No 19 - April/May 2000
HIGHLIGHTS IN 1999 AND BUSINESS OPPORTUNITIESProduced by the Ministry of Mines and Energy
Secretariat of Energy
Contact: Antonio Patusco
1. General Considerations
The Internal Energy Offer - IEO of the country reached the value of 253.3 million tons equivalent petroleum (tep) in 1999, 1.3% higher than in 1998. Of this amount, 57% is clean and renewable energy, 39% hydroelectricity and 18% biomass. Since the country has a large territory and a large energy potential, Brazil has opted for policies that favor renewable energies and as examples it can be mentioned the hydroelectricity development from 1950 on and the alcohol program in the seventies. About 43% of the IEO relative to non-renewable energy, 34% correspond to petroleum and its products and the remaining 9% to natural gas, mineral coal and uranium.
In the petroleum area, since the beginning of the eighties the country has been successful in exploring and producing oil, guaranteeing regular and reliable supply of petroleum and its products and reducing significantly the external dependence on these energy sources, presently around 85%. In global terms, considering all forms of energy, external dependence of the country is about 21%.
In 1999 the Government continued its program for stimulating the growing participation of natural gas in the energy market, mainly in what concerns the regulation of its use in thermoelectric plants. The non-conventional and/or decentralized energy sources (solar, wind, forest and agriculture residues, vegetable oils, and small hydraulic potentials) were also encouraged especially solar energy, in order to supply to isolated and unassisted communities. Programs aiming at increasing the energy efficiency in the country were continued as well, including production and efficient use of energy and cogeneration of thermal and electrical energy.
In the institutional area, the Ministry of Mines and Energy continued the reformulation of the energy sector, opening opportunities for the participation of private initiative in the necessary investments and in the responsibility for guaranteeing the national supply. The actions of the regulating agencies - ANEEL - National Electrical Energy Agency and ANP - National Petroleum Agency have been of fundamental importance for guaranteeing the supply and increasing the quality of services all over the country.
2. Economic Growth and Energy Consumption
In the period from 1970 to 1980 the Brazilian Gross National Product - GNP grew at a rate of 8.7% per annum (a.a.) and energy consumption also grew at expressive annual rates, 12.4% a.a. for electricity and 8.3% a.a. for petroleum and its products. The determining factors for this result were the continental size of the country and the predominance of motorway transport and also the development of base industry and infrastructure necessary for answering to many needs of many regions in the country.
In spite of the high consuming indexes of electricity and petroleum products, the Internal Energy Offer grew 6.5% a.a. - 0.75 elasticity relative do the GNP - mainly as a consequence of the low growth of biomass (0.45% a.a.) constantly substituted by petroleum products (LPG and fuel oil).
From 1980 on, under the pressure of the recessive economical environment in the country these rates declined and varied considerably. In the period from 1980 to 1992, the national economy grew at an average rate of only 1.3%, varying between (-) 4.3% in 1981 and (+) 7.8% in 1985. The growth rate of energy demand decreased as well but not in the same proportion as that of the GNP. The IEO grew 2.8% a.a., with 2.1% elasticity relative to the GNP. Electricity consumption grew 5.4% a.a., mainly due to the expansion of the electricity-intensive industries (aluminum, pig iron, etc.). As to the consumption of petroleum products it grew only 0.9% a.a. as a consequence of the substitution policy, and biomass consumption grew 1.1 % a.a., higher than what happened in the period 70/80, mainly due to the alcohol program.
From 1992 to 1997, with the stabilization of the economy, a new development cycle was established that raised the economy expansion and consumption rates. In this period the GNP increased 41% a.a and the IEO grew 4.3% a.a and the average increase rate of petroleum products was 5.8 % a.a, 5.0% a.a for electricity and 0.6% a.a for biomass, with the corresponding elasticity of 1.4, 1.21 and 0.14 of the GNP, respectively. Residential and commercial electricity, automotive gasoline and aviation kerosene were the large instigators of the high energy consumption rates due to the better income distribution caused by the Real Plan.
In 1998, under the influence of the crisis in the Asian countries, the Brazilian government was forced to take measures that led to high retraction in the economical growth and the GNP grew only 0.05%. Nevertheless, the energy sources mentioned above, associated with the well being of the population kept the consumption levels above 5%, and this fact resulted in an increase of the IEO well above that of the GNP.
