Economy & Energy
Year VIII -No 46:
October-November 2004  
ISSN 1518-2932

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Small State & Great Enterprises

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Small State & Great Enterprises  

Genserico Encarnação Júnior

  I am going to hit a key that will sound out of tune in the melody that has been played, mainly in beautiful pieces of publicity through the media, praising the performance of these great undertakings and their wonderful benefits obtained by the Espirito Santo state.

I propose a thesis: the return or benefits that the Espirito Santo population receives from these enterprises that operate in the state are relatively small (even though not negligible). Due to the size and importance of its business, the state deserves more. Among the benefits, the resources due to the payroll and social projects directed to some sectors and communities stand out.

The great enterprises referred to here are: the port/metallurgical complex of the Companhia Vale do Rio Doce/ Associates (CVRD) with its seven pellet plants, Companhia Siderúrgica de Tubarão (CST), the Aracruz Celulose and the Samarco Mineração. Considering the present situation and the excellent perspectives in their areas, one could include Petrobras and similar companies as well. The latter would comprise the concessionaries exploring petroleum and natural gas that have be allowed to do it after the (effective) breach of the state petroleum monopoly. The Escelsa, the main electric energy state company could be added to them.

Except for Petrobras, which has lost the exclusivity of executing the state petroleum  monopoly in the previous Federal Administration, all the other companies are private ones. The CVRD, the CST and the Escelsa were recently privatized.

I don’t have precise data and information. Since the last century I am not working in my profession. Nevertheless, I consider valid the pretension of formulating a hypothesis within my citizenship rights.

I assume that these enterprises represent almost 20% of Espirito Santo’s Gross Domestic Product (GDP), a large participation that represents a strategic importance much larger than this percentage.

An academic digression should be included here. The GDP is the sum of production, during a specific period, in a considered space (country, state, municipality), without considering the  production factors that generate it. It does not differentiate their origin, that is, if they are native or foreign. Concerning the Gross National Product (GNP), it refers to the same sum except that it comprises only the national, native production factors. The “national” word can be substituted by “state” or “municipal” whenever these areas are considered. The difference between GDP and GNP is called “net income sent abroad” (here also related to the considered areas).

The participation of the mentioned enterprises in the state GNP (or Gross State Product) is lower than its GDP because most of the production factors come from outside the state. Therefore, this accounting difference refers to the net income that remunerates the production factors that come from outside the state, even though the production is local.

The good performance of these enterprises also distorts the interpretation of the statistical  results of the state. It is common the information that the state’s GDP expansion rate and its per capita income have been growing above the Brazilian average value since the eighties. Or that casually our industrial growth is the best in the country. On the other hand, Espirito Santo’s  per capita energy consumption is the largest in Brazil, even larger than that of São Paulo and than the national average value. Actually, there is a strong economy, almost a state within a state. These good results do not necessarily reflect the social-economical situation of Espirito Santo.

The initial investments, even though applied here, remunerate external production factors: financial capital, equipment, material, technology and qualified labor. It is painful the struggle of our industry to reach, let us admit, the 20% level of the total, which I believe is far from being true. Of course, local capacity is necessary and this should be attained through a common effort from enterprises and suppliers.

Other considerations follow the previous ones. Aracruz admits in a publicity piece that it occupies 4% of the state territory with eucalyptus plantations. Without considering the planted area in the south of the neighbor state of Bahia. If we had 25 enterprises of the size of Aracruz using the same percent area that it occupies in the state (4%) there would be no place left for the Espirito Santo population to live in. Therefore it is an extensive agricultural area only to satisfy the objectives of a single enterprise.

It is notorious the environmental aggression of these enterprises and it could not be otherwise considering the size and nature of their activities. The sky in Vitória (Espirito Santo’s capital city), as night falls, is a beautiful scenery with the city lights reflected on the rosy polluted clouds. The balconies and external areas of residences that are in the path of the predominant winds must be cleaned every day because they are constantly covered with a fine layer of ore powder.

The CVRD is the main responsible for the powder emission that pollutes the environment, while CST is responsible for the inhaling dust that cannot be seen but that one breaths in.

The productions of Aracruz, CVRD, Samarco and CST are predominantly for export. They generate important foreign currency that is important for the good equilibrium of the National Payment Balance that is necessary for paying the services of the foreign debt. For this reason they receive a large incentive from the Central Government. They don’t pay state taxes on their operations. As a consequence they also generate fiscal credits regarding the taxes on the inputs incorporated to the production (goods and services) that cannot be honored by the state treasury because of insufficient funds. The Kandir Law, that establishes the non-taxation of exports, foresees a retribution to the states but it has been much less than due.

An important chapter is energy. To their credit, Aracruz and CST have been co-generating a substantial share of their electrical energy needs, using industrial process waste, wood leftovers and metallurgical gases. Samarco has constructed a small hydroelectric plant (Muniz Freire) to satisfy its demand. However they absorb in the whole a large load of electrical energy, specially the CVRD. Besides that, the latter  is the largest buyer of natural gas produced by Petrobras in the state in order to produce iron pellets. Presently two offshore fields of non-associated natural gas (Cangoá and Peroá) are being developed in order to serve CVRD and its expansion plans. Possibly regarding the construction of the pig iron plant together with Petrobras. In detriment of the possibility of using this gas for generating electricity.

Regarding electrical energy, after the privatization of Escelsa, two decades ago, no substantial offer has been incorporated to the state generation capacity. The state continues to import 80% of its needs, in the fragile situation of being at the extreme limit of the south-southwest system. Its sale was characterized by the original sin of all privatization process of the electrical system. The cash register of the company was transferred to the private initiative. The catechism is always the same: first one covers the small amounts of the purchases, then one pays dividends to the shareholders and only then, if something is left, one invests.

 Escelsa is one of the large ICMS tax collector for the state. Then no one knows why the taxes on electrical energy increase! Other activities are not taxed, such as those regarding exports.

The great expectation regarding petroleum and natural gas in the state, if there is no compensation of correlated industrial investments that aggregate value, will be an activity that will not even be carried out in the Espirito Santo territory. Oil will be produced offshore and will be transported by sea, without touching the territory. It will leave here a relatively small royalty that can be extinguished. There is a world movement lead by petroleum producers demanding exemption of royalties due to the large investment necessary for offshore activities. This is happening in a predictable international context of petroleum scarcity.

A petroleum refinery dedicated to export, like the one that is intended here, that will receive oil from abroad and send its products elsewhere, will produce pollution, a small number of operational jobs and a contingent of unemployed people that are dismissed soon after its start of operation. Incidentally, the large investments in the construction phase are main responsible for the population increase in the peripheries of the cities due to the hiring of non-qualified labor that is afterwards dismissed.

A series of questions could still be examined concerning how to adequate these large enterprises and the small state that hosts them.

According to what was described, it would be interesting to promote, via an independent auditing, the elaboration of a Social-Economic Balance concerning the past and future performance of these enterprises in Espirito Santo. Not intending to be hostile or to hinder their expansion plans. The objective would be to demand from the Federal Government and from the enterprises themselves a more cooperative attitude, aiming at optimizing the benefits to the Espirito Santo population, considered to be simply the fair return of what is provided by this beautiful land and people.


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Tuesday, 11 November 2008

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