Economy & Energy
Highlights in 1997 and Business Oportunities
Production: Ministry of Mines and Energy
1. Internal Offer of Energy
The Internal Offer of Energy - IOE - in the country reached 240 million tons equivalent of petrol (tep) in 1997, with an increase of 4.7% relative to 1996. Of this amount, approximately 58% (38% of hydroelectricity and 20% of biomass) correspond to clean and renewable energy.
With a large territorial extension and with a large hydraulic potential, the country has been opting for the development of these sources of energy, exemplified by the hydroelectricity from 1950 on and the alcohol program in the seventies. Of the remnant 42% of IOE relative to non-renewable energy, 34% correspond to petroleum and its products and the remaining 8%, natural gas, mineral coal and uranium.
As to petroleum offer, PETROBRAS - Petróleo Brasileiro S.A., since the start of the eighties, has been successful in exploring and producing oil, guarantying the regular and reliable supply of petroleum products and reducing significantly the external dependence of these energy sources, presently around 46%. In the last years, the government has been stimulating the use of unconventional and/or decentralized energy sources (solar, wind, agricultural and forestall residues, vegetal oils, small hydraulic potentials), these last ones aiming at supplying mainly to isolated and unassisted communities and to the development of rural areas. The program for motivating the rise of the energy efficiency level in the country, including production and efficient use of energy, as well as the cogeneration of electrical; and thermal energy, are being strongly stimulated by the government and will influence the national energy matrix in the medium and long terms. The country is taking firm steps for reformulating the energy sector, opening opportunities for the private sector to participate in the necessary investments and in the responsibilities of guarantying the national supply. In this transition phase and in spite of elevated growth rate of energy demand, the country has succeeded in overcoming the localized difficulties and prevent supply limitations and service deterioration in this area. With the firm actions of the regulating agencies, it is anticipated that guaranty of supply and raise in quality of energy services will continue in the whole country. In 1997, by the Law No 9,478 of August 6, was created the National Council for Energy Policy - CNPE, chaired by the Minister of Mines and Energy, aiming at examining the policy propositions for the supply and use of energy to be sanctioned by the President of the Republic.
2. Electric Sector
Starting in the fifties, the Brazilian states began to create their own electricity utilities. These utilities substituted progressively the foreign companies that existed at the time. Later on, the federal government created ELETROBRAS in 1963. Since then, the installed capacity grew dramatically up to 60 GW in December 1997, excluding the auto-generation, with 3.5 GW, and 6.3 GW of the Paraguayan part of Itaipu, almost entirely destined to the Brazilian market. In 1997, 1.8 GW were added to the installed capacity of electrical generation, of which 1.6 GW for public use and 0.2 GW for auto-generators.
It is noticeable the start of operation of the sixth unit of the XINGO (PE) hydroelectric plant with 500 MW, the CORUMBA 1 (GO) hydroelectric plant with 3,383 MW and the first unit of the MIRANDA (MG) hydroelectric plant with 130 MW. In December 31, 1997, the public electricity offer was shared among federal enterprises - 38 %, state and municipal enterprises - 33%, Itaipu - 26% (including the Paraguayan part, corresponding to 12%) and private ones - 3%. Hydroelectricity represented 95% of the offer in 1997.
The internal public generation of 285 TWh in 1997, plus 40 TWh - the Paraguayan part of Itaipu - permitted to satisfy a total demand of 277 TWh (6.1% higher than that of 1996), with the following participation in the distribution market: government-owned concessionaires - 69% and private ones - 31%, including in the latter COELBA, CEEE (partial), CPFL, ENERSUL, CEMAT, ENERGIPE and COSERN, recently privatized.
In 1996 , the participation of the private sector was only 15%. The transmission of the generated energy to the consuming market is basically made via two interconnected systems. One integrating the North and Northeast regions, with lines up to 500 kV, connecting the Tucurui UHE to the São Francisco River plants and the other, which integrates the South, Sotheast and Center-West regions, lines of 345/440/500 up to 750 kV, besides the links in direct current of 600 kV. In terms of supply, most of Brazilian municipalities have today a regular and reliable electricity service. Nevertheless, in spite of the fact that more than 90% of all domiciles are electrified, part of the extensive Brazilian territory is not yet covered by the transmission net. The North region presents the greatest supply problems, where localities are still supplied by isolated thermal generation systems with low efficiency using diesel oil. This opens an ample market for private investors interested in the low and medium size generation segment, specially for projects using decentralized energy sources ( for example, photovoltaic, wind, biomass and small hydroelectric plants).