In 1999, with the devaluation of the national currency, the low performance of the economy continued (0.82% GNP - preliminary data) affecting significantly energy consumption associated with the particular use. The following energy sources had negative consumption rates: aviation kerosene (-6.4%), hydrated alcohol (-8%) and automotive gasoline (-1%). But residential electric energy increased only 2.5%.
3 - Electrical Sector
From the fifties on, the Brazilian states created their own electricity utilities. They substituted progressively the then existing private companies. Later on, the Federal Government created ELETROBRAS in 1963. Since then, the installed electrical generation capacity increased dramatically reaching about 64.2 GW in December 1999, not including the self-producers with 4.2 GW and the Paraguayan part of Itaipu with 6.3 GW, entirely destined to the Brazilian market.
In 1999, 3.04 GW were added to the installed electrical generation capacity, of which 2.74 for public service (including 0.59% of independent production) and .29 GW for the exclusive use of self-producers. It should be emphasized the start of operation of the hydroelectric power plants of Salto Caxias - PR, with 1,240 MW, Porto Primavera - SP, with 302 MW, Três Irmãos - SP, with 161.5 MW, Canoas I and II - SP/PR, with 154.5 MW, Igarapava - MG/SP, with 210 MW and also the thermoelectric power plants of Campo Grande - MS and Cuiabá - MT, with 101.2 MW and 150 MW, respectively, that are a milestone in the national thermoelectric expansion.
As an effort to assure the energy offer in the next years, the Ministry of Mines and Energy through the National Electric Energy Agency made in 1999 a bidding contest for 5 hydroelectric generation undertakings for independent production totaling 999 MW in the Ourinhos, Itumirim, Candonga, Quebra Queixo and Barra Grande plants that will demand investments around US$ 1,2 billion and that will produce sufficient energy to supply to 2.5 million residences. These undertakings will benefit the South/Southeast/Center-West interconnected system, particularly the states of São Paulo, Goiás, Minas Gerais, Santa Catarina e Rio Grande do Sul and concession has already been granted to the first three undertakings. They will generate for the Federal Government about US$ 16.4 million as payment relative to the use of a public assets.
During 1999 four concessions were granted to independent producers relative to 1998 bidding contests, namely the hydroelectric power plants of Irapé, Ponte de Pedra, Itapebí and Campos Novos, totaling 1,866 MW and investments around US$1.4 billion, benefiting the equivalent of 4.7 million residences and transference of US$ 24.3 million to the Federal Government for the use of public assets, and 2 concessions relative to the privatization of Paranapanema and Tietê enterprises resulting from the splitting of CESP, including 16 hydroelectric power plants totaling 4,803 MW and transference of US$ 57.8 to the Federal Government for the use of public assets.
The internal electricity generation - for public use - which totals 308.2 TWh (93% hydropower) in 1999 plus the part imported from Paraguay (39.6 TWh - Itaipú) and that from self-producers (20.8 TWh) permitted to provide to a total consumption of 314.3 TWh (2.2% higher than 1998).
In 1999, 3,780 km of new transmission lines (TL) was added to the electrical sector. It should be mentioned the start of operation of the North-South TL in alternated current of 500kV of which 1,280 km, between Imperatriz in Maranhão and Samambaia in Brasilia, that has interconnected the North/Northeast and the South/Southeast/Center-West Systems into a single interconnected system. This system supplies to 98% of the total electrical energy market in the country.
Most of the Brazilian municipalities have regular and reliable electricity supply service. However, in spite of the fact that 92% of the total residences have electricity, the transmission network does not cover part of the large Brazilian territory. The North region presents the largest electricity supply problem in the country, where localities are supplied by isolated systems of diesel - oil -fueled plants of low efficiency. This provides a large market for private investors who are interested in the segment of small and medium power plants, especially projects that use decentralized energy sources (for example, photovoltaic, wind and small hydro plants). It should be added that natural gas from Urucu would allow for increasing electricity offer in the North region in a more economical and competitive manner, increasing the possibility of participation of private entrepreneurs.
