Electricity In the Air | A Hard Charging Government Plan Takes Shape

 

“It’s reckless to say that there’ll be rationing, but it’s also reckless to say there won’t be,” –Ricardo Correa, Ativa Corretora

Source: Carta Capital.

President Dilma Rousseff has signed the law that extends the concessions of electricity generators and reduced taxes on the sector in order to offer electricity at a reduced cost to the consumer. Under Law 12,783, date January 11, 2013 and published in the Official Diary on January 14, 2013, generation concessions can be renewed one time only, for a period of 30 years, in order to ensure continuity, efficiency and lower prices.

In order to get their concessions renewed, the concession holders must meet the requirements of the federal energy regulator, ANEEL, with respect to rates and quality of service. ANEEL will also oversee the passing on to the end user of investments needed to maintain the quality of service and continuity of operation of the nation’s hydroelectric plants.

Naturally, capital market operators and the government have sparred over the risks and costs of the new regulatory regime.

As Luis Nassif accuses the mainstream media of exaggerating the risk of rationing due to an unusually dry tropical autumn, stock market analysts interviewed by two reporters from O Globo lament the effects of the new policy on the profitability and dividend payout of the affected companies — colorfully described as a «dividend blackout».

The Panic Newsroom

Andre Barrocal of CartaCapital writes:

What President Rousseff could not have imagined is that 2013 would begin with  electricity transformed into a major headache. This happened thanks to the combination of real factors — hydroelectric construction projects behind schedule and very little water in the reservoirs after a dry spell — together with an erroneous reading of the scenario by certain sectors of the mainstream media, who reported that a return to the energy rationing of 2001 was imminent.

Confident that talk of a return to rationing was «ridiculous», Dilma put together a political initiative while on vacation in Bahia — a vacation she decided to interrupt and return to Brasília to supervise directly. Energy regulators and other officials in the area were instructed to offer reassurances to the public and calm the concerns of citizens and the business community. The keystone of this initiative was a press conference held on January 9 with Mining & Energy minister Edison Lobão “There is no risk of an imminent shortfall and I expect there never will be,” he said.

Absolute confidence, however, depend on the summer rains, which were less than generous in late 2012, to the point that reservoirs … were at their lowest level since 2001. ONS, the National Electrical System Operator, which manages the flow of energy throughout Brazil from areas of oversupply to areas of shortfall, was obliged to modify its planning for this eventuality.

Nassif reprises an embarassing moment for Globo and the Folha de S. Paulo, both of which reported that an «emergency» meeting of the technical oversight committee of the E&M ministry had been called. The meeting was routine and went off as scheduled. Globo, Veja, and the FSP were obliged to issue a correction.

Nassif explains:

The electrical energy market is divided into two segments. There are long-term contracts, negotiated between major consumers — including energy distributors — and their suppliers. The other is the so-called spot market, used for short-term transactions.

Incorrect information such as was published by the FSP can cause volatility in the prices fixed by the spot market. It can also cause companies to suspend investments and activate contingency plans.

In this case, the market was not affected because big business and major investors have their own sources of information, and the Internet was effective in defeating the rumor and correctly reporting the MME’s response to reports on the supposedly «extraordinary» nature of the meeting.

As Bloomberg reported recently, this state of affairs is not exactly a zero-sum game.

A dry spell that’s emptying Brazilian hydropower dams is poised to turn Cia. Energetica de Sao Paulo, the second-worst generator stock last year, into one of the industry’s biggest winners.

Cesp, as the utility is known, and other producers that can sell extra electricity in the spot market may be able to profit after prices surged to a record, said JPMorgan Chase & Co. and Banco BTG Pactual SA. Net buyers of energy in the spot market — from billionaire Eike Batista’s MPX Energia SA (MPXE3) to steelmaker Usinas Siderurgicas de Minas Gerais SA — stand to lose the most, analysts said.

Nassif concludes:

Even so, the inaccurate report was used to support the argument that  problems with energy supply were the result of the plan to cut energy bills — a plan that has not even gone into effect yet.

The Corretores

Writing in O Globo today – «A Dividend Blackout», how clever –  João Sorima Neto &  Eliaria Andrade round up reactions from major brokerages to the impending implementation of price controls partially subsidized by tax breaks.

Analysts predict shortfall in energy sector dividends in the face of government actions and the risks of rationing.

Oliveira, of the Magliano brokerage house: The brokerage has sold off electricity companies in its portfolio.

After taking a beating in the stock market since September, when the government announced measures to reduce the cost of energy to the consumer, share prices continue to suffer well into the New Year.  In the first seven Bovespa sessions of 2013, shares in energy sector companies lost R$ 2.5 billion in market value. In 4Q2012, the same companies lost $34.8 billion in market capitalization.

