What Brazil’s energy sector can expect under Lula

Bnamericas Published: Tuesday, January 10, 2023
What Brazil’s energy sector can expect under Lula

Brazilian President Luiz Inácio Lula da Silva's administration is expected to provide incentives for the energy transition, while facing the challenge of balancing the sector’s priorities with a broad environmental agenda. 

Alexandre Silveira (pictured), who leads the mines and energy ministry (MME), is seen as playing a key role in a country that remains severely politically polarized. 

BNamericas spoke with three local analysts about the near-term outlook for the electric power and oil and gas sectors. 

Leandro Lima, senior political risk analyst at Control Risks

“We expect a continuity of efforts to increase energy production capacity, with investments in renewables. But without leaving thermoelectric plants aside, which play a very important role in the country, especially in the development of a more robust natural gas market.

“Given Brazil’s economic situation, there will be tension between energy and environmental priorities, making the management of the new minister of mines and energy more complex. It’s worth recalling that the new environment minister, Marina Silva, was a staunch opponent of hydroelectric projects in the Amazon region, such as Belo Monte. 

“Another important issue for this year is the renewal of the Itaipu hydroelectric treaty with Paraguay. The negotiations have been going on for some years. One complexity in 2023 is that Paraguay will have presidential elections, and the management of this energy with Brazil will be on the agenda. 

“Mining has many opportunities in the energy transition. With the environmental focus of the Lula government, the conditions for this theme to be strengthened in the ministry are there. 

“We believe that the Lula government will try to avoid giving signals that frighten the market about a possible return to an energy policy ‘à la Dilma’ [Rousseff, president from 2011-16], which was quite traumatic. 

“The new MME minister is from the PSD, a center party that is essential for the governability of any president. It has, therefore, an important role in this sense. 

“We’re seeing attempts by radicalized groups of supporters of former president [Jair] Bolsonaro to direct their actions to energy assets. There have been attempts to blockade refineries, and there was an attack on an [Eletrobras subsidiary] Furnas power transmission tower. So the need to protect the energy infrastructure is entering the government's agenda.”  

Nelly Colnaghi, an analyst at Levante Ideias de Investimentos.

“We see Alexandre Silveira's statements going along with what has already been suggested by the newly elected government, reiterating the prioritization of the energy transition agenda and the resumption of the Luz Para Todos [Light for All] program, one of Lula's campaign promises. 

“As a point of uncertainty, we still see the issue of the change of Eletrobras’ hydroelectric plants’ commercialization regime, with the government’s transition team having already suggested the lengthening of the process, in order to limit the energy prices of the plants adhering to the regime for a longer period of time.” 

Editor's note: Today, these plants sell energy at lower prices, which generates losses for the company. After the change, they will be able to sell energy at free market prices.

“Although this is still an unlikely scenario, such assumptions generate noise and volatility for Eletrobras’ shares. In this sense, we continue to monitor the ministry's signals regarding this and other issues.”

Anderson Dutra, KPMG's energy and natural resources and oil & gas leader in Brazil

“Petrobras' divestment process is expected to slow down, and the boom of IPOs of companies that bought Petrobras' assets should slow down. 

“On the other hand, investments in the pre-salt will continue robustly, even though oil and gas companies are looking at other segments, such as renewable energies.

“The renewable sector is coming with full force. The minister [of development, industry, commerce and services, Geraldo] Alckmin has already said that he will encourage the industry to improve the conditions for return on investments in renewables. And there is likely to be an unlocking of regulatory issues related to hydrogen and offshore wind. 

“In the electricity sector, investments in digitization are expected to be maintained, focusing on operational efficiency to reduce the cost of energy and improve the conditions of existing concessions. 

“Meanwhile, the prosumers, i.e. the power consumer who also produces energy, will have new regulatory unlocks so that his energy commercialization can flow better.”

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