In this sense, the Federal Constitution was amended in 1995, eliminating restrictions to foreign private investors' capital in the energy sector. Laws 8987 and 9074/95 (new Concession Laws) introduced deep and important alterations, especially concerning:
The Decree 1717 established the conditions for extending and regrouping the public service concessions and the approval of Conclusion Plans for suspended works. Decree 2003 of 09/10/96 regulated the conditions for independent and self-producers. Also in 1996 the National Electric Energy Agency - ANEEL was established by the Law no 9,427 of December 26. Other regulations were established in 1997 and 1998, especially:
In 1999 new regulations were established aiming at improving the legal structure of the electrical sector; among them we should mention:
In what concerns actions for energy conservation and efficiency, ANEEL has defined a new Manual for Elaborating an Annual Program for Combating Electric Energy Waste - cycle 1999/2000. The program was started in 17 concessionary enterprises and will save about 755 GWh/year of energy and will remove from the Generation System peak the equivalent demand of 250 MW, saving an estimated investment of US$ 200 million.
ANEEL continued in 1999 the vigorous inspection program started in 1998, inspecting all concessionaries in what concerns economical-financial aspects, service quality and generation technical standards. The decentralization process of several activities to state agencies was also consolidated. Throughout the year, actions concerning consumer's defense, strengthening of consumer's committees, conflict settlement and public hearings had strategic importance, due to the Agency's commitment to the Brazilian society.
In 1999 the Brazilian electric energy market profile had 64% of private participation as shown in the graphic below.
The privatization process totaled resources around R$ 30 billion, including the transfer of R$ 6 billion of debt.
PRIVATIZATIONS CARRIED OUT IN THE ENERGY
4. Petroleum Sector
The petroleum and gasindustry, after decades of state monopoly exercised by PETROBRÁS, enters a new era. The Constitutional Amendment no 9 of 1995 extinguished the monopoly of the industry's basic activities and the Law no 9478/97 disciplined the opening to the direct participation of the private sector in all links of the production chain.
The complement of the new institutional framework was introduced by the installation of the National Petroleum Agency - ANP in 1998 with large regulation, contracting and inspection responsibilities in the petroleum and natural gas sector.
The effective monopoly break occurred in June 1999, when ANP made the first bidding contest round for contracts relative to exploration, development and production of petroleum and natural gas. In this round, 27 blocks were offered, which represents 2% of the Brazilian sedimentary basins, of which 12 were granted. If the concessionaires are successful in the initial surveys, after the subsequent exploratory periods in all blocks, about 57 exploratory wells will be drilled in up to nine years.
The APN has established regulations and inspections concerning the activities of the petroleum and natural gas industry, with the following highlights:
For the PETROBRÁS' exploration and production segment, 1999 was a year of advancement in the new Brazilian petroleum industry.
In the beginning of the year, PETROBRÁS had 115 exploration concessions in the country that included 36 blocks on land and 79 offshore. The concession contracts are valid for three years up to August 2001. In May 1999 PETROBRÁS obtained from ANP a two-year extension of concession for 36 blocks and six years for two other blocks. In the same period PETROBRÁS gave back to ANP 26 exploratory blocks and part of other two ones.
Other relevant fact was the participation of PETROBRÁS in the first bidding contest for concession of exploratory blocks, obtaining five concessions. Therefore, the company ended the accounting period with the concession of 94 exploratory blocks, 44 for production development and 239 already producing blocks.
In 12/31/1999 the proved petroleum reserves, liquefied natural gas (LNG) and gas condensates reached 8.1 billion bbl and the total of 14.3 billion bbl represent a growth of 8.5 % and a decrease of 0.6%, respectively.
Petrobras' units in operation made possible the petroleum domestic production (including schist) and LNG to reach the daily average of 1,131,837 bbl, 12.7% higher than that obtained in 1998. This increase is due to the start of production of the Roncador field, the P-35 platform in the Marlim field and the performance of platforms P-19 (Marlim), P-34 (Barracuda), P-09 (Corvina) and P-13 (Bijupira) that produced 8.5% above the previwed valued. It should be mentioned that the producing field in Roncador has the world record with 1.853 meters water layers. The offshore production corresponded to 79% of the total one, from 74 fixed platforms and 23 floating ones of which 61.5% came from production systems located in more than 400 meters water layers. The daily production record was 1,245.6 thousand bbl in 11/29/1999.
