By John Santos
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Tuesday, June 8, 2010
Brazil's GDP Grew 9% in Q1
The Brazilian economy grew 2.7% in the first quarter over the fourth quarter of last year. Comparing with last year's first quarter, GDP grew 9%. Surging domestic demand is likely to force the central bank to raise interest rates to cool down the economy.
By John Santos
By John Santos
Tuesday, March 30, 2010
For Brazil, It's Finally Tomorrow
For Brazil, It's Finally Tomorrow
How the country of the future has at last made it—and what remains to be done
By PAULO PRADA
For the past century, Brazil has been a land of great potential—but few results. With runaway inflation and stratospheric national debt, the country was too much of a mess for anyone to take it seriously on the world stage.
The Journal Report
See the complete Brazil report.
. Brazil: Economic Giant
5:18
Dow Jones Newswires' Eduardo Kaplan sits with Paulo Vieria da Cunha, a partner of the investment firm Tandem Global Partners, to discuss Brazil's role as an economic giant and how it has redefined the global economy.
.How times have changed.
Consider this: In the face of the worst global economic crisis since the Great Depression, Brazil's economic output dipped a tiny 0.2% last year, and is expected to grow as much as 6% this year. Everyday Brazilians have been too busy buying washing machines, cars and flat-screen televisions to even notice the downturn.
Brazil is already the biggest economy in Latin America and the 10th-biggest in the world. By 2050, it will likely move into fourth place, leapfrogging countries including Germany, Japan and the U.K., according to a study by Goldman Sachs.
Clearly, Brazil has turned a corner—and is now a nation with the heft, ambition and economic fundamentals to become a world power. But the country has enormous challenges it must overcome before it can fully live up to its potential.
Edel Rodriguez
.Its public sector is bloated and riddled with corruption. Crime is rampant. Its infrastructure is badly in need of repair and expansion. The business environment is restrictive, with a labor code ripped from the pages of Benito Mussolini's economic playbook. Brazil also risks patting itself on the back so much that it fails to see the colossal work that remains to be done.
"There's too much good happening at the moment for the country not to take advantage of it," says Ricardo Amorim, a well-known financial consultant in São Paulo. "Brazil has never had as much opportunity as it will have in the years ahead."
Big Promise
Brazil has always had a lot to live up to, simply because of its size. The country is bigger than the continental U.S. and has almost as many people as Germany, France and the U.K. combined. Yet except when it came to soccer and music, many Brazilians themselves tended to believe the notion—apocryphally attributed to Charles de Gaulle—that "Brazil is not a serious country."
Things started changing in the 1990s. The government adopted strict monetary policies and a laser-like focus on balancing the books. That fiscal prudence has given the country remarkable cash reserves—and breathing room during crises.
View Full Image
Agencia Estad0/Associated Press
Getting an education.
.For instance, when the big downturn hit in 2008, private lending began to dry up. So the government, flush with cash reserves and the keys to an aggressive development bank, ordered state-run lenders to open the credit taps. The banks complied, lending out record amounts last year to Brazilians eager to join the country's quickly growing consumer class. Internal demand soared, softening the blow of the slowdown.
"This is a different Brazil than 10 years ago," President Luiz Inácio Lula da Silva boasted recently. Back then, he said, "the crisis in Greece would have already bankrupted Brazil."
What's more, there's now a political consensus to avoid the mistakes of the past. Until recently, elections in Brazil were considered make-or-break contests between irresponsible, populist proposals and the voices of investment, stability and growth. Now neither leading candidate from the right or left in October's election is expected to stray far from current economic policies, a functional blend of pro-business market rules and social-welfare programs.
Even a pledge for a bigger state role in the economy by Dilma Rousseff, Mr. da Silva's outgoing chief of staff and his hand-chosen successor as the party's candidate, isn't scaring off the business community. "It's refreshing to have an election and see there's no fuss about either outcome," says Andrew Béla Jánszky, a Brazilian investment lawyer in the São Paulo office of Shearman & Sterling LLP. "For once, stability is almost a given."
The hard work has also enabled Brazil—already a leading exporter of iron ore, steel, coffee, soybeans, sugar and beef—to soar in sectors it once only dreamed about. After decades of research and investment, Brazil in 2007 discovered mammoth new oil beds beneath the Atlantic that are expected to double output in the coming years—generating billions of dollars in new revenue annually.