In this case, the specter of energy rationing was behind the stampede.  Paradoxical is the situation of a sector that has always proven attractive to investors because of the dividends it pays.  In the current scenario, however, dividends will likely suffer, say experts in the field.  The energy investor, these experts say, will have to carefully select companies whose revenues are less affected by the policy.

—  Before 2011, the electric companies paid dividends of 10% to 12%, on average. That number now stands at 6% to 7%. And some companies may forgo paying dividends altogether  — according to William Alves, an analyst at XP Investimentos.

Dividends are the percentage of company profits distributed to shareholders.  They represent extra income not dependent on the market price of shares.

The electric companies have always paid healthy dividends because  they generated large amounts of cash and required few investments.

Required few investments of themselves, perhaps. Many have taken a beating from a newly activist crew of regulators in recent years over quality of service.

Even now, as I type this paragraph, we are under fire from torrential rains likely to have a dual effect: It will help swell reservoirs and it might well produce those marvelous serial explosion of electrical transformers to which we have become accustomed over the years.

Energy-sector companies were also considered a low-risk, defensive investment, with stable share prices even during moments of market volatility. This has changed, as we have seen in recent months.  [The sector's] stock exchange losses are approaching 50%.

The tumble occurred [in September.] when government action threatened the profitability of these companies, explains Júlio Oliveira, a partner at the Magliano Corretora brokerage house.

In order to reduce electrical bills by 20% starting in February, the federal government rescheduled the renovation of concessions expiring in 2017 or earlier, and ordered generators and transmitters to accept 70% of their current income.  With that, companies that adhere to the new plan will see profits decline.  Energy rationing could also reduce sales and impact profits, although the government denies there is any risk of rationing.

—  Bringing thermoelectric plants online [as a back-up measure]  also concerns the shareholders of the distribution companies.  The cost of production of these plants is much higher, and the sector will have higher costs until rates are readjusted, according to Pedro Galdi, a market strategist at SLW.

The entire sector has suffered in the stock market, but even so, market analysts are not recommending a massive sell-off.  They are closely studying the impact of the regulatory changes on each and every company in the sector and have reached certain conclusions. There is consensus that Eletrobras shares are not a good buy option at the moment.  Some expect that the state-owned company will pay no dividends at all.  The recommendation is for investors in Eletrobras to trade their shares in for other stocks.

— Eletrobras was the first company to adhere to the government reform.  This new reality reduces cash generation, which affects the payment of dividends, says William Alves of XP.

Julio Oliveira, of the Magliano brokerage, believe that if Eletrobras does pay dividends, these will be the minimum demanded by law: 25% of net profits.

CTEEP — the São Paulo energy transmission company —  has already paid out 100% of profits in the form of dividends, but it is highly unlikely to do so again, says Beatriz Nantes, an energy specialist at Empiricus Reserach/Investmania.

According to Nantes, CTEEP’s acceptance of the government plan will affect its earnings. Nantes also does not believe that Eletropaulo will offer satisfying dividends.  CTEEP, though not so heavily affected by the government plan, recently concluded its third cycle of rate readjustments, in which the company’s prices are reevaluated.  The price was cut by 9%, on average.

—  Eletropaulo is no longer a reliable payer of dividends, — Nantes says.

Among those energy-sector stock that may still pay attractive dividends are Tractebel, TAESA and AES Tietê, the analyst says. Nantes believes that these companies were not heavily affected by the government-mandated changes.

The XP brokerage house is recommending Taesa and Tractebel.

Tractebel carries very little debt, which enables it to generate more cash.  The concessions held by Taesa, meanwhile, expire in 2030, which reduces the company’s regulatory risk exposure, says Alves.

Magliano Corretora has removed all energy-sector stocks from its portfolio of recommended investments.

— You should not sit on these stocks for four or five years, especially in view of these changes in the industry.  We have a portfolio of dividend-paying shares that, while not as generous as electricity dividends once were, still present a favorable opportunity cost.

Among these are Ambev, Souza Cruz, Sabesp and Vale. Souza Cruz, for example, will pay 100% of its profits as dividends. This is one option to consider while the profitability of the electric sector remains unclear,  Oliveira says.

Beer, cigarettes, sanitation and nickels. Who can live without them?

Start-Up Brasil | Acorns to Oaks

«… solving the problems of an industry or a corporation is not a sexy way to make a living»

Source: Folha de S. Paulo | Brasilianas.Org
By: Reinaldo Chaves
Translation: C. Brayton

The Start-Up Brasil program, launched by the Ministry of Science, Technology and Innovation in November of last year, is an attempt to replicate international success stories in support for start-ups — fledgling companies in the IT sector — based on a joint effort by government and the private sector.