In the commercial segment, PETROBRÁS imported 336 thousand bbl of petroleum daily, spending US$ 2,032 million FOB and 382 thousand bbl of petroleum products corresponding to US$ 2,462 million FOB. The exports were 123 million bbl daily, generating revenues of US$ 732 million FOB.
In 1999, the daily average of raw material processed in PETROBRÁS' refineries was 1,576, 3.8% higher than the 1998 average. In private refineries this average was 20 thousand bbl of oil daily. The participation of national petroleum in the material processed in the refineries was 71% while in 1998 this participation was 64%. In October 1999, there was a record of 1,642 thousand bbb of oil daily of average load in Petrobras' refining units.
It is also important to point out that the total production of petroleum products reached the average of 1,569 thousand bbl daily, 4.1% higher than that of 1998.
The installed nominal capacity of the Brazilian refineries in 1999 reached 1,913, of which 1,893 refers to PETROBRÁS.
The pipeline network was expanded in 653 km reaching 12,730 km, namely, 7,830 pipelines for oil and other products and 4,900 gas pipelines. The total storage capacity of the terminals was 66,723 thousand bbl at the end of 1999.
It should be mentioned the start of operation of the LPG Solimões Terminal in the Amazon and the increase of the gas pipeline network in the Northeast that permitted the interconnection from Alagoas to Ceará.
The oil pipelines for the transport of heavy oil from the Campos Basin were adapted for supplying to Petrobras' refineries.
In 1999 PETROBRÁS operated on the average 114 tanker ships corresponding to a total transport capacity of about 7.0 million tons of gross weight (tgw) of which 64 belong to Petrobras, with 3.8 million tgw. The total transported load was 103.6 million tons of which 70.6 in the country and 33.0 million tons abroad.
5. Natural Gas Sector
Only recently the big advantages of more intensive use of natural gas as industrial fuel, for thermo-generation, for vapor generation, for heating/cooling of commercial/residential environments and as automotive fuel has been realized in Brazil. Due to the low emission of sulfur and carbon and a more efficient and complete combustion, natural gas presents enormous economical, environmental and processing advantages compared to other fuels, mainly fuel oil and mineral coal.
At the start of the nineties, the Brazilian government established the goal of increasing from 2% to 12% the participation of natural gas in the energy matrix until year 2010. From then on, natural gas became an important energy source and it is being used more and more as alternative fuel substituting petroleum products and other energy sources.
In 1999 intense effort had been carried out in order to guarantee the increase of natural gas offer in the country, mainly:
In the natural gas segment it should be mentioned the participation of PETROBRÁS associated with private enterprises and as a minority shareholder in 23 projects for the construction of thermoelectric power plants according to the Decennial Plan for the Electrical Sector Expansion that will start operation between 2001 and 2004.
Twelve of the 23 plants, with total investments around US$ 2.3 billion, will generate exclusively 3,705 MW, while the remaining eleven plants, with total investments around US$ 2.5 billion, will generate 3,149.5 MW and will produce 2,535 t/h of vapor. The electrical energy generated by the last ones will be partially consumed by Petrobras and the excess will be sold to concessionaries and/or large industrial consumers. Petrobrás will entirely consume the vapor produced.
Among the cogeneration thermoelectric plants, the one that will be installed in the Landulpho Alves Refinery (Rlam - BA) had its construction already started and those to be constructed in the Duque de Caxias Refinery (RJ) and Presidente Bernardes (SP) have their project under environmental licensing.
These thermoelectric power plants that will supply electrical energy and vapor with large efficiency and reliability will permit reducing PETROBRÁS' operational costs and will consume about 26 million m3 daily of natural gas and will contribute to the strategic goals of the company for this sector.
In 12/31/1999 the natural gas proved reserves reached 228.7 billion m3 of gas while total reserves were 468.4 billion m3 of gas, corresponding to an increase of 1.2 % and 14.3 %, respectively. Natural gas production in 1999, excluding LNG, was 31.4 million m3 daily of gas, with 10% growth relative to 1998. Offshore natural gas production corresponded to 67% of the total production.