In this direction, the Federal Constitution was altered in 1995, eliminating restrictions to foreign private investors to bring capital for the energy sector. The Laws 8,987 and 9,074/95 (new Concession Laws) introduced deep and important alterations, in special what concerns: (i) procurement of new generation undertakings; (ii) the creation of the legal entity named Independent Energy Producer; (iii) free access to the transmission and distribution systems; and (iv) the freedom granted to larger consumers for choosing their energy suppliers. The Decree No 1717 established the conditions and made possible the postponement and regrouping of public services concessions and the approval of the Conclusion Plan for the paralyzed works. The Decree No 2,003 of 09/10/96 regulated the conditions for actions of the independent and auto-producers. Still in 1996 it was created the National Electrical Energy Agency - ANEEL, by the Law No 9,427 of December 26. New regulations were established in 1997, with the stress on (i) the Law No 9,433 of January 8, which effected the National Policy for Hydraulic Resources and created the National System for the Management of Hydraulic Resources; (ii) the Decree No 2,335, which constituted the ANEEL and approved its Regimental Structure; and (iii) the Ministerial Law (PORTARIA) DNAEE No 167 of November 12, which consolidated the General Conditions for Electrical Energy Supply, harmonized with the Code for Consumers Defense ( Law No 8,078 of 09/11/90). The ANEEL, whose board took office at the end of 1997, started its activities with all necessary requirements of administrative and financial autonomy and apt to carry out its mission. It is an important institutional achievement and necessary to assure a harmonious development in the Brazilian electrical sector. In this context , aiming at improving the transformation process which the electrical sector is undergoing, the Ministry of Mines and Energy, through its Energy Sector and with resources from the World Bank - BIRD, continues the project for restructuring the electrical energy industry, whose consolidation will happen together with the progress of the program for privatization of the federal assets, with privatization of the state assets and with the establishment of new agents who will have integrating and regulating functions in the new electric energy sector.
Concurrently, the Ministry hired an international consulting company which presented in 1997, with the help of Brazilian technical staff, its proposition for reorganizing the market and the electrical sector. This report is being adopted as a reference for changes with some adjustment during the implantation process.
3. Natural Gas Sector
The Government has been adopting a rather aggressive policy to amplify the natural gas participation in the Brazilian energy matrix. Among the main events in 1997 one can note: (i) continued implantation of the Bolivia-Brazil gas pipeline, with contracts for the installation and assembling of the branched segment from Rio Grande (Bolivia) to Guararema (SP) already signed, whose conclusion is foreseen for the end of 1998 - the segment down to Rio Grande do Sul State should be concluded one year later; (ii) the agreement signed among the Companhia Estadual de Energia do Rio Grande do Sul, Yacimientos Petrolíferos Fiscales (YPF - AR), Transportadora de Gás del Norte (AR), Companhia de Gás do Rio Grande do Sul (Sulgas) and AES Energy Ltd. from the United States, for supplying 2.5 million cubic meters of natural gas to the 450 MW thermoelectric unit to be built in Uruguaiana (RS) and the construction of the 440 km-long gas pipeline
from Argentina to the Brazilian border; (iii) Creation of the Mega AS company, with YPF and the DOW Group in order to build a processing unit with capacity of 36 million cubic meters per day of natural gas in AR, aiming at producing 600 thousand t/year of LPG (cooking gas) and other natural gas products, and (iv) agreement with Administración Nacional de Combustibles Alcohol y Portland (Ancap) from Uruguay to explore natural gas and to implant grease and lubricant units for commercialization in Mercosul. Still in 1997, it continued the implantation of the Natural Gas Project of Urucu by PETROBRAS,
which will make available about 6 million m 3 / day of natural gas from Urucu and Juruá , in the Solimões Basin. From Urucu, the gas will be transported to Porto Velho (RO), through a pipeline of about 500 km long, to supply to thermoelectric plants.