Chile founded a similar program two years ago and has already attended 397 companies and 888 entrepreneurs. The annual budget of Start-Up Chile is US$ 14 million. Israel has invested heavily in start-ups since the 1990s, mostly in the areas of military, energy and aerospace technologies. The University of Jerusalem receives annual funding of more than US$ 1 billion.

The Brazilian program calls for investing R$ 40 million in three years in at least 150 companies. At the outset, six accelerators will be selected to service the selected start-ups.

The accelerators will create incubators and provide research and consulting — see the «Mission Statement», below.

Elite Squad II | Reviewing the Review

I read it on the Web site of the Instituto Ludwig von Mises Brasil.

Cristiano Fiori Chiocca reviews the film Tropa de Elite II — Elite Squad II: The Enemy Within, directed by José Padilha.

As I may have mentioned, a recent regulatory clampdown on audiovisual content producers and distributors here in Brazil means that foreign-owned cable TV operations — Sony, Disney, Universal, Fox, A&E, TNT, Telecine, AXN, MGM, HBO, MAX, NatGeo, Discovery, History Channel … must air a certain proportion of content «made in Brazil».

I always think what a shame it is to see Brazilian theatrical talent relegated to the quick as a wink dubbing credits at the end of every Simpsons episode — and how it grates on your nerves that the dubbers chose to make Bart a baritone.

It is equally disappointing to see that the available back catalogue of the Brazilian film industry seems so shallow, though we hope that programmers will start digging deeper, striking it rich with such classics as Assalto ao Trêm-Pagador.

At any rate,, as our cable plan complies with regulation, we are starting to see the same movies over and over and over  and over, day after day after day — case in point: Elite Squad and Elite Squad II: The Enemy Within, two films about official corruption and the culture of violence in Rio de Janeiro.

This sort of regulatory activism  is just the sort of thing that drives the libertarians of the Instituto Millenium crazy.

Closely associated with ABERT, the Association of Radio and Television Broadcasters, on the one hand, and neoconservative and neoliberal movements in Germany and the U.S. — its game plan comes straight from the Atlas Toolkit — IMIL is mostly a forum for venomous libertarian rantings of the third degree.

«A New Regulatory Framework for Mining and Minerals: Why?»

… the existence of regulatory agencies in the Brazilian  administrative structure is itself a very controversial issue. After more than 10 years of  institutional experience, the regulatory system has changed and improved but it is still a  very complex problem to balance autonomy and political control. –Rodrigo Abijaodi Lopes de Vasconcellos

Source: Le Monde Diplomatique |  Brasilianas

I think it is fair to say that the current Brazilian federal government, more so than even its predecessor, the Lula regime, is engaged in a systematic overhaul of regulatory agencies intended to cut red tape while at the same time increasing enforcement powers.

Recent newsflow along these lines includes the electricity sector — ANEEL — the telecoms sector — ANATEL — and the petroleum sector — ANP.

I have been too lazy to do the math, but I have the impression that it would show more federal agencies using expanded and expedited powers to levy more sanctions.

The present article is from the lefty Diplo in Portuguese, but is worth a read nevertheless.

by Julianna Malerba and Bruno Milanez
Partial translation: C. Brayton

In the process of  creating new mechanisms to ensure the growth rate of mineral exploration, the federal government, citing the generation of revenues that can be used to reduce poverty and social inequality, is in fact fomenting a policy of expropriation against the interests of social movements in mining territories, a policy that is often authoritarian and violent  .

In 2000, the northern state of Pará was producing some R$ 4 billion in minerals. By December  2011, this figure had grown to R$ 25 billion. In the last decade, countless areas of mineral extraction sprang up in Amazônia. In  Carajás, the growth in iron and manganese was accompanied by the opening of new copper and nickel mines. This permitted Vale, which produced not a single gram of copper in 2000, to triple national production of the mineral. In Juruti, Alcoa began mining bauxite, the raw material of aluminum, contributing to production already underway at its mines in Paragominas and Oriximiná.

This boom in mineral extraction is directly connected to the promotion of extractive industries, which are highly energy-intensive. Albrás, for example, which recently expanded the installed capacity of its plant in Barcarena, consumes the same quantity of electrical energy as the cities of  Belém and Manaus combined, and  1.5% of electricity consumption in  Brasil as a whole.

