYMENT ON THE RISE IN 2016 UNEMPLOYMENT RATE (> 14 YEARS OLD)
11,6 11,8 11,8 10,9 11,2 11,3
8,9 9,0 7,9 8,0 7,9 8,3 7,5 7,4 7,1 6,9 6,9 7,2 6,8 6,8
6,2 6,5
jul-ago-set jul-ago-set jul-ago-set jul-ago-set mai-jun-jul jul-ago-set
jun-jul-ago
jan-fev-mar jan-fev-mar jan-fev-mar jan-fev-mar jan-fev-mar
abr-mai-jun abr-mai-jun abr-mai-jun abr-mai-jun abr-mai-jun
out-nov-dez out-nov-dez out-nov-dez out-nov-dez mar-abr-mai 2012 2013 2014 2015 2016 Source: IBGE 2015 Bradesco forecasts • 1.5 million jobs lost - more than 1 million in industrial sector • 2016: 11.2% • Only agribusiness had a positive result (9.8 thousand, CNI) • 2017: 12.6% 2016 • 2018: 12.2% • 2019: 11.7% • Unemployment rises steadily • 2020: 11.2% • 11.8% is the highest unemployment rate in last five years 15/20
MARKET EXPECTATION: DEVALUATION
EXCHANGE RATE (BRL/USD)
5
4,1942 4,1552 4 3,5341 3,8969 3,2677 3 3,2092 3,2128 2,8937 3,2292 2,5791
2
1
0
Jul Jul Jul Jul
Set Set Set
Apr Apr Oct Oct Apr Apr
Jan Jan Jun Jun Jan Jan Jun Out Out
Fev Fev
Feb Feb Mar Mar Mar
Aug Aug Sep Nov Nov Dec Dec Ago Ago Nov
May May May 2015 2016 Source: Central Bank Focus and Bradesco forecasts • 2016: 3.30 • 2017: 3.40 • 2018: 3.35 • 2019: 3.45 • 2020: 3.55 16/20 INFLATION AND INTEREST RATE: GRADUAL REDUCTION IPCA (%) 10,71 9,56 9,32 8,97 Focus and Bradesco 8,13
7,14 9,49 9,39 forecasts
7,87 • 2016: 6.80 • 2017: 4.93
: IBGE : • 2018: 4.54 • 2019: 4.50
Source • 2020: 4.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 2015 2016 SELIC RATE (% A.A.) 14,25 12,5 Focus and Bradesco 10,75 14 forecasts 8,75 • 2016: 13.75 7,25 • 2017: 10.75 • 2018: 9.25 • 2019: 9.25
• 2020: 8.75
: IBGE :
Jul Jul Jul Jul Jul
Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Apr Oct Oct
Jan Jan Jun Jan Jan Jan Jan Jun
Mar
Dec Ago Source 2010 2011 2012 2013 2014 2015 2016 17/20
O&G - Sectorial perspective 18/20
MULTISECTORIAL ROLE DURING LULA-DILMA
Fiscal Policy (onerous transfer) 2 Monetary Policy (fuel price controls) STRONG PRESSURE 1 ON PETROBRAS
MODEL IS UNDER REVISION BY THE TEMER ADMINISTRATION! Naval & 3 off shore industry (domestic contend) 4
Industrial Policy (inovation and investment policies) 19/20 NEW DYNAMICS FOR THE O&G SECTOR
PETROBRAS • Lack of financial conditions to keep investments demand for private sector participation • High debt situation: sale of assets strategy to improve fiscal balance
ECONOMIC MEASURES • Government’s initiatives for Brazil’s economic recovery: main features of Temer’s administration • O&G: sector chosen as a priority
SECTORIAL MEASURES • Pro-market measures + more liberal regulatory policies • Attraction of companies to segments previously dominated by Petrobras 20/20 HIGHLY TECHNICAL AND LIBERAL TEAM IN STRATEGIC O&G INSTITUTIONS
PEDRO PARENTE Petrobras’ President
• Crisis management ability • Reverse the debt of BRL 450 billion • Negotiate privatization
DÉCIO ODDONE National Oil Agency Director (ANP)
• Experience with international investors • May redesign regulatory framework • Defends an open O&G market 21/20 HIGHLY TECHNICAL AND LIBERAL TEAM IN STRATEGIC O&G INSTITUTIONS
LUIZ AUGUSTO BARROSO Energy Research Company Director (EPE) • May increase gas and wind energy in the energy matrix • ANEEL’s and Eletrobras’ development
FERNANDO COELHO FILHO Minister of Mines and Energy (MME)
• Advocates for development in the Northeast • Ministry deeply influenced by senator Fernando Coelho and PMDB 22/20
REGULATORY ISSUES RELAXED
Next bidding rounds are expected to be held by July, 2017
PRE SALT LAW • End of Petrobras’ obligation to participate in the exploration of pre-salt oil (approved by Congress) • Flexibility in Petrobras’s participation + unitization of oil and gas fields: over USD 120 billion in investments
