'Today is the day after the bomb exploded'
Brazil's currency and stock markets plunged on Thursday amid revelations by the Globo newspaper that president Michel Temer was recorded discussing bribes to silence jailed former lower house speaker Eduardo Cunha. Despite calls for impeachment proceedings against Temer, energy sector investors should not panic, according to Rio de Janeiro-based consultant Adriano Pires.
BNamericas: How have energy sector investors taken to the news about the Temer recording?
Pires: It's still too early to analyze the impact. It's the first day of the crisis and we have to see how it develops from here. Obviously it's not going to help because it creates instability and uncertainty at a legal and regulatory level. The outlook for Brazil has started to look brighter with the announcement of new concessions for electric energy, airports and oil and gas auctions but this creates new doubt.
What happened yesterday [the Globo report] is not good for investors. In fact, it's terrible because we're on a road to recovery. Today is the day after the bomb exploded and we're still in the heat of the moment. We have to be calm before jumping to conclusions about what could happen next.
BNamericas: The electric power industry has spoken positively about Temer's pro-market reforms, which have included higher revenue caps, increased financing from state lender BNDES and plans to privatize some Eletrobras subsidiaries. Would Temer's impeachment be bad news for the power sector?
Pires: Temer has been doing a very good job. The transmission auction last month was a great success and didn't involve any state-run companies. There are plans for more renewable generation auctions this year. The doubt the government has [about further auctions] is related to a surplus of contracted energy, but an effort is being made to encourage greater participation from renewable sources.
BNamericas: Could these auctions be postponed or even cancelled in the event of an impeachment process?
Pires: No. The danger is that this [the political crisis] could push these matters to the periphery. Some media outlets have called for the energy minister [Fernando Coelho Filho] to step down. I think that would be a very bad thing given the progress that has been made under him. Reforms made in the oil and electric power sectors won't be undone, but what could happen is that further progress could be impeded. That is the concern investors will have.
BNamericas: What about the second and third pre-salt oil auctions planned for this year, and the 14th concession round?
Pires: The big one is the third pre-salt auction in October. The government hopes to collect 8bn reais [US$2.5bn] from signature bonuses at the auction. The hope is that this won't affect it and I don't think it will. Companies have faith in the regulatory changes that have been made because they have been signed off by the president and can't be reversed. What could happen is that certain policies don't progress further, like rules for local content or [pre-salt] preferences. But it's impossible that the rules implemented for the auction will change.
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