Cleaning House
The results of all these changes have been dramatic. The economic turnaround has pulled millions out of poverty and is creating a thriving middle class. For instance, Brazil's northeast, long the source of internal migration to more-prosperous cities down south, now outpaces the rest of the country in growth. Companies there are scrambling to train workers, many experienced only as field hands, to build cars, appliances and computer parts.
The country's promise is such that events that once rattled the faith of local and foreign investors are now taken largely in stride—be it the global financial meltdown or Mr. da Silva's bear hugs and backslaps with leaders of regimes in Havana, Tehran and Caracas.
View Full Image
Reuters
Looking for a washing machine in São Paulo.
.But before Brazil can achieve its first-world ambitions, it must tackle big economic, legal and social deficiencies that have hobbled its development.
For one thing, even after sweeping reforms, the government's role in the economy remains relatively big. Government spending totals more than 20% of the country's gross domestic product, compared with about 15% in the U.S., 13% in China and 7% in Indonesia, another fast-growing emerging market, according to data compiled by Mosaico Economia Política, a Brazilian consultancy. The government trimmed as many as 150,000 jobs in the 1990s, but since then has taken on twice that number, according to research at Banco Santander, the Spanish bank that is one of Brazil's biggest foreign investors. Even with greater leeway to spend than ever before, government debt has begun to creep back up.
To help finance the growth in the size of government—and onerous pension and benefit plans—"the trend is likely to be in the direction of higher taxes, lower investments, and, thus, lower long-term growth," Santander said in the report. The spending growth comes as consumer demand is also surging, spurred on by state lending. That has caused inflation to rear its head once more—forcing the central bank to consider raising interest rates again.
"The government can't have it all," warns Eduardo Giannetti da Fonseca, an economist and professor at Insper Instituto de Ensino e Pesquisa, a business school in São Paulo. "You can't increase spending, private consumption and invest all at the same time, because something will eventually give."
Another problem is the restrictive business environment, especially strict labor laws that date back to the 1940s and were originally modeled on the statist policies of Mussolini. Because it costs so much to start companies and hire workers, many entrepreneurs and businesses stay in the black market and pay workers informally. That creates a massive underground economy that, according to a 2005 study by McKinsey & Co., accounts for up to 40% of Brazil's gross domestic product, takes about half of all urban jobs and drags overall economic growth by as much as 1.5% annually.
The problem is palpable across Brazil, where underground commerce is on open display from city sidewalks to public buses to the festive beaches of Rio de Janeiro. "I'd rather have a real job, but it's a lot easier to get hired to do something like this," says Milton, a 28-year-old vendor of pirate software and DVDs in central São Paulo, who declined to give his last name. "There's plenty of this kind of work to go around."
Bad Connections
Yet another obstacle to growth is a lack of infrastructure—from roads, railways and bridges to docks, airports and pipelines. Like most everything else in the country, infrastructure investment fluctuated with the booms and busts of the past. Projects were launched when times were flush, only to sit neglected for decades.
Not only is much of it old and in disrepair, but Brazil's existing infrastructure is too small to handle the volume of people and goods currently using it—let alone accommodate new growth. The government this week is expected to announce the second phase of an ambitious "growth acceleration program" that it launched in 2007. The original plan foresaw infrastructure investments of some $342 billion, but many projects remain mired in bureaucracy. Contas Abertas, a not-for-profit research group that studies public spending, in a study this month said that only 11% of the projects outlined in the plan have been completed, while just over half have yet to be launched.
To casual observers, things will look better as Brazil gears up for hosting soccer's World Cup in 2014 and the Summer Olympics in Rio de Janeiro in 2016. New roads and airport terminals will be christened along with modernized stadiums and scenic, well-policed promenades. But manufacturers, exporters and shippers—who regularly wait days or weeks for backlogs in ports and customs facilities to clear—know Brazil needs more than just cosmetic changes.
Progress in other areas falls short, too. Crime is still a big problem in most cities and in lawless rural areas where ruthless prospectors, loggers and landowners at times ride roughshod over their neighbors. Those charged with enforcing the law are so underpaid that police routinely look the other way in exchange for a little extra money or commit serious human-rights abuses in efforts to solve problems that overburdened courts rarely can. Using the government's own statistics, a December report by Human Rights Watch disclosed that police in Rio and São Paulo together killed more than 1,000 people annually in recent years, many of them in execution-style "extrajudicial" killings.