LOCAL CONTENT POLICY • Current local content rules should be relaxed to create competitiveness • Next bidding round should happen under the new rules 23/20 PETROBRAS’S DIVESTMENT PLAN ASSETS SOLD
Nova Transportadora Sudeste’s (90%) Brookfield USD 5.19 billion
Assets in Argentina Companhia Geral Innova’s price adjustment + Colombian de Combustíveis assets USD 101 million USD 92 million
Gaspetro (49%) Mitsui Gás e Energia Carcará oil block (66%) Statoil Brasil do Brasil Óleo e Gás USD 540 million USD 2.5 billion
Petrobras Argentina (67.19%) Pampa Okinawa refinery Grupo Ultra Energía USD 129.3 million USD 897 million
Chile Distribuición (PCD) Southern Liquigás Grupo Ultra Cross Group USD 2.8 billion USD 464 million 24/20
56.4% OF THE TARGET WAS REACHED PETROBRAS’ DIVESTMENT PLAN: MAIN ASSETS SOLD
Divestment Plan (2017-2018) GOAL: USD 19.5 billion Until Now in assets USD 11 billion raised
AROUND 56% OF PLAN’S TARGET
• Target will hardly be achieved • Pressure to ease negotiations Sale of Nova Transportadora do Sudeste (Gas Transporter) USD 5.19 billion
Sale of Carcará Oil Block USD 2.5 billion Strategic Plan Revision (2017-2021) 25/20
OPPORTUNITIES FOR THE PRIVATE SECTOR
PETROBRAS’ DIVESTMENT PLAN: MAIN ASSETS ON SALE
Companhia Petroquímica de Liquefied Natural Gas (LNG) Pernambuco (PetroquímicaSuape) terminals and associated thermal power plants
Companhia Integrada Têxtil de Pernambuco (Citepe) Onshore and shallow water oil and gas fields Stake in BR Distribuidora (fuel distributor)
Ethanol, biodiesel and other 36% Stake at Braskem fertilizer plants 26/20 HISTORICAL OPPORTUNITIES FOR OPENING TWO NEW MARKETS
DOWNSTREAM • Petrobras’ news focus on exploration and production sectors
• Improving the environment for private companies in the refinery, transportation and distribution segments
GAS SEGMENT
• End of Petrobras’ de facto gas monopoly
• Regulation should be adapted for private companies
• Greater competitiveness: opening of a brand new sector to foreign investors 27/20 IMPROVEMENTS NOW WOULD AVOID A PRIVATE OLIGOPOLY AND FUTURE RESTRICTIONS
DEMAND FOR A BETTER REGULATORY National Petroleum ENVIRONMENT Agency (ANP) and • Security in the gas supply Ministry of Mines and Energy can set these • Sectorial tariffs regulations
MARKET ARGUES FOR THE CREATION OF “NATIONAL GAS OPERATOR” Congress has to • Similar to the National System Operator approve it (ONS) - manages production, transmission, distribution and consumption of energy Government could edit a provisional measure • Not in Congress’ agenda to induce a decision • Would fit government's agenda 28/20 EVOLUTION OF REGULATORY FRAMEWORKS IN NATURAL GAS POLICY
Art. 177 Federal • Stablishes that every natural gas transportation operation is considered a Union monopoly Constitution
Petroleum Act • It did not include the intrinsic characteristics of the natural gas industry (9.478/97)
• Pipeline transportation • Focused on operations exclusively made • Regulated the free access for third Gas Law natural gas under concession contracts party users to the pipelines (11.909/09) transportation or federal authorization (30 • Except LNG activities years)
Decree • Filled the gaps of the Gas Law on issues that lacked regulation, especially on gas 7.382/2010 commercialization activities under regulation and authorization of the ANP
ANP • Regulated third party access to pipelines, providing greater transparency, competition in the Resolution commercialization and entrance of new players. Nº 11 /2016 • Operational exchange (swap)
• Reduction of regulatory vacuum (ex : dispute resolution) • Greater legal stability and attractiveness to new investors • Increased competition among industry players. • Flexible Contract Options for LNG (flexibility of the ‘take or pay’ concept) CONTACT 29/21
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