Brazilian Electricity Wars | The R$ 5 Billion Feud

Surprisingly informative:

• Electricity sector in Brazil | Wikipedia

The history lesson is especially useful, as are the league tables – which may need touching up, however. The Brazilian government has set up a useful informational page on the New Model for the Electricity Sector, passed in 2004. Three of the largest state-owned — as opposed to federally-owned — generation groups are refusing to play ball.

IstoÉ Dinheiro magazine leads with a mocking headline:

Honey, I Shrank CESP

São Paulo electricity concessionaire will lose nearly 80% of its revenues by 2015. Learn how other companies who refused the federal plan to reduce electricity bills are faring.

After a period of intense political gamesmanship, scores of Excel spreadsheets and a sharp decline in their share prices — an estimated R$19.2 billion — Cesp, Cemig e Copel decided last week not to accept the federal goverment’s new rules for the electricity sector.

The three companies represent 60% of the generation capacity in play as part of Dilma Rousseff’s plan to reduce energy prices by 20% in 2013.

The most emblematic of these is Cesp, whose directors are overseen by governor Geraldo Alckmin of the opposition PSDB. In saying no to the proposal, the state-owned CESP will lose 77.8% of its revenues starting in 2015. Based on data from 2011, this implies a loss of R$ 2.3 billion in cash reserves, currently at R$ 3 billion.

[Caption] Alckmin: Govenor prefers to reduce the size of CESP rather than reduce the lighting bill of São Paulo residents.

“CESP will become a minor company,” says Ricardo Corrêa of the Ativa Corretora brokerage firm.

In Minas Gerais and Paranhá, respectively, Cemig and Copel have renewed their transmission concessions but plan to give up a number of generation plants, and so will suffer the same effects in 2015.

The three companies have three PSDB state governments as majority shareholders: the Alckmin government, in São Paulo, along with Antonio Anastasia in Minas Gerais and Beto Richa in Paraná. In turning down the concession renewals, these state-owned firms may make it impossible for Dilma Rousseff to keep her promise to reduce the average energy bill by 20,2% starting in March 2013.

Leaving out Cesp, Cemig and Copel, the guaranteed savings would be just 16.2%, according to data from the ministry of mines and energy.

We will take it, for now, and thank you very much.

The president, however, seems firm in her desire to provide cheaper electricity. “Reducing the price of energy is a decision from which the government will not back down, although it laments the lack of sensitivity on the part of those who fail to recognize the importance of this step for the sustainable growth of our economy,”Dilma told a group of business executives in Brasilia on Wednesday.

To realize its target, the government has a tax gambit up its sleeve, market analysts say.

“All it takes is a reduction of the PIS/Cofins tax on the energy bill,” says Nivalde de Castro, coordinator of the energy studies group at UFRJ.

Amid an exchange of accusations with the federal government, São Paulo says that the CESP decision was entirely technical.

Proof of this, according to state energy secretary José Aníbal, is that another of São Paulo’s state-owned firms, EMAE, accepted the federal government’s conditions and signed the contract. In the case of Cesp, the difference between the indemnity for unamortized investments offered by the feds and the sum judged correct by the state is R$ 5.4 billion.

Márcio Zimmermann, federal executive secretary for mines and energy, says: “We cannot understand the logic that led this company not to renew its concessions.” But CESP accepted lower energy prices, according to Anibal, it would have difficulty honoring existing energy contracts, worth R$130 Mw/h on average. “They suggested we buy this energy on the free market, but the price there is R$ 200 Mw/h,” Anibal said. “I challenge the federal government to show us their calculation. The situation of Cemig and Copel and very different from that of CESP. On Wednesday, Djalma de Morais, CEO of Cemig, took part in an analyst conference call and said that eventual losses, and especially those in the area of transmission, will be compensated with internal adjustments.

“Our plan provides for a 20% reduction of operating expenses in this segment, as a method of controlling costs,” Morais said. The CESP executive announced that the company will maintain its investment plan and, if necessary, will go to court to guarantee the right to renew concessions under the old rules, which apply to 3 of its 21 generation plants.

In the Senate, Aécio Neves (PSDB-MG) gave a speech in which he accused the presidency of “committing a foolish act in tryiing to reduce the price at the cost of bankrupting the sector.”

Currently, generation is responsible for 40% of Cemig revenues. Transmission accounts for another 20%. The rest is accounted for under “other businesses,” which include supplying natural gas to residences and industry.

“In the future, gas may also be used to generate electricity,” says Luiz Fernando Rolla, Cemig COO, who does not rule out the acquisition or construction of new plants.

