Brazil
Q&A

Rio de Janeiro state's quest to open the natgas market to private investors

Bnamericas Published: Wednesday, July 17, 2019
Rio de Janeiro state's quest to open the natgas market to private investors

As Brazil's federal government has established a series of measures to open up its natural gas market for private players, the states are also working to adapt their own rules to the new environment.   

In this context, Rio de Janeiro state is crucial for the efficacy of the federal program, since it holds 61% of Brazil's natural gas reserves and in June local regulator Agenersa began implementing regulatory changes that will bring the state's distribution activities into line with the federal government's guidelines.   

BNamericas talked to the natural gas team for Rio de Janeiro about the upcoming changes in the state market in the first of a two-part interview with the undersecretary for oil, gas, and energy, Cristina Pinho, natural gas superintendent Marise Grinstein and natural gas coordinator Celso Bastos.  

 

BNamericas: How is Rio de Janeiro state responding to the federal government program to open up the gas market?   

Pinho: Under the agreement Petrobras and Cade signed [state-run Petrobras and antitrust regulator Cade agreed to reduce the firm’s participation in the market and open up room for private investors], consumers will be allowed to buy gas from the suppliers that are most convenient for them, but in order for that to happen we needed to have changes in the distribution system, which is a state monopoly, so we implemented infra-legal measures.

State regulator Agenersa's deliberations are now being discussed with several actors. The changes are to do with the characteristics of free gas consumers, for example.   

BNamericas: What is the ultimate aim of the changes?   

Pinho: The final goal is to attract investments, whether for power generation, for future increases in vehicular gas consumption or for industries that use natural gas intensively, such as fertilizers, steel or petrochemical companies. We want to create an environment where investors can look at Rio de Janeiro and say they can generate wealth there using natural gas because it has competitive prices. But competition only happens when consumers can choose who they want to buy from.   

Bastos: By allowing new players to enter the market, gas will gain more liquidity. The main purpose is not to reduce natural gas prices, but to increase liquidity and that will cause price reductions as a consequence.

The measures are coordinated with federal and state guidelines to create a gas market where it's possible to negotiate without problems in the system.   

Grisntein: We will increase natural gas sales without subsidies. The state is separating marketing activities from distribution. That provides a perspective for a reduction in natural gas prices and higher sales volumes. We want to monetize the natural gas that will come to the state.

BNamericas: What are your views on the criticism coming from gas distributors?   

Pinho: It's important to be clear that no one is ripping up contracts or breaking state monopolies. Rio de Janeiro is not ending Naturgy's monopoly in the state [Naturgy is currently the distribution concessionaire in the state] or incentivizing bypass practices. The last thing we want is legal problems because in that case the whole process would be interrupted and everyone would lose out. It's essential for us to avoid legal issues and respect contracts.   

Bastos: The state regulator's deliberations respected all the current contracts. Besides, any financial or economical imbalance will be addressed in our five-year review that is done to adapt models and balance tariffs. We want improvements and modernization, but it's not worth doing that if it will lead to judicial problems.   

BNamericas: What is the state doing to avoid possible legal litigation?  

Pinho: We're holding intense and transparent talks with Naturgy and with the regulator, with clarification meetings and analysis of the problems they present. The basis of those discussions is respect for the contracts.   

Grinstein: The keywords are legal and regulatory security. We always seek that.   

BNamericas: Do you believe the changes could also benefit the distributors?   

Pinho: If a reduction in natural gas prices comes about with the increased supply and healthy competition, new industries will be attracted to the state. With those industries, the gas network will grow and, therefore, distributors' revenues will also increase. So we're expecting gains for both parties: the state will see the creation of jobs and the distributors will see their distribution networks grow.   

Bastos: We're applying a more efficient model for distribution as a whole since Naturgy will be able to sell more gas using the network that already exists.   

BNamericas: What are the main misapprehensions regarding the process to open up the market?

Celso: In the past, distributors ended up understanding that they had a monopoly in gas supply, but the truth is that they have a monopoly over distribution, which is the service to pass the natural gas through the state's pipelines. That's different from selling the gas itself. Now we're making the regulations more efficient.   

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