Another 18-inches pipeline 280 km long will transport gas from Urucu to Coari (AM), at Rio Solimões banks where a liquefaction plant will be built to produce liquefied natural gas (LNG) at minus 162 degrees Celsius This LNG will be transported by special boats (METANEIROS) to Manaus (AM), Macapá (AP) and a locality in Pará, at the Amazon River left bank where the Revaporization Plants will be built and which will convert the LNG to gaseous state to be used in electricy generation and other activities along the whole fluvial network of the region. In 12/31/1997, the total reserves of natural gas reached 435.5 billion m 3, while the proved exploitable reserves were 227.7 billion m 3, equivalent to 23 years of average production of that year. The natural gas production reached 27 million m 3 per day in 1997 (7.3 % above that of 1996).
4. The Petroleum Sector
From 1979 on , the country adopted a very pragmatic energy plan aiming at reducing the weight of petroleum imports in the commercial balance. The main characteristics of the plan were: (i) increase of the national petroleum production; (ii) partial substitution of gasoline by alcohol; (iii) substitution of fuel oil by electricity, coal and biomass and, (iv) energy conservation. These measures together with PETROBRAS success in deep waters off-shore prospecting contributed to reducing the petroleum external dependency from 85% (1979) to 43% in 1985. In 1986, when petroleum prices recovered the 1978 levels, the national alternative energy sources lost competitivity , reversing slightly the curve of petroleum external dependency reduction . In the last years , this dependency is about 46%. With the approval of the Law No 9,478 of 08/06/1997, all petroleum sector segments were open to competition and PETROBRAS is not anymore the only one to execute the Governments monopoly. The State continues to be PETROBRAS major share holder.
Following the above mentioned law, PETROBRAS furnished to the Ministry of Mines and Energy the list of effectively producing fields, liable to ratification (Art. 32) and solicited authorization to continue the exploratory and development works in areas of its interest (Art. 33), as well as domain over the pipeline transport system and the refineries.
The areas of interest cover about 12% of the total sedimentary basins. PETROBRAS capacity to explore successfully the future business opportunities is due to competence
acquired during its existence. It can be pointed out the high capacity of its technical and support personnel, the domain of the state of art in petroleum exploration and production in deep waters and refineries operation as well as transport infra-structure with costs comparable to that of the most efficient international refiners. Among the prescripts of the Constitutional Amendment No 9, it was established the Petroleum National Agency, regulating organ of the sector, therefore permitting PETROBRAS to exclusively develop entrepreneurial activities. In 1997, 12 new fields were discovered onshore and 3 offshore, besides 9 new accumulations in fields already discovered, which permitted to increase the reserves to an estimated recoverable volume of more than 2.3 billion bbl of petroleum equivalent, one of PETROBRAS better exploratory results. Among the onshore discoveries, those of São Mateus and Copacá River, in the Solimões Basin, opened new exploratory perspectives for this basin. Among the offshore fields, it is noticeable that of Roncador, drilled at Campos Basin , 1,853 meters deep , whose evaluation have proved the existence of 2,94 billion bbl of petroleum equivalent of high quality. In December 31, 1997, the total petroleum reserves in Brazil reached 16.9 billion bbl of petroleum equivalent ( sum of petroleum, condensate products (CONDENSADOS) and natural gas reserves), representing an increase of 20% relative to December 31, 1996. Of this total, 14.2 billion of bbl correspond to petroleum and condensate products. According to criteria from the Society of Petroleum Engineers (SPE) and from the World Petroleum Congress,(WPC), the exploitable proved reserves of oil and condensate products are 7.1 billion bbl. The national petroleum production ( including that of schist) and natural gas liquids (LNG) reached the average of 869 thousand bbl per day (bpd), 7.4% higher than the average production of 1996. Of the total production, 76% were obtained offshore, from 75 platforms of fixed production and 18 of floating ones. The national record was established in 12/17/97, with 1,088 thousand bpd.