Copel is already traveling down that path. By year’s end, the Mauá and Cavernoso 2 generating plants, with joint capacity of 380 MW, will begin operations. That is more than the 272 MW in capacity that Copel did not renew. Like Cemig, Copel adhered to the federal program only with respect to its transmission assets. In this case, the company took a hard blow. “Our revenues in this area are down 58%,” the company said in a note to investors.

Though they did not release their spreadsheets, Mines and Energy and ANEEL affirmed that the sums offered are more than sufficient to guarantee the profitability of the generation sector. “We do not understand the logic behind the refusal of these companies to renegotiate and renew,” said Márcio Zimmermann

Eletrobras, controlled by the federal government, adhered in full to the new rules, reasoning that a state-owned firm must take into account not only its balance sheet but is social role as well. Eletrobras intends to compensate for reduced income with cost-control measures.

“We will review our expenses and investments in the short, middle and long term,” said José da Costa, CEO Eletrobras. Investors did not like this news and Eletrobras shares plummeted 50%, costing it R$ 11.6 billion in market cap. Cesp, meanwhile, by not renewing its concessions, has laid to rest a persistent dream of the PSDB: to privatize the company.

“Not viable,” said Aníbal. “Who would want to buy a company with two concessions expiring in the next two and a half years?” The only other asset in the company’s portfolio is a large hydroelectric plant in Porto Primavera, whose concession expires in 2028. If it wants to rebuild its profile, CESP will have to compete in future auctions, a possibility no discarded by the S. Paulo state government.

7D | A Mexican Standoff?

On 7D, nothing will happen

Argentine media group Clarín announces a stay of execution.

It says it will not be required to comply with the 2009 Ley dos Medios until all appeals have been exhausted.

As soon as [the court] extended the stay in the case challenging the constitutionality of certain provisions of the media law, Clarín issued the following statement:

The Grupo Clarín has just been informed that the injunction has been extended until a definitive ruling on the constitutionality of provisions of the Media Law  has been arrived at.

As it has throughout the process,  Grupo Clarín will follow the law, respecting the Constitution, the law, and the findings of the courts.

Eric Nepomuceno of Brazil’s Observatório da Imprensa summarizes the case, below.

As it happens, and contrary to the image of a deeply polarized debate, there is internal disagreement among shareholders in the Clarín group over compliance — I will translate that, too. But first,

The Electricity Bill | Shock Therapy

t

Addendum, December 6, 2012: a nice infographic listing the players in the electricity setor and their adherence to the federal rate-setting plan:

It is always gratifying when a genuine expert reaches much the same conclusion as your own murky thought processes. See, for example,

• Electricity in the Concessionaire | The New Price of Voltage

Regarding the confused and heated debate recently over the renegotiation of electrical concessions in Brazil, I had also guessed that the following might be true:

Many banks are issuing sell recommendations to investors and buying for their own account.

Press coverage of PL 579 — a executive order that calls for the state and energy providers to renegotiate concession contracts in the electrical sector after a number of years divided into “captive” and “free market” energy trading sectors — may well be a perfect case of «moral panic», as defined by students of rhetoric, public relations and propaganda.

In the world of fact, negotiations continue between governor and the electrical sector, with Dilma showing signs of reformulating how to calculate the sums needed to repay the electricity companies for changes they are being asked to make in the name of long-term sector strategy.

Assis Ribeiro files this analysis — by Najar Tubino – on the blog of Luis Nassif.

A massacre, an earthquake, devastation, a climate of fear and tension, an imminent explosion, a minedield, an orphaned capital market, a situation verging on mass bankrupcy. These are some of the expressions used during November to define PL 579, which deals with the renovation of concessions with electrical utilities and the lowering of energy bills for residential, commercial and industrial consumers.

The story is by Najar Tubino.

In the face of such descriptions, I decided to tone down the rhetoric, even though these were the labels being used by the daily Valor, a business-oriented joint-venture of the Organizações Globo and the Folha de São Paulo. One might correctly call Valor an arm of the two publishing giants, given that it sells hundreds of pages of ads at a minimum price of  R$130,000  – just as it publishes the quarterly reports of Brazil’s major corporations and prints the opinions and analysis of leading figures in the economy, and especially the capital markets.

The soap opera always works out the same. An “anti-market” government policy is targeted, such as the recent reduction in interest rates, which took analysts by surprise. Next comes an avalanche of articles, analysis and expert prognostication —  usually from economists employed by brokers or consultancies.

Valor is a newspaper I read regularly,, with close attention, and I have read its attempt to undermine MP 579 with the same attention.

Me, too.

