June 27, 2019


Brazil's Energy Sector Needs Reform. Is Bolsonaro Up to the Task? (LISA VISCIDI AND NATE GRAHAM | JUNE 26, 2019, Americas Quarterly)

[B]eyond crude production, deep reforms in crucial areas of the energy sector are needed. Refining, natural gas transport and distribution and electricity generation remain stubbornly concentrated in the hands of state companies, stifling investment and weighing on economic growth. 

Bolsonaro's combative relations with Congress make reforms more difficult, but not impossible. Brazilian industry is plagued by some of the highest natural gas prices in the world, paying up to seven times as much for gas as companies in the United States, according to Carlos Langoni, former president of the Central Bank and architect of the proposed gas reform. In response, the administration hatched a plan to open the gas sector, which is currently dominated by Petrobras. The measures, presented to Congress this week by Mines and Energy Minister Bento Albuquerque, seek to reduce the price of natural gas by 40% in about two years. The designers of the plan estimate that these lower energy prices could increase industrial GDP by 8.4%. 

The most crucial element of the plan is the liberalization of access to Brazil's natural gas pipeline capacity, which is currently controlled almost entirely by state oil company Petrobras, even though it uses a mere 40%. Granting open access to pipelines would enable multiple players to market natural gas. It would also allow private companies that produce natural gas as a byproduct from offshore oil fields (set to nearly triple in the next four years) to the domestic market for power generation and industrial use. 

But a broader power sector reform is also needed. Recent years have made it increasingly clear that Brazil must reduce its heavy reliance on hydroelectric dams (in May hydropower generated around three-quarters of the country's electricity). In 2018, water levels at dams in the populous southeast and central west fell below historical averages for the fifth straight year. Wind and solar capacity are rapidly expanding, but starting from a small base, meaning power providers must turn to more expensive thermal generation when dams are low. In Rio de Janeiro, electricity bills have more than doubled in the past decade, well outpacing inflation. Around 40% of the electricity rate stems from taxes, largely determined and levied by state governments. 

The Bolsonaro administration can take the lead in reforming the power sector to diversify Brazil's energy matrix. Albuquerque has touted the potential of nuclear energy and supports the opening of Brazil's uranium reserves to private companies, and he has argued in favor of new coal plants to maintain the fuel's share of generation to 2027 as demand swells. Bolsonaro has also pushed for more small-scale hydroelectric plants. 

Posted by at June 27, 2019 7:17 PM