The net expenditures with petroleum and petroleum products imports and exports has
reached US$ 6,1 billion in 1997 - similar to that of 1996 - which corresponds to a net imported volume of 47.9 million m 3 (824 thousand bpd) of which 28.7 million m 3 of crude petroleum. The activation of the regional trade influenced the crude petroleum exports from Argentina (127 thousand bpd) and from Venezuela (94 thousand bpd). The internal demand of petroleum products in 1997 reached the average of 97.4 million m 3 (1.68 million bpd), 7.8 % higher than that of 1996. In December 1997 there was a record of an average daily load of 1,622 thousand bbl in PETROBRAS refineries. With the star of operation of the Atmospheric and Vacuum Distillation Unit at the Landulpho Alves Refinery (BA), of the Hydro-treatment of Unstable Currents Unit at the Presidente Bernardes Refinery (SP) and of the Tertiary Methyl Butyl Ether (MTBE) at the Presidente Vargas Refinery (PR), PETROBRAS reached 1.8 million bpd of installed refining capacity. At the end of 1997, PETROBRAS pipeline network in operation were 11,719 km long, of which 7,475 km of oil pipelines and POLIDUTOS and 4,244 km of gas pipelines. During the year the implantation of the gas pipelines from Pilar (AL) to Cabo (PE) and from Guanaré (RN) to Fortaleza-Pecém (CE) continued, and they will constitute , together with the gas pipeline from Pilar (AL) to Madre de Deus, near to Salvador (BA), an integrated system of natural gas transport 1,555 km long, allowing to supply to the main markets of the Northeast Region, starting at the end of 1998.
5. Mineral Coal Sector
The mineral coal industry in the country started 140 years ago and did not follow the pace of economic expansion, mainly because Brazilian coal has low calorific power, much ashes and high sulfur content, which requires refining processes which inflate its costs and make it not competitive vis-à-vis other energy sources. These limitations could loose importance along the development and introduction of new technologies appropriate to direct burning,, bypassing the refining steps, that were utilized when coal used in thermal generation was subsidiary to the production of metallurgical coal. Until 1975, mineral coal did not surpass 3.2% of participation in the national energy matrix, with its main end use in the steel industry ( about 80% of the total). From 1975 on, its use in industry increased due to its advantages as compared to the fuel oil prices and as a function of the subsidies given to its transport, which were decreased from 1986 on, when petroleum prices were lowered.
Presently, the participation of mineral coal in the energy matrix in the country is 5.3%, of which 1,0% of national coal and 4.3% of imported metallurgical coal and coke.
Of the little more than 6 million tons of the national production , 70% were consumed in thermoelectric plants and 30% in industry. In 1997, with an installed capacity of electrical generation (public) of 1,421 MW using mineral coal, 5,441 GWh were generated (34% above that of 1996) and 4,253 thousand tons of coal were consumed. In the indicative planning of the electric sector, the present installed capacity using mineral coal
shall be increase of 1,100 MW ( two plants of 350 and two of 200) until the year 2005.
The future of thermoelectricity using mineral coal will gain new drive due to privatization of the electric sector and the growth of thermal generation participation, but its competitiveness will depend on the adoption of new clean technologies with run of mine coal close to the deposits. In spite of the fact that some of these technologies are viable , including those applied to burning low quality coal, none of them were applied to the coals that are available in Brazil. For this purpose, the Ministry of Mines and Energy is formulating a policy, in cooperation with the US Department of Energy - DOE, that will permit to correct the directions of the mineral coal area, suggesting to private investors new options for thermal generation which is competitive with marginal costs of long term electrical generation.
6. Energy for Isolated Communities and Rural Area
With the Program for Energy Development in States and Municipalities - PRODEEM, of the MME, actions were carried out aiming at supporting the basic social demand of deprived communities not reached by the electric system and promoting the rise of income and creation of jobs in rural areas by the installation of small energy systems for local production and use, using renewable and decentralized energy sources, specially solar energy .In partnership with other institutions, the Program promotes also the development of education, health, water supply and communication services. The survey that was made by the states and energy concessionaires pointed out the existence of about 100 thousand unassisted communities and more than 3 million rural properties with electrical energy in the country. In the period 96-97, installations were concluded in 117 communities, benefiting 50,000 people with light for school and communal centers, water pumping, food production, information, emergency communication and other collective benefits. Equipment for 800 communities were also acquired in the whole country , to be installed in 1998. Still within PRODEEM some partnership should be mentioned: (i) with INCRA, aiming at implanting the energy infrastructure in 413 rural settlements; (ii) with PETROBRAS, in order to supply to needy communities crossed by the Bolivia-Brazil gas pipeline; (iii) with the Teotônio Vilela Foundation , in order to supply residential illumination to communities assisted by the Program; (iv) with Banco do Brasil Foundation and PRONAF , in order to implant the "RURAL MAN" Program in Brazilian municipalities, which was launched by the federal government in November 1997.