Brazil's politicians and legislators often run afoul of the law, as well. The country's Federal Police, its most respected law-enforcement body and the agency charged with fighting corruption, currently has nearly 30,000 active investigations related to public corruption and fraud, according to a recent report. The deposed governor of Brasília, Brazil's capital, at the moment sits in jail awaiting trial over alleged kickbacks from public construction projects.
Then there's public education. Brazil has a popular welfare program that helps needy children by paying parents to keep them in school rather than send them out to help put food on the table. But schools themselves remain underfunded and the quality of education remains poor. Outdated university statutes mean that the best colleges, which are public and free, get filled by wealthy students from private high schools, while poorer students, the products of public schools, get stuck paying for second-rate degrees at costly classrooms in strip malls and fly-by-night academies.
Mr. da Silva and his ministers, including Ms. Rousseff, admit that much still needs to be done. The work so far, they insist, has been about laying the groundwork for stability and thereby facilitating investment and growth in the future. Now that popular social programs have helped ease suffering for the critically poor—and disastrous fallout from the financial crisis was averted—the government can begin focusing on ways to ensure it builds upon more solid economic foundations.
"If the past year was about measures to stimulate consumption," Mr. da Silva said in a television address at the end of December, "now our emphasis is on reinforcing investments and thereby making the wheel of the economy roll in a healthy and sustainable way."
— Mr. Prada is a staff reporter for The Wall Street Journal in São Paulo. He can be reached at paulo.prada@wsj.com .
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How the country of the future has at last made it—and what remains to be done
By PAULO PRADA
For the past century, Brazil has been a land of great potential—but few results. With runaway inflation and stratospheric national debt, the country was too much of a mess for anyone to take it seriously on the world stage.
The Journal Report
See the complete Brazil report.
. Brazil: Economic Giant
5:18
Dow Jones Newswires' Eduardo Kaplan sits with Paulo Vieria da Cunha, a partner of the investment firm Tandem Global Partners, to discuss Brazil's role as an economic giant and how it has redefined the global economy.
.How times have changed.
Consider this: In the face of the worst global economic crisis since the Great Depression, Brazil's economic output dipped a tiny 0.2% last year, and is expected to grow as much as 6% this year. Everyday Brazilians have been too busy buying washing machines, cars and flat-screen televisions to even notice the downturn.
Brazil is already the biggest economy in Latin America and the 10th-biggest in the world. By 2050, it will likely move into fourth place, leapfrogging countries including Germany, Japan and the U.K., according to a study by Goldman Sachs.
Clearly, Brazil has turned a corner—and is now a nation with the heft, ambition and economic fundamentals to become a world power. But the country has enormous challenges it must overcome before it can fully live up to its potential.
Edel Rodriguez
.Its public sector is bloated and riddled with corruption. Crime is rampant. Its infrastructure is badly in need of repair and expansion. The business environment is restrictive, with a labor code ripped from the pages of Benito Mussolini's economic playbook. Brazil also risks patting itself on the back so much that it fails to see the colossal work that remains to be done.
"There's too much good happening at the moment for the country not to take advantage of it," says Ricardo Amorim, a well-known financial consultant in São Paulo. "Brazil has never had as much opportunity as it will have in the years ahead."
Big Promise
Brazil has always had a lot to live up to, simply because of its size. The country is bigger than the continental U.S. and has almost as many people as Germany, France and the U.K. combined. Yet except when it came to soccer and music, many Brazilians themselves tended to believe the notion—apocryphally attributed to Charles de Gaulle—that "Brazil is not a serious country."
Things started changing in the 1990s. The government adopted strict monetary policies and a laser-like focus on balancing the books. That fiscal prudence has given the country remarkable cash reserves—and breathing room during crises.
View Full Image
Agencia Estad0/Associated Press
Getting an education.
.For instance, when the big downturn hit in 2008, private lending began to dry up. So the government, flush with cash reserves and the keys to an aggressive development bank, ordered state-run lenders to open the credit taps. The banks complied, lending out record amounts last year to Brazilians eager to join the country's quickly growing consumer class. Internal demand soared, softening the blow of the slowdown.
"This is a different Brazil than 10 years ago," President Luiz Inácio Lula da Silva boasted recently. Back then, he said, "the crisis in Greece would have already bankrupted Brazil."