But to the facts. For two years the national electricity regulator ANEEL has been discussing with industry “players” as they call themselves, certain changes in the definition of energy costs. Each year, ANEEL publishes the figures on depreciation of assets, as it is known in the industry, which are assigned to the concessionaires under the terms of contracts signed decades ago — 30 years on average. Some of these will expire in 2015 and 2017. This includes generators of all types: hydro, thermal or wind power. It also includes transmitters who maintain the lines — all 98,000 km of them — substations and regional distributors that bring light and power to many different customers: residential, industrial and commercial.

Scheduled for renewal are 58 generators, with combined capacity of 21,500 MW – 20% of the market — as well as 73,000  km of transmission lines, some 83% of the basic network of the National Integrated Sysytem and 30% of the distributors market, comprising contracts with 41 companies. The renewal deadline for those accepting the government’s  terms is December 4.

Of this total , 67% of generation is managed by Eletrobras — 62% of transmission and 25% of distribution. Electrobras is a public-private partnership, a «mixed economy» company, with shares traded in São Paulo, N. York and Madrid. It accounts for 60% of the generation market and 40% of transmission. In other words. it dominates the market., The federal government holds 58% of the shares, including a portion owned by BNDES, but JP Morgan has some 8% of the voting shares.

Panic Attack

The Norwegian fund  Skagen is also a participant, with 1% of the ON and 17.5% of the PN of Eletrobras, and says it has as R$3 bi invested in Brazil.

The PR department of this firm has produced a most hystericial demonstration of European power over us poor Tupi indians, mired as we are in the emerging world.

“We have the financial means to take this case to court. Brazil is turning into another Argentina, and the market has taken note. The government is looking to nationalize the sector.”

Aside

If I remember correctly, many of these PPPs are structured so that private investors maintain the right to name a board and vote their 49% of the shares. Chesf is one such company, I think.

State-run board members can take back the power with a plain old share repurchase, if the government wants it, too..

Since 2003, the sector has been overseen by the ONS — National System Operator — which

 is responsible for the long-term planning of the electrical sector and adminsters the EPE — Energy Research Corporation — to that end. It also organizes the  CMSE,  which monitors security of the energy supply, and MAE — the wholesale energy market —  which deals with transactions realized in the MAE and involving electricity sold through the Sistema Interligado and registered by the CEEE, the electrical energy clearinghouse.

I had a cheat sheeet here somewhere on this topic, let me look.

At he beginning of the year, the Skagen fund was worth R$1.3 billion and in November stood at R$730 million.

Also under the heading “hysteria” we might include a known Brazilian columnist who wrote:

– Eletrobras has lost 70% of its market value and runs a serious  risk of default.

The columnist ignores the fact that Eletrobras assets include 30 hyrdoelectric plants, 15 thermal, two nuclear plants, 190 substations and nearly 60,000 km of transmission lines.

It also owns half of Itaipu – a hydro operation of some 7,000 MW – as well as an equal share in others: Chesf, Eletronorte, Eletrosul, Companhia de Geração Térmica de Energia (CGTEE) and seven other distributors. The latter are considered “subprime” because they operate at a loss — they include companies in  Alagoas, Piauí, Amazonas, Acre, Rondônia and Roraima. Eletrobras is preparing to acquire 50% of the distributor in Goiás.

A portfolio of assets such as these can only disappear from market calculations because investment banking analysts calculate that share prices no longer correspond to market value.

It is here that the topic “the massacre of the electric companies” emerges, one of dozens that Valor has written on the subject. First of all, the shares of these companies are considered “defensive” — they are not expensive, and show no price volatiity, but continue to yield generous dividends at year’s end.

By law, companies listed on the Bovespa must distribute 25% of prophets to shareholders. The electrics, however, distribute more than 90% — as is the case with Eletropaulo.

So who are the experts selected to be interviewed? Representatives of U.S. or U.K. banks, known for their role in the 2008 crisis… repackaging fixed income assets and selling them to funds all over the world, at a handsome profit.

Such is the case with Goldman Sachs, JP Morgan, and Barclays. At the latter, the standard spokesperson has set the target price for Eletrobras at R$1 per share. Itaú was more generous: R$8 per share. In late April, common shares were at  R$9.69. The company had “lost” more than half its market value: from R$26 bi to R$11,6 bi.

But let us also listen to investor Luiz Barsi Filho, 73, a highly sought after commentator who lives off his dividends.

“A country cannot fail to invest in energy if it sincerely intends to encourage development;. The controversies have not been resolved, but the utilities will be the ones to suffer from the impasse. This might, however, represent a golden investment opportunity. Personally, I am long on electrical energy.”