These actions will permit levering of resources and extending the benefits to more than 3,000 unassisted communities, starting in 1998.
7. Economical Growth and Energy Consumption
In the period from 1970 to 1980, the Gross National Product (GNP) grew at an average rate of 8.7 % annually (ann.) , with energy consumption growing also at expressive annual rates, electricity with 12.4 % ann. and petroleum products at 8.3% ann. The determining factors for these results were: the continental dimensions of the country, the predominance of road transport and also the development of basic industry and infrastructure to supply the unsatisfied needs of many regions in the country. In spite of the high electricity and petroleum products consumption rates, the Internal Energy Offer - IEO - grew 6.5% ann. - elasticity of 0.75 relative to the GNP - mainly as a consequence of the low growth of biomass (0.4 % ann.), constantly substituted by petroleum products (LPG and fuel oil). From 1980 on, due to the countrys recessive economical environment, these rates declined and varied considerably. In the period from 1980 to 1992 the economy in the country grew at an average rate of only 1.3% ann., with rates varying between (-) 4.3 % in 1980 and (+) 7.8 % in 1985. The growth rates in consumption also decreased but not at the same proportion as that of the GNP. The IEO grew 2.85 ann., with elasticity of 2.1 relative to the GNP. The electricity consumption grew 5.4% ann., due mainly to the expansion of electricity - intensive industries (aluminum, pig iron, etc.). But the consumption of petroleum products, due to the substitution policy, grew only 0.9 % ann. and the biomass grew 1.1 % ann., the latter with growth higher than that of 1970/1980, due to the alcohol program. In the last years, with the stabilization of the economy, a new development cycle was established under the present government administration which has been raising the rates of economic expansion and energy consumption. In the same period, the petroleum products presented an average growth rate of 5.8% , electricity 5.0 % and biomass 0.6 %, corresponding, respectively, to elasticity of 1.40, 1,21 and 0.14 relative to the GNP. Residential and commercial electricity, automotive gasoline and aviation kerosene have been the great stimulators of high energy consumption rates, caused by the Real Plan.
8. Investments in the Energy Sector
In 1997, the investments in the petroleum area reached about US$ 2,9 billion, of which 0,7 in refining and 0,6 in transport and other activities. In the electrical energy, the investments added up to US$ 5,0 , of which 2,5 in generation and 2,5 in transmission, distribution and other activities. So, the total investment in energy in Brazil was around US$ 8,0 billion, corresponding to about 6% of the total investments in the country. In the last years, with annual investments varying from 2,5 to 3,0 billion dollars, the Brazilian Petroleum Sector was able to guaranty the supply of petroleum products as well as to increase significantly the oil and natural gas reserves. Likewise, the external dependence was not aggravated. As to the electrical sector, the investments made in the last years, of the order of 4,5 to 5,0 billion dollars ann., of which about half in the generation, has not been sufficient to guaranty adding about 3,000 MW to the installed generation capacity, power necessary to satisfy the demand growth. Therefore, the average addition of 1.080 MW ann., between 1990 and 1994 and 2,000 MW ann. from 1994 on, has raised the risk of shortage. In the future, some alterations will occur in the structure of energy investments. With the installation of natural gas thermal plants, which demand less investment than the hydraulic plants, it is expected a relative reduction in the generation investments, with the consequent investment in gas pipelines. On the other hand, the electrical interconnections with Argentina and that of south with north of Brazil will demand larger investments in transmission. Finally, the potential for investments in energy supply for the next years can be estimated, for each area: 3,0 billion dollars in the petroleum area, 1,0 in gas pipelines, 2,5 to 3,0 in electrical generation and 2,5 to 3,0 in transmission and distribution. Therefore, a total of around 10 billion dollars per year.