What's more, there's now a political consensus to avoid the mistakes of the past. Until recently, elections in Brazil were considered make-or-break contests between irresponsible, populist proposals and the voices of investment, stability and growth. Now neither leading candidate from the right or left in October's election is expected to stray far from current economic policies, a functional blend of pro-business market rules and social-welfare programs.
Even a pledge for a bigger state role in the economy by Dilma Rousseff, Mr. da Silva's outgoing chief of staff and his hand-chosen successor as the party's candidate, isn't scaring off the business community. "It's refreshing to have an election and see there's no fuss about either outcome," says Andrew Béla Jánszky, a Brazilian investment lawyer in the São Paulo office of Shearman & Sterling LLP. "For once, stability is almost a given."
The hard work has also enabled Brazil—already a leading exporter of iron ore, steel, coffee, soybeans, sugar and beef—to soar in sectors it once only dreamed about. After decades of research and investment, Brazil in 2007 discovered mammoth new oil beds beneath the Atlantic that are expected to double output in the coming years—generating billions of dollars in new revenue annually.
Cleaning House
The results of all these changes have been dramatic. The economic turnaround has pulled millions out of poverty and is creating a thriving middle class. For instance, Brazil's northeast, long the source of internal migration to more-prosperous cities down south, now outpaces the rest of the country in growth. Companies there are scrambling to train workers, many experienced only as field hands, to build cars, appliances and computer parts.
The country's promise is such that events that once rattled the faith of local and foreign investors are now taken largely in stride—be it the global financial meltdown or Mr. da Silva's bear hugs and backslaps with leaders of regimes in Havana, Tehran and Caracas.
View Full Image
Reuters
Looking for a washing machine in São Paulo.
.But before Brazil can achieve its first-world ambitions, it must tackle big economic, legal and social deficiencies that have hobbled its development.
For one thing, even after sweeping reforms, the government's role in the economy remains relatively big. Government spending totals more than 20% of the country's gross domestic product, compared with about 15% in the U.S., 13% in China and 7% in Indonesia, another fast-growing emerging market, according to data compiled by Mosaico Economia Política, a Brazilian consultancy. The government trimmed as many as 150,000 jobs in the 1990s, but since then has taken on twice that number, according to research at Banco Santander, the Spanish bank that is one of Brazil's biggest foreign investors. Even with greater leeway to spend than ever before, government debt has begun to creep back up.
To help finance the growth in the size of government—and onerous pension and benefit plans—"the trend is likely to be in the direction of higher taxes, lower investments, and, thus, lower long-term growth," Santander said in the report. The spending growth comes as consumer demand is also surging, spurred on by state lending. That has caused inflation to rear its head once more—forcing the central bank to consider raising interest rates again.
"The government can't have it all," warns Eduardo Giannetti da Fonseca, an economist and professor at Insper Instituto de Ensino e Pesquisa, a business school in São Paulo. "You can't increase spending, private consumption and invest all at the same time, because something will eventually give."
Another problem is the restrictive business environment, especially strict labor laws that date back to the 1940s and were originally modeled on the statist policies of Mussolini. Because it costs so much to start companies and hire workers, many entrepreneurs and businesses stay in the black market and pay workers informally. That creates a massive underground economy that, according to a 2005 study by McKinsey & Co., accounts for up to 40% of Brazil's gross domestic product, takes about half of all urban jobs and drags overall economic growth by as much as 1.5% annually.
The problem is palpable across Brazil, where underground commerce is on open display from city sidewalks to public buses to the festive beaches of Rio de Janeiro. "I'd rather have a real job, but it's a lot easier to get hired to do something like this," says Milton, a 28-year-old vendor of pirate software and DVDs in central São Paulo, who declined to give his last name. "There's plenty of this kind of work to go around."
Bad Connections
Yet another obstacle to growth is a lack of infrastructure—from roads, railways and bridges to docks, airports and pipelines. Like most everything else in the country, infrastructure investment fluctuated with the booms and busts of the past. Projects were launched when times were flush, only to sit neglected for decades.