Barsi is not alone. Many banks are issuing sell recommendations to investors and buying for their own account. But his approach is outmoded as well. I decided to check some of the analyses by these same analysts in 2010 and 2011. I found the same information in the business weeklies. One of them, Exame (Grupo Abril), listed 12 companies that paid the best dividends according to a survey by Economática — a research company headed by a former Banco Central president.

M&A, Gringo to Gringo?

Meanwhile, Relatório Reservado — a daily market rumor  newsletter — narrates the troubles reportedly encountered by two foreign players in the changing domestic landscape. I translate a selection:

There is a frenzied climate inside the Brazilian offices of  GDF Suez and Duke Energy. The government’s proposal to reduce energy prices has scribbled a question mark over what should have been one of the biggest M&A deals in the sector in years.

Some four months ago, GDF Suez was negotiating the acquisition of Duke Energy’s Geração Paranapanema. According to a source close to the U.S. group, the money on the table is around R$6 billion.  Duke controls practically  all the stock in Paranapanema — only 5.72% are publicly traded.

This newsletter discovered that the two parties intended to seal the deal sometime in 2012 — due diligence is said to have been complete last month. Now, however, with the government’s decision, the deal looks hazy. The facts have changed and so has the timing of GDF Suez …

«Dilma, Boycott SIPIAPA!»

It was a remarkble gesture: Rafael Correa of Ecuador announces that his ministers will no longer sit for interviews with “indecent” and “manipulative” national news organizations.

Is this not the moral equivalent of Bush calling on right-wing blogging softball pitchers to the exclusion of the establishment press corps? You tell me.

For a mild-mannered economist with a decree from Champaign-Urbana and a history of social work among the indians of Ecuador, Correa has deftly amassed political capital out of gloves-off confrontations with the native nabobs of nattering negativism in newsprint.

As brutally confrontational as this behavior seems, there are extenuating circumstances: Ecuadoran journalism, and especially TV journalism, has to be seen to be disbelieved.

In Brazil, similar  tensions are not unheard of — recall the diplomatic incident involving New York Times reporter Larry Rohter in 2005 or so, when a photo of Larry with one of those cultural attachés to Paraguay, you know the type, were in circulation — but the war between press and the powers that be has tended to be cool, rather than hot — think of McLuhan’s definitions of those adjectives.

A relatively small but vocal movement of Brazilian bloggers seed mistrust of the mainstream media by calling it the «PIG — «the party of the coup-plotting press». Yes, it is the fallacy of labeling — one of the crudest there is. But it works.

The relative truce between federal government and media has begun to fray at the edges, however..

Brazilian president Dilma Rousseff recently excused herself from  an event held by the publisher of Veja magazine after the magazine ran a spurious scandal-mongering piece about the president’s political party.

No less upsetting to the PT govenment were revelations that a Veja editor had agreed to run slanderous hit pieces against political and business enemies of Charley Waterfall, the numbers racketeer. It has been reported — I can’t confirm — that members of a congressional panel on the case were threatened with Veja hit jobs all their own if the editor was subpoeanaed.

In any case, Dilma’s gesture was widely interpreted as a deliberate snub. The seriousness of the incident will depend on the Abril group’s finances and rumored ongoing search for an equity partner, which would require an amendment to the law setting limits on media ownership by foreign investors.

Worse, the Brazilian Minister of the Treasury walked out on a panel discussion held by Veja sister publication Exame — a reasonably reputable and responsible busines publication, it should be said. When I read it, I actually learn stuff.

Now,communist journalist Altamiro Borges urges Brazilian president Dilma Rousseff to turn down an invitation to the annual conference of the Inter American Press Association (SIP-IAPA). Why?

The Inter American Press Association has been criticized by many Latin American journalist trade unions, who claim that it only represents the owners of the large media corporations, that it does not seem to defend journalists themselves, and that it is closely related to right-wing parties.– Wikipedia

Claims that the organization was mounted as a CIA front by a former military intelligence officer in the 1970s are still googleable:

• The Spies Who Came In From the Newsroom (Penthouse, 1977 | PDF)

The moral equivalent to a founding father of the association, Jules Dubois, combined military infowar and free press reporting in intricate ways.

Dubois worked for the New York Herald Tribune (1927–1929), before moving to Panama and working on various newspapers there. At the outbreak of World War II he became an army intelligence officer, serving in Panama, North Africa and Europe as well as the Pentagon. He was a graduate of the U.S. Army’s command and general staff school at Fort Leavenworth. TIME described him as “an old friend” of Guatemalan President Carlos Castillo Armas, Armas having “studied under Colonel-Instructor Dubois during World War II in the U.S. Army’s command and general staff school at Fort Leavenworth.”

