Brazil and Uruguay accelerate energy agreement, a “win-win” allowing lower costs

RIO DE JANEIRO, BRAZIL – Brazilian and Uruguayan governments are moving forward to search for an agreement to allow the import and export of energy in a “win-win” system for both countries. The meetings with representatives of both countries will be held in February.

Initially, it was planned that senior officials of the public company would accompany the Uruguayan Minister of Industry, Energy, and Mining, Omar Paganini, to a meeting that he held in December with the Brazilian Minister of Mines and Energy, Bento Albuquerque, but this did not happen in the end. Sources of the portfolio told the newspaper that it was a meeting “hand in hand between ministers” and that “nothing concrete” was agreed.

According to the report with annual export data published days ago by Uruguay XXI, electric power was the sixth product that generated the most foreign currency for the country in 2021, and it was the one that increased the most since 2020 [632%]. “The export of electric power reached US$594 million in 2021. This figure marks a robust increase compared to previous years because export prices in 2021 were much higher,” the report says.

Now Brazil is seeking that, in case of eventual needs, such as a new drought like the one it had in 2021, it will be able to import electricity produced in Uruguay but at a lower price. Meanwhile, the Uruguayan authorities are interested in signing an agreement with its neighbors as long as this energy production is cheaper, which could be achieved if it is planned over a longer-term and fewer thermal power plants are used.

Uruguay’s National Administration of Power Plants and Electric Transmissions (UTE) president, Silvia Emaldi, told the newspaper La Diaria that Uruguay exports energy “when Brazil accepts our weekly offers” given the decrease in its hydraulic production. The intention now is to “explore the possibility with the Brazilian delegation of making a firm contract, that is, to guarantee for a certain period and at a certain price a certain volume of exports”.

Meanwhile, she stated that “the issue to be solved” is how to ensure that the energy can be sold at a lower price for Brazil but without reducing Uruguay’s profits. It could be done by limiting the use of thermal power plants, which is difficult in times of drought, such as the current one, which goes beyond the rains recorded and predicted in these days. “Brazil will look for a lower price, but if we continue to have little rainfall, the only way to provide firmness will be with some percentage of thermal power plants”, warned the UTE president.

Meanwhile, the UTE director representing the National Party, Felipe Algorta, told the newspaper that the idea is to achieve “cooperation” between the two countries and warned that Uruguay could also require energy from Brazil at some point.

“If we export with wind energy, the price is one; if we export with thermal energy, the price rises, it is more expensive, because we have to use fuel,” Algorta summarized. So, he said that if Brazil were to propose half-yearly purchase plans instead of buying weekly – and that is what it is trying to achieve – “Uruguay can put together a combo” that would allow it to sell mainly with renewable sources, guaranteeing transmissions during the early morning, when less is consumed. The production would be cheaper than that made in thermal power plants.

For his part, the director representing Cabildo Abierto, Enrique Pées Boz, stated that in the second half of 2021, when exports to Brazil intensified, Uruguay had “a black swan” that allowed it to achieve “profitability that benefited not only UTE”, but “Ancap (Uruguay’s National Fuels, Alcohol, and Portland Fuels Administration) and, through Ancap, transport users, whether collective or individual”, due to the price of fuels, which remained unchanged in the last months of the year even though the import parity price indicated an increase.

“One can say it was luck, it was unexpected, but what is intended now is that the unexpected is transformed into something already expected to the extent that it is a logic of commercialization with Brazil more stabilized over time,” he said.

Fernanda Cardona, the director representing the Frente Amplio, said, on the other hand, that while she welcomes the possible agreement with Brazil, the interest of the neighboring country in continuing to obtain energy produced in Uruguay reveals that UTE could have lowered the tariffs in 2022, due to the profits from exports. At the time, the ruling party argued that this was not possible because Brazil’s need was circumstantial and could be cut at any time, something Cardona denied.

According to what she said, she had stated in the board of directors that “Brazil will have its energy problem” for several more months, “and therefore it was not so circumstantial”, and “otherwise Brazil would not be looking at how to negotiate and agree with Uruguay on a price to import energy”.

Thus, she expressed that “of course,” there was a margin to lower the tariffs, which were finally raised 3.5%, a little less than half of the inflation. According to what she said, her calculations for 2021 reflected that “taking out” production costs and transfers to General Revenues, the entity had “approximately US$95 million left”. Hence, he proposed to lower “between 5.5% and 6%” of the tariffs.

In response, Algorta said that “today the agreements with Brazil do not formally exist” and now “short and medium-term” agreements are being sought “to be able to think of an export with real bases” that will allow, in the long run, to lower tariffs. “If we achieve this, instead of having hypothetical numbers in our budget, we will surely have real numbers”, he pointed out.

Pées Boz’s response was similar, who expressed that “the profits generated by exports were diluted throughout the same period”. He gave an example that “compared to US$60 million destined in the original budget for general revenues,” finally, “180 million” were transferred. “Here, what we have to do is to look to the future to try that this black swan is prolonged in time”, he added, in the sense that “it becomes something that has signs of permanence for the institution”.