Not only is much of it old and in disrepair, but Brazil's existing infrastructure is too small to handle the volume of people and goods currently using it—let alone accommodate new growth. The government this week is expected to announce the second phase of an ambitious "growth acceleration program" that it launched in 2007. The original plan foresaw infrastructure investments of some $342 billion, but many projects remain mired in bureaucracy. Contas Abertas, a not-for-profit research group that studies public spending, in a study this month said that only 11% of the projects outlined in the plan have been completed, while just over half have yet to be launched.
To casual observers, things will look better as Brazil gears up for hosting soccer's World Cup in 2014 and the Summer Olympics in Rio de Janeiro in 2016. New roads and airport terminals will be christened along with modernized stadiums and scenic, well-policed promenades. But manufacturers, exporters and shippers—who regularly wait days or weeks for backlogs in ports and customs facilities to clear—know Brazil needs more than just cosmetic changes.
Progress in other areas falls short, too. Crime is still a big problem in most cities and in lawless rural areas where ruthless prospectors, loggers and landowners at times ride roughshod over their neighbors. Those charged with enforcing the law are so underpaid that police routinely look the other way in exchange for a little extra money or commit serious human-rights abuses in efforts to solve problems that overburdened courts rarely can. Using the government's own statistics, a December report by Human Rights Watch disclosed that police in Rio and São Paulo together killed more than 1,000 people annually in recent years, many of them in execution-style "extrajudicial" killings.
Brazil's politicians and legislators often run afoul of the law, as well. The country's Federal Police, its most respected law-enforcement body and the agency charged with fighting corruption, currently has nearly 30,000 active investigations related to public corruption and fraud, according to a recent report. The deposed governor of Brasília, Brazil's capital, at the moment sits in jail awaiting trial over alleged kickbacks from public construction projects.
Then there's public education. Brazil has a popular welfare program that helps needy children by paying parents to keep them in school rather than send them out to help put food on the table. But schools themselves remain underfunded and the quality of education remains poor. Outdated university statutes mean that the best colleges, which are public and free, get filled by wealthy students from private high schools, while poorer students, the products of public schools, get stuck paying for second-rate degrees at costly classrooms in strip malls and fly-by-night academies.
Mr. da Silva and his ministers, including Ms. Rousseff, admit that much still needs to be done. The work so far, they insist, has been about laying the groundwork for stability and thereby facilitating investment and growth in the future. Now that popular social programs have helped ease suffering for the critically poor—and disastrous fallout from the financial crisis was averted—the government can begin focusing on ways to ensure it builds upon more solid economic foundations.
"If the past year was about measures to stimulate consumption," Mr. da Silva said in a television address at the end of December, "now our emphasis is on reinforcing investments and thereby making the wheel of the economy roll in a healthy and sustainable way."
— Mr. Prada is a staff reporter for The Wall Street Journal in São Paulo. He can be reached at paulo.prada@wsj.com .
Monday, March 29, 2010
President Lula of Brazil announces $882 billion in investments
Brazil's president Lula has announced investments of $882 billion in infrastructure and social projects from 2011 through 2014.
President Luiz Inacio Lula da Silva says the money will be spent on housing, transportation and energy projects, among others.
The investments are part of the government's Growth Acceleration Project, which was launched in 2007. It also includes money to build 2 million houses for low-income Brazilians.
The investments will be used by the next Brazilian president as Silva's second term will end this year.
Silva presidential chief of staff Dilma Rousseff said Monday the investments will produce improved "quality of life and a better future to Brazilians."
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President Luiz Inacio Lula da Silva says the money will be spent on housing, transportation and energy projects, among others.
The investments are part of the government's Growth Acceleration Project, which was launched in 2007. It also includes money to build 2 million houses for low-income Brazilians.
The investments will be used by the next Brazilian president as Silva's second term will end this year.
Silva presidential chief of staff Dilma Rousseff said Monday the investments will produce improved "quality of life and a better future to Brazilians."
Sunday, March 21, 2010
Brazil's economy adds record number of jobs in Feb
Brazil adds 209,425 payroll jobs in February
* Second straight month of gains, underscores recovery (Recasts, adds details, context)
BRASILIA, March 17 (Reuters) - Brazil's economy added jobs for the second straight month in February, creating a hefty 209,425 payroll positions as companies ramped up hiring amid a strong economic recovery, the government said on Wednesday.
The number was a record for the month of February, a holiday-shortened month because of annual Carnival festivities around that country.
In January, Latin America's largest economy added 181,419 payroll positions, also a record for that month. So far this year, 390,844 payroll jobs have been created in Brazil.