Dubois was present during the 1954 Guatemalan coup d’état which brought Castillo Armas to power. His obituary declared that “he knew every president, every chief of staff, every dictator, and most of the would-be dictators in Latin America,” and “could get more information on a telephone in a hotel room in one afternoon than most correspondents could get in months of travel.”

Among the presidents of the SIPIAPA since its founding was Julio Mesquita of the Estado de S. Paulo Mesquitas (1974-1975).

Borges continues:

SIPIAPA was founded in 1943 in Havana during the dictatorship of Fulgencio Batista. In the beginning, as part of the alliance against Nazism and fascism, the association included some progressive news organizations. But not for long. With the rise of McCarthyism in the U.S., the group was taken over by the CIA. In 1950, during its Quito summit, two agency assets, Joshua Powers and Jules Dubois, were chosen to run the association. Dubois would head SIPIAPA for 15 years, and the headquarters of the group in Miami bears his name.

Destabilizing Progressive Governments.

During this period, a SIP became an instrument of the CIA in the destabilization of progressive governments in Latin America. To this end, the group’s charter was watered down to ensure that U.S. publications would be in the majority. The headquarters was moved to Miami and critical voices were cast out.

“Summing up, they destroyed SIPIAPA as an independent body, transforming it into a political apparatus at the beck and call of U.S. foreign policy,” Yaifred says.

The Spanish text of Yaifred’s article here (PDF).

In the 1950s, SIPIAP opposed the nationalist government of Juan Peron and praised Nicaraguan dictator Anastácio Somoza as a “guardian angel of freedom of thought.”

In the 1960s, it targeted the Cuban revolution; in the 1970s, it bombarded the Allende government, preparing the way for the Chilean coup.

“The ties of major media owners with dictatorial regimes in the region have been documented and cited often enough to conclude that SIPIAPA is concerned, not with press freddom, but with preserving the interests of businesses and oligarchies.

Against Regulation of the Media

Most recently, SIPIAPA played a part in the media-fueled Venezuelan coup of April 2002, giving weight to lies about the elected government of Chavez. Chavez would not back down, and now treats members of the group as personae non gratae. SIPIAPA mounted similar attacks on the governments of Evo Morales, Rafael Correa and Cristina Kirchner. Currently, the organization’s greatest fear stems from legislative changes that aim at a democratization of Latin American media markets.

Any initiative that sets out to diminish the power of the monopolies is called “an assault on freedom of expression.” As Yaifred points out, a major undertaking by SIPIAPA at the moment is to “put the brakes on government action in favor of media democratization.”

R7 To Translate New York Times Content

The Record network of Brazil — a heavily bankrolled wannabe rival to the dominant Globo media empire — announces the signing of a content sharing agreement with the New York Times.

Source: R7.

In 2008, the metrosexual Folha de S. Paulo — its content is used to stock the UOL portal as Record and Globo do the R7 and G1 portals — entered into a similar, and not uncontroversial, agreement with the Gray Lady.

Folha ombudsman Suzana Singer — the admirable Suzana Singer — commented in June on the «imported from the Times» paywall model.

The Carta Capital newsweekly has a similar arrangement with The Economist, despite some divergences in policy viewpoints.

Does this mean that Times correspondent Simon Romero will be reduced to translating the reporting of the Folha‘s Lilian Christofoletti?

Note to self, gin up a matrix of content partnerships of this kind.

The Grupo Abril — which began life as a local franchise of Disney cartoons — has long developed Brazilian franchises of U.S. magazine titles, everything from Playboy to  National Geographic. Big publishing has resisted protectionist efforts designed to stimulate media and entertainment production at home.

In any event,

The R7 news portal has signed a content partnership with  The New York Times. Internauts will find articles from the North American daily on the R7 Web site.

«Internaut» is a word that deserves to be absorbed into English.

Voz do Brasil | «Authoritarian Hangover»?

Comunique-se reports

One of Brazil’s oldest radio programs, «A Voz do Brasil», is an authoritarian hangover, and commercial radio stations should not be required to air its content.

Broadcasters are also chronically unhappy with the law requiring them to make way for unpaid election campaigning during this year’s election cycle — a step in the direction of election reform, although not a terribly effective one so long as the more fundamental reform of campaign is not enacted and empowered.

This proposition was the subject of heated debate at an August 23 event at the ESPM — Escola Superior de Propaganda e Marketing — among the directors of radio stations Bandeirantes, Estadão/ESPN and Jovem Pan.

Rodrigo Neves, Acácio Costa and Paulo Machado de Carvalho Neto, respectively, argued that requiring stations to air this content interferes with the services the stations provide.

A «heated debate» in which all participants agree on the fundamental question?