Sample News Story
Brazil’s government moves slowly on gas law
15/11/2004
The timetable for the publication of Brazil’s keenly awaited gas law has been revised after Silas Rondeau, minister of mines and energy, announced that the government was in no hurry to send the law to congress before the December 15 recess. The ministry had promised in October to unveil the law by end-November.
The question now is whether there will be enough time for congress to pass the law before the presidential elections in October 2006.
A Rio de Janeiro energy analyst, who spoke on condition of anonymity, blamed the delay on the political crisis that has racked Luiz Inácio Lula da Silva’s government. “The corruption scandal that has hit the government has forced it to change its priorities,” the analyst said. “The (gas) law has, therefore, taken second stage.” The scandal has involved allegations that the Workers Party, the current government, has bribed congressmen for votes and has sought money for political favours.
A leaked version of the law appeared in a leading Brazilian daily about a month ago, but the government has not confirmed that it is authentic. However, the sector believes that the new bill will be very much like the one that governs the power sector (Law 10.848). One of the biggest challenges that the gas law will have to address is Petrobras’ dominance. Other important points include: tendering the construction of trunklines and granting 30-year concessions for operating them; the right for energy regulator Agência Nacional do Petroleo (ANP) to fix transport tariffs; ANP ensuring that Petrobras and its gasline subsidiary Transpetro are clearly separated; providing third parties with access to trunklines; and strong anti-trust regulation to drive transparency and competition.
Considering the hefty investment that Brazil will require to raise gas consumption from slightly over 50 MMcm/d today to 100 MMcm/d by 2010, it’s clear that the country needs a law that will give guarantees about the above to any prospective investors seeking a return on their investment, and will also set clear investment rules.
In June Rodolpho Tourinho, Bahia’s state senator from the opposition Liberal Front Party (PFL), introduced a rival gas law designed to open up gas transportation to competition. It also gives energy regulator ANP a stronger role in monitoring the market and determining tariffs, and grants third party access to gas trunklines.
Tourinho claimed that his law would break Petrobras’ near monopoly and would not create a secondary market for gas. He also said that the government’s proposal only gives ANP the role of resolving conflicts. This means – according to Tourinho – that Petrobras’ dominance will continue under the government’s gas law.
Brazil’s gas sector is presently regulated by a hydrocarbons law dating back to 1997, when the country was a net importer of gas.
While Brazil still generates about 90% of its electricity from hydropower, steps have been taken to diversify its power generation, especially after the country suffered from power shortages in 2001-02. This explains in part why Petrobras plans to invest heavily in gas. In its latest $56.4 billion investment plan (2006-10), it boosted expenditure in its gas and energy division (from $2.6 to $6.5 billion), pipeline construction (from $4 to $4.5 billion), and E&P (from $16 to $28 billion).
“The situation has changed dramatically these days because new hydropower plants have to be built further away from urban centres, which raises transmission costs,” said Leonardo Campos, an analyst at Centro Brasileiro de Infra-Estructura (CBIE). “There is also very stiff opposition in Brazil to building large hydropower plants given their environmental implications.” Campos believes that one of the government’s biggest challenges is finding the right mix of incentives to build hydropower and gas-fired thermal plants, and keeping tariffs at attractive levels.