Most of Brazil's workforce is not registered with the labor ministry and belongs to a vast informal economy. The government of President Luiz Inacio Lula da Silva is seeking to increase the number of payroll jobs in the country.
The government had anticipated stronger net payroll job creation in February than in January, Labor Minister Carlos Lupi said last month. [ID:nSPG002744]
Brazil became among the first countries to come out of the global financial crisis in 2009 and is expected to grow 5.45 percent this year, according to the latest weekly central bank survey. (Reporting by Isabel Versiani; Writing by Luciana Lopez; Editing by Diane Craft)
* Second straight month of gains, underscores recovery (Recasts, adds details, context)
BRASILIA, March 17 (Reuters) - Brazil's economy added jobs for the second straight month in February, creating a hefty 209,425 payroll positions as companies ramped up hiring amid a strong economic recovery, the government said on Wednesday.
The number was a record for the month of February, a holiday-shortened month because of annual Carnival festivities around that country.
In January, Latin America's largest economy added 181,419 payroll positions, also a record for that month. So far this year, 390,844 payroll jobs have been created in Brazil.
Most of Brazil's workforce is not registered with the labor ministry and belongs to a vast informal economy. The government of President Luiz Inacio Lula da Silva is seeking to increase the number of payroll jobs in the country.
The government had anticipated stronger net payroll job creation in February than in January, Labor Minister Carlos Lupi said last month. [ID:nSPG002744]
Brazil became among the first countries to come out of the global financial crisis in 2009 and is expected to grow 5.45 percent this year, according to the latest weekly central bank survey. (Reporting by Isabel Versiani; Writing by Luciana Lopez; Editing by Diane Craft)
Tuesday, January 19, 2010
Brazil opens world's first ethanol-fired power plant
* State-run Petrobras opens first ethanol power plant
Stocks
* Petrobras, GE, hoping other governments will adopt
By Denise Luna
JUIZ DE FORA, Brazil, Jan 19 (Reuters) - Brazil on Tuesday opened the world's first ethanol-fueled power plant in an effort by the South American biofuels giant to increase the global use of ethanol and boost its clean power generation.
State-run oil giant Petrobras (PETR4.SA)(PBR.N) and General Electric Co (GE.N), which helped design the plant, are betting that increased use of ethanol generation by green-conscious countries will boost demand for the product.
Brazil, the top global ethanol exporter, is already in talks with Japan to develop biofuels power generation there.
"We have great expectations to show the viability and economy of generating electricity from ... an alternative feedstock to fossil fuels," Maria das Gracas Foster, head of Petrobras' natural gas division, said.
Petrobras with the help of GE upgraded the 87-megawatt power plant to switch between running on natural gas or ethanol instantaneously. Brazil primarily relies on hydroelectric power but needs backup thermoelectric generation during the dry season.
John Ingham, Latin America Products Director for GE, said tests showed switching the plant to ethanol reduced carbon dioxide emissions without lowering energy output.
GE has around 770 turbines like those used in the Juiz de Fora plant, including many in Japan, that could be converted to run on ethanol, he said.
"A plant like that consumes a lot of ethanol, so it has to be in a place that makes sense (such as) places that have no access to gas, like Japan, some islands, or places that depend heavily on diesel like the Amazon region," he said.
Brazil is expected to produce a record 27.8 billion liters of ethanol in the 2009/2010 season. It began its biofuels program 30 years ago and now mandates a minimum 20 percent of ethanol in gasoline.
Petrobras itself is only starting to enter the ethanol market. Brazil's ethanol production comes from sugar cane milled by companies such as Cosan (CZZ.N) or commodities giants including Cargill Inc [CARG.UL], Bunge (BG.N) and ADM Co (ADM.N).
Domestic demand for ethanol is being driven by the popularity of the flex-fuel car technology that was launched in 2003 and now makes up around 90 percent of new vehicle sales. (Writing by Brian Ellsworth; Editing by Marguerita Choy)
Stocks
* Petrobras, GE, hoping other governments will adopt
By Denise Luna
JUIZ DE FORA, Brazil, Jan 19 (Reuters) - Brazil on Tuesday opened the world's first ethanol-fueled power plant in an effort by the South American biofuels giant to increase the global use of ethanol and boost its clean power generation.
