Federal Government Pledges R$6 Billion to States That Open Brazilian Gas Market

By Richard Mann

RIO DE JANEIRO, BRAZIL – The Federal Government has pledged to transfer between R$5 billion and R$6 billion (US$1.5 billion) per year to States that privatize their gas distribution companies and adopt measures to open up the market, according to Estadão/Broadcast.

The transfer of these funds, derived from oil exploration, is the government’s central gamble to get governors to join the bundle of measures announced on Monday, June 24th, to enforce competition and reduce the price of gas.

The aim is to promote “a cheap energy shock”, in the words of Economy Minister Paulo Guedes, and pave the way for the country’s reindustrialization.

The measures, approved by the National Council for Economic Policy (CNPE), are based on the improvement of regulation and the establishment of a free consumption model.

Following the example of what is already happening in the electricity sector, large industries will be able to buy gas directly from producers and traders. Another critical point of the program concerns Petrobrás: the company will have to sell all its shares in transport and distribution companies.

Guedes expects that the set of measures may reduce the price of gas by 40 to 50 percent, boosting the industrial GDP by up to 10.5 percent per year and unleashing R$32.8 billion in investments in the country’s natural gas infrastructure, according to Mines and Energy Ministry estimates. The figure includes pipelines, terminals for liquefied natural gas, and processing units.

The reduction is viewed as crucial to stimulate new industrial investment. Today, energy represents seven percent of the sector’s production costs; however, depending on the industry, this share may be much higher.

Such is the case with the glass industry (representing 25.6 percent), ceramics (32.2 percent) and cement (55.8 percent), according to a study by Ex-Ante Consultoria Econômica, commissioned by the sector.

The decision to cause an energy shock was previewed by Guedes in an interview with Estado in March.

The challenge, however, was in convincing the states, which played a vital role in the plan, as the federal Constitution provides that the competence for granting and regulating the gas market lies with state governments.

Guedes guarantees that the strategy has worked so far, as the states of São Paulo, Minas Gerais, Espírito Santo, and Rio Grande do Sul have already shown interest in adopting the proposed measures.

Ministry technicians expect that all will join the New Gas Market – despite the resistance of Abegás, which represents distributors.