6. Mineral Coal Sector
The mineral coal industry in the country began its activities about 140 years. The characteristics of the Brazilian coal, with low calorific power, much ash and high sulfur content, demand processing that raises its cost and makes it not very competitive vis-à-vis other energy sources. These limitations lose their importance when new technologies are introduced, more appropriate for direct burning, eliminating the processing used in the past when the coal used in the thermal generation was subsidiary of metallurgicalcoal production.
Until 1975, mineral coal participation in the national energy matrix was 3,2%, mainly for metallurgical use (about 80% of the total). From 1975 on, its use in the industry grew as a function of the advantageous prices compared with those of fuel oil as well as of the subsidies to its transport, decreasing afterwards from 1986 on, when petroleum prices decreased.
Now, the participation of the mineral coal in the Brazilian energy matrix is 5,0%, of which, 0,8% national coal and 4,2% of imported metallurgical coal and coke. In the Priority Thermoelectric Plan the present installed capacity using mineral coal is 1,415 MW but it will grow about 1,100MW by the year 2003.
In order to increase the present competition capacity of the Brazilian carboniferous sector, efforts for industry capacitating and upgrading continued to be made, aiming at establishing new technologies such as clean coal technologies.
For this purpose, cooperation agreements between the Ministry of Mines and Energy and the Energy Department of the United States were extended aiming at fixing a path for the new industrial phase through:
7. Energy for Isolated Communities and the Rural Area
The MME's Program for Energy Development of States and Municipal districts - PRODEEM - gave continuity to the actions aiming at supporting the supply of basic social demands of dispersed communities in localities not served by the electric system, promoting increase of income, creation of jobs in the rural areas, by installing local small energy systems of production and use, using renewable and decentralized energy sources, especially solar energy. In partnerships with other entities, the Program also promotes the development of the education, health, water supply and communication services.
Surveys carried out by the states and concessionaire of energy electric point out the existence of about 100 thousand unassisted communities and more than 3 million rural properties without energy, representing about 20 million people unable to participate in the process of social development and economic growth of the country.
Thus, as results of the Program, in the period 1996-1999 more than 2.000 communities have been supplied with illumination of schools and community centers, water pumping, food production, information, emergency communication and other collective benefits, contemplating about 500 thousand people.
Still in the period 1996/1999, PRODEEM consolidated the partnerships with several institutions interested in the program and it devoted efforts to show the extraordinary potential of the Brazilian market for the development of renewable energy and to raise the interest of the private sector on the programs, especially on the production areas (residences and rural units) and isolated systems not supplied by the conventional electrical network.
As a consequence of PRODEEM's actions, the BIRD proposed to finance one project for energizing rural residences and BID prepared, together with MME, PRODEEM's Plan of Action. With this Plan, PRODEEM will increase its action aiming at encouraging communities and market agents to develop energy projects integrated to other economical/production projects aiming at the development of isolated regions and permitting these projects to be self-sustaining, involving up to US$ 9 million sponsored by the government.
These resources have the following objectives:
Due to its national comprehensiveness and its structuring characteristic regarding social and economic development, PRODEEM was included in the Program Brazil in Action, starting from the administrative year of 2000 on.
In the rural electrification sector and considering the resuming of the agricultural and husbandry growth in the country, we should mention the "Light in the Hinterland" Program established by the Federal Government, directly coordinated by the MME with technical support from ELETROBRÁS.
The Program has as main objectives:
The Program's financial goal is estimated in a global investment of US$ 1,8 billion for the period 1999/2002 with the following resources:
The Program's goal for the period 1999 - 2002 includes the connection of one million rural properties/residences, establishment of about 465 thousand kilometers of rural distribution networks and installation of 500 thousand transformers, equivalent to a total power of 7,000 MVA. About one million electrical meters and 3.9 million poles will be installed.
In the 1999 fiscal year projects totaling US$ 156 million were analyzed and approved, of which US$ 100 million from ELETROBRÁS, that will benefit 152,000 rural residences/properties
8. Investments in the Energy Sector
In the last years, with annual investments varying between 2.5 and 3.0 billion of dollars, the Brazilian Petroleum Sector has been able to guarantee the supply of petroleum products and to increase significantly the oil and natural gas reserves.