State-run oil giant Petrobras (PETR4.SA)(PBR.N) and General Electric Co (GE.N), which helped design the plant, are betting that increased use of ethanol generation by green-conscious countries will boost demand for the product.
Brazil, the top global ethanol exporter, is already in talks with Japan to develop biofuels power generation there.
"We have great expectations to show the viability and economy of generating electricity from ... an alternative feedstock to fossil fuels," Maria das Gracas Foster, head of Petrobras' natural gas division, said.
Petrobras with the help of GE upgraded the 87-megawatt power plant to switch between running on natural gas or ethanol instantaneously. Brazil primarily relies on hydroelectric power but needs backup thermoelectric generation during the dry season.
John Ingham, Latin America Products Director for GE, said tests showed switching the plant to ethanol reduced carbon dioxide emissions without lowering energy output.
GE has around 770 turbines like those used in the Juiz de Fora plant, including many in Japan, that could be converted to run on ethanol, he said.
"A plant like that consumes a lot of ethanol, so it has to be in a place that makes sense (such as) places that have no access to gas, like Japan, some islands, or places that depend heavily on diesel like the Amazon region," he said.
Brazil is expected to produce a record 27.8 billion liters of ethanol in the 2009/2010 season. It began its biofuels program 30 years ago and now mandates a minimum 20 percent of ethanol in gasoline.
Petrobras itself is only starting to enter the ethanol market. Brazil's ethanol production comes from sugar cane milled by companies such as Cosan (CZZ.N) or commodities giants including Cargill Inc [CARG.UL], Bunge (BG.N) and ADM Co (ADM.N).
Domestic demand for ethanol is being driven by the popularity of the flex-fuel car technology that was launched in 2003 and now makes up around 90 percent of new vehicle sales. (Writing by Brian Ellsworth; Editing by Marguerita Choy)
Thursday, December 10, 2009
Brazil girds for massive offshore oil extraction
State-run Petrobras is poised to become a major global player
By Juan Forero
Washington Post Foreign Service
Monday, December 7, 2009
Everything about the shipyard here is colossal -- the 4,000-man workforce, the billions sunk into it in capital costs, the half-finished 10-story-high production platforms.
But then, so is the challenge facing Brazil's state-controlled energy company, Petrobras: developing a group of newly discovered deep-sea oil fields that energy analysts say will catapult this country into the ranks of the world's petro-powers. The oil pools are 200 miles out in the Atlantic and more than four miles down, under freezing seas, rock and a heavy cap of salt.
Petrobras, which until recently was little known outside oil circles, has launched a five-year, $174 billion project to provide platforms, rigs, support vessels and drilling systems to develop tens of billions of barrels of oil. Energy officials here project that Brazil -- still an oil importer five years ago -- will in the next decade have one of the world's biggest oil reserves.
"It's going to change the role of Brazil in the geopolitics of oil," Petrobras's president, José Sergio Gabrielli, said in an interview at the company's headquarters in Rio de Janeiro. "We are going to become a much bigger producer."
Petrobras estimates that production in Brazil could reach 3.9 million barrels by 2020, up from more than 2 million a day now. Proven oil reserves would rise from 14.4 billion barrels to more than 30 billion barrels, according to government estimates, putting Brazil in the same league as such major oil exporters as Qatar, Canada, Kazakhstan and Nigeria.
The new discoveries in Brazil's offshore "pre-salt" region do not mean that the country will become a major exporter of crude, according to Gabrielli. He noted that Brazil's economy, which is the world's eighth-largest and is steadily growing, is expected to consume much of Petrobras's projected production. But, he added, as the country meets its own needs, it will also develop for export refined products such as gasoline, diesel and biofuels.
In an era of drum-tight supply, the discoveries off Brazil's coast and Petrobras's growing stature are changing the world's oil balance, because few regions outside the OPEC countries are expected to generate significant growth in crude production, said Michelle Billig Patron, senior director of political risk for the New York-based Pira Energy Group.
"There is really only Canada and Brazil when you're talking about a million barrels a day more in growth over the next 10 years," Patron said.
A firm hits it big
The engine of that growth is a multinational that, for much of its 56-year history, was little more than a trading company. It pumped a few thousand barrels a day almost as a side note to its real function, overseeing oil imports. Then in 1974 -- a time when oil shocks had alarmed Brazilian officials -- came a major discovery: the offshore Campos Basin, east of Rio.