9. Main Business Opportunities
The undertakings for expanding electrical energy generation fixed for January 1998 ( with approved plans for conclusion, with concession granted, with authorization, with natural gas supply contract, with approved motorization, etc.) will add to the Brazilian electrical system 23.7 GW up to year 2005 (16.7 hydro, 5.0 natural gas, 1.3 nuclear and 0.7 mineral coal) with investments of about US$ 13 billion, of which 75% from private capital. Likewise, four undertakings for interconnecting systems are assured, which at the end of 1999 will aggregate to generation the equivalent energy of 2,270 MW. They are: (i) North/Northeast with South/Southeast/Center-West - 1,000 MW; (ii) Brazil with Argentina - 1,000 MW; (iii) Brazil with Venezuela - 200 MW; and (iv) Brazil with Uruguay - 70 MW. Investments in these undertakings are estimated to be US$ 13 billion, of which 0,6 are private ones. Additional 14.9 GW (US$ 15.6 billion) , corresponding to undertakings not yet assured, are part of the electric sector expansion plan to start operation mainly from 2005 to 2007. Therefore, the main business opportunities in the Brazilian electrical sector are connected mainly to the offer of energy generation to be explored by the private sector and to the construction of distribution systems, as well as the privatization of generation and distribution assets. In this direction, ANEEL in 1998 will publish 31 announcements for hydro-electrical undertakings and 9 for electric power acquisition produced by Independent Energy Producers - IEP - ( 3,050 MW and US$ 2,2 billion). It should be added the big business opportunities due to the need of satisfying the isolated communities and rural areas, within PRODEEM, for installation of decentralized energy systems, using local renewable energy sources as a complementation of the conventional rural electrification. In order to supply to rural properties which have no energy necessary to their productive development, it is estimated an investment of about US$ 20 billion. In what concerns the Electric Sector Privatization Program, the state governments continue the privatization of other distribution companies such as : CELPA from Pará, COELCE, from Ceará, CEAL, from Alagoas, CEPISA, from Piauí, ELETROACRE, from Acre, CEMAR ,from Maranhão, CESP and ELETROPAULO, from, São Paulo, CERON,, from Rondônia e CELG, from Goiás; it is expected that in the next future 70% of the Brazilian electrical energy market will be supplied by private concessionaires. In MME and BNDES contracts are being made for studies aiming at the transfer the shareholding control of ELETROBRAS subsidiaries (ELETROSUL, with 3,700 MW - FURNAS, with 7,500 MW - CHESF, with 10,200 MW and ELETRONORTE, with 5,500 MW). Another privatization process still underway involves the auction to sell Nacional Energética (UHE Serra da Mesa). In the petroleum sector, including production and transport of natural gas, the new regulation opens new perspectives in the area for private investments, associated or not with PETROBRAS. In this particular case, PETROBRAS has been offering partnership in many projects, comprising exploration, production and supply (coke, LPG underground storage, thermoelectric generation, optic fibers, POLIDUTOS, paraffin, solvents, methanol, natural gas, etc.). The projects under study have attracted the interest of many national and international enterprises in the electric energy area, and it has already been concluded the selection process of partners to direct and implant the cogeneration units: in the Landulpho Alves Refinery (BA), with the consortium ABB Energy Ventures Inc.; in the Henrique Lage Refinery (SP), with the consortium Marubeni Corporation and Sithe Energies Inc.; and Paulínea Refinery (SP), with OPP Petroquímica, the Grupo Ultra and Centrais Elétricas do Estado de São Paulo - CESP.
In the petrochemical area as well, PETROBRÁS has been offering partnerships, and it should be mentioned: the contract signed with OPP Petroquímica aiming at the production and commercialization of basic petrochemicals, in Paulínea - SP, and the protocol signature for studying the viability of a production system of petrochemical naphtha and fuel oil to be used in the raw material plant of Companhia Petroquímica do Nordeste - COPENE, em Camaçari - BA.
In the petroleum exploration, the country has an estimated sedimentary area of about 6.4 million km 2, considerable in the continent and a large extension offshore, still needing investment for more detailed exploratory campaigns, presenting a large potential in its up-stream.
According to the legislation, PETROBRAS postulates exclusively for itself, at first, the concession of 4.7% of the mentioned sedimentary area and 6.9% for developing together with the private sector, which represents, if it is integrally approved, a guaranty of less than 12 % of the total surface of the Brazilian sedimentary basins. This proposition is being technically analyzed by the Petroleum National Agency, but anyway 88% of the referred sedimentary basin is open to private capital participation.