In what regards the Electrical Sector, the investments made in the last years, around 4.5 to 5.0 billion of dollars a year, of which about half in the generation segment, has not been enough to guarantee annual increments around 3.500 MW to the generation installed capacity and the power necessary to supply the verified growth of demand. Thus, the average increments of 1.080 MW a year, between 1990 and 1994 and of 2.200 MW yearly from 1994 on, have increased the risk of supply cut off.
In the future, some alterations should happen in the structure of energy investments. With the installation of natural gas thermal power plants, that demand smaller investments than the hydroelectric ones, it is expected a relative reduction in the generation investments, with consequent increase of investments in gas pipelines. On the other hand, the electric connections with Argentina and that between the South and North of Brazil will demand larger investments in the transmission segment.
In summary, the potential of energy supply investments for the next years can be estimated as: 3,0 to 4,0 billion dollars in the petroleum area 1,0 in gas pipelines, 2,5 to 3,5 in electric generation and 2,5 to 3,0 in transmission and distribution sectors. Therefore, a total amounts between 8.5 and 10.5 billion dollars a year will be necessary.
9. Main Business Opportunities
According to the Decennial Plan for the Electric Sector Expansion, the foreseen projects may increase the generation-installed capacity to 107.2 GW in the year 2009, representing an additional of 43 GW relative to 1999.
In this section are included 21,5 GW - corresponding to 54 new undertakings and 4 installation conclusions - which, in practice, represent the minimum group of projects with which the Electric Section can count on with reasonable assurance.
In this classification are included:
For the biennium 2000/2001, ANEEL will make bidding contest for 31 hydroelectric undertakings, totaling of 9,587 MW for independent production and self-producers, with investments around US$ 12,2 billion, will approve authorization for 49 thermoelectric power plants using natural gas, totaling 16,945 MW, with investments around US$ 16.8 billion and the establishment of 500 MW in small hydro plants annually. The thermoelectric power plants are part of the Thermoelectric Priority Plan of the Brazilian Government and represent an increase of approximately 25% of the present installed capacity in the country.
In October 1999 was issued the first Transmission Determinative Plan that establishes the expansion of the transmission network (230 kV and more) for the period 1999/2002 with about 12,000 km of transmission lines, about 35,000 MVA transformation besides reactive compensation equipment.
Among the transmission expansion undertakings we should mention:
In what concerns the Privatization Program of the Electric Sector, the state governments are carrying on privatization of distribution companies, such as: CEAL, from Alagoas; CEPISA, from Piauí; ELETROACRE, from Acre; CERON, from Rondônia; CEMAR, from Maranhão; SAELPA, from Paraíba; CELPE, from Pernambuco; CESP, from São Paulo and the COPEL, from Paraná, and it is expected that, in the near future, 70% of the Brazilian electric energy market will be supplied by private concessionaires. In the ambit of MME and BNDES are under way the studies for the transfer of the stock controls of the subsidiaries of ELETROBRAS (FURNAS, with 7.842 MW - CHESF, with 10.705 MW; and ELETRONORTE, with 5.703 MW).
Therefore, the main business opportunities of the Brazilian Electric Sector are connected mainly with the offer of new generation undertakings for the private initiative and the construction of transmission systems, as well as, the privatization of distribution and generation systems assets
It should be added the great business opportunities stemming from supplying the needs of isolated communities and rural areas, in the ambit of PRODEEM, represented by the installation of decentralized energy systems, using local sources of renewable energy, as a complementation to the conventional rural electrification.
In the Petroleum Sector, including the production and transport of natural gas, the new regulation opens wide field for private investments, associated or not with to PETROBRÁS. In this matter, PETROBRÁS has offered 32 projects distributed among fourteen Brazilian sedimentary basins of which 7 have been signed in 1998 and 18 in 1999. These 25 projects have an investment of US$ 5.1 billion in exploration and production development in the next 7 years.In the exploration area, besides partnerships with PETROBRÁS, the country disposes of a sedimentary area evaluated in about 6,4 million km2, in the continent and off-shore, most of it needing investments in exploratory campaigns for larger detail, showing large potential to be develop in its up-stream.