"Petrobras, before Campos, produced 180,000 barrels a day," said João Carlos de Luca, a former Petrobras executive who is president of the Brazilian Petroleum Institute, which represents foreign oil companies here. "After Campos, it was a company that searched for self-sufficiency in production."
In its drive to produce, Petrobras became a leader in offshore production. The Rio-based company is now responsible for more than a fifth of the world's deep-sea operations, more than any other company, Gabrielli said. It operates in 26 countries and drills off the African coast and in the Gulf of Mexico.
With a market capitalization of more than $220 billion, Petrobras is one of the world's 10 biggest companies. Over the past two years, it has been the most frequently traded foreign company on the New York Stock Exchange, trade data show. Among investors bullish on Petrobras is George Soros, who last year made the oil company the largest single holding in his investment fund, according to Bloomberg.
Still, the company remains firmly under the control of the state, with President Luiz Inácio Lula da Silva calling it a national icon whose fortunes are intertwined with Brazil's.
Though private investors control nearly 60 percent of Petrobras stock, the Brazilian government has 56 percent of the voting rights. Seven of its nine directors are from the government. The board's chairwoman is Dilma Rousseff, a Lula confidant who is expected to be the ruling party's candidate in next year's presidential elections.
The Lula government is now seeking passage of a law to give Petrobras control over future projects in the newly discovered fields. Foreign companies have explored for oil in Brazil since 1997, but the proposed regulations would limit their ability to make major decisions involving the new oil pools.
Gabrielli said it is logical to make Petrobras the operator, with a mandatory 30 percent stake in each project, because Brazil took the risks to drill for oil in the pre-salt. But he noted that companies such as Exxon Mobil, Britain's BG Group, Royal Dutch Shell and Spain's Repsol are investing billions to develop their share of the new projects.
Luca, the president of the association representing foreign companies, said Petrobras may overextend itself. "We could be limiting the development," he said.
Far out and deep down
The entire pre-salt region is laced with "elephant fields," pools holding at least a billion barrels of oil each. Tupi, which in 2006 was the first field found, holds up to 8 billion barrels.
Despite the optimism that Petrobras officials display for visitors, they reel off the challenges: shifting salt, 6,500 feet of it, and working fields so far from the coast that they cannot be reached by helicopter.
Much of the new infrastructure needed to develop the pre-salt is being built here at Angra, and at other shipyards dotting the coast. On a recent day, decked out in a bright-orange jumpsuit and helmet, Roberto Moro, a mechanical engineer, strolled amid giant pontoons weighing 6,000 tons each. He explained how they would be latched together, then topped with a 14,000-ton deck the size of a football field.
The final product, a platform called P-56, will cost $1 billion, he said. And Petrobras will need a fleet of them.
"Each platform we are building here, like P-56, represents 10 percent of national oil production," Moro, 46, explained. That is the equivalent of 180,000 barrels.
Lula: Brazil to be world’s top five economy
Brazilian President Luiz Inacio Lula da Silva said on Friday that abundant natural resources might help the country become the world’s third largest economy in the near future.
The recently discovered pre-salt oil and gas reserves may help the country achieve this goal, Lula said.
“In 10 or 15 years, this country will be the third, or the fourth largest economy in the world, or the fifth if it does not have luck,” Lula said at the inauguration of a project in the southern state of Rio Grande do Sul.
The government has to improve the quality of education in the country, as well as the economic situation of the poor, with the pre-salt revenues, Lula said.
Brazil’s economic growth must be made by enhancing social equality, he said, adding that the country cannot allow the excessive concentration of wealth in the future.
Source: Xinhua
Brazilian President Luiz Inacio Lula da Silva said on Friday that abundant natural resources might help the country become the world’s third largest economy in the near future.
The recently discovered pre-salt oil and gas reserves may help the country achieve this goal, Lula said.
“In 10 or 15 years, this country will be the third, or the fourth largest economy in the world, or the fifth if it does not have luck,” Lula said at the inauguration of a project in the southern state of Rio Grande do Sul.
The government has to improve the quality of education in the country, as well as the economic situation of the poor, with the pre-salt revenues, Lula said.
Brazil’s economic growth must be made by enhancing social equality, he said, adding that the country cannot allow the excessive concentration of wealth in the future.
